Overview of main report
The aim of this report is to assess the likelihood of carbon leakage in the European nitrogen fertilizer sector under the Emissions Trading Scheme phase III as currently proposed. We develop our analysis as follows: • In the introductory section we set the scene, explaining the importance of a nitrogen fertilizer industry in European food production, and the counterproductive effect that carbon leakage would have for greenhouse gas emissions and European fertilizer production production. • In Section 1 we highlight that the nitrogen fertilizer industry is the most exposed industry to carbon leakage, and ammonium nitrate, the most widely used nitrogen fertilizer, is subject to two benchmarks. Both benchmark curves are particularly steep compared to other sectors. • Sect Section o 2 co covers e s the t e technology tec o ogy choices c o ces for o reducing educ g N2O eemissions, ss o s, aand d tthe e eeffectiveness ect e ess of o each eac method. et od • In Section 3, we analyse the attractiveness of the European ammonium nitrate market to external producers, the capability of these producers to export to Europe, and the resulting effect on overall GHG emissions. • Producers in countries near to Europe have less or no obligation to reduce GHG emissions, as summarised in Section 4. • In Section 5, we assess the economic implications of the costs of compliance with ETS III at a carbon cost of €30 per tonne CO2e. We show that the carbon costs (including abatement) will severely reduce profitability and lead to plant closures and carbon leakage. • The appendices contain our supporting data, references, arguments, and key calculations.
January 2011
Carbon leakage and the European fertilizer industry
19