What the EU carbon border levy covers, how benchmarks and default values set the charge, and what it costs a tonne of fertilizer as free allocation phases out.
The Carbon Border Adjustment Mechanism (CBAM) is the European Union’s carbon levy on imports. It puts the same carbon price on a tonne of imported carbon-intensive goods that an EU producer pays under the Emissions Trading System (ETS), so that production does not simply move abroad to avoid the cost. As free ETS allowances are withdrawn from EU industry, the CBAM charge on imports is phased in to match.
The transitional phase ran from October 2023 to the end of 2025, when importers only had to report embedded emissions. The definitive regime began on 1 January 2026, and from then importers must buy and surrender CBAM certificates priced off the weekly ETS allowance price. CBAM covers six sectors at high risk of carbon leakage: cement, iron and steel, aluminium, hydrogen, electricity, and fertilizers.
The fertilizer sector enters CBAM through the nitrogen value chain. The covered goods, identified by their customs Combined Nomenclature (CN) code, run from the base chemicals through to finished products:
A single mass-based threshold of 50 tonnes of net imported goods per year, shared across the fertilizer, cement, steel and aluminium sectors, exempts the smallest importers. Cross that line and the full year’s imports become liable. Imports from countries inside the ETS or a linked system, such as the EEA and Switzerland, are outside CBAM.
For most CBAM goods only the direct emissions of production count. Fertilizer is an exception: alongside cement, it is one of the two sectors where indirect emissions — the carbon in the electricity consumed during production — are also charged. That matters because nitrogen production is both gas-intensive and power-intensive. Three emission points dominate:
| Emission point | Gas | How CBAM captures it |
|---|---|---|
| Natural gas to make ammonia — energy source and chemical feedstock | CO₂ | Directly, in the ammonia emission factor |
| Nitric acid production | N₂O (~265× CO₂) | Through the nitric acid and downstream-product factors |
| Electricity drawn across the plant | CO₂ (indirect) | Directly — fertilizer is one of two sectors charged for power |
Two sets of numbers drive the charge. The first is the EU ETS benchmark, which sets how much free allocation an equivalent EU producer still receives, and therefore how much of the imported tonne’s emissions are deducted before the charge applies. The ammonia benchmark is about 1.57 tonnes of CO₂ equivalent per tonne, and the nitric acid benchmark about 0.23.
The second is the default embedded-emissions value, which an importer must use if it cannot obtain verified data from the producer. Defaults are deliberately set high, to reward those who measure.
| Fertilizer good (CN) | Direct | Indirect | Total embedded (tCO₂e/t) |
|---|---|---|---|
| Ammonia (2814) | 2.68 | 0.14 | 2.82 |
| Nitric acid (2808) | 2.56 | 0.05 | 2.61 |
| Ammonium nitrate (3102 30) | 2.32 | 0.07 | 2.39 |
| Urea (3102 10) | 1.78 | 0.12 | 1.90 |
| Potassium nitrate (2834 21) | 1.82 | 0.06 | 1.88 |
CBAM transitional-period default values (direct + indirect specific embedded emissions). Source: European Commission, CBAM default values.
Need a CBAM-grade embedded-emissions number for your product?
Get It Built →The number of certificates an importer surrenders follows a fixed formula. Per tonne of goods it is the actual embedded emissions, less the free allocation an equivalent EU producer still receives, less a credit for any carbon price already paid in the country of origin, multiplied by the tonnes imported.
The formula
Certificates per tonne = embedded emissions − (benchmark × CBAM factor) − (carbon price paid ÷ CBAM price) × embedded emissions.
What that means for a producer turns entirely on where its emissions sit relative to the benchmark. Consider two ammonia plants. Case 1 is an efficient plant at 1.40 tCO₂e per tonne, below the 1.57 benchmark. Case 2 is a higher-intensity plant at 2.60, near the CBAM default and well above the benchmark. The CBAM factor falls from 97.5 percent in 2026 to zero by 2034, and we use an illustrative certificate price of €80. Each case is shown with no carbon price paid at origin, and with California’s cap-and-invest price, about $28 or roughly €26 per tonne in late 2025.
| CBAM cost per tonne of ammonia (€80/tCO₂e) | 2026 no price | 2026 + CA | 2034 no price | 2034 + CA |
|---|---|---|---|---|
| Case 1 — efficient, 1.40 tCO₂e (below benchmark) | €0 | €0 | €112 | €76 |
| Case 2 — higher intensity, 2.60 tCO₂e (above benchmark) | €86 | €18 | €208 | €140 |
Cost = [embedded − 1.57 × CBAM factor − (carbon price ÷ €80) × embedded] × €80, floored at zero. “+ CA” applies California’s ~€26 price. Case intensities are illustrative; the benchmark (1.57) and default (2.82) are published values. Prices move with the market.
A plant below the benchmark can owe nothing in the early years, while a plant above it pays from the start. In 2026, with free allocation still at 97.5 percent, Case 1 sits under the benchmark and surrenders no certificates. Case 2 pays from the first year. As free allocation is withdrawn toward 2034 the deduction shrinks to zero, so both plants then pay on their full embedded emissions, though the efficient plant always pays far less.
The practical implication
Getting below the benchmark, and proving it with verified emissions data, can cut the border charge to little or nothing. Verified, lower emissions are worth real money.
Climate Decode builds CBAM-grade embedded-emissions figures and the abatement plan that brings the border charge down.
The CBAM obligation sits with the importer, not the producer. A covered good can only be brought into the EU by a registered authorized CBAM declarant — the EU importer of record, or, for a business based outside the EU, an indirect customs representative acting on its behalf. That declarant calculates the embedded emissions of each consignment, holds certificates through the year to cover at least half of those emissions at the end of each quarter, and after year end files an annual CBAM declaration and surrenders certificates for the full year. Certificates are bought from member-state authorities at a price tied to the ETS allowance price. For goods imported in 2026, the first surrender is due by 30 September 2027. The 2025 simplification package raised the small-importer threshold and cut the quarterly holding requirement from 80 to 50 percent.
A fertilizer producer outside the EU files nothing under CBAM and surrenders no certificates, yet the cost reaches it all the same. The importer pays the charge and prices it back into what it will pay for the goods, so a higher-emitting supplier is simply a more expensive one. To avoid the punitive default values, importers increasingly require verified, installation-level emissions data from their suppliers, computed on the EU’s method — CBAM is a measurement, reporting and verification regime first, and those figures have to withstand review. A producer’s emissions intensity becomes a commercial term of trade into Europe even with no direct reporting duty.
CBAM turns a fertilizer producer’s emissions into a number on its customers’ invoices. The lower and better-evidenced that number, the more competitive the product into Europe. That makes two things valuable: a verified, CBAM-grade emissions figure per tonne of product, and a plan to bring it down.
This is what the fertilizer decarbonization model behind TerraNova produces. It builds the plant’s emissions from metered gas, power and process data, allocates them to each step, and reports the embedded emissions per tonne in the form CBAM asks for. It then screens the abatement levers — efficiency, low-carbon hydrogen and ammonia, nitrous oxide abatement at the nitric acid plant, electrification — against the carbon price and the CBAM schedule, and returns a costed plan that shows how each euro spent on abatement lowers the border charge.
The Sector Overview · Supplier Engagement & Scope 3 · The CBAM Explainer
Notes and sources for the figures in this paper.
Climate Decode prepares fertilizer producers for CBAM — the embedded-emissions number, the verification trail, and the abatement plan that lowers the bill.