Europe Is Now Seriously Rethinking Its Oil Refinery Phase Down

Over the past two decades, Europe has been at the forefront of ambitious clean energy policies, striving to become the world's first climate-neutral continent by 2050. Currently, Europe is more advanced in the clean energy transition compared to western nations, with renewables making up around half of the continent's power mix, compared to the U.S.'s 26% share.

However, the recent global energy crisis, just years after the 2022 energy crisis, has now forced Europe to reconsider its decision to dismantle some of its fossil fuel assets.

Europe has been aggressively phasing down its oil refineries over the past 20 years, closing about a quarter of its plants and reducing processing capacity by roughly 10%. This attrition can be attributed to stringent environmental rules and penalties for non-compliance under the EU Emissions Trading System (ETS) and the Industrial Emissions Directive (IED). These rules have increased the cost of operating refineries and imposed expensive retrofits and compliance costs on heavy polluters, negatively impacting margins.

This has led the continent to rely more heavily on imported refined products, making it vulnerable to geopolitical risks. The Iran and Ukraine wars have caused oil and gas prices to soar, with EU Energy Commissioner Dan Jrgensen describing the geopolitical instability and persistent diesel shortage as a 'wake-up call' for the bloc. The energy shock has increased the EU's import bills by over $111 billion, exposing the risks of dismantling domestic fossil-fuel infrastructure before clean alternatives were ready.

Central European nations like Poland, Czechia, and Slovakia have been urging the European Commission to develop a long-term strategy to protect Europe's oil refineries. They have called for refineries to be shielded from carbon leakage and granted access to EU funds for upgrades, arguing that strict climate rules could leave the EU overly dependent on foreign fuel imports.

The European Commission is now attempting to reevaluate its approach to the domestic oil-refining industry, launching the first High-Level Dialogue with the sector. Co-chaired by Energy Commissioner Dan Jrgensen and Defense Commissioner Andrius Kubilius, the forum examined energy security, industrial competitiveness, and defense readiness amidst geopolitical disruptions.