The Fertilizer Industry’s Role in Decarbonization: A Vision for Egypt and the World

For the world to produce enough food to feed itself, fertilizers are crucial; but fertilizer production and use is also a substantial contributor to climate change. This dilemma is one of many that participants are grappling with at COP27, the 27^th Conference of the Parties to the United Nations Framework Convention on Climate Change.

The climate impact of the fertilizer industry is significant. Eighty percent of all ammonia manufactured in the world today to produce nitrogen fertilizers. This ammonia is traditionally manufactured with natural gas, with significant impact on global greenhouse gas (GHG) emissions. Approximately two tons of carbon dioxide (CO₂) are released into the atmosphere for every one ton of ammonia manufactured, making ammonia manufacture responsible for 1.3% of all CO₂ emissions. Further, CO₂ is not the only GHG related to the fertilizer industry, with researchers also finding that nitrogen fertilizers release significant amounts of atmospheric nitrogen oxides during production and use.  

A Vision for Egypt’s Fertilizer Industry

At COP26 one year ago, the International Energy Agency (IEA) and the International Fertilizer Association (IFA), with support from the European Bank for Reconstruction and Development (EBRD), launched the Global Ammonia Technology Roadmap. This outlines pathways for the decarbonization of the fertilizer industry. A coalition including EBRD, the IFA, the Arab Fertilizer Association, and other key Egyptian public and private sector stakeholders came together to ask ERM and Environics to develop and present a vision for a low-carbon and climate-resilient pathway for Egypt’s nitrogen fertilizer industry in time for COP27.

The vision we developed for Egypt’s fertilizer industry will be the first country-level application of the IEA’s Roadmap and can serve as a blueprint for other countries’ decarbonization journeys. This vision includes key drivers, needs, expectations, and high-level decarbonization pathways for the industry that covers the entire supply chain from nitrogen fertilizer production through to their use in agriculture.

The vision for the Egyptian fertilizer industry’s low-carbon and climate-resilient pathway will be presented at COP27. Below, we answer some of the main questions about the fertilizer industry’s role in climate change and discuss how the vision we have developed can contribute to addressing them in Egypt and around the world.  

What makes decarbonization of the global fertilizer industry so critical?

The fertilizer industry, like all industries, is exposed to significant climate-related risks and drivers. The transition and physical risks of climate change are becoming harder to ignore.

There is pressure on fertilizer companies from investors, lenders, foreign customers, and foreign and domestic governments to shift to lower carbon products and disclose climate-related risks, to share GHG data, targets, and strategies related to decarbonization and the low-carbon transition, and to explain approaches to climate-related risk management. Lack of compliance can limit access to capital.

What are the necessary factors to achieve decarbonization of the global fertilizer industry?

Several major factors can contribute to reduction of fertilizer emissions. These include:

• Implementation of Best Available Technologies (BAT) within existing assets, which allows for energy efficiency improvements and reductions in nitrous oxide emissions.
• Replacement of some or all of the natural gas feedstock with green hydrogen to remove the carbon dioxide emissions from fertilizer production processes. Alternatively, carbon dioxide emissions from conventional production can be reduced using carbon capture and storage technology.
• More efficient use of fertilizers through utilization of inhibitors and/or controlled-release fertilizers, improvements in irrigation, crop rotation, and other agricultural management practices.

Why is it important for the nitrogen fertilizer industry to decarbonize in Egypt in particular?

Egypt is a major fertilizer producer, user and exporter, and agriculture is a major contributor to Egypt’s economy. Greenhouse gas (GHG) emissions from Egypt’s nitrogen fertilizer supply chain are a large contributor to Egypt’s national emissions.

A low-carbon pathway for the fertilizer industry is essential to Egypt fulfilling its climate commitments and ambitions, while maintaining its competitive position as a fertilizer producer and supporting a sustainable agricultural sector.

What are the barriers to decarbonization within Egypt’s fertilizer industry?

Fertilizer production and demand are expected to grow within Egypt. Low-carbon technologies like renewable hydrogen and carbon capture and storage are in the early stages of development in Egypt and there may be challenges implementing these in the Egyptian fertilizer industry. The deployment of these technologies, and other measures that reduce emissions from fertilizers when they are used, need to be accompanied by a supportive national policy framework and a level playing field with global initiatives. In addition, Egypt needs to be able to access financing which can enable the necessary investments in low-carbon technologies and wider decarbonization measures.

• What global developments could speed decarbonization for Egypt’s fertilizer industry?

Egypt’s low-carbon and climate-resilient pathway sits within a range of broader initiatives to decarbonize the global fertilizer supply chain. Major developments include:

• The United Nations’ Paris Agreement and its net zero pathway underpin many government and private sector climate initiatives.
• The European Union’s proposed Carbon Border Adjustment Mechanism (CBAM) would impose a green standard on imported fertilizers that exceed the threshold for GHG emissions established for producers within the EU. This provides the opportunity for the industry to move into a low carbon business model. By not decarbonizing, Egyptian exporters may find it difficult to remain competitive in the EU market.
• The United States’ Inflation Reduction Act provides tax credits related to clean hydrogen and carbon capture and storage that may influence supply chain choices in fertilizer feedstock options, encouraging low-carbon fertilizer production and making the US an attractive investment destination for low-carbon fertilizer production. The lack of a level playing field may affect investment in Egypt.

These initiatives are likely to spur the Egyptian fertilizer industry and government and financial stakeholders to adapt business models and move towards low carbon production in line with its peers in other countries. However, to be successful in decarbonizing, the industry will also need to take into consideration specific national circumstances. This is where an action plan linked to the vision comes in. 

How will the vision support decarbonization and management of climate risks?

Different stakeholders can use the vision developed for a low-carbon and climate-resilient pathway for the nitrogen fertilizer sector in Egypt. These include:

• Industry: to help identify what level of decarbonization they will target and by when, as well as the technical solutions that they will need to implement.
• Government: it to identify the enabling policies that are required to support decarbonization.
• Investors: to identify financing opportunities aligned with decarbonization ambitions and develop financing solutions that complement financial support from government and industry.

Who will be involved in implementation of the next steps?

To ensure the vision aligns with expectations of industry, government, and investors, stakeholders convened a steering committee to oversee activities and outcomes. The committee consisted of participants from the fertilizer and chemicals industry, government ministries, the Federation of Egyptian Industries, investors, and international organisations.

• With the vision phase now complete, what’s next?

The next phase of the decarbonization plan will be the development of a detailed low-carbon pathway and an action plan for building a climate-resilient future. This phase will engage stakeholders to conduct an in-depth risk assessment and detailed appraisal of Egypt’s actual fertilizer sector emissions data and related options for decarbonization. This low-carbon pathway is a pre-condition for any financing to be in place. Successful implementation of this low-carbon pathway will require action and collaboration across the value chain. The fertilizer industry, agribusiness, farmers, government, investors, and industry associations will all need to play their part.

Our aim is for the vision developed for Egypt to help inspire and guide businesses in other countries in formulating their own visions, not only others in the nitrogen fertilizer industry, but also for other sectors that need to decarbonize. The urgency to act now and tackle the challenge of climate change has never been more real. Implementing low carbon strategies and addressing climate risks will allow industries to be ambitious, to be leaders, to be sustainable businesses, and to keep their competitive advantage in the global market.