ETS: risks and solutions for Europe’s fertilizer industry

Solution: Link carbon leakage prevention to technological possibilities.

in 1960

2 people were fed from

1 hectare of land

in 2025

5 people will need to be fed

from 1 hectare of land

50%

Today, fertilizers account for 50%

of global food production

FERTILIZERS AND FOOD SECURITY

Fertilizers are an integral part of food production. Without them, 50% of the world would go hungry.

EUROPE’S FERTILIZER INDUSTRY

* annual average last 5 years

€13.2 bn* turnover

€1.12 bn* investment

€

95,000 employees

120+production sites

The fertilizer industry makes a significant contribution to Europe’s economy and the profitability of its agri-food sector.

E ach year, the industry transforms millions of tonnes of raw materials - air, water, natural gas and mined ores

- into safe and practical fertilizers based on the essential crop nutrients nitrogen, phosphorus and potassium.

Production of nitrogen-based fertilizers, by far the largest product group, is based on the Haber-Bosch process. This involves combining nitrogen from the air with hydrogen, formed by reacting natural gas with water at high temperature and pressure, to produce ammonia. Carbon dioxide is created as part of this chemical reaction.

Approximately two-thirds of the natural gas used by the industry is as a raw material for the chemical reaction, with the remainder employed to power the production process. The resulting ammonia is then mixed with nitric acid (also derived from ammonia) to produce nitrate-based fertilizers such as ammonium nitrate (AN) or with liquid carbon dioxide to create urea.

On average, Europe’s ammonia plants are the most energy efficient in the world and have the lowest equivalent CO2 emissions.

Europe’s fertilizer producers operate in a global market and they face a number of challenges in remaining globally competitive. These include the

high price of gas in Europe and Europe’s increasingly strict environmental controls.

Climate changeThe EU’s current 2030 energy and climate change strategy for the upcoming COP negotiations in Paris focus on a 40% reduction in greenhouse gases.

Continuing to feed the world

INFINITE FERTILIZERS

The benefits of fertilizers

European-produced fertilizers offer Europe’s farmers a secure supply of innovative, high quality products that make a major contribution to their productivity and profitability and their ability to help meet world food demand.

INDUSTRY GROUPS AT RISK OF CARBON LEAKAGE

Inorganic basic chemicals

60

50

40

30

20

10

0 5 10 15 20 25 30 35

VERY HIGH RISK (100%)

Organic basic chemicals

Ceramic tiles and flags

AluminiumPaper

Refineries Steel

CementLime and plaster

Fertilizers

Trade

inten

sity (

%)

Emissions intensity (kg CO2 per EUR GVA)

HIGH RISK (80%)

CO2

Ammonia(NH3)

Air(N2, O2)

Water(H2O)

Gas(CH4)

CH4+ 2H2O=

4H2+ CO2

± 700°

Heat/power

N2+ 3H2=

2NH3

± 400°

Heat/power

2/3

1/3

N2

H2

CARBON DIOXIDE CREATED BY THE CHEMICAL REACTION TO PRODUCE AMMONIA CANNOT BE REDUCED

Carbon leakageUnder the EU Emissions Trading Scheme, an industry exposed to risk of carbon leakage is entitled to free CO2 allowances up to a benchmark based on the average emissions of the best 10% of the industry’s installations.

But, to ensure that the ETS cap diminishes over time, an annual correction factor (CF) is also applied to the allowance calculation. The current ETS III CF of 1.74% for fertilizer production will result in an approximate 17% reduction in the industry’s allowances by the end of 2020.

From 2021 onwards, the European Commission is intending to increase the annual correction factor to 2.2%. However, the technological potential for further significant industry reductions is limited. The industry estimates a possible average annual reduction for ammonia production of 0.2% up to 2050. The best performers, which set the benchmark, only have scope to marginally improve their emissions.

In addition, the benchmark is applied to both the natural gas used as a raw material and the gas used to drive the production process. Yet the CO2 emissions from the former are an unavoidable consequence of the chemical reaction which cannot be reduced. The CO2 emissions from the gas used to drive the production process has some scope for reduction but, at 1.6 tonnes per tonne of ammonia in the best plants, it is not far off the theoretical process minimum.

