CBAM Impact on Indian Fertiliser Exports

CBAM Impact on Indian Fertiliser Exports: Feedstock Emissions, Subsidy Dynamics, and Decarbonisation Pathways

The fertiliser sector is a cornerstone of India’s agricultural economy and one of the six sectors covered by the EU’s Carbon Border Adjustment Mechanism (CBAM) from its inception. India is the world’s second-largest producer and consumer of urea, with installed capacity exceeding 28 MTPA across more than 30 plants. While the bulk of production serves domestic food security, exports of ammonia, urea, ammonium nitrate, and complex (NPK) fertilisers to international markets — including the EU — are now subject to CBAM reporting and, from 2026, financial obligations. This analysis examines emission profiles by feedstock and process, quantifies CBAM duty exposure, situates the analysis within India’s unique subsidy and energy security context, and identifies strategic options for Indian fertiliser producers.

Scope of CBAM Coverage for Fertilisers

CBAM covers the nitrogen fertiliser value chain comprehensively, from precursor chemicals to finished products:

• Ammonia (CN 2814): Anhydrous ammonia and ammonia in aqueous solution. Ammonia is both a CBAM product in its own right and the critical precursor for virtually all nitrogen fertilisers. Its embedded emissions flow through to all downstream products.
• Nitric acid (CN 2808): An intermediate product in ammonium nitrate and complex fertiliser production, with significant N2O process emissions.
• Urea (CN 3102 10): The world’s most widely traded nitrogen fertiliser, and India’s dominant fertiliser product.
• Ammonium nitrate (CN 3102 30): Used as fertiliser and in mining explosives.
• Other nitrogenous fertilisers (CN 3102): Including ammonium sulphate, calcium ammonium nitrate (CAN), and urea ammonium nitrate (UAN) solutions.
• Compound fertilisers (CN 3105): NPK and NP fertilisers containing nitrogen.

For Indian exporters, the CBAM liability is determined by the total embedded emissions of the specific product, including emissions from precursor production (ammonia, nitric acid) at the originating installation.

Ammonia Production: Emission Profiles by Feedstock

Ammonia (NH3) is the foundational building block for all nitrogen fertilisers, synthesised via the Haber-Bosch process which combines nitrogen from air with hydrogen. The source of hydrogen — and hence the feedstock — is the dominant variable determining emission intensity:

India’s best-in-class gas-based plants (IFFCO Aonla, KRIBHCO Hazira) achieve approximately 1.8 tCO2/t ammonia with specific energy consumption around 28-30 GJ/t. Older gas-based plants operate at 2.0-2.3 tCO2/t. Naphtha plants (Mangalore, Trombay, Cochin) produce 2.8-3.5 tCO2/t due to the higher carbon-to-hydrogen ratio of naphtha. Coal gasification plants, including the Talcher Fertilizers project under construction, will produce 3.8-5.5 tCO2/t — roughly double to triple gas-based intensity.

Urea Production Emission Profiles

Urea (CO(NH2)2) is produced by reacting ammonia with CO2 at high pressure. The CO2 feedstock is typically sourced from the ammonia plant’s own reformer exhaust, meaning some process CO2 is chemically incorporated into the urea molecule. Approximately 0.73 tCO2 is consumed per tonne of urea produced. This partially offsets ammonia-stage emissions in the production-phase accounting (though the CO2 is released when urea hydrolyses in soil after agricultural application; CBAM counts only cradle-to-gate emissions).

N2O Emissions from Nitric Acid: The High-GWP Multiplier

For fertiliser products that use nitric acid as an intermediate — particularly ammonium nitrate (NH4NO3) and calcium ammonium nitrate (CAN) — nitrous oxide (N2O) emissions are a critical additional source of CBAM liability. N2O is generated during the catalytic oxidation of ammonia to nitric acid (the Ostwald process) and has a Global Warming Potential of 273 over 100 years (IPCC AR6), making even small physical quantities extremely significant in CO2-equivalent terms:

• Unabated nitric acid plants: 5-9 kg N2O per tonne of HNO3, equivalent to 1.4-2.5 tCO2e/t nitric acid
• With secondary abatement catalysts: 2-4 kg N2O/t HNO3, equivalent to 0.5-1.1 tCO2e/t
• With tertiary catalytic abatement (best practice): 0.5-1.0 kg N2O/t HNO3, equivalent to 0.1-0.3 tCO2e/t — a reduction of 85-95%

For ammonium nitrate production, unabated N2O contributes approximately 1.4-2.1 tCO2e per tonne of AN product. Most EU nitric acid plants have already installed N2O abatement under EU ETS incentives, making this a standard cost of production in Europe. Many Indian plants have not, creating a substantial and avoidable CBAM exposure differential.

