A fuel levy of 30 c/l implemented over a seven-year period will be able to recover the costs required to upgrade South Africa’s refinery fleet to produce cleaner fuels by 2017, says South Africa Petroleum Industry Association (Sapia) environmental adviser Anton Molden.

He says the upgrade costs are expected to reach $3,7-billion in 1990 rand terms, adding that there is “little economic justification for the fuel industry to invest” in the production of cleaner fuels, as the refineries will see no, or even a negative return on investment.

Molden, who acknowledges that the local fuel industry is “behind the international fuel industry” in terms of clean fuel production, says that mechanisms for cost recovery of cleaner fuel production in other countries included, among others, levies on fuel sales, or penalising dirty fuel sales.

Older cars will typically be unable to run on cleaner fuels.

However, whatever mechanism government does implement, Molden says that Sapia “does not expect 100% cost recovery. We expect it to be far less”.

He adds that the local fuel industry requires Competition Commission exemption to “talk to each other about how to achieve the 2017 goals”.

“If not, I don’t know how we are going to do it.”

Molden adds that Sapia’s own clean fuels road map was to achieve Euro IV-type production in 2016, with Euro V to follow in 2020.

“This is what we proposed to government in January 2010.”

However, government’s proposal now takes the local fuel industry directly to the production of Euro V-type fuels by 2017.

The Department on Energy (DoE) draft position paper on new fuel specifications and standards, released this week, will see the phased introduction of Euro V-type fuel in South Africa as from 2013, through importation, followed by the upgrade of South Africa’s refinery fleet in a staggered process, until full compliance is reached by 2017.

The position paper has been released for public comment over a period of 60 days, after which the specifications will be finalised.

Government has, however, postponed a decision on how the refinery upgrades, estimated at between R25-billion to R40-billion, in rand terms, will be funded.

The cost recovery mechanism will only be announced following discussions with industry and other stakeholders, it notes.

Euro V-type fuel produces fewer emissions, and is compatible with new, more modern engines, which use less fuel.

South Africa’s refinery fleet currently produces largely Euro-II-type fuels.

The production of this fuel was implemented in 2006, with the banning of lead from petrol and the reduction of sulphur levels in diesel from 3 000 parts per million (ppm) to 500 ppm. However, a niche grade of 50 ppm is also currently produced in small volumes.

The latest proposals include cutting sulphur to 10 ppm; the lowering of benzene from 5% to 1% of volume; the reduction of aromatics from 50% to 35% of volume; and the specification of olefins at 18% of volume.

The local automotive industry has welcomed the clean fuels road map as set out by the DoE, as it will allow the introduction of more fuel-efficient vehicles, producing fewer emissions, onto the local market.

It also means consumers will pay less carbon dioxide emissions tax on these vehicles.