Petroleum product refining: plant level analysis of costs and competitiveness. Implications of greenhouse gas emission reductions. Vol 1

Implications on the Canadian refining industry of reducing greenhouse gas (GHG) emissions to meet Canada's Kyoto commitment are assessed, based on a plant-level analysis of costs, benefits and economic and competitive impacts. It was determined on the basis of demand estimates prepared by Natural Resources Canada that refining industry carbon dioxide emissions could be as much a 38 per cent higher than 1990 levels in 2010. Achieving a six per cent reduction below 1990 levels from this business-as-usual case is considered a very difficult target to achieve, unless refinery shutdowns occur. This would require higher imports to meet Canada's petroleum products demand, leaving total carbon dioxide emissions virtually unchanged. A range of options, classified as (1) low capital, operating efficiency projects, (2) medium capital, process/utility optimization projects, (3) high capital, refinery specific projects, and (4) high operating cost GHG projects, were evaluated. Of these four alternatives, the low capital or operating efficiency projects were the only ones judged to have the potential to be economically viable. Energy efficiency projects in these four groups were evaluated under several policy initiatives including accelerated depreciation and a $200 per tonne of carbon tax. Result showed that an accelerated depreciation policy would lower the hurdle rate for refinery investments, and could achieve a four per cent reduction in GHG emissions below 1990 levels, assuming no further shutdown of refinery capacity. The carbon tax was judged to be potentially damaging to the Canadian refinery industry since it would penalize cracking refineries (most Canadian refineries are of this type); it would provide further uncertainty and risk, such that industry might not be able to justify investments to reduce emissions. The overall assessment is that the Canadian refinery industry could not meet the pro-rata Kyoto GHG reduction target through implementation of economically attractive energy efficiency projects, and the Kyoto environment is likely to result in plant shutdowns. Exporting emissions to developing countries and relying more on imported products appear to be the most likely consequences of implementing the Kyoto commitments (i.e. six per cent below 1990 levels of GHG emissions). 39 tabs., 52 figs