Decarbonising India's Fertiliser Sector: A Net-Zero Roadmap
India's fertiliser industry emits roughly 25 million tonnes of CO₂ a year — about 1% of the country's total. Most of it comes from one molecule: ammonia. This article walks the marginal abatement cost curve from cheap energy-efficiency wins to the green-ammonia transition that could take the sector net-negative, and draws a clear line between what's deployable today and what depends on future cost and policy shifts.
A small share of national emissions, but a strategic one
India is the world's second-largest fertiliser producer, contributing about 20% of global output. The sector consumed roughly 60% imported natural gas in 2022–23 — making decarbonisation not just a climate question, but a roughly USD 10 billion import-substitution opportunity.
Of the ~25 MtCO₂ the industry emits each year, urea production accounts for about 65%, with di-ammonium phosphate (DAP) and other complex fertilisers (OCF) making up the rest. Around 85% of emissions come from natural gas — used both as feedstock and fuel — and the remaining 15% from electricity. The single biggest emitter inside the value chain is ammonia synthesis, which alone is responsible for ~95% of fertiliser-sector CO₂.
That concentration is actually good news. It means there isn't a long tail of small problems to chase — there's one big lever (ammonia) and a handful of supporting ones. The question is which of them are ready to pull today, and which need more time, cheaper technology, or different policy.
Fertiliser is one of the hard-to-abate sectors expected to fall under the compliance side of the Indian Carbon Credit Trading Scheme (CCTS). Understanding the cost curve here is essential for setting realistic intensity targets and price signals — too lax and nothing moves; too tight and only the newest plants survive.
Four levers, four very different price tags
The Indian fertiliser industry has four broad decarbonisation pathways: energy efficiency, renewable electricity, switching from grey to green ammonia, and carbon management (CCS plus offsets). The table below summarises the marginal abatement cost (MAC) of each at industry-average conditions.
| Lever | Sub-application | MAC (USD/tCO₂) | Abatement potential |
|---|---|---|---|
| Energy efficiency — cost-saving | Urea | –63.5 | Part of the ~2.3 MtCO₂ EE pool |
| Energy efficiency — expense-driven | Urea | +49.6 | Remainder of the EE pool |
| Renewable electricity (RTC) | DAP & OCF | ~+42 | ~0.4 MtCO₂ |
| CCS | DAP & OCF residual stacks | +90 | ~0.14 MtCO₂ |
| Green ammonia | DAP & OCF | ~+160 | ~7.1 MtCO₂ combined |
| Green ammonia | Urea | ~+270 | ~30 MtCO₂ (sector goes net-negative) |
| Afforestation offset | Residual emissions | Not quantified | Cost highly uncertain |
Industry-average estimates based on FY 2022–23 production and energy data. Values rounded.
One number jumps out: green ammonia in urea costs roughly USD 270 per tonne of CO₂ abated — well above green ammonia in DAP/OCF at USD 160. The gap isn't technological. It's a policy distortion. Urea plants receive pooled domestic gas at a subsidised USD 7.5/MMBtu, while non-urea plants pay imported-LNG prices closer to USD 10.1/MMBtu. The cheaper the grey baseline, the more expensive the green alternative looks on a relative basis.
India's challenge sits inside a global one
Fertilisers contributed roughly 1.23 GtCO₂-equivalent in 2022 — about 2.4% of all global greenhouse gas emissions. Ammonia synthesis alone is responsible for about 1.1% of global energy-related CO₂. Within that footprint, India is one of the largest producers, but the transition challenges are shared across every major fertiliser-producing economy. The IEA's Breakthrough Agenda Report 2025 dedicates an entire chapter to fertilisers for the first time, signalling that the sector has moved from the climate agenda's periphery to one of its priority hard-to-abate areas.
Where the rest of the world is on the supply side
Globally, low-emissions ammonia projects that are operational, under construction, or past final investment decision total roughly 6 Mt of capacity, with another 13 Mt at the feasibility stage — close to 19 Mt in the pipeline. That sounds substantial until you compare it to demand: firm offtake agreements for low-emissions ammonia cover only about 3 Mt, with a further 4 Mt under preliminary agreements. The supply pipeline outruns committed demand by a wide margin, which is why investment in production facilities keeps stalling at FID despite the technology being ready.
That mismatch is the single biggest international policy problem in the sector. Producers won't build at scale without offtake. Buyers won't commit to offtake without a clear price signal and consistent definitions of what counts as "low-emissions." Both sides are waiting for the other to move first.
