Climate Change

Optimal energy efficiency and energy saving have been and remain the main tools for the Group’s contribution to addressing climate change. Although the continuously improving fuel specifications (zero sulphur) over the last decade have contributed to improving air quality, at the same time they have also increased energy consumption for their production. Energy consumption is a significant operating cost of the Group’s activities, but also a major source of carbon dioxide emissions. For this reason, the Group invests in optimising energy management and use, with environmentally friendly electrification of production facilities and low-carbon fuels (e.g. blue and green hydrogen, biofuel plants and CO₂ emission capture technologies), energy saving in production and administrative operations, and the utilisation of Renewable Energy Sources.

The implementation of the Group’s environmental policy related to energy and climate change is achieved through the use of a series of tools, such as the establishment of targets and performance indicators, while Energy Management Systems have been developed and certified based on international standards. Indicatively, all environmental parameters are monitored through common indicators at European level and benchmarked against industry performance in Europe. An important part of climate change management issues within the Group is the continuous assessment of risks and opportunities based on the evolving legislative environment at European level, as well as the development of synergies through joint actions and training with staff and all stakeholders across the Group’s wide range of activities.

For the HELLENIC PETROLEUM Group, mitigation and adaptation to the impacts of climate change are a key part of its strategy for sustainable development. In this context, the first step for the effective planning of actions is the identification and management of risks and opportunities. For short- and long-term strategy planning, the potential risks and the related financial implications are analysed in detail, not only from the side of climate change mitigation but also from the side of the adaptation strategy to climate change impacts (e.g. in the case of physical changes, which are estimated to be significant for facilities near the coastal front of Greece). These are examined and analysed through different pillars such as existing and forthcoming legislation, new technologies as well as markets in which the Group operates, while the international forecasts for the energy market and climate change are also analysed in order to align the Group’s long-term strategy.

This gives rise to a number of impacts and risks that have been assessed, such as increased costs for fuel and raw materials, reduced demand for energy- intensive products such as fossil fuels, as well as the stricter regulatory framework for controlling and limiting greenhouse gas (GHG) emissions, such as the EU Emissions Trading System (EU ETS) and the planned carbon border tax mechanism (CBAM), leading to a further increase in carbon costs.

For 2021, the obvious financial impacts for the Group was directly related to the cost of covering the carbon emissions allowance deficit, since all three of the Group’s refineries in Greece participate in the EU ETS. For the period 2021-2025 (first sub-period of the 4^th phase of allowance trading) and under the new carbon allowance allocation rules, compliance costs have increased significantly as the 2021 data indicate, due to the significant increase in the carbon allowance price (exceeding 80€/tn at the end of 2021), but also due to the decreasing amount of carbon emission allowances under the new rules for free allowance allocation.

In addition, based on the planned changes to the ETS in the context of implementing the European Green Deal and the new Fit for 55 reduction targets, a further increase in compliance costs and an increase in carbon leakage risk is expected (note that the refining sector has been included among those facing carbon leakage risk, i.e. a significant deterioration of its competitiveness compared to similar facilities outside Europe). Because of its geographical location (EU border), the Group is at a greater risk than other European countries from the competition of neighbouring countries that are not part of the ETS and that produce the same products without additional operating costs due to the so-called carbon costs.

In addition, due to the fact that since 2013 free carbon allowances are not allocated to power generation activities, refineries are additionally burdened with increased costs for the electricity purchased, as the cost of purchasing carbon allowances for power generation is passed on to consumers.

The aforementioned risks (increased CO ₂ costs, transition to a carbon neutral economy, changes in consumer demand and preferences) are assessed by the Group’s management on an ongoing basis within each financial year, investment opportunities are identified (e.g. development of RES, increased energy efficiency, development of low emission products) and the Group’s strategy is set out. Its accurate implementation has already contributed to reducing the carbon deficit and operating costs through increased energy efficiency, while lower carbon footprint fuels already comprise a significant part of the Group’s turnover.

The Group further recognises as an opportunity the new low-carbon technologies that have been developed to address climate change, such as blue and green hydrogen production technologies, CO ₂ capture, storage and utilisation technologies, and other technologies to replace fossil raw materials with more environmentally friendly raw materials. Due to the urgency for action, most new technologies are being immediately assessed for their potential applications and effectiveness in order to reduce potential risks and maximise benefits.

Finally, the evaluation of potential opportunities for the further use of natural gas, since it is the transition fuel to a lower emission economy, as well as that of advanced biofuels, continues through the implementation of various Research and Development programs.

Based on the above, the scope of interventions/ projects to adjust facilities and critical energy infrastructure to climate change is being studied. It is also worth noting that the Group is actively involved in the formulation of energy and climate change policies at national and European level, such as the EU Emissions Trading System (EU ETS), the Energy Efficiency Directive, etc., as well as in international initiatives such as the “eFuel Alliance” for the promotion and development of synthetic fuels, as part of the industry’s energy transition and its vision for the future.