RUSSIA ADOPTS EU EXHAUST AND FUEL QUALITY STANDARDS

Russia has finally joined the fuel quality improvement race led by the United States and Europe. With one law prescribing new emission standards, the government is about to pass legislation on refined product specifications. Both documents aim to drastically improve standards that lag Europe's considerably. In practice, Russia is unlikely to catch up with European emissions and fuel quality standards, but more important is Russia's ability to fully address the influence and consequences of this legislation for a number of sectors beyond refining. In particular, the new legislation creates new imperatives and challenges for government:

- Modernization of the refining industry will be very difficult to achieve uniformly across the country in the short to medium term.
- The high cost of fuel quality improvement and engine modification could reach as much as $30 billion for the private sector over the next 12 years. The government will likely have to provide incentives to see that modernization proceeds.
- The law poses an indirect challenge to the successful implementation of a new upstream strategy for Russian oil companies as the competition for investment between the upstream and downstream intensifies.
- New refined product standards will hit the independent refineries hardest and are likely to lead to mergers in the refining sector.

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