The European Union is evaluating the possibility of granting additional free carbon permits to the fertiliser sector, according to a draft proposal aimed at preventing industrial relocation and maintaining competitiveness during the green transition.
The jump in gas and fertiliser prices following the effective closure of the Strait of Hormuz, a key shipping route, has disrupted businesses worldwide.
Draft proposal
According to a draft document seen by Reuters, the European Commission is considering increasing the allocation of free emissions allowances for fertiliser producers under the EU carbon market.
The draft said the extra CO2 permits would be “conditional on an increased production of bio-based (organic), circular or low-carbon fertilisers securing availability of home-grown fertilisers in Europe”.
Next steps
The plan would be part of an upcoming overhaul of the EU carbon market, which the Commission plans to propose in July.
Other parts of the fertiliser plan, which is still being drafted and could change before it is published, include potentially giving extra subsidies for the hardest-hit farmers to cope with higher fertiliser costs.
Link with carbon border mechanism
The discussion is connected to the gradual rollout of the Carbon Border Adjustment Mechanism, the EU instrument designed to equalise carbon costs between European producers and imports from countries with weaker environmental standards.
While CBAM is intended to replace free allowances over time, the draft indicates that policymakers are considering maintaining or expanding free permits for certain sectors during a transition phase. The objective is to avoid sudden cost increases that could undermine industrial competitiveness or supply security.
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