Fit for 55 Package: ETS & CBAM

Representing a sector highly exposed to carbon leakage due to its high trade and emission intensity, Fertilizers Europe is advocating for a responsible and predictable framework for EU ETS and Carbon Border Adjustment Mechanism (CBAM) that will balance climate ambitions with industry competitiveness.

The EU fertilizer industry is subject to a carbon cost via the EU Emission Trading Scheme.

The fertilizer Industry supports EU ETS as a market based mechanism, however, different aspects need to be carefully taken into consideration.

Ensuring level playing field 

High carbon allowances prices of EU ETS (almost €50/t CO2 in April 2021) make it extremely difficult for the European industry to remain competitive on a global market.

Avoiding carbon leakage

When considering the European Commission’s two traditional criteria for assessing carbon leakage risks, emission intensity and trade intensity, nitrogen fertilizers are among the industries at the highest risk.

The EU fertilizer industry, has heavily invested in its production processes and  has achieved GHG emission reduction of more than 40%.

These continued investment result in the EU mineral fertilizer producers having the lowest carbon footprint of the worldwide industry.

EU ammonia plants are the most-energy efficient and most of their nitric acid facilities are fitted with modern emissions abatement technologies to limit their nitrous oxide (N₂O) emissions.

With the current technology, modern fertilizer ammonia plants are close to theoretical minimum in terms of energy consumption. However, under the right framework and with the right conditions, the fertilizer Industry could be again at the forefront of the decarbonization process and contribution to a climate neutral economy through the production of low-carbon and green ammonia .

To make low-carbon ammonia production a reality at
large scale there is need for:

– price competitiveness of green energy

– international level playing field

– funds to support the transition

– a market for low carbon products

– stable regulatory framework

Stability under the EU ETS together with a forward looking policy framework are fundamental to promote large scale investments in low-carbon technologies. CBAM is an opportunity to create a level playing field for EU industry. 

In order to tackle carbon leakage, and its detrimental consequence on the European industry, the European Commission is introducing a new levy,  the Carbon Border Adjustment Mechanism (CBAM)  aimed at protecting EU companies from being penalized on the international markets by third-country producers facing laxer environmental requirements.  

CBAM is an opportunity to create a level playing field and , if well designed, under the right conditions and in complementarity with the EU ETS, it can become become a crucial instrument to maintain the competitiveness of European industries and protect its workforce, while allowing it to contribute to the achievement of the EU Climate Targets.

A combination of CBAM and free allowances is necessary, as only under such conditions will the fertilizer sector stay competitive and remain a
responsible and reliable supplier to the EU agri-food and other value chains.

A stand-alone CBAM would expose EU value chains to the full cost of carbon emissions in a period when low carbon technologies are undergoing development and upscaling.

A CBAM-only approach would also significantly hurt EU industry’s exports to third countries. EU exports would carry the full burden of carbon costs, so undermining their ability to compete in third country markets.

Current ETS does not address the issue of imports coming into Europe which have not paid a carbon cost. This not only distorts competition within the EU, it also fails to do anything to incentivise reductions in CO2
emissions at the global level.

‘Without the efficient and strong fertilizer industry in Europe 52.4 million tonnes of additional CO2 will be emitted globally. That is almost equivalent of the total emissions of Sweden.’  

Jacob Hansen, Director General, Fertilizers Europe