Britain’s recent loss of two oil refineries, Grangemouth in April 2025 and Lindsey in August 2025, has raised concerns over the country’s energy security and industrial competitiveness. With just four refineries remaining—Fawley, Humber, Pembroke, and Stanlow—the United Kingdom has become increasingly reliant on imports to meet nearly half of its liquid fuel consumption, including diesel and jet fuel vital for sectors such as road freight, agriculture, construction, and aviation.
The closures underscore the challenges faced by domestic refineries operating under the UK Emissions Trading Scheme (ETS). The ETS requires facilities emitting carbon dioxide to acquire allowances, with only partial free allocations intended to mitigate “carbon leakage.” Industry analysis estimates that the remaining refineries incur net ETS costs of approximately £200 million annually. This places them at a competitive disadvantage of around £540 million compared with counterparts in countries lacking similar carbon pricing mechanisms.
Refining is a highly energy-intensive industry that has a long history of pursuing efficiency improvements through investments in heat integration, cogeneration, and process optimization. According to experts, most economically viable emissions reductions have already been realized, leaving limited scope for further gains without substantial government-supported technologies such as carbon capture or hydrogen fuel, which remain undeveloped despite ongoing discussions.
Critics argue the ETS currently fails to incentivize meaningful emissions reductions in refining, instead increasing operating costs and encouraging the substitution of domestically produced fuels with cheaper imports from regions such as Asia and the Middle East, where refineries benefit from newer infrastructure, state support, lower labor costs, and inexpensive energy. The UK’s carbon border adjustment mechanism, designed to protect domestic manufacturers from foreign competition that does not internalize carbon costs, excludes refined petroleum products. This exclusion allows imported fuels to evade carbon pricing, undermining the ETS’s intended effect.
The shift from domestic refining to imports does not eliminate emissions but rather relocates them to countries often with higher emissions intensity. Additional emissions arise from transportation to the UK, calling into question whether reduced UK territorial emissions translate into actual global decarbonization.
The challenges extend beyond refining to other carbon-intensive sectors, notably electricity generation. The ETS adds costs to power producers, which are ultimately passed on to consumers. While carbon pricing aims to stimulate shifts toward cleaner energy, renewables continue to rely heavily on subsidies, and gas-fired generation—needed for grid stability—offers limited opportunities for carbon reduction absent viable carbon capture solutions.
Industry stakeholders highlight that while carbon pricing can support emissions reduction when cost-effective options exist, it may simply serve as an additional tax where such options are unavailable, thereby increasing energy costs and undermining industrial competitiveness. Critics call for a reevaluation of the ETS’s effectiveness, emphasizing the importance of policies that genuinely lower global emissions without damaging domestic industries or increasing import dependency.