The Carbon Border Adjustment Mechanism (CBAM) has quickly become one of the biggest talking points in the fertiliser trade, but exactly how the new system works and how the costs eventually find their way back to farmers, is far from straightforward.
CBAM came into force at the beginning of 2026 and, while its scope stretches beyond agriculture, fertiliser is one of the key products covered by the mechanism.
At its simplest, CBAM is designed to put a carbon cost on certain goods imported into the EU, similar to the carbon costs already faced by European manufacturers.
Speaking on the Irish Farmers Journal’s Down to Agribusiness podcast, Kieran Holden, fertiliser technical lead with Goulding Soil Nutrition and president of the Fertiliser Association of Ireland, explained that to understand CBAM, it is first necessary to understand the EU Emissions Trading System (ETS).
The ETS dates back to 2005 and requires carbon-intensive industries operating in Europe to account for and ultimately pay for their emissions. This creates a potential problem for European manufacturers.
If a European fertiliser plant has to pay a carbon price while a manufacturer outside Europe does not, the imported product can have a significant cost advantage. This is known as “carbon leakage”.
CBAM is intended to level that playing field by attaching a comparable carbon cost to imported products.
Why fertiliser matters
CBAM covers a range of carbon-intensive products, including fertiliser, cement, aluminium, steel and electricity. However, fertiliser presents a particular challenge, because Europe is reliant on imports to meet its requirements.
Holden said that, on average, Europe imports 6.9 million tonnes of urea annually, equivalent to around 59% of its total urea consumption of 11.7 million tonnes.
At the same time, natural gas, the key feedstock and energy source for conventional nitrogen fertiliser production, remains considerably more expensive than it was before the energy crisis.
That means CBAM is being introduced into a fertiliser market that is already dealing with elevated production costs.
Who actually pays CBAM?
For fertiliser entering Ireland from outside the EU, the CBAM obligation ultimately falls on the importer. The amount due depends on the carbon emissions associated with producing the fertiliser.
There are two main ways of establishing those emissions: an EU-set default emissions value, or a verified emissions figure from the individual production facility. The latter could prove difficult in practice.
Holden said that as of late September 2026, the first verification body capable of carrying out CBAM verification had only just been approved.
Verification also requires an in-person visit to the production facility. With potentially tens of thousands of installations around the world exporting CBAM-covered products into Europe, Holden said the practical difficulties involved could result in importers relying heavily on the EU’s default values.
Those default values are important because, in some cases, they can result in substantial CBAM liabilities.
How is the bill calculated?
The calculation involves more than simply applying a flat carbon tax to every tonne of fertiliser.
Broadly, the embedded emissions associated with the imported product are established first.
Allowances are then made for the free carbon allocation available to comparable European production and for qualifying carbon prices already paid in the country where the product was manufactured.
The level of free allocation is particularly important. During 2026, a large proportion of the relevant benchmark remains covered by free allocations. However, these are due to be progressively reduced between now and 2034.
This mirrors what is happening to European manufacturers under the ETS.
Once the relevant emissions exposure has been established, the importer must secure the corresponding number of CBAM certificates.
The price of those certificates is linked to the carbon price under the EU ETS.
For 2026, certificate prices are being calculated quarterly and retrospectively. From 2027, Holden said the system is due to move to weekly pricing.
For example, the CBAM certificate price for both the first and second quarters of 2026 was around €75. The third-quarter figure, published just this week, is €82.32. However, that does not mean €82.32 is simply added to every tonne of fertiliser.
What does it mean per tonne?
Holden provided the example of urea imported from Egypt. For 2026, he said Egyptian urea carries a chargeable CO2 element, requiring approximately 0.525 CBAM certificates per tonne. At an estimated certificate price of €82, this translates into a CBAM cost of approximately €43/t.
Algerian urea has a slightly higher default value, producing an estimated CBAM cost of approximately €44/t under the same assumptions.
The impact on calcium ammonium nitrate (CAN) can be considerably greater. Holden said CAN imported from Egypt could face a CBAM cost of around €115/t in the third quarter of 2026 using the applicable default values.
For importers, costs of that magnitude can determine whether sourcing fertiliser from a particular country remains commercially viable. The consequence could therefore extend beyond higher fertiliser prices. It could also affect where Irish importers can source fertiliser and, potentially, product availability.
This is particularly significant for Ireland because the country has no domestic nitrogen fertiliser production and consequently depends on imported supplies.
Buying the certificates
Although CBAM has applied since 1 January 2026, importers cannot yet simply log on and buy certificates. A Common Central Platform is due to become operational in 2027, through which importers will purchase the certificates required to meet their obligations.
Importers will have until September 2027 to deal with their 2026 CBAM liability. In Ireland, the Environmental Protection Agency is the national competent authority responsible for the rollout of CBAM, while Revenue also has a role in the system.
Unlike conventional carbon credits, there is not a limited supply of CBAM certificates.
Instead, certificates are available as required, with their value linked back to the EU carbon market. Under current proposals, around 25% of the revenue raised through the sale of CBAM certificates would go into a Temporary Decarbonisation Fund between 2027 and 2029, while the remaining 75% is expected to flow back to the European Commission to support the EU budget. This has yet to be fully decided however.
Opportunities
Looking further ahead, the gradual removal of free allocations could also change the economics of lower-carbon fertiliser production.
Holden estimated that by 2034, urea could carry around €210/t in CBAM costs and CAN around €310/t. At that point, lower-carbon alternatives such as fertiliser produced from green ammonia could become increasingly competitive with conventional production.
For now, however, green ammonia remains significantly more expensive, meaning the transition to lower-carbon fertiliser is likely to be a gradual one.
In brief
CBAM adds a carbon cost to fertiliser imported into the EU.
Importers meet their obligations by purchasing CBAM certificates.
Costs vary significantly depending on fertiliser type and country of origin.
CBAM costs are set to increase as free allocations are phased out.
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