The Emissions Trading Scheme

Plenary vote on ETS, 15 February 2017

 

In light of the plenary vote on ETS that will take place on 15 February 2017, Fertilizers Europe would like to emphasize our position on ETS. 

 

Please consult the table below and the letter to the Members of the European Parliament by Jacob Hansen, the Director General of Fertilizers Europe.

 

For further information on Fertilizers Europe's activities please contact the secretariat:

 

Mark Cryans, Head of Communications, Fertilizers Europe
0474 885 886
mark@fertilizerseurope.com

 

 

Fertilizers Europe Press Release on ETS

In response to the publishing of the revised Emissions Trading Scheme (ETS) Directive 203/87/EC Javier Goñi del Cacho, President, Fertilizers Europe said “The fertilizer industry takes great pride in being responsible for feeding half the Global population. The recent ETS proposal by the European Commission does not take account of the competitiveness of the European fertilizer industry. As a result the proposal threatens food security in Europe”


As a responsible industry we appreciate that the EU must achieve a 40 percent reduction in carbon emissions by 2030, but that it also must achieve its goal for industry to represent 20 percent of GDP by 2020. As the cornerstone of EU Climate Policy we look forward to working with the European Parliament and the member states to make sure that the revised Emissions Trading Scheme (ETS) Directive 203/87/EC proposal works in terms of effect on the climate and at the same time does not become a tipping point for the closure of European industrial activity.


The fertilizer industry in Europe represents a turnover of €13.2bil and has invested €1.12bil on average annually over the last 5 years. It employs 95.000 employees and has 120 production sites. As an industry during ETSIII we have delivered emissions reductions of over 50% since 2005.


“Fertilizers produced in Europe are the most emission friendly in the world. Placing Europe’s food security in the hands of fertilizer producers from outside Europe is very risky. 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


“We are unique in that 2/3rds of our emissions from ammonia production are unavoidable due to the use of gas as a feedstock. When the Commission proposes an annual reduction of benchmarks of 0.5%, it means that the scope of reduction can only be achieved from 1/3 of the emissions. It is therefore equivalent to a reduction of 1.5%, which is clearly not feasible. As a result the ETS ceases to become an incentive for lowering emissions and instead it becomes a straightforward unavoidable tax, since we cannot transfer those costs to the European Farmers” says Jacob Hansen.


“As the most exposed sector to carbon leakage as outlined by the European Commission’s very own impact assessment, we ask once more that our unique situation in respect to chemically unavoidable emissions is accounted for. Solutions based on averages are simply not good enough for us”, Javier Goñi del Cacho.


Industry in Europe needs to be profitable, if it is to compete with other parts of the globe. Carbon leakage has so far been small, but investment leakage has become very real in our sector. This puts a strain on industrial activity in Europe in the future and therefore also for the valuable jobs found in the fertilizer industry.


We wish to work with the European Institutions to continue to combat the effects of climate change. We must do this though in a way that is realistic and based on a proper understanding of sectors. Otherwise the societal benefits of fertilizers could be lost with the unfortunate consequence of more emissions from external sources being spread over our fertile land.

 

Press Contact
Mark Cryans, Head of Communications, Fertilizers Europe
0474 885 886
mark@fertilizerseurope.com


Notes to editors
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.



ETS: risks and solutions for Europe's fertilizer industry

Solution: Link carbon leakage prevention to technological possibilities.

 

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.

 

Each 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 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.

 

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 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 if it is to compete with producers from other parts of the globe and avoid carbon leakage. The industry therefore proposes that:

 

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.

 

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

 

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

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.

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.