EU’s carbon border tax reignites debate on fertilisers’ decarbonisation – EURACTIV.com

The inclusion of fertilisers in the landmark EU’s carbon border levy turned up agri-food stakeholders’ noses as they fear more costs for farmers and undermining the potential of the sector in the green transition.

Following weeks of intense negotiations under the Czech Presidency of the EU, legislators have reached breakthrough agreements on a number of key files within the Fit for 55 package, including the final elements of the Carbon Border Adjustment Mechanism (CBAM) agreement.

The agreement, which was struck on 13 December, will pave the way for Europe to set up the world’s first levy on carbon-intensive goods entering its market.

The EU’s carbon border adjustment mechanism will apply to foreign competitors unless they enforce comparable measures to lower emissions on the industries covered by the levy.

However, the final deal has been lambasted by EU agrifood stakeholders, who reserved criticism for the decision to include fertilisers.

“This inclusion will make the price skyrocket further, increasing the cost of agricultural production in Europe, whilst making the use of imported food more competitive and attractive,” a statement from the EU farmers’ association COPA-COGECA reads.

For the association, this ‘double penalty’ for farmers would be ‘unbearable’, considering the current and foreseeably increasing price of fertilisers, already at a historic high thanks to Russia’s invasion of Ukraine.

The war has sparked a global mineral fertiliser crisis, which has hit the EU hard. Soaring energy costs, combined with sanctions curtailing the import of key fertiliser inputs from Belarus, have seen the price of fertilisers the skyrocket as much as 149% in September 2022.

Likewise, the EU fertiliser lobby Fertilizers Europe criticised the CBAM outcome, maintaining that the EU “came short in establishing a coherent decarbonisation framework fit for the future”.

The trade association reserved particular criticism for the fact that, while there is a review clause on possible export solutions in 2025-2026, no export solution was included in the final compromise.

“As green investment decisions will be made in the immediate future to meet the 2030 climate deadline, therefore an eventual review will be too late to ensure that the industry – attracted with foreign green production subsidies abroad – stays in the EU,” it warned, stressing that this approach “further aggravates the already challenging competitive position” of the sector.

As such, Fertilizers Europe warns that the final CBAM instrument will “surely eliminate EU low-carbon exports in global markets”.

A carbon border tax on fertilisers? Think twice, EU told

The fertiliser industry is increasingly cited as an ideal testing ground for the EU’s upcoming carbon border levy, due to be tabled in June. But industry figures warn this risks causing an increase in food prices that could trigger social unrest.

Fertiliser role in green transition

The CBAM deal cast new light on the attempts to accelerate the decarbonisation of the agri-food sector while securing global food security.

But the Commission seems to bet on the role that fertiliser production could have in taking the lead in the transition thanks to hydrogen and particularly to green ammonia.

Ammonia, a building block of fertilisers, has been used in the production process as a way to return nitrogen to the soil. Nevertheless, its molecule contains hydrogen and nitrogen (NH3) and it breaks down, when used, to only water and nitrogen.

This gives ammonia huge potential in storing and transporting clean energy par excellence, namely hydrogen.

Today, hydrogen is mostly obtained from ammonia in a splitting process called steam methane reforming (SMR), which requires using natural gas. However, gas can be replaced by renewable electricity in the process, in what is called green ammonia.

The recently unveiled Commission’s fertilisers strategy gave support to ‘the scaling up of the production of green ammonia’ with some “key flanking actions’ to come in the following mthe oto boostnlong-haulths on that.

“We should seize the opportunity to expand production of green ammonia, produced with renewable energy,” said Commission vice-president Frans Timmermans when presenting the strategy.

Mixed signals

The ambitious RePowerEU plan to reduce the EU’s dependence on natural gas asked member states to increase renewable hydrogen use in Europe to 20 million tons by 2030, of which about 4 million tons as ammonia, which is considered an essential alternative to liquefied hydrogen for international trade.

With a share of 53%, the ammonia industry is today the biggest producer and user of hydrogen globally. And the fertiliser sector, in turn produces and consumes 3,1 million tonnes of hydrogen, becoming crucial in helping upscale clean energy.

A recent report drafted by the Dutch consultancy CE Delft suggests that replacing ammonia production based on natural gas in the fertiliser industry will help to attain the Dutch national targets set by the EU in the latest revision of the renewable energy directive.

For this potential, the CBAM final deal was perceived as counterintuitive by the fertiliser sector.

“EU policymakers missed an opportunity to establish a framework favourable for green investments that will match the support for industry provided by other global economies” commented Jacob Hansen, director General of Fertilizers Europe.

Hansen’s association stressed in a statement that “the Green Deal as the new growth strategy for Europe can only be considered a success story if domestic industry is part of the green transformation and its global competitiveness remains intact.”

[Edited by Alice Taylor]