The current ETS benchmark of 1.6 tonnes of CO2 per tonne of ammonia represents today’s best available technology (BAT). Since the technology to achieve the theoretical minimum is not yet available, the industry considers a level of 1.45 tonnes at best for new plants to be achievable by 2050.

Application of any adjustment factor on the process emissions means that the allocation of free allowances will be based on an unattainable figure below the theoretical process minimum. Even the best performers will lose international competitiveness.

“Without the efficient and strong fertilizer industry in Europe 52.4 million tonnes of additional CO2 will be emitted globally. That is almost the equivalent of the total emissions of Sweden.” Jacob Hansen, Director General, Fertilizers Europe

1

23

Thermodynamic limit

1.6

1.4

1.2

1.0

2013 2021 2030

BAT (new plant)

Tonn

es C

O2 p

er to

nne

NH

3

With the ETS III correction factor even the best plants lack allowances and lose international competitiveness

CO2 EMISSIONS FROM EU AMMONIA PRODUCTION

Free allocation cap

Emissions reduction below the theoretical minimum are

impossible to achieve

1.74%

2.2%

The European fertilizer industry has invested heavily in recent years. This has on average resulted in almost 50% emission reductions. These reductions have come from where technological solutions were possible. The scope for further reductions, especially for the best performing plants, is extremely limited as technology does not allow it. The best plants operate close to the technological limits.

In 2014, the European Commission officially acknowledged that the European fertilizer industry is at the highest risk of carbon leakage under ETS. Lower free allowances mean that both carbon leakage and investment leakage cannot be avoided. This will result in higher emissions from fertilizer production in other parts of the world. This makes no sense.

The industry believes that the European Commission’s proposed amendment of Directive 2003/87/EC for further emissions reductions under ETS IV (2021-2030) sets unrealistic targets with which it is technically unable to comply. As a result, it ceases to act as an incentive for reducing emissions but rather as a straightforward EU taxation on the industry, which it is unable to pass on to its customers (Copenhagen Economics (2015) - Carbon Leakage in nitrogen fertilizer industry).

Solutions for the industry The fertilizer industry in Europe needs to remain competitive with producers from other parts of the globe and avoid carbon leakage. The industry therefore proposes that:

Benchmarks should reflect achievable technological progress. This means:• 100% free allowances for unavoidable chemical

process emissions should be granted.• A correction factor of zero should be applied for

benchmarks where real achieved emission reductions are below 0.2% per year.

Any general reduction in free emission allowances should not be uniform but graduated so that sectors at the highest risk exposure of carbon leakage have no reduction of their free allowances.

Additional allocation of free allowances from new entrants’ reserves should be granted to companies showing a minimum of 5% production increase.

THE CARBON FOOTPRINT OF EUROPEAN AMMONIUM NITRATE FERTILIZER OUTPERFORMS PRODUCTION FROM OTHER REGIONS.

Fertilizers Europe represents the majority of fertilizer producers in Europe and is recognized as the dedicated industry source of information on mineral fertilizers. The association communicates with a wide variety of institutions, legislators, stakeholders and members of the public who seek information on fertilizer technology and topics relating to today’s agricultural, environmental and economic challenges. The Fertilizers Europe website provides information on subjects of relevance to all those interested in fertilizers contribution to global food security.

Fertilizers Europe asblAvenue E. Van Nieuwenhuyse 4/6 B-1160, Brussels, BelgiumTel: +32 2 675 3550Fax: +32 2 675 3961main@fertilizerseurope.com

www.fertilizerseurope.com

www.facebook.com/fertilizerseuropepage

Group Fertilizers Europe

twitter.com/FertilizersEuro

www.youtube.com/fertilizerseurope

12/11/2015 - V2

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China (coal)RussiaUSEU

mT CO2-eq / mT product

Based on calculations using a verified Carbon Footprint Calculator for fertilizer products