Carbon leakage in the nitrogen fertilizer industry

Going forward, the ETS will – and should – be strengthened as the main climate policy instrument in the EU. At the same time, dealing effectively with carbon leakage becomes tantamount in order to achieve an effective ETS that truly reduces global greenhouse gas emissions, and not just relocates emissions and production to countries with less ambitious climate policies.

While there have been many positive signals in analyses done by the Commission, the proposed revision of the ETS risks not providing adequate compensation for the industries at the highest risk of carbon leakage, such as the fertilizer industry.

The main conclusions of our study are

• The nitrogen fertilizer industry is at substantial risk of carbon leakage even at low ETS prices
• Going forward, scarce free allowances for leakage compensation should be allocated to the industries at the highest risk of leakage instead of spreading the layer to thinly through e.g. cross-sectoral correction factors or tight benchmarks.
• Using ‘cost pass through’ potentials of an industry for assessing the risk of carbon leakage should be treated with much caution.

 The study is commissioned by Fertilizers Europe