India’s Urea Subsidy Regime and Its Interaction with CBAM

India’s fertiliser sector operates under one of the world’s most extensive subsidy frameworks. Under the New Urea Policy (NUP) and subsequent modifications, the government fixes the farmgate price of urea at approximately INR 242 per 45 kg bag (around USD 135 per tonne), while actual production costs range from INR 1,200 to INR 2,000 per bag depending on the plant’s vintage, technology, and feedstock. The government reimburses the difference as subsidy. This creates several critical CBAM interactions:

• No carbon price signal: Producers are reimbursed on a cost-plus basis, so there is no commercial incentive to invest in emission reduction beyond energy norms set by the government. The subsidy absorbs the cost of carbon-intensive production.
• No CBAM deduction available: CBAM allows deduction of any effective carbon price paid in the country of origin. Since India does not impose a carbon tax or mandatory ETS on fertiliser production, the full CBAM charge applies to Indian exports with zero offset.
• Coal-to-urea conflict: The government’s push to build coal gasification-based urea plants (Talcher, Sindri revival, Gorakhpur revival) — motivated by energy security and import substitution for LNG — produces urea with CBAM exposure two to three times higher than gas-based production. This directly conflicts with international trade competitiveness.
• Green ammonia incentive gap: While India’s National Green Hydrogen Mission incentivises green ammonia production, the urea subsidy framework does not yet differentiate based on the carbon intensity of ammonia feedstock. A green ammonia-based urea plant receives the same subsidy treatment as a coal-based one, providing no additional domestic incentive for decarbonisation.
• Export restriction interaction: India periodically restricts urea exports to protect domestic supply, limiting direct EU export exposure. However, ammonia, ammonium nitrate, and complex fertiliser exports are commercially driven and fully CBAM-exposed.

EU Benchmark and Free Allocation for Fertilisers

Under the EU ETS, the product benchmarks for fertiliser-related products are:

• Ammonia: 1.619 tCO2/t (direct emissions benchmark for free allocation)
• Nitric acid: 0.302 tCO2/t (reflecting best-available N2O abatement)
• Urea: approximately 0.9-1.2 tCO2/t (derived from ammonia benchmark, adjusted for CO2 consumed in urea synthesis)

Free allocation is being phased out between 2026 and 2034. CBAM certificates are calculated on the difference between actual embedded emissions and the declining free allocation benchmark.

CBAM Duty per Tonne: Scenario Analysis

Ammonia

* Net CBAM emissions = Embedded emissions minus transitional free allocation deduction (assumed at approximately 40% of EU ETS benchmark = 0.62 tCO2/t deducted). Figures are approximate; actual free allocation percentage varies by year.

Urea

Ammonium Nitrate

The spread is striking: gas-based urea faces a duty of EUR 42-67/t, while coal-based urea faces EUR 122-195/t — a threefold difference driven entirely by feedstock. For ammonium nitrate, installing N2O abatement catalysts reduces CBAM duty by approximately EUR 80-128/t, delivering a payback period measured in weeks for plants with EU export volumes.

Worked Example: CBAM Duty on Urea Export

Consider an Indian producer exporting 50,000 tonnes of urea to the EU in 2029, using natural gas-based ammonia production:

• Ammonia embedded emissions: 2.0 tCO2/t NH3
• Ammonia required per tonne of urea (stoichiometric): 0.567 t NH3/t urea
• Ammonia contribution to urea emissions: 0.567 × 2.0 = 1.13 tCO2/t urea
• CO2 consumed in urea synthesis (deducted): −0.73 tCO2/t urea
• Additional process emissions (utilities, auxiliary fuel): 0.40 tCO2/t urea
• Total embedded emissions: 0.80 tCO2/t urea
• EU free allocation deduction (2029, approx. 50% phase-out): 0.18 tCO2/t
• Net chargeable emissions: 0.62 tCO2/t urea
• EUA price assumed: EUR 65/tCO2
• CBAM duty per tonne of urea: 0.62 × 65 = EUR 40
• Total CBAM cost for 50,000 tonnes: EUR 2,015,000 (approximately USD 2.2 million)

At a urea FOB price of approximately USD 300-350 per tonne, this represents a CBAM surcharge of roughly 5-6% of commodity value for efficient gas-based production. For coal-based urea at 2.8 tCO2/t total embedded emissions, the surcharge rises to approximately EUR 159/t or 18-20% of commodity value — a significant competitive disadvantage.

