During discussions initiated by Austria on January 26, 12 European Union countries called for fertilizers to be temporarily excluded from the Carbon Border Adjustment Mechanism (CBAM).
This was reported by POLITICO.
Supporters of this proposal argue that this mechanism leads to even higher prices for imported fertilizers. This circumstance exacerbates the economic difficulties for farmers who grow crops.
"European farmers engaged in crop production are currently facing not only low product prices but also rising production costs. The main factor affecting costs is fertilizer prices, which have risen significantly since 2020," said Johannes Frankhauser, a senior official at the Austrian Ministry of Agriculture, during the discussion.
Criticism of this initiative
The proposal has been met with opposition from European fertilizer producers, MEPs concerned with environmental issues, and the governments of several countries. They warn that such an exemption for imported fertilizers would not only punish domestic EU producers but also threaten the integrity of the carbon tariff system.
"High prices for production resources, including fertilizers, have a direct impact on the economic situation of farms... However, we want to find the best solution to preserve food security on the one hand and avoid a possible negative impact on the competitiveness of fertilizer producers in the EU on the other," said Polish Agriculture Minister Stefan Krajewski, whose country is a major fertilizer producer.
Germany, Belgium, Finland, Sweden, and the Netherlands also supported this view.
Why the issue has become relevant
The EU has introduced a carbon duty on imports from countries where no carbon price has been set in order to level the playing field and encourage its trading partners to switch to more environmentally friendly production methods. The CBAM price is paid by importers, who can pass on the costs to buyers — in the case of fertilizers, these are farmers.
Fertilizers account for a significant portion of farms' operating costs. At the same time, European producers cannot meet the existing demand for them.
Therefore, CBAM is expected to lead to an increase in the cost of fertilizers, although estimates of how much vary widely. A group of nine EU countries led by France mentioned a 25% increase in a recent letter, while Austria believes it will be 10-15%.
However, Sandbag, an analytics company specializing in carbon pricing, says the price increase will be much lower over the next two years, at less than 1%.
Is it possible to suspend CBAM?
In December, the European Commission initiated legislative changes that could allow it to introduce such a suspension in the event of "serious and unforeseen circumstances" that harm the bloc's internal market. In effect, officials want to create an emergency brake for CBAM. In early January, the EU executive said such a suspension could be applied retroactively.
However, EU governments and the European Parliament must still approve this article before the European Commission can take such action. This process could take most of this year due to European bureaucratic slowness. Environment ministers may vote on the changes in March or June, and MEPs have not even selected their lead legislators to work on the Parliament's position yet.
Recently, EcoPolitic reported which products are currently most frequently declared by importers under the CBAM framework.
