Jeroen van der Veer, the chief executive of Royal Dutch Shell, has given warning that a proposed European Union scheme to force companies to pay for carbon emissions permits previously handed out free threatens to destroy Europe’s petrochemicals and refining industry.

Mr van der Veer told The Times that the EU needed to be careful not to trigger an exodus of European jobs and investment offshore with no net reduction in global emissions.

Speaking in The Hague, he said that the proposals would undermine the competitiveness of a struggling industry and have a cascading impact on Europe’s wider economy because of the close links between the region’s oil, chemicals and plastics industries, which collectively support nearly two million jobs.

He said: “In the past 20 years the refining industry in Europe has been very difficult . . . But if we have additional penalties because we move away from a system of free allocations to a large extent, then in such a marginal industry that is a real problem.”

In January the European Commission announced measures designed to cut EU emissions of CO2 by 20 per cent of 1990 levels by 2020. One of the cornerstones was a reform of the emissions trading scheme (ETS), which allocates a free, fixed quota of emissions permits to heavy industry.

The Commission has proposed that from 2013 oil refineries and airlines, and possibly other sectors, will have to pay for 20 per cent of their emissions permits, rising to 100 per cent by 2020. It hopes to formalise the plan by the end of the year.

“We don’t want to threaten draconian measures,” Mr van der Veer said. “We prefer to make the case in a positive way. But it’s a hell of a lot of employment.”

His comments were rejected by Peter Madden, chief executive of Forum for the Future, the sustainable development charity, who said: “The EU emissions trading scheme is the most important initiative we currently have in the world to tackle climate change. Our major companies need to be getting behind it and investing in a low-carbon future and not trying to undermine positive action.”

Mr van der Veer said that a level playing field for industry was critical if the ETS were to succeed in cutting emissions. He said: “If the regional block is big enough, then that is OK. But it gets very difficult for energy-intensive industries. What will happen if you have to buy auction rights inside EU but not outside?”

He claimed that Europe’s oil-refining industry, which employs about 100,000 people directly and represents 18 per cent of global refining capacity, should be rewarded, not punished, for the progress that it has made to enhance energy efficiency.

“In Europe our industry is already quite efficient,” Mr van der Veer said, “and if [it] is more energy-efficient than elsewhere, then you should not drive that industry away. Maybe we need to benchmark EU industry with the outside world. If it is energy-efficient, you should get a lot of free allocations . . . You have to start with lots of free allocations to get the system to work. Then, over time, you can tighten the measures.” He indicated that the global nature of the oil and chemicals industries would force them towards lower-cost regions. Shell has sold three of its refineries in France because of concerns over profitability.

“The industries are very international,” he said. “A lot of our refining is Middle Eastern oil, a lot of which is then exported to the US.”

Europe’s petrochemicals industry has an annual turnover of €74 billion (£59 billion), according to the European producers’ association.

Turning off the taps across Europe

Refining industry

€74bn Annual turnover of Europe’s petrochemicals industry
105 Number of oil refineries in the EU
18% Proportion of global production
725m Tonnes of petroleum products refined annually

The carbon scheme

— The EU Emission Trading Scheme is the world’s only compulsory carbon trading programe
— Phase I commenced operation in January 2005
— A healthy London-centred market in carbon credit trading established
— New EU proposals will compel polluters to buy credits currently available under quotas

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