The fertiliser sector’s CBAM story is more complicated than steel’s or aluminium’s. India’s direct fertiliser exports to Europe are smaller in volume, the cost per tonne under CBAM is lower than most headline analyses suggest, and there is a live political debate within the EU about whether to temporarily exempt fertilisers from the mechanism altogether. But none of that makes CBAM irrelevant for Indian fertiliser producers. The mechanism matters here for a reason that is specific to this sector: for green ammonia, CBAM exposure is effectively zero — and that creates a direct, financially quantifiable trade premium for the green transition at exactly the moment when India’s National Green Hydrogen Mission is trying to make that transition commercially viable.

This article works through what CBAM actually costs for urea and ammonia, why the fertiliser exemption debate erupted almost immediately after the definitive phase began, how India’s fertiliser exports to Europe are structured, what the green ammonia projects underway in India mean in the context of CBAM, and what the Hydrogen Purchase Obligation adds to the picture. For the broader CBAM framework, see Carbon Border Adjustment Mechanism and Its Impact on Indian Industry. For the operational compliance process, see How the Carbon Border Adjustment Mechanism Works.

What fertiliser products are covered and why both Scope 1 and Scope 2 matter here

CBAM’s fertiliser coverage is defined by specific EU Combined Nomenclature codes. The key products covered are: urea (CN 3102 10), ammonia anhydrous or in aqueous solution (CN 2814), nitric acid and sulphonitric acids (CN 2808 00 00), and compound fertilisers containing nitrogen, phosphorus and potassium (CN 3105, with specific exclusions). These are the nitrogen-based products that dominate India’s fertiliser exports.

A critical difference from steel applies here. For fertilisers, CBAM includes both Scope 1 direct process emissions and Scope 2 indirect emissions from electricity used in production. This is the same treatment as cement, and different from steel where only direct emissions are currently covered. For the fertiliser sector, indirect electricity emissions from the electrolysis of water, plant utilities and auxiliary operations are included in the embedded emissions calculation, making the electricity source relevant from day one — not after a future scope expansion as in aluminium.

The most careful quantitative analysis of fertiliser CBAM costs available is Sandbag’s February 2026 note, which specifically examines urea and corrects several widespread misconceptions about the mechanism’s price impact. Using an EU carbon price of €80 per tonne and embedded emissions for urea from a typical integrated ammonia-urea plant of approximately 1.1 tCO₂ per tonne, the estimated CBAM cost for average plants is €16.19 per tonne of urea and €7.39 per tonne for more efficient plants with N₂O abatement — because the relevant market price effect is determined by the marginal supplier, not by the average cost across all importers.

These numbers are substantially lower than the headline costs that sometimes appear in commentary on fertiliser CBAM. The reason is the distinction between the cost faced by a specific plant and the effect on EU market prices. In a competitive market, prices are set by the marginal supplier. If most suppliers face modest CBAM costs because their emission intensity is close to benchmark, the price effect on the EU market is small. It is only producers using EU default values — which are set at the highest observed emission intensity — who face costs in the €430,000 per 10,000 tonne range that CarbonChain cites. A 10,000-tonne urea shipment using default values could trigger €430,000 or more in CBAM costs, but verified data from a modern gas-fed plant with N₂O abatement could reduce this by 40 to 50%. This makes the investment in emissions measurement and verification directly financially productive — not just a compliance exercise.

The fertiliser exemption debate — a political wildcard that matters for India

Within one week of CBAM’s definitive phase beginning, a significant political complication emerged. On 8 January 2026, EU Trade Commissioner Maroš Šefčovič stated that the European Commission might assess the feasibility of temporarily pulling fertilisers out of CBAM if there was evidence the policy was leading to significant inflationary pressure on food prices, after pressure from European farming ministers. Twelve EU member states had already written to Brussels asking for a temporary fertiliser exemption.

The agricultural sector’s concern is grounded in real economics. EU farmers already faced historically low or negative margins, with fertiliser making up 15 to 30% of total production costs. Prices had risen sharply since 2020, and tariffs on Russian and Belarusian fertilisers had already caused 10 to 15% price increases. Industry groups warned that CBAM could raise costs by another 10 to 30%, depending on how emission calculations were finalised.

Seaborne trade data in early January 2026 did not show strong evidence of front-loading to avoid CBAM costs for fertilisers. EU steel and fertiliser imports dropped in week one but appeared to recover in week two of 2026. The immediate trade disruption was modest — but the longer-term structural question of whether natural gas-based fertiliser production remains cost-competitive in EU markets is not resolved by a temporary exemption debate. It is resolved by the trajectory of green ammonia costs and the pace of India’s transition.

India’s fertiliser exports to Europe — what is actually at stake

India is the world’s second-largest urea producer at approximately 31 million tonnes per year and a significant producer of ammonia, DAP and complex fertilisers. However, India’s fertiliser export relationship with Europe is more nuanced than its steel or aluminium position. A substantial share of India’s fertiliser production is consumed domestically — the government’s fertiliser subsidy regime keeps domestic prices well below cost-of-production levels, creating a complex price environment that makes exports commercially variable depending on global price cycles.

India’s ammonia exports to Europe are the more commercially significant CBAM exposure, because anhydrous ammonia is increasingly traded not just as a fertiliser precursor but as a green energy carrier — particularly relevant as Europe builds infrastructure to import green hydrogen in the form of ammonia for reconversion or direct use. For green ammonia, the CO₂ intensity is zero, meaning it is effectively exempted from the CBAM import duty. This means that the CBAM has provided a competitive advantage to green ammonia over grey. A country like India, with abundant renewable resources, the National Green Hydrogen Mission providing the policy framework, and the SIGHT programme providing financial incentives, is positioned to exploit that competitive advantage — provided its green ammonia production scales in time.

