Who will pay for cleaner gas?

BEIJING - China's largest oil refinery promised last week to sell cleaner petrol in 2014 amid air pollution concerns, although such efforts could lead to price hikes for Chinese drivers.

The Sinopec Corp. said it is upgrading desulphurization facilities and will supply cleaner oil products that meet national standards for pollutant emissions in 2014.

Beijing is the only city in China to have adopted the Beijing-5 standard, equal to the Euro V vehicle emissions standard, which caps sulphur content below 10 ppm (parts per million).

China's developed regions, including Shanghai, Jiangsu and Zhejiang, use the national 4 standard of 50 ppm or below, while the remaining regions have adopted the national 3 standard, which allows the sulphur content in fuel to be as high as 150 ppm.

But cleaner fuel may also mean higher prices. When Beijing and Shanghai switched from the national 3 standard to the stricter national 4 years ago, petrol prices rose by 0.2 to 0.3 yuan (0.03 to 0.05 U.S. dollars) per liter.

Possible price hikes have stirred online discussion about who will bear a rise in petrol prices, which are already blamed by many for being too high.

User "AutoHouse" said on Sina Weibo, the Chinese equivalent of Twitter, that a new round of petrol price hikes is inevitably coming.

In Beijing, some people have already been charged for cleaner petrol, as they have to pay an extra 2 yuan in the form of a petrol fee whenever they take a taxi.

In a poll on news portal ifeng.com, 60.8 percent of 34,385 respondents said the petrol quality upgrade is a duty that refineries should carry, rather than an excuse for price hikes.

However, Fu Wei, a manager in charge of tech innovation at Sinopec, said the company is "under great pressure."

In addition to the cost of upgrading outdated refining facilities, he said the company has to spare money to revamp its storage and transport system accordingly.

Some 56 percent of the crude oil China needs comes from overseas. But imported crude oil that has a higher sulphur content make it costly to produce high quality petrol.

"There is little technological difficulty in upgrading petrol quality," said Lin Boqiang, an energy expert at Xiamen University.

What matters is fuel prices, he said.

However, Sinopec will see losses related to petrol quality upgrades if there are no preferential government policies, according to Fu.

He said large refineries suffered losses last year, while outdated smaller ones made money because they didn't need to produce high-quality petrol.

According to figures from chem99.com, an oil industry web portal, making upgrades to meet the national 4 standard will cost Sinopec, CNPC and CNOOC, China's largest three fuel providers, 50 billion yuan.

Sinopec and CNPC raked in more than 120 billion yuan in net profits in the first three quarters of 2012. CNOOC did not release their figures.

Dong Xiucheng, an energy expert at the China University of Petroleum, said the government may reduce refineries' costs by cutting taxes.

The government said in a guideline on environmental protection issued in 2011 that it would roll out favorable policies to help refineries that produce cleaner petrol.

An expert who participated in the formulation of the guideline said the government will likely issue specific policies in 2013 to encourage fuel quality upgrades.

The government should levy lower taxes on high-quality fuel and in this way phase out low-quality fuel, said the expert, who declined to be named.

"The government, enterprises and consumers should all bear one-third of the rise in costs," he said.