Ladies and Gentlemen! I am very honoured to be invited to speak at Hart’s 15th annual World Fuels Conference. It is clear that over the past few years Hart has played a major role in bringing information to European legislators like myself and creating a dialogue on the issue of cleaner fuel and vehicle technology. I am convinced that we need to strengthen this transatlantic dialogue. In a global economy we need to reflect on and design global solutions. [:] I must say that many of the lessons that we have learned and we continue to learn in Europe on achieving cleaner air are coming from the US experience and particularly from California. What I feel we should work towards is a partnership rather than engage in a competitive race for, as you know, this is all about opening up markets. Last week the European Union adopted the compromise agreement between the Council of Ministers and the European Parliament. This was the result of the so called “conciliation talks”, a fundamental democratic process in which the Commission proposes legislation and the European Parliament shares the decision-making with 15 Member States, i.e. the Council. This was one of the most complex negotiations ever. The proposed legislation on fuel quality was one of the twins, the other being the directive on vehicle emissions. The two are inextricably linked, any move on one, would have a dramatic impact on the other.

In addition to the legal and technical complexities of the texts, there were the political difficulties of involving many actors: three departments of the European Commission, 15 governments and the European Parliament, not to say anything about the large number of lobbyists (from industries to NGOs). One could thus wonder if there was any chance for success. As declared by Ms. Ritt Bjerregaard, the European Commissioner for the environment, never in her wildest dreams did she think that such a far-reaching agreement could be obtained in such a short time. She then praised the Parliament for its determination to bring cleaner air to the European citizens. And indeed if we look at the entire process, from the original Commission proposal two years ago, to the resulting legislation, it is clear that the text has been dramatically improved due to the determination of all of the actors.

At the end of the day our agreement was based on one major principle, flexibility. We had to take into consideration the differences between the Northern and Southern countries, their varying refining structures and in particular the problems related to the high-sulphur crude in the South. Therefore we built into the legislation the option for such countries to ask for limited derogations from the 2000 and 2005 sulphur specifications. Whereas these countries needed more time, others wanted the option to go faster and implement the 2005 specifications sooner. This is what we have coined the “phase-in option”. This is an instrument which allows the early introduction of cleaner fuels in all EU countries as to guarantee low sulphur and low aromatic fuels on their markets in particular to respond to new vehicle technology needs. It is important to note, that the use of derogations and the phase-in option are not mutually exclusive concepts. For instance, Italy may ask for a derogation on sulphur but as it has already committed itself to low-aromatics fuel it will phase-in such fuel sooner than 2005. Another aspect of this flexibility principle is that a country can mandate cleaner fuels with advanced environmental specs with a view towards protecting the health of the population in a specific agglomeration, or the environment, in a specific ecologically sensitive area. An important tool in the facilitation of the phase-in option is the use of tax differentiation.

Some of you may already know that we are not in Europe a “read my lips no new taxes” culture. Quite the contrary in fact. In most EU countries taxes account for 75 % of our petrol and diesel fuel pump price. The new fuels directive suggests a move toward tax differentiation, and Member States such as Germany and the UK have already opted to join the Scandinavian countries in the use of this tool. In addition, upcoming new legislation on the taxation of mineral oils facilitates the use of tax differentiation for environmental purposes. What then are the benefits of tax differentiation? The recent release of the ADL study on tax differentiation confirms the validity of the Scandinavian tax differentiation experience. “Differentiating taxes is a quick and effective method to change market conditions so that improved fuel qualities for road transport can gain dominant market share.” Maybe this instrument could also be used in the United States as a tool to increase the market share of cleaner fuels?

How then do we see the future in Europe? Let us look at Auto/Oil 2. Auto/Oil 2 , the follow-up to the initial Auto/Oil process, has already started although it now has a new mandate, which is the following. First, to complement and possibly improve the mandatory specification standards for 2005. Second, investigate new issues, especially new data on PM<2,5. Third, adress captive fleets, i.e. buses, taxis etc., and, finally, look at alternative fuels such as LPG and Biofuels. All this will be done parallel with the definition of ambient air quality targets for the key pollutants. It is clear that Auto/Oil 2 will require a great deal of expertise and transparent consultation amongst all actors including those from the U.S. This brings me to the need for a greater global dialogue where the EU and the U.S. could be the catalysts towards harmonizing fuel specifications including test fuels, and car emission limit values such as CO2. On the CO2 question, a perfect example of a possible global dialogue could be that other countries emulate the currently negotiated European voluntary agreement on CO2 emissions from cars. As Daimler/Benz is a leading partner in this voluntary agreement, is it possible that its new American bride won’t be committed to this agreement as well? After all, a marriage is always for the best… or some might say, for the worst.

In the European Union, a system of labelling cars according to their fuel consumption is already in the legislative pipeline, and discussions on the use of fiscal incentives in order to promote cars with low fuel consumption are underway. During the Auto/Oil negotiations the car industry made it perfectly clear that low-sulphur gasoline is instrumental in order to obtain a better fuel economy. But let us not forget the legislators’ role. We must work together towards common air quality goals and measures by exchanging experiences and reflecting on joint instruments. At the end of the day, our objective should be to increase the economic opportunities of greener and cleaner products. Remember, environmental policy is nothing but good industrial policy. Let me leave you then by quoting from Paulo Cuelho’s bestseller “The Alchemist”. “This is the first phase of the job. I have to separate out the Sulphur. To do that successfully, I must have no fear of failure. It was my fear of failure that first kept me from attempting the master work. Now, I’m beginning what I could have started ten years ago. But I’m happy at least that I did not wait twenty years.” I would like to remind you that the Alchemist was trying to create gold from nothing. Sometimes it may feel that way to some of you. But don’t despair, as a legislator I encourage you to continue your good work. Thank you very much for your attention.

Hart’s World Fuels Conference Washington D.C. 24 September, 1998