Implications of the EU’s carbon border adjustment mechanism for fertilizer and food markets

Coherence in policy approaches across countries is crucial for achieving common GHG emission reduction goals at lower costs. Agro-economic models like Aglink-Cosimo, including global fertilizer markets, are useful for analyzing the anticipated effects of GHG reduction policies on food commodity markets. These policies can significantly affect domestic industry competitiveness, either positively or negatively. Such assessment tools can enhance evidence-based policy discussions and formation. We include in the baseline a EU ETS carbon price on fertilizer production in the EU as of 2026, without free allowances at 100 USD/tonne of CO2-eq emitted. Carbon pricing is assumed to be applied by the EU, Canada and the USA to fertilizer production from 2026 onwards. The results of theour paper analysis presented in this article indicate that CBAM significantly impacts fertilizer trade. A unilateral CBAM tariff affects EU fertilizer trade more than a common CBAM tariff adopted by a coalition of countries. These effects depend heavily on the volume of bilateral trade within club countries. Fertilizer markets influence commodity production and prices modestly due to the price inelasticity of fertilizer demand by farmers and the buffering role of trade in response to price shocks. In terms of GHG emissions, a climate club scenario results in lower total world emissions compared to a unilateral CBAM scenario.

PIERALLI Simone;  PEREZ DOMINGUEZ Ignacio;  ELLEBY Christian;  CLUFF Merritt; 

2025-11-05

WILEY-BLACKWELL

JRC133585

1746-692X (online),   

https://ideas.repec.org/a/bla/eurcho/v24y2025i2p23-30.html,    https://publications.jrc.ec.europa.eu/repository/handle/JRC133585,   

10.1111/1746-692X.12469 (online),