Pakistan Set To Jump From Euro 2 Standards To Euro 5, Here’s How It Will Impact The Petroleum And Automobile Industry
Pakistan is set to jump from Euro 2 standards to Euro 5.
In Pakistan, nine percent of deaths in 2017 were caused by air pollution – a major cause of breathing, cardiovascular, mental, and reproductive health issues. According to
the available data, air pollution took the lives of 7 million people worldwide.
A 2019 study of the State Bank of Pakistan (SBP) stated:
Pakistan is one of the most polluted countries in the world. IQAir, a global think tank on the environment, believes that a solution to reducing air pollution in the country may be the introduction of Ultra-Low-Sulfur-Fuel (ULSF) in Pakistan.
As road transport is one of the major sources of air pollution, experts believe that dealing with it can improve the air quality in the country. Fuel standard is also a necessary component of the global drive to reduce pollution.
Hence, Euro has become the global benchmark for vehicle emissions, and countries are now moving towards the Euro 6 standard that was introduced in 2014.
It is pertinent to mention that refined technology has reduced the sulfur content (a major health hazard) in petroleum products. Driven by pollution-reducing measures, almost all advanced economies have switched to ultra-low-sulfur fuels (ULSFs).
According to the report, the interplay between major oil importers and exporters means that developing economies have to adapt to these standards as well.
The introduction of the Euro 5 Standards in Pakistan
Pakistan is set to jump from Euro 2 standards to Euro 5. The abrupt shift is expected to create friction in the local automobile and petroleum industries. Therefore, to minimize disruption and make the shift to Euro 5 compliant fuels in 2021 smooth, the government has outlined a plan.
Along with that, Pakistan State Oil (PSO) and the National Refinery Limited have also commenced their production and sales at the domestic level.
The implications of this measure on the automobile industry in Pakistan will be straightforward: the assemblers will have to install specialized equipment to meet the emission standards.
Problems Associated with the Shift
While the installation of emission control components in vehicles might be compliant with the upgrade to Euro 5 or 6 standards, it may end up increasing the retail prices of domestic cars.
Another potential bottleneck is the rising costs stemming from the rerouting of imports – away from the non-compliant countries like Thailand and Indonesia and towards the compliant countries like Japan (Euro 6 equivalent).
Moreover, Pakistan lags behind other nations in transitioning to improved standards, meaning that the country may require a relatively more extended adjustment period to achieve full Euro 5 compliance.
The Implications of ULSF for Domestic Automotive and Petroleum Industries
According to reports, the government’s decision to transition to a new emission standard will affect the domestic automobile and crude oil refining industries in the short-to-medium-term; the measure will improve urban air quality and modernize these industries in the long-term.
This transition is in line with the steps being taken worldwide to reduce the air pollution caused by certain gases and airborne particles.
The Refinery Sector Needs to Make Investments
According to the report, the impact on the petroleum refining industry is expected to be more acute. That’s because the largely outdated petroleum industry had already been feeling the strain in the face of an earlier measure that had curtailed the demand for high-sulfur-furnace-oil (HSFO), making up around a quarter of the industry’s output. The report states:
The latest regulatory decision to move to Euro 5 compliant fuel will make the task even more daunting, further necessitating the need to upgrade. It will also be a massive financial undertaking, as the planned upgrade to produce Euro 2 compliant fuel had been expected to cost around $1 billion; the compliance with Euro-5 will possibly cost even more.
Considering that Pakistan is a developing country coping with high public and foreign debts, lack of resources and institutional capacity, the challenges to converging to Euro 5 standards will be substantial.
A smooth transition can only be possible if necessary incentives are provided to the automobile and the petroleum industries. Experts suggest:
Pakistan should learn from the experiences of other countries that have made that transition and imposed the differential tax structure at pumps like Hong Kong, the United Kingdom, and Germany.
Additionally, Pakistan can take a lesson from America and Japan, too, as they have allowed tax incentives for refiners and provided direct subsidies in some regions. The country can benefit further if it gives tax-breaks to refineries and auto-assemblers that comply with the new standards.
To sum everything up, if it’s well-managed, the upgrade to Euro 5 may spur investment, create employment, and build capacities in both the automobile and petroleum industries in Pakistan highly.
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