Four pillars of international collaboration
The IEA report identifies four areas where coordinated action between governments and the private sector could unlock faster progress this decade:
Terms like "green," "low-carbon," and "sustainable" fertiliser are used inconsistently with no agreed emissions thresholds. ISO 19870-3 (covering ammonia GHG accounting) is under development but won't finalise until 2026–27 and doesn't cover fertiliser conversion. A complementary standard covering the full value chain is missing.
Public procurement, blending mandates, and demand aggregation can pull production through. The Hydrogen Council's Low-Emission Ammonia Fertilizer Lead Market Initiative and H2Global's two-way auction model (first long-term renewable ammonia offtake awarded in 2024) are early examples — but coverage of fertiliser-specific demand is still thin.
Low-emissions fertiliser production can cost 30% to over 200% more than conventional methods. The World Bank's 10 GW Lighthouse Initiative, Climate Investment Funds Industry Decarbonization Program, and UNIDO's Accelerate-to-Demonstrate Facility (which supported Namibia's first renewable-hydrogen ammonia/fertiliser pilot) are the building blocks — but none yet has a fertiliser-specific window for EMDEs.
Alternatives to Haber-Bosch — plasma catalysis, electrochemical synthesis, photochemical routes — are being researched across Australia, the US, China, Canada, and Korea. Enhanced-efficiency fertilisers and circular nutrient recovery (e.g., the European Sustainable Phosphorus Platform) are scaling separately. Most R&D collaboration happens informally and breaks down at pilot stage.
How peer economies are positioning
Different fertiliser-producing economies are taking distinct approaches, and India can learn from each:
- Brazil — the world's fourth-largest nitrogen fertiliser user — meets 85% of demand through imports. Its National Plan for Fertilizers (PNF, 2022) targets cutting imports to 45% by 2050 while scaling biological inputs. The bio-input industry there is growing four times faster than the global average. A Yara–Cooxupé collaboration cut coffee fertiliser emissions by 90% across 20,000 farming families. India's CCTS framework could draw on Brazil's combination of import-substitution and biological-inputs scaling.
- Namibia — through the UNIDO Accelerate-to-Demonstrate Facility — is running Africa's first end-to-end renewable-hydrogen → ammonia → fertiliser pilot (specifically ammonium sulphate). It's a proof point that EMDEs don't have to wait for advanced economies to scale before deploying low-emissions fertiliser value chains.
- Canada and the EU are furthest along on definitions. Canada's Investment Tax Credit guidelines include ammonia; the EU's Renewable Energy Directive provides a methodology that could be extended. Neither has yet been linked to a full fertiliser-value-chain standard.
- India itself has a foothold here. SECI's renewable-ammonia procurement auction is one of the few national-level demand-creation efforts globally that explicitly targets fertiliser-relevant low-emissions ammonia. The National Green Hydrogen Mission flags fertilisers as a priority offtaker.
Globally, 60–70% of fertiliser-value-chain emissions come from use, not production — mainly nitrous oxide (N₂O) released from soils after application. Nitrogen use efficiency (NUE) — the share of applied nutrient actually taken up by crops — has improved from about 40% in 1980 to roughly 55% today, but there's still an 80 Mt annual nitrogen surplus on global cropland. India's MAC curve focuses on production emissions, but a complete decarbonisation strategy will eventually need to address application efficiency too, where the gains are larger and the costs lower.
What this means for India
India isn't an outlier — it's a microcosm. The global supply-pipeline-vs-demand gap is exactly what's happening domestically: SECI auctions are creating early demand signals, the Green Hydrogen Mission is funding supply, but the linkage between green ammonia and the urea subsidy framework remains unsettled. The international lesson is that countries moving alone face first-mover penalties; coordinated standards, mutual recognition of certification, and joined-up finance through MDBs are the structural conditions that let domestic policies actually work.
The implication for India's net-zero fertiliser pathway: pursue domestic deployment of the feasible-today levers below, but use COP-level forums and BRICS coordination to align with peer economies on definitions, demand-aggregation mechanisms, and CBAM-compatible certification. Without that, India's transition risks being undercut by cheaper, higher-emissions imports — exactly the trade-exposure problem the IEA flags as the central international policy challenge.
What's feasible today
These four levers don't require new technology, new fuel supply chains, or fundamental policy reform. They're constrained mostly by capital availability and incentive design — both solvable with existing instruments.
Energy efficiency in urea plants
About 4% of urea-plant emissions can come down through cost-negative retrofits — waste-heat recovery, variable-frequency drives, compressor upgrades, switching small steam pumps to electric drives. Another 6% needs expense-driven capex. The PAT scheme and the upcoming Indian Carbon Market are the natural vehicles to push vintage plants past their target energy norms.
