Approach to climate change

Climate aspects remain an important issue also for oil and energy companies. In its operations, the LOTOS Group focuses on improving energy efficiency.

Thanks to these efforts, as well as the introduction of natural gas to fuel the refinery, LOTOS Group’s emission benchmark, expressed in terms of CO2/CWT emissions, is at the level of 10% of the best European refineries.

The LOTOS Group executes many projects that support the reduction of the organization’s negative impact on the environment and the use of opportunities arising from climate change.

The Management Board of Grupa LOTOS S.A. monitors and supervises the progress of the most important projects on an ongoing basis.

Additionally, on a monthly basis at the Management Board meeting, a report is discussed including the status of key initiatives and projects, and identified risks.

Both the Company’s Management Board and Supervisory Board are involved in the operation of the risk management system aimed at identifying risks and opportunities and reducing threats to the Group’s operations.

In the LOTOS Group, in connection with the climate change, in accordance with the division of powers in the Management Board, Vice-President of the Management Board, Refining & Marketing is responsible for the area of environmental protection, which includes climate impact management, emissions and energy use.

The LOTOS Group is currently implementing its strategy adopted for 2017-2022, in which changes in climate policy have been identified as one of the key challenges in the long term, and has launched activities in this respect. One of the goals of this strategy is to pursue the market of innovations associated with, among others, hydrogen and CNG/LNG, as well as new business areas such as electromobility (for more details, see Section 4 Strategy).

Targets and nominal values over a 5-year horizon have been defined. Below are the requirements set for 2021-2024:

• 8.7 percent – for 2021
• 8.8 percent – for 2022
• 8.9 percent – for 2023
• 9.1 percent – for 2024

So far the LOTOS Group has met the national indicative target in accordance with the applicable regulations (taking into account the reduction factor and the substitution fee).

Another indicator is the reduction of lifecycle greenhouse gas emissions of fuels per unit of energy. This reduction should amount to at least 6% compared to the EU average lifecycle greenhouse gas emissions per unit of energy from fossil fuels in 2010. This obligation, referred to as the National Reduction Target (NRT), stems from the Act of 25 August 2006 on the fuel quality monitoring and control system.

The LOTOS Group also takes its own measures to improve energy efficiency. In 2021, a dedicated organizational unit – the Energy Efficiency Department identified and, in cooperation with the production area, implemented 23 production process optimizations with a total value of achieved savings exceeding PLN 3.5 million.

Reviews of the implementation of the LOTOS Group Strategy for 2017-2022 are carried out by the Management Board on a quarterly basis. The reviews discuss the most important issues related to the implementation of the current strategic objectives, as well as the circumstances, including climate issues, that may affect the operations of the LOTOS Group in the future.

Due to the fact that the LOTOS Group is undergoing a process aimed at ownership change, at the time of preparing this information, no strategy has been developed for how the organization will proceed after 2022 under different scenarios related to climate change.

The LOTOS Group conducts research and development projects on environmentally friendly fuels of the future, i.e. electricity and gaseous fuels: CNG, i.e. compressed natural gas, and LNG, i.e. liquefied natural gas, and above all hydrogen, which can be used in transport as well as for energy production and storage.

The characteristics of the projects and initiatives are outlined below:

The development of the hydrogen sector in the next decade may significantly contribute to the reduction of greenhouse gas emissions and other pollutants into the atmosphere by Poland, especially from the transport sector. In addition, hydrogen use in district heating is expected to increase, thanks to the development of power-to-gas/liquid technology.

The hydrogen strategy sets goals up to 2030:

• Installed capacity of the installations for low-carbon hydrogen production: 50 MW by 2025 and 2 GW by 2030.
• Number of hydrogen stations: min. 32 by 2025; creating a Hydrogen Valleys Innovation Ecosystem.
• Developing a hydrogen legislative package in 2022 and 2023 – legislation that defines the details of how the market will operate, implements EU law in this area, and implements a system of incentives for low-carbon hydrogen production.
• In total, in the period 2021-2030, the necessary investment expenditures related to the implementation of hydrogen technologies in public transport together with the necessary infrastructure and achieving the assumed capacity of installations from low-emission sources at the level of 2GW will amount to approx. PLN 11 billion.

The LOTOS Group has launched an investment program to build a large-scale installation for the production of green hydrogen. According to the assumptions of the Green H2 project, hydrogen will be produced by electrolysis, i.e. breakdown of water using electricity. If renewable energy is used to produce it, such hydrogen will qualify as the so-called green hydrogen. The hydrogen produced will be used in refinery processes, making traditional petroleum-based fuels more environmentally friendly. At the same time, no greenhouse gases are produced in the electrolysis process. Green H2 will build a large-scale plant consisting of electrolyzers, hydrogen storage facilities and fuel cells. The whole system is to produce zero-emission hydrogen for the needs of the refinery and at the same time support the Polish power system. The first step in the program is a pilot project to create a smaller scale electrolysis plant. The installation so designed will be the target configuration for a large scale project.

The Company is also actively cooperating with Polish scientific institutions on projects to increase the efficiency of pure hydrogen production. In parallel, the Company submits applications for their financing under both national and EU competitions, including the National Center for Research and Development (NCBiR) and the National Reconstruction Plan.

At the end of September 2021 the LOTOS Group, in a consortium with the Institute of Energy and the AGH University of Science and Technology in Kraków, launched a new hydrogen project worth nearly PLN 10 million. Its aim is to construct a pilot plant in Jasło based on solid-oxide electrolyzers (SOE). The aim of the VETNI project is to develop a highly efficient plant based on solid-oxide electrolysers powered by electricity from renewable sources. These devices will enable highpurity, high-efficiency hydrogen production. The project will involve research and development work focused on the design, construction and testing under real operating conditions of a system with an electrolyzer integrated into the refinery process, which will supply process steam for hydrogen production. The electrolyzer’s parameters will allow for production of approx. 16 kg of hydrogen with 99.999% purity per day, which will make it possible to refuel several hydrogen-powered cars.

The project perfectly fits into the assumptions of the „Polish Hydrogen Agreement” project. It is an expression of the will of public administration, representatives of business and science, and business environment entities to take joint efforts to develop the hydrogen economy in Poland. The agreement will be a key implementing instrument of the „Polish Hydrogen Strategy until 2030 with an Outlook until 2040”.

„Hydrogenation” of public transportation is another challenge facing the Lotos Group. For several years LOTOS Group representatives have been regularly participating in working meetings with local carriers and supporting them in their preparations for the hydrogen transition. As part of the signed agreements, LOTOS will provide hydrogen and the related infrastructure for fuel cell vehicles in Gdynia, Wejherowo, Tczew and Rzeszów, among others. By 2024, hydrogen-powered buses are expected to hit the streets of these cities.

LOTOS Group SA has started activities aimed at building demand for the hydrogen for transportation purposes produced and planned to be produced at the new production facilities. Therefore, the LOTOS Group, together with PESA, has signed a framework agreement on cooperation in the implementation of investment and development projects and the development of commercial terms and conditions for hydrogen supply for the purposes of tenders for the supply of railroad hydrogen infrastructure and hydrogen supply to power trains, which are planned for the near future.

The cooperation of all participants of this value chain means real actions and influence on acceleration of the hydrogenization of transport in Poland.