EU’s call to slow down the Carbon Border Adjustment Mechanism (CBAM)
A key concern is that adherence to CBAM standards elevates ammonia prices within Europe, directly affecting farmers who depend on affordable fertilizers for crop production
The European Union's Carbon Border Adjustment Mechanism (CBAM) , being implemented since the first of January 2026, represents a restrictive import policy designed to reduce Europe's overall carbon intensity by imposing tariffs on carbon-intensive imports, including ammonia and fertilizers.
The EU has recently called to closely monitor CBAM's impact on fertilizer prices and demand to protect food security and agricultural competitiveness in Europe. This oversight is essential, as early indications suggest that the mechanism could lead to increased fertilizer prices across Europe. While CBAM intends to promote environmental sustainability and level the playing field for domestic producers, it warrants a measured slowdown in its rollout to mitigate the economic consequences.
Svein Tore Holsether, CEO of the Norwegian fertilizer major, Yara expressed disappointment at the European Commission’s announcement and indicated that though the group would not take any large investment decisions based solely on CBAM, uncertainty over the new carbon emissions tax’s future had thrown a spanner in the works of the business case for major projects.
Ammonia producers may struggle to find sufficient justification for new investments in renewable technologies, as the CBAM’s slowdown could deter capital allocation. This, in turn, may cast a shadow on existing carbon reduction programs, potentially stalling progress toward Europe's net-zero ambitions. Investments in renewable ammonia projects, which rely on green hydrogen and other sustainable technologies, may find it increasingly difficult to justify without the protective framework of CBAM.
However, even under CBAM, the economic rationale for such investments remains precarious, as capitalism fundamentally operates on market dynamics rather than solely on conducive government policies. Policies like CBAM, while supportive in intent, cannot substitute for robust market demand and profitability.
A key concern is that adherence to CBAM standards elevates ammonia prices within Europe, directly affecting farmers who depend on affordable fertilizers for crop production. Farmer affordability is critically important, as higher costs could erode their margins and discourage widespread adoption of sustainable practices.
One must consider the broader consequences if farmers reduce or cease cultivation due to prohibitive expenses: this could lead to food supply shortages, increased import dependency, and heightened food insecurity across the region.
Furthermore, the persistence of EU Emissions Trading System (ETS) allowances underscores the need for policy coherence. These allowances continue to provide a domestic carbon pricing framework, suggesting that CBAM's additional layer may impose redundant burdens without proportional benefits.
Given these factors, a rework or slowdown of CBAM is justifiable to allow for a more balanced assessment. Ultimately, if CBAM proceeds without adjustments, the industry will likely explore other means to adapt, such as relocating production outside Europe or seeking alternative markets. A deliberate pause in implementation would enable stakeholders to refine the policy, ensuring it supports rather than undermines sustainable investments and agricultural viability.
(Mr. Nair is a Former Secretary to Chief Minister and Chairperson, Public Sector Restructuring & Audit Board, Government of Kerala.)
Carbon Border Adjustment Mechanism
First Published : January 18, 2026 12:00 am