Europe Is Now Seriously Rethinking Its Oil Refinery Phase Down

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.

Over the past couple of decades, Europe has pursued some of the world’s most ambitious clean energy policies, aiming to become the first climate-neutral continent by 2050. Hardly surprisingly, Europe is now further along the clean energy transition compared to its western peers, with renewables accounting for roughly half of the continent’s power mix compared to about 26% by the U.S. However, Europe is now being forced to reckon with its decision to ditch some of its fossil fuel assets as yet another global energy crisis unfolds just years after the 2022 energy crisis. Over the past 20 years, Europe has aggressively phased down its oil refineries, shutting down about a quarter of its plants and reducing processing capacity by roughly 10%, with EU policymakers anticipating that the green transition would steadily shrink domestic demand for gasoline and diesel. A lot of the attrition was driven by onerous environmental rules and harsh penalties for non-compliance. To wit, under the EU Emissions Trading System (ETS), refineries face a declining cap on carbon emissions and receive fewer free pollution allowances over time, sharply increasing the cost of operating their facilities, while stricter environmental rules and pollution limits under the Industrial Emissions Directive (IED) mandate expensive retrofits and continuous compliance costs for heavy polluters, negatively impacting oil refining margins.

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