CBAM emergency brake throws fertilizer market into paralysis

The European Commission's handling of the Carbon Border Adjustment Mechanism this week has thrown the European fertilizer market into disarray, with market participants reporting a near-total freeze in trade amid growing uncertainty over the policy's scope and timeline.

Market sources told Platts that no trades were being concluded in key fertilizer products such as urea, with farmers and suppliers unable to agree on pricing.

"The news is having an impact on the market," a Northwest Europe-based buyer said. "My confidence to purchase now has evaporated."

How did we get here?

In December, the European Commission proposed a new Article 27a for the CBAM law, an "emergency brake" aimed at addressing "serious and unforeseen circumstances" that could affect the price of goods.

On Jan. 7, following discussions with French and Italian agriculture ministers, EU Commissioner Maros Sefcovic indicated Article 27a could be used to support the agricultural sector, and in a subsequent press conference suggested it might be applied retroactively from the start of CBAM on Jan. 1.

The EU affirmed in guidance released Jan. 8 to its Article 27a amendment -- which would allow it to remove certain goods under "serious and unforeseen circumstances" -- it could be retroactive.

The prospect of retroactive policy changes has created a devastating level of uncertainty for the fertilizer market. While the Commission has stated that no CBAM certificates need to be purchased until 2027, this misses the reality on the ground: CBAM is already shaping commercial negotiations and terms of trade.

"The European Commission has just undermined all policy certainty for fertilizer companies, Gabriel Rozenberg, founder and CEO of London-based CBAMBOO, said Jan. 7.

"Either CBAM is operational, requiring price adjustments of around Eur150/mt on imports, or it is not -- market participants say there is no room for ambiguity in a functioning market," Rozenberg said.

Related content: The potential proliferation of CBAM: a fragmented carbon tariff landscape

Fertilizers: unique market and policy dynamics

The fertilizer sector is acutely exposed to the CBAM regime. The carbon-to-value ratio for fertilizers is far higher than for industrial products like steel, resulting in a much sharper price shock.

The commission's own approach -- setting a 1% markup for fertilizer default values, versus 10%-30% for other sectors -- reflects the political and technical sensitivity of the sector. Fertilizers are also more difficult to decarbonize, and the sector has already invested heavily in compliance and innovation.

Natalia Iglesias, head of sustainability at Spanish producer Delso said that, after months of preparation for CBAM, companies now face a climate of "total uncertainty," with the core challenge being how to pass new costs on to farmers.

Yara, another major producer, warned that the Commission's mixed signals -- on suspending tariffs and possibly CBAM itself -- have only deepened the confusion, undermining affordability for farmers and stability for the sector.

Industry association Fertilizers Europe said it would "strongly oppose any action that would further undermine the competitiveness of an already stressed sector," calling the EC's latest moves "totally unacceptable."

Some in Brussels are warning that CBAM risks following the path of US tariffs, with costs ultimately falling on consumers.

"It's the same like Trump saying I want to increase the defense budget by 50% and I will get the money from tariffs," a trade association lobbyist said. "The same is going to happen with EU consumers with CBAM."