Ets version for web

ETS: risks and solutions for Europe’s fertilizer industry

EUROPE’S FERTILIZER INDUSTRY

€ €13.2 bn*

€1.12 bn*

95,000

120+

turnover FERTILIZERS AND FOOD SECURITY

50% Today, fertilizers account

for 50%

of global food production

in 1960

2 people

were fed from 1 hectare of land

Fertilizers are an integral part of food production.

Without them, 50% of the world would go hungry.

in 2025

5 people

will need to be fed from 1 hectare of land

employees

investment

production sites

The fertilizer industry makes a significant contribution to Europe’s economy and the profitability of its agri-food sector. * annual average last 5 years

Solution: Link carbon leakage prevention to technological possibilities.

INFINITE FERTILIZERS Continuing to feed the world

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.

The benefits

of fertilizers 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.

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

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

CARBON DIOXIDE CREATED BY THE CHEMICAL REACTION TO PRODUCE AMMONIA CANNOT BE REDUCED CO2 Air (N2, O2)

CH4+ 2H2O = 4H2+ CO2

Water (H2O) Gas (CH4)

2/3

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

60

Trade intensity (%)

40

30

10

± 700°

± 400°

Heat/power

Heat/power

Organic basic chemicals Ceramic tiles and flags Aluminium

Paper Refineries

20

H2

N2+ 3H2 = 2NH3

INDUSTRY GROUPS AT RISK OF CARBON LEAKAGE

Inorganic basic chemicals

50

1/3

N2

VERY HIGH RISK (100%) Fertilizers

Steel

HIGH RISK (80%) Cement Lime and plaster 0 5 10 15 20 25 30 35

Emissions intensity (kg CO2 per EUR GVA)

Ammonia (NH3)

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).

Carbon leakage Under 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.

CO2 EMISSIONS FROM EU AMMONIA PRODUCTION

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

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:

2 3

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.

“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

Tonnes CO2 per tonne NH3

1

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.

1.6

Emissions reduction below the theoretical minimum are impossible to achieve

BAT (new plant) 1.74%

Free

1.4

1.2

Thermodynamic limit

alloc

ation

cap 2.2%

1.0 2013

2021

2030

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.

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

mT CO2-eq / mT product

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

EU

US

Russia

China (coal)

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

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.

12/11/2015 - V2

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

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