Strategic Options for Indian Fertiliser Producers

• Feedstock switching (naphtha/coal to natural gas): Completing the conversion of remaining naphtha-based plants to natural gas is the highest-impact near-term strategy. The Jagdishpur-Haldia-Bokaro-Dhamra Pipeline (JHBDPL) and other expansions under the National Gas Grid initiative will enable feedstock switching for eastern Indian plants that currently lack gas connectivity. This reduces ammonia-stage emissions by 30-50%.
• Energy efficiency in ammonia production: Best-available technology gas-based plants achieve 28-30 GJ/t ammonia; many Indian plants operate at 34-38 GJ/t. Upgrading reformer designs, improved shift catalysts, better heat integration (autothermal reforming, gas-heated reforming), and modern CO2 removal systems (activated MDEA, physical solvents) can cut emissions by 15-25% within existing gas-based facilities.
• N2O abatement catalysts for nitric acid: For producers of ammonium nitrate or CAN, installing secondary and tertiary N2O destruction catalysts is the single most cost-effective greenhouse gas reduction measure in any industrial sector. Capital cost is typically EUR 2-5 million per nitric acid plant, with 85-95% N2O destruction efficiency. CBAM duty savings for a mid-sized plant exporting 50,000-100,000 t/year of AN to the EU would be EUR 4-13 million annually — payback measured in weeks to months.
• Green ammonia (electrolytic hydrogen): Replacing fossil-derived hydrogen with green hydrogen from renewable-powered electrolysis reduces ammonia production emissions by 80-95%. India’s National Green Hydrogen Mission targets 5 MTPA by 2030, with ammonia identified as a priority offtake. ACME Group, Reliance Industries, and NTPC are developing green ammonia projects. At current costs (USD 4-6/kg H2), green ammonia is not yet cost-competitive with gas-based ammonia, but the gap narrows as electrolyser prices decline.
• Carbon capture on ammonia plants: Ammonia production already generates a concentrated CO2 stream in syngas purification, making it one of the lowest-cost carbon capture opportunities. Approximately 50-70% of process CO2 is typically captured for urea synthesis or merchant sales. Capturing the remaining vented CO2 for geological storage (in the Krishna-Godavari or Cambay basins) or mineralisation would further reduce embedded emissions.
• Domestic carbon pricing alignment: If India’s Carbon Credit Trading Scheme (CCTS) is extended to the fertiliser sector, compliance costs paid domestically can be deducted from CBAM liabilities. Proactive engagement with the Bureau of Energy Efficiency (BEE) and Ministry of Environment on carbon pricing design is strategically important. However, the interaction between CCTS and the subsidy regime may require careful policy design to ensure the carbon cost is borne by the producer (as CBAM requires) rather than absorbed by the government subsidy.

Policy Implications: Energy Security vs Climate Competitiveness

India’s fertiliser sector sits at the intersection of food security, energy policy, trade competitiveness, and climate action. The government’s coal-to-urea programme — designed to reduce dependence on imported LNG and revive closed fertiliser plants at Talcher, Sindri, and Gorakhpur — directly conflicts with CBAM competitiveness. A coal-based urea plant faces CBAM duties two to three times higher than a gas-based plant, effectively pricing its output out of European markets.

This tension will require coordinated policy between the Department of Fertilizers, the Ministry of Environment, and the Ministry of Commerce. Viable approaches include ring-fencing coal-based production for domestic consumption (where CBAM does not apply), prioritising gas-based and green ammonia capacity for export-oriented production, and accelerating CCTS implementation to create a domestic carbon price that qualifies for CBAM deductions.

RSustain Tools for CBAM Compliance

RSustain provides specialist tools and advisory services to help Indian fertiliser producers navigate CBAM obligations:

• CBAM Compass — Identify your CBAM reporting obligations by product (ammonia, urea, AN, NPK), map precursor emission chains, and plan your compliance timeline from transitional reporting through financial obligations. Includes guidance on the CO2 utilisation credit methodology for urea.
• CBAM Duty Calculator — Model CBAM duty by feedstock (natural gas, naphtha, coal), with and without N2O abatement, at multiple EUA price scenarios. Compare actual-value reporting against default values. Generate scenario reports for board and investor presentations.
• Carbon Desk Advisory — Our fertiliser sector specialists support installation-level MRV system design, N2O abatement cost-benefit analysis, green ammonia feasibility assessment, feedstock switching strategy, and CBAM-optimised export planning. Contact carbon@rsustain.org to schedule a consultation.