Renewable electricity for DAP & OCF
Fertiliser production isn't electricity-intensive, so RE plays a modest role — but DAP and OCF plants can realistically displace captive coal and grid power with round-the-clock hybrid renewables. The unlock is regulatory: open-access charge waivers and banking flexibility move RE from "expensive" to competitive against a ~INR 6/kWh grid baseline.
Co-locating bioethanol & urea plants
Urea synthesis needs CO₂. Bioethanol production releases pure CO₂ as a fermentation by-product. India's 20% ethanol-blending target requires new bioethanol capacity to come online by 2025 — siting those plants next to urea facilities turns waste CO₂ into feedstock and removes one of the binding constraints on a future green-ammonia transition. This is low-capex, near-term, and infrastructure-light.
CCS on DAP & OCF dryer stacks
Carbon capture has limited scope in fertiliser — urea plants already capture their own process CO₂ at ~99% efficiency for use in synthesis. But DAP and OCF stacks emit residual CO₂ that conventional levers can't reach. Existing natural-gas pipeline infrastructure means transport to storage sites is technically tractable. Small volume, but a real wedge for residual emissions.
Stack all four feasible-today levers together and you're looking at roughly 12% of sector emissions abated, or about 3 MtCO₂ out of 25. That's meaningful — but it isn't net-zero. To go further, the sector needs the lever that dwarfs the others on potential but isn't yet ready at scale: green ammonia.
Green ammonia: the 151% solution that isn't ready yet
Because ammonia synthesis is ~95% of fertiliser-sector emissions, replacing grey ammonia (made from natural gas) with green ammonia (made from renewable hydrogen) is the only lever that can take the entire sector net-negative. On average, the switch delivers a 151% emissions reduction — more than 100% because urea production becomes a CO₂ sink, drawing carbon from external sources to feed the Bosch–Meiser process.
Why it isn't deployable today
Three barriers, in order of severity:
- Cost. Green ammonia today averages around USD 700/tonne. Grey ammonia, at current Indian gas prices, sits around USD 280–360/tonne. Closing that gap requires green ammonia at roughly USD 525/tonne or below, or a carbon price that internalises grey ammonia's emissions cost.
- CO₂ sourcing for urea. When you stop making ammonia from natural gas, you stop getting the by-product CO₂ that urea synthesis depends on. Roughly 0.73 tonnes of CO₂ is needed per tonne of urea. Closing that loop means building CO₂ capture and transport infrastructure to bring carbon in from cement plants, bioethanol facilities, or other industrial emitters.
- The gas subsidy distortion. Subsidised pooled gas at USD 7.5/MMBtu makes urea's grey baseline artificially cheap, inflating the apparent MAC of green ammonia to ~USD 270/tCO₂. Without subsidy reform — or a compensating green-fertiliser support mechanism — the economics never balance on their own.
What scaling looks like
The total green ammonia demand from India's fertiliser sector is roughly 20 million tonnes per year. That's a market large enough to anchor an entire green hydrogen industry — which is exactly why the National Green Hydrogen Mission flags fertilisers as a priority offtaker. A realistic pathway:
- Start with non-urea fertilisers. DAP and OCF plants already import most of their ammonia. Replacing imported grey ammonia with domestic green ammonia is a cleaner substitution — no subsidised baseline to fight, MAC closer to USD 160/tCO₂, and an import-bill saving.
- Phased blending in urea. Mandate a small green-ammonia blend (1–2% rising over time) so demand signals reach hydrogen producers without bankrupting urea plants overnight.
- Green urea ammonium nitrate (UAN). UAN is a liquid fertiliser widely used in North America and Europe but barely produced in India. Building green-UAN capacity from scratch avoids the retrofit problem entirely and creates a high-value export product.
CCS for DAP and OCF is cheaper today (USD 90/tCO₂) than green ammonia (USD 160). But sequencing matters. Green ammonia costs are expected to fall as the hydrogen ecosystem scales, while CCS costs are largely fixed. Locking the sector into CCS now risks stranding that capital when green ammonia hits parity later this decade — which is why most credible pathways prioritise green ammonia over CCS for everything except residual emissions.
Fertilisers are on the CCTS list — but the benchmark hasn't landed yet
India's Carbon Credit Trading Scheme (CCTS) included fertilisers in its initial sectoral scope, alongside iron and steel, cement, aluminium, chlor-alkali, pulp and paper, petrochemicals, and textiles. But unlike those sectors, fertilisers have no Greenhouse Gas Emissions Intensity (GEI) benchmark notified yet. The sector is included on paper but not yet bound by a compliance obligation. That gap is the most important near-term regulatory variable for every fertiliser producer in the country.
