Fertilisers: alternative CO2 pricing mechanism needed to drive agricultural transitions
In response to the geopolitical and economic crisis triggered by the war, the European Commission has urgently convened fertilizer companies and representatives of the agricultural sector to analyze the impact on European agriculture and European fertilizer production. Farm Europe welcomes this initiative that highlighted the need to move toward a more integrated value chain approach to drive low carbon solutions focusing on farmers and their capacity to combine both economic and environmental performance.
During the meeting, Farm Europe highlighted that the war has only exacerbated a fertiliser challenges that farmers, certain Member States and members of Parliament have been warning about for months. The challenges are structural, not cyclical. To limit the explanation solely to events in the Middle East would be to demonstrate a culpably short-sighted vision or a refusal to address the root of the problem.
Via the integration of fertilisers into the Emissions Trading System (ETS), the European Union has chosen to achieve its green transition by structurally increasing the prices of fertilisers for European farmers together with a carbon border tax designed to equalise CO2 pricing between EU producers and importers via the carbon border adjustment mechanism (CBAM).
However, such a cost-driven framework, focused on greening supply rather than stimulating low carbon demand, is proving to be ineffective: Europe is losing its conventional fertilisers (10 million tonnes of EU production capacity have been shut down or placed on hold), its agricultural production with a reduction of 4 Mha in cereal area, and at the same time, transition toward low carbon fertilisers is not taking place in the EU, most low-carbon projects having been cancelled or requiring heavy subsidy to survive.
While the Commission still refuses to suspend the CBAM on imported fertilizers, there is an urgent need for a real paradigm shift in the financing model of the transition for the fertilisers-cereals value chain that lays down the conditions for a competitive, sustainable and resilient value chain in Europe.
To achieve this, Farm Europe considers that the current ETS-CBAM model to finance transition needs to be revisited before 2030 in order to create a credible financing pathway for agricultural transition toward low carbon value chains. The Carbon Removal Certification Framework (CRCF) can be leveraged to become the cornerstone of the decarbonation of the value chain, providing true incentives and fair pricing of CO2 along the value chain, focusing on combining fertilisers and field emission reduction efforts, and opening up access for farmers to sell their carbon credits on regulated carbon markets.
Today, voluntary carbon certification systems and markets do not cover the costs of carbon farming while alignment with regulated market price levels would make investment in low-carbon technologies viable, as long as the EU keeps a technology-neutral approach toward low carbon fertilisers, and focuses on ‘Made in EU’ solutions given the high circumvention risks associated with global green value chains. In this context, regulatory barriers to organic fertilisers — including manure, digestate from biogas and processed organic nutrients — should also be removed, and true leverage capacity deployed, including via the European Competitiveness Fund to foster investments.