How can we power the industry that feeds the world population sustainably?
This is a central question in today’s synthetic fertilizer industry, which is responsible for feeding roughly 50% of the world’s population but emits 1.5% of total greenhouse gas emissions every year. It is imperative that we scale renewable ammonia (also known as eAmmonia and green ammonia) to ensure food security amid a new energy reality; one where skyrocketing energy demand requires additional and diversified forms of energy.
Within Europe’s fertilizer industry, addressing this problem means looking at how we produce, distribute and regulate ammonia. Ammonia is a basic building block for nitrogen-based fertilizer production, which represents most fertilizers used in the European Union (EU). The EU has a 9% share of global fertilizer production. As it intensifies decarbonization efforts, its fertilizer industry will face significant challenges to keep up competitive production while meeting new emission reduction guidelines. Legislation such as the Renewable Energy Directive III (RED III) mandates that by 2030, 42% of the hydrogen used in industry must come from renewable sources. Such requirements put increasing pressure on the European fertilizer industry to reduce overall emissions, but could this come at the cost of reduced competitiveness on the global market?
Policymakers must balance achieving sustainability objectives with maintaining the economic viability of the European fertilizer sector. Addressing challenges around infrastructure and cost to meet current policy directives can enable Europe to build a renewable ammonia industry that enhances global food and energy security.
Transitioning to fertilizers produced from renewable energy sources presents two main challenges.
First, Europe’s current renewable hydrogen production (a first step in ammonia production) capacity is minimal, measured in tens of megawatts, whereas several gigawatts are required to meet the 42% target. While the industry is growing, the rate at which electrolysis capacity is being scaled is not at pace with 2030 targets, with current reports estimating only 1GW of electrolyzer capacity to be online and operational by the end of this decade. Scaling this production rapidly demands, among other things, substantial investment in renewable energy infrastructure.
Second, the cost of renewable hydrogen is between one and a half and six times higher than conventional fossil-based hydrogen, which currently dominates industrial ammonia production. Grid congestion and the additionality principle — which requires that renewable hydrogen production must add renewable energy capacity to the grid so as to not compromise existing renewable electricity demand — may add to production costs, and further complicate the business case for local hydrogen generation.
Furthermore, the production of renewable ammonia is heavily reliant on a ready supply of hydrogen, with around 2.5Mt of hydrogen being used as a feedstock to produce ammonia every year (which counts for a third of all hydrogen consumption in Europe). Any challenge in scaling a ready supply of renewable hydrogen will consequently impact the feasibility of scaling renewable ammonia, which has direct implications for the fertilizer industry.
High natural gas prices have already challenged Europe’s competitiveness in ammonia production. Natural gas serves as the primary feedstock for fossil-based hydrogen, of which 36% of the global supply is used to produce ammonia. With roughly 70%-80% of ammonia being used in the production of fertilizers, the two industries are inextricably linked, and currently highly dependent on the price of natural gas.
The challenge of keeping the European fertilizer market cost-competitive becomes even more complex when renewable hydrogen is used as the primary feedstock in its ammonia production. The additional cost burden of transitioning to renewable hydrogen could make European ammonia production economically unviable. This could result in the entirety of the ammonia value chain moving outside of the EU, which would have implications far beyond that of the fertilizer industry.
What could this mean for imported ammonia? As Europe already imports around 3 million tons of ammonia annually, this dependence is likely to increase.
Given the stringent EU policies, some European fertilizer producers may consider relocating to regions with more lenient policies. The U.S. Inflation Reduction Act (IRA), for instance, offers tax credits for renewable and low-carbon hydrogen production, creating a more favorable investment environment. Imports from other low-cost regions, such as Morocco, Chili and Australia could be a potential import solution, although the infrastructure needed to produce, transport, and then store the renewable hydrogen and ammonia needed have yet to be built to the scale required for the fertilizer industry’s demand.
This infrastructure would be a new addition to an ammonia industry that, up until perhaps now, has largely relied on domestic production. Currently, only 10% of all ammonia production (for all applications including fertilizer production) is traded globally, highlighting the significance of regional self-sufficiency. Europe’s increasing reliance on imports risks exposing the sector to global price volatility and supply chain disruptions.
The transition to renewable ammonia in Europe’s fertilizer industry presents both significant challenges and opportunities. The region's ambitious decarbonization goals, exemplified by the RED III directive, are forcing the industry to confront a complex array of obstacles, from scaling up renewable hydrogen production to mitigating the economic impact of higher production costs.
While these efforts are essential for a sustainable future, they risk undermining Europe’s competitiveness in the global market, particularly given the existing reliance on natural gas