Fertilizer goods gain lower markups to default values, to curb price increases: EC

Fertilizer goods will have lower markups of 1% to the respective default values during the initial years of the Carbon Border Adjustment Mechanism's definitive period, which begins Jan. 1, 2026, the European Commission said at a press conference Dec. 17.

The EU recognized the unique characteristics of the fertilizer sector and introduced a mechanism to cap the increase of punitive default values at 1% for fertilizers, compared to 10%-30% markups for other sectors like iron and steel.

"Imports of fertilizers will have a specific situation," French Commissioner Stéphane Séjourné said. "In terms of imports, it will be an exceptional situation to avoid price increases."

The measure was among several announced Dec. 17 when the EC released 24 documents, including implementing and delegated acts, along with selected regulated acts requiring European Parliament and Council approval.

'Emergency brake' for fertilizer goods

Gabriel Rozenberg, founder and CEO of London-based CBAMBOO, a CBAM software company, stated that the volume of documents and timing provide fertilizer companies only two weeks to address critical details affecting their business.

"Fertilizer companies are particularly sharply hit both by the CBAM and by the phased withdrawal of free allowances," Rozenberg said. "The carbon-to-value ratio is much more punishing for fertilizers than the steel industry."

The possibility of farmers protesting against the increased costs of fertilizers has caught the EC's attention, leading to the addition of a new regulated act in Article 1 (17) that could allow the EU to exclude fertilizer-specific products from CBAM, Rozenberg said.

The act requires Parliamentary and Council approval and serves as an "emergency brake" enabling the commission to remove CBAM goods if they cause "severe harm" to the EU's internal market, Rozenberg said.

Fertilizers Europe, which advocates for domestic EU producers and exporters, said the flat 1% markup on default values would "significantly weaken" the mechanism.

"The Commission's decision to start with the markup for default values at 1% reflects a genuine effort to address farmers' concerns about the CBAM launch, and we acknowledge that," Antoine Hoxha, director general of Fertilizers Europe, said in a statement. "At the same time, extending a 1% markup on default values indefinitely will discourage the reporting of real emissions by overseas producers -- particularly those with a higher footprint than their country's average. Such watering down of the rules undermines CBAM's core objectives of fair competition and transparency."

Default value 'obsession'

A Europe-based trader expressed skepticism about the overall impact, given that the industry largely tracks its values. The slower increase in default values would benefit the most inefficient producers, but most would not be impacted.

"The obsession with default values is a misguided one," the trader said. "Default values only apply when actual values are not supplied and 99.9% of the suppliers to the EU are providing values already."

An Europe-based ammonia trader noted the exceptionally high default values placed on US-origin products. The trader said contract renegotiations were ongoing, as the "final" version of the CBAM regulation was communicated only last week.

"Traders who have committed to US tons that are now unsellable in the EU due to a high (carbon intensity) must be...feeling funny," he said.