Fertilizers Europe, the Brussels-based European producers’ organization, is “deeply disappointed” with the European Union’s (EU) provisional and conditional agreement reached last week by the bloc’s co-legislators on the Emissions Trading System (ETS), the bloc’s cap-and-trade market for permits, and the Carbon Border Adjustment Mechanism (CBAM). CBAM is designed to put EU companies on an equal footing with competitors outside the bloc with weaker carbon policies.

Fertilizers Europe said the agreement, which it described as “a compromise,” “falls short of providing a consistent and shielding framework for the EU industrial base and for green investments in Europe.”

“As a sector with a strong exporting pillar, we are very disappointed to see no export solution in the final compromise. By adding the review clause on possible exports solutions in 2025-2026, policymakers indeed recognized the associated risks for our exports,” said Fertilizers Europe Director General Jacob Hansen, in a Dec. 19 media statement.

However, green investment decisions, he said, 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. Hansen said such approach “aggravates the already challenging competitive position of our sector.”

Fertilizers Europe believes the EU risks losing 12 million mt of premium fertilizer products, with some of the lowest carbon footprint worldwide, exported every year to the detriment of the industry and the environment.

“CBAM needs to be tested to ensure it is an effective measure against carbon leakage. We therefore recognize improvements from the initial proposal on free allocations, but question the decision of EU legislators to start the phase out already at the beginning of the CBAM introduction,” said Hansen.

Fertilizers Europe warned this is likely to impact the value chain and the farmers, and hamper capacity to deploy green investments.

The organization reminded that 50% of all food production is produced thanks to mineral fertilizer, and a robust European fertilizer industry is therefore crucial for Europe’s food security and for its strategic autonomy.

“By withdrawing free allocations already before 2030, the EU policymakers missed an opportunity to establish a framework favorable for green investments that will match the support for industry provided by other global economies,” Hansen concluded.

CBAM targets imports of products in carbon-intensive industries, and is designed to function in parallel with the EU’s ETS to mirror and complement its functioning on imported goods, according to a statement by the Council of the EU. The ETS will gradually replace the existing EU mechanisms to address the risk of carbon leakage, in particular the free allocation of EU ETS allowances.

In addition to fertilizer, the other products and sectors that are initially included within the scope of the new CBAM rules, are iron and steel, cement, aluminium, electricity, and hydrogen, as well as some precursors and a limited number of downstream products. Indirect emissions would also be included in the regulation in what the EU Council said will be “a well-circumscribed manner.”

Under the provisional agreement, CBAM will begin to operate from October 2023 onwards. Initially, a simplified CBAM would apply essentially with reporting obligations only. The aim is to collect data only, according to the EU Council statement.

From then onwards, the full CBAM will kick in. It would be phased in gradually, in parallel to a phasing out of free allowances, once it begins under the revised EU emissions trading system (ETS) for the sectors concerned. The EU Council said this will ensure compatibility of CBAM with international rules on trade.

Importers will eventually need to buy a new type of pollution certificate to reflect discharges in line with prices on the bloc’s ETS. The fee could be at least partially waived if a carbon levy has already been paid in the country where the goods were produced.

The phasing out of free allowances for CBAM sectors still needs to be agreed in the context of the ongoing EU ETS negotiations. In its statement, the EU Council said further work is also required on measures to prevent carbon leakage on exports.

Ensuring full compatibility of CBAM with international obligations of the EU, including in the area of international trade, remains of fundamental importance, the EU Council said.

The financing of the administrative expenses of the European Commission, which will take on many centralized CBAM-related administrative tasks, will need to be decided in according with the annual EU budget procedure, the EU Council said.

The agreement still needs to be unanimously confirmed by ambassadors of the EU member states and by the European Parliaments, and adopted by both institutions before it is final.