What CCTS actually does
CCTS is an intensity-based compliance market. Each covered facility receives a GEI benchmark — emissions per unit of output — and an annual trajectory for how that benchmark tightens. Facilities that beat their benchmark generate Carbon Credit Certificates (CCCs); facilities that miss it must buy CCCs to cover the gap. One CCC equals one tonne of CO₂-equivalent reduced or avoided. There's no absolute emissions cap; the system squeezes emissions intensity instead, year by year, sector by sector.
For fertilisers specifically, that design is unusually consequential. The sector's emissions are concentrated in ammonia synthesis — one process, one molecule, ~95% of CO₂. A GEI benchmark expressed in tCO₂ per tonne of urea (or per tonne of nitrogen) maps almost directly onto how cleanly that ammonia was produced. Once notified, the benchmark becomes the most direct financial signal yet for fertiliser producers to either invest in efficiency, blend in green ammonia, or buy compliance certificates from cleaner peers.
Why the missing benchmark matters
Climate Decode's CCTS Market Outlook models the first five compliance years (FY 2025–26 to FY 2029–30) for sectors with notified or draft GEIs. Fertilisers couldn't be modelled — there's no benchmark to model against. But the report's broader market findings tell you what fertiliser producers should expect once their GEI does arrive:
- The market starts long in FY 2025–26 (~4.35 million CCCs surplus under the base case), driven by transitional benchmarks and partial-year coverage. Expect early fertiliser GEIs to follow the same pattern — relaxed targets in year one, then tightening.
- The market turns net short from FY 2027–28, with the annual deficit widening to ~10 million CCCs by FY 2029–30 in the base case, and ~20 million CCCs in the supply-constrained scenario. Iron and steel are the dominant demand driver; fertilisers will likely sit on the deficit side too once benchmarks bite.
- Prices anchor at ~INR 710–2,165 per tCO₂ in year one, climbing to ~INR 3,900–4,000 by 2030 as the market structurally tightens. At those prices, every tonne of CO₂ a fertiliser plant fails to abate becomes a direct cash compliance cost.
- Notified benchmarks in comparable sectors have been softened modestly between draft and final notification (the report assumes a 0.5–1.5% relaxation for iron and steel). Fertiliser producers should expect a similar pattern but not count on it.
The EU's Carbon Border Adjustment Mechanism explicitly covers fertilisers from 2026 onward. CCTS compliance payments can in principle offset CBAM liability — but only if the EU recognises India's intensity-based price as a "carbon price" under its rules, and only to the extent the carbon price has actually been paid. A working CCTS GEI for fertilisers means Indian exporters pay carbon costs in India rather than at the EU border. No GEI means CBAM exposure runs at full cost. For Indian DAP and complex-fertiliser exporters, this is the difference between capital staying in India to fund domestic decarbonisation and capital leaving as CBAM certificate purchases.
What fertiliser producers should do before the GEI arrives
The lag between sectoral inclusion and benchmark notification is the planning window. Producers who use it well will be positioned to generate CCCs when the market opens; producers who treat the missing GEI as a reason to wait will be positioned to buy them.
Build a facility-level GEI baseline now
Quantify tCO₂ per tonne of urea (and per tonne of nitrogen) for every production line, including scope-2 grid power and captive coal. CCTS uses the facility as the unit of compliance, not the company. Plants with weak baseline data will face the longest verification cycles when the GEI is notified — and the highest risk of disputed positions.
Map abatement options against a price band
Rank the feasible-today levers — EE retrofits, RE for DAP/OCF, bioethanol-CO₂ integration, partial green ammonia blending — by cost per tonne of CO₂ avoided. If a lever's abatement cost is below the projected CCC price band (~INR 1,000–4,000 in the base case), it's economically rational regardless of where the GEI eventually lands. If it's above, the lever only makes sense at tighter benchmarks or higher carbon prices.
Treat early CCCs as a hedge, not revenue
The market is long in year one and short by year three under the base case. Facilities that generate surplus CCCs early should expect those credits to be worth materially more in FY 2028–30 than at issuance. Banking, not immediate sale, is the rational default — particularly for fertiliser producers, who will likely be net buyers as benchmarks tighten on ammonia-intensive operations.
Pre-position for CBAM-CCTS interaction
Export-oriented DAP, urea, and complex-fertiliser producers should be tracking their embedded emissions today against EU CBAM methodologies, not just CCTS-style facility-level intensity. The two systems use different boundaries and verification protocols. Producers who can demonstrate both — verified facility GEI for CCTS and EU-method embedded emissions for CBAM — will preserve the most flexibility on which carbon cost to internalise where.