The emissions calculation — why fertiliser CBAM is more technical than it looks

Fertiliser emissions are among the most technically complex in the CBAM framework because ammonia production generates two distinct types of greenhouse gas emissions: CO₂ from the steam methane reforming of natural gas, and nitrous oxide (N₂O) from the downstream oxidation of ammonia in nitric acid production. N₂O has a global warming potential of 265 to 298 times that of CO₂, meaning even small quantities of N₂O emissions translate into substantial CO₂-equivalent CBAM costs.

The implication is that plants with N₂O abatement technology — catalytic reduction units that convert N₂O to nitrogen and water in nitric acid plants — can dramatically reduce their embedded emission intensity and therefore their CBAM obligation. The difference between an unabated and an abated nitric acid plant can be 1 to 3 tCO₂e per tonne of nitric acid, which translates directly into CBAM cost differences. For Indian producers with EU export volumes, the investment economics of N₂O abatement are worth calculating specifically against avoided CBAM costs — the payback period may be substantially shorter than the technology’s general environmental case alone would suggest.

The embedded emission calculation for fertilisers follows the methodology in Annex III of the CBAM Regulation, which requires measurement of: direct CO₂ emissions from fossil fuel combustion in the reforming process; CO₂ from process chemistry (the inherent CO₂ release from steam methane reforming); N₂O emissions from nitric acid production processes; and indirect electricity emissions from utilities and auxiliary operations. This multi-component calculation is more complex than for steel or aluminium, which is why third-party verifiers with specific fertiliser sector expertise are particularly important for Indian producers.

The product-level cost comparison

The table makes a critical point visible. For grey ammonia, CBAM costs at €128 to 152 per tonne at an €80 carbon price are material — representing 10 to 15% of typical grey ammonia spot prices in recent years. For green ammonia, the CBAM cost is zero. This is not a small price differential — it is the mechanism creating a direct carbon price reward for green production that grows every year as EU ETS prices rise toward the €140 per tonne level projected by 2030. As carbon-intensive fertilisers become more expensive, exporters that invest in low-carbon solutions — such as green ammonia — can gain an advantage over their non-EU competitors. Suppliers with lower-emission products are likely to gain a significant advantage as EU customers look to reduce costs.

India’s green ammonia projects — the transition taking shape

The Hydrogen Purchase Obligation — the domestic demand signal that completes the picture

CBAM creates demand from the EU side for low-carbon ammonia. India’s proposed Hydrogen Purchase Obligation will create mandatory demand from the domestic side. Together, these two mechanisms provide the bilateral demand signal — from Europe and from domestic regulation — that gives green ammonia project developers sufficient revenue visibility to raise the long-term capital that large electrolysis and ammonia synthesis plants require.

The HPO, which MNRE is developing in consultation with the Department of Fertilisers and the Ministry of Petroleum and Natural Gas, will mandate a minimum percentage of green hydrogen procurement for fertiliser plants above specified capacity thresholds. The initial obligation level and the timeline for notification have not yet been finalised. But the direction is clear: India’s fertiliser sector, which currently consumes grey hydrogen produced from natural gas imported largely as LNG, will be required to progressively substitute green hydrogen over the coming decade.

The energy security dimension of this transition is significant and often underweighted in CBAM-focused analysis. India is the world’s second-largest consumer of fertilisers. Around 86% of India’s ammonia requirement was import-dependent in FY 2022-23, and over 60% of gas consumed in the fertiliser sector comes from imported LNG. Green hydrogen produced domestically from renewable electricity eliminates both the import dependency and the LNG price volatility that translated into Rs 2.25 lakh crore in government fertiliser subsidies in FY 2022-23. The HPO is therefore simultaneously a climate policy, an energy security policy, and a fiscal policy instrument — which gives it a breadth of political support that purely environmental obligations often lack.

The decarbonisation pathways for Indian fertiliser producers

What India’s major fertiliser producers need to do now

The immediate priorities for Indian urea and ammonia producers with EU export volumes are clear and sequenced. First, confirm which specific products are covered by CBAM’s CN codes — urea, ammonia, nitric acid and compound fertilisers are the primary categories. Second, establish verified production-level emissions data using the EU CBAM methodology rather than GHG Protocol or domestic reporting standards. The Sandbag analysis demonstrates that the difference between using default values and verified actual data is not minor — it determines whether a 10,000-tonne shipment costs €43 per tonne or €7 per tonne in CBAM obligations. Third, assess N₂O abatement investment economics against avoided CBAM costs — this is a calculation that most Indian nitric acid producers have not made using current and projected EU ETS prices. Fourth, monitor the EU fertiliser exemption debate closely — if a temporary exemption is granted, it will likely be time-limited and the eventual full application of CBAM to fertilisers is more probable than a permanent exclusion.

For producers planning new capacity or export expansion, the strategic question is straightforward: any new ammonia or urea capacity that will be online by 2030 and targeting EU markets should be evaluated against the green ammonia economics, not just the grey ammonia economics. At current SIGHT incentive levels and with the zero-CBAM-cost advantage, the break-even between green and grey ammonia for EU-bound production is closer than the headline cost-per-kg comparison suggests.

For a full view of how CBAM, the Hydrogen Purchase Obligation, the SIGHT programme and the PAT Scheme interact for the fertiliser sector, see the Fertilisers sector page and the Green Hydrogen regulatory repository. For India’s broader NDC targets that frame the long-term direction, see the India Decarbonisation page.

Part of the Reclimatize.in CBAM cluster. Also read: CBAM and Its Impact on Indian Industry, How CBAM Works, CBAM and Indian Steel, and CBAM and Indian Aluminium.