The solutions that are being considered to address Scope 1, 2, and 3 emissions in the fertilizer industry can be broadly summarised in these categories:

It is also true that meeting this challenge requires a balanced approach in order to avoid counterproductive consequences. In recent years, the industry has come under fire for its environmental footprint not just from environmental groups, but crucially from regulators in key regions such as the European Union, where calls for an outright reduction in fertilizer application has been translated in region-wide targets (e.g. the EU Farm-to-Fork strategy).

In this context, it is always useful to note that inorganic fertilizers are estimated to enable around half of all agricultural output globally. Therefore, while reducing the carbon footprint of fertilizer use is certainly desirable, their use remains crucial to ensuring food security. When Sri Lanka imposed a ban on inorganic fertilizers in 2021, it quickly triggered a collapse in crop yields, higher food prices, and a greater dependency on food imports. Furthermore, the efficient use of finite land resources requires a careful management of agricultural yields to minimize land-use change which would lead to further carbon emissions.

We do know that the fertilizer industry, and in particular the nitrogen fertilizer industry, is proactively looking to reduce its carbon footprint and improve its sustainability.  It has two major challenges: to reduce the greenhouse gas emissions associated with ammonia production, which amount to around 1.5-2% of all human-caused net GHGs according to multiple sources, and to reduce further emissions associated with actual mineral fertilizer use (in the form of CO₂, but more importantly nitrous oxides), which account for a further 2% of global emissions according to a study published by IFA and Systemiq in 2022.

Currently, a lot of the industry efforts seem to be concentrated on reducing the carbon footprint of ammonia production. The interest in low or zero-carbon ammonia supply is in part (or primarily) driven by the promise of a theoretical future boom in demand for ammonia for novel applications, such as marine fuels, power generation, and as a hydrogen carrier. However, focusing solely on this solution leads to some issues specific to the fertilizer industry, such as the challenge of using low-carbon ammonia for the production of urea, which currently accounts for over 50% of all nitrogen application globally. Since the CO₂ embedded in urea is fully released into the atmosphere upon application, the only way to produce a carbon-neutral urea molecule would be to use a biogenic source of CO₂ (e.g. biomass) or direct air capture, with obvious cost and supply challenges.

There are several products that could be decarbonised with low-carbon ammonia as a raw material, such as nitrates, but also ammonium phosphates and synthetic ammonium sulphate. AN/CAN in particular offer the opportunity to produce a fully carbon-free fertilizer product, but the challenge is that nitrates production and consumption are concentrated in Europe (as shown in the chart below), while they are heavily regulated elsewhere due to the risk of explosions associated with AN in particular.

Nitrates’ suitability for the reduction of Scope 1 emissions and the geographical scope of their application is a good match for Europe’s goal to decarbonize not just its domestic fertilizer industry, but to force the decarbonization of all imported nitrogen fertilizers as well. The European Union has put in place a number of industry-specific measures to drive the decarbonization of the sector, ranging from the EU’s Renewable Energy Directive (REDIII) to the Carbon Border Adjustment Mechanism (CBAM), and the aforementioned Farm-to-Fork strategy.

The considerations above however limit the scope of application of low-carbon ammonia both product- and region-wise, and could potentially create a challenge for the Middle Eastern nitrogen fertilizer industry given that it is almost exclusively urea-based, and heavily export-oriented. The silver lining is that currently Middle Eastern producers mostly supply urea to a number of countries that (speculatively) are unlikely to implement far-reaching, industry-specific emissions regulations affecting the fertilizer industry anytime soon, based on the trade matrix presented below. We could speculate however that some of the current destination markets, such as the US and Australia will gradually adopt measures to incentivise either the use of low-carbon fertilizers, but also the use of enhanced-efficiency fertilizers.

The Middle East region’s nitrogen fertilizer industry does have several options to offer a more sustainable product portfolio, in addition to reducing production emissions, such as nitrogen products containing micronutrients, but also enhanced-efficiency urea. These solutions would tackle application (Scope 3) emissions rather than production emissions.

In this category we find for instance stabilised urea. The usage of inhibitors to produce a more efficient urea product has clear demand potential driven by regulations, especially in the EU, where in some countries like Germany and Poland local regulators have mandated the use of inhibitors with urea. The main issue however is that inhibitors are typically applied at destination ports or further down the value chain, due to the fact that these compounds break down over time and will no longer be effective. This poses a technical challenge for export-oriented producers in the Middle East (unless inhibitors are introduced during the urea production as part of the granule, which might pose other technical challenges).

Coated urea (controlled/slow-release) is also attracting growing interest as well as awareness about their potential role in limiting the environmental impact of nitrogen fertilizers. This solution could provide an ideal seaborne, premium product for Middle Eastern urea producers, but it is not without issues. In particular, polymer-coated urea prospects are limited by potential environmental regulations that will target the polymer residue left by these products. Biodegradable options, although potentially a game changer, are not currently viable on an economic scale.

In summary, the challenge posed by the decarbonization of the fertilizer industry, in particular nitrogen fertilizers, is very complex. Fertilizer producers in the Middle East will likely be forced to adopt a mix of solutions to adapt to a rapidly changing regulatory environment in an increasing number of markets, and also to capture potential market premiums. Although it is possible that several target markets for regional producers will not follow Europe’s drastic decarbonization approach, it would be a prudent commercial strategy to anticipate similar changes in many other markets over the medium to long term.