The introduction of the European Union’s Carbon Border Adjustment Mechanism (CBAM) in 2023 is a significant step towards addressing carbon emissions in global trade. As part of the EU’s Fit for 55 climate package under the European Green Deal,
CBAM aims to impose a carbon price on some imports, including ammonia, and aims to make Europe climate-neutral by 2050; especially for the Asia-Pacific (APAC) region. This mechanism, set to fully come into effect by 2026, is designed to prevent carbon leakage by extending the EU’s carbon pricing to imported goods, thereby encouraging cleaner production practices worldwide.
According to the International Fertilizer Association (IFA), approximately 180 million metric tons of ammonia are produced globally each year. This production plays a critical role in supporting both agricultural and industrial applications.
Recognizing the environmental impact of ammonia production, the industry is increasingly focusing on sustainable production methods. Ammonia production is categorized into three main types based on the production process and associated carbon emissions: conventional (grey and brown), blue, and green ammonia.
Conventional ammonia, produced from natural gas (grey) or coal (brown), is highly carbon-intensive. Blue ammonia utilizes fossil fuels but incorporates carbon capture and storage (CCS) technologies to reduce emissions.
Green ammonia is produced using renewable energy sources, such as wind or solar, resulting in zero carbon emissions. This transition towards low-carbon ammonia is crucial for reducing the industry’s greenhouse gas emissions and aligning with global climate goals.
CBAM will have profound implications for the ammonia market. By placing a carbon price on imported ammonia, it will drive up costs for producers outside the EU, who will need to invest in cleaner technologies to remain competitive.
This regulation could potentially give EU-based ammonia producers an advantage, as they are already compliant with the EU’s Emissions Trading System (ETS). Additionally, the regulation is expected to reshape trade dynamics, favouring lower-carbon products and promoting sustainable practices across the industry.
To address the challenges posed by CBAM and support market participants, ICIS has launched its Carbon Cost-Adjusted Ammonia Price for Northwest Europe. This innovative pricing tool integrates the weekly CFR Northwest Europe Duty Unpaid spot/contract ammonia price with the weekly average carbon spot price from EEX EUA, alongside carbon emission data per tonne of ammonia production and free CO2 allocation. This comprehensive approach provides a clearer picture of the true market value of ammonia, considering the environmental costs associated with carbon emissions.
The ICIS Carbon Cost-Adjusted Ammonia Price will help producers and buyers manage the financial implications of carbon pricing, support compliance with emerging regulations, and encourage investment in sustainable production methods. Offering transparency and accuracy in pricing will enable stakeholders to make informed decisions, fostering a more sustainable and economically viable ammonia market.
By Sylvia Traganida, Senior Ammonia Editor at ICIS