Who CCTS inclusion helps — and who it hurts
An intensity-based system rewards relative performance, not absolute size. That means CCTS doesn't punish India's fertiliser sector for being large; it punishes the gap between leading and lagging plants within it. Three groups stand to gain:
- Modern urea plants already operating near best-available SEC (5.0–5.1 GCal/t-urea) become CCC sellers from day one. The 13 plants already at or below Group I target energy norms under PAT are the natural surplus generators.
- DAP and OCF producers using imported ammonia have the cheapest pathway to switching to green ammonia (MAC ~USD 160/tCO₂ vs ~USD 270 for urea, because they're not benchmarked against subsidised domestic gas). They can monetise that switch as CCC supply.
- Producers co-located with bioethanol facilities — or who can be — capture biogenic CO₂ as feedstock at near-zero cost, lowering their effective GEI without significant capex.
The losers are vintage urea units (pre-1982 plants with SECs above 6.5 GCal/t-urea), DAP plants without process-integration upgrades, and any producer treating compliance as a year-end accounting exercise rather than an integrated planning problem. The deficit widens for them every year the benchmark tightens.
Fertilisers being on the CCTS list without a notified GEI is not regulatory delay — it's regulatory signalling. The benchmark is coming. Producers who use the planning window to build measurement systems, sequence abatement, and pre-position for CBAM will treat CCTS as a financial hedge against future tightening. Producers who wait for the notification will treat it as a compliance cost. The same regulatory event, two opposite outcomes.
Five interventions that move the curve
A MAC curve only tells you what's possible. Policy decides what actually happens. These five interventions, drawn from the broader CCTS framework and the structure of the cost curve itself, are the minimum architecture needed to take the sector toward net-zero.
-
Bring fertilisers into the Indian Carbon Market with intensity-based targets
Build on the PAT scheme's energy-norm framework. Set tightening intensity targets (tCO₂ per tonne of fertiliser) that force vintage plants to either retrofit or trade. The ~USD –63.5/tCO₂ cost-negative EE pool gets unlocked the moment plants face a binding price signal.
-
Waive or reduce open-access charges for round-the-clock renewables
RE's impact in fertiliser is small in absolute terms but easy to capture. The barrier is wheeling charges and banking restrictions, not generation cost. State-level open-access reform turns this from a USD 42/tCO₂ lever into something closer to free.
-
Mandate phased green ammonia blending
Start at 1% by 2027, scaling to 5% by 2030 and beyond. A blending mandate creates predictable offtake for green hydrogen producers without forcing urea plants into a step-change they can't financially absorb. Pair with a green-fertiliser premium price under the urea subsidy framework.
-
Co-locate new bioethanol capacity with urea plants
Make this an explicit siting criterion in the next round of bioethanol auctions. The 20% ethanol blending target requires significant new capacity — that capacity can either vent CO₂ or feed it into urea synthesis, depending on where it's built. The cost difference is largely zero.
-
Set up a green UAN export programme
India doesn't have a domestic UAN market to disrupt. New green-UAN capacity built around green ammonia opens a high-value export channel (North America and Europe are major UAN markets), generating foreign exchange while building scale for the hydrogen ecosystem.
A two-speed roadmap
The fertiliser sector's decarbonisation isn't one decision — it's a sequence. The near-term play is unglamorous: energy efficiency, RE for non-urea plants, co-locating bioethanol facilities, and limited CCS. Together, that's maybe 3 MtCO₂ of abatement and significant import-bill savings. None of it needs technology that doesn't already exist.
The transformational play is green ammonia. It's the only lever large enough to get the sector to net-zero (and beyond — to net-negative if urea sources its CO₂ externally). But it depends on green hydrogen costs falling, on CO₂ infrastructure being built, and on subsidy frameworks being reformed so the grey baseline isn't artificially cheap. None of those are technology problems. They're sequencing problems.
The job of the next five years isn't to deploy green ammonia at scale — it's to do the unglamorous near-term work while building the demand signals, infrastructure, and price architecture that lets green ammonia scale when its cost curve gets there. India's CCTS, the Green Hydrogen Mission, and the fertiliser subsidy framework all need to point in the same direction. Right now, they roughly do.
Track India's hard-to-abate decarbonisation in one place
Climate Decode follows the CCTS rollout, sector cost curves, and the green-ammonia transition as they unfold. Get the analysis as it happens.
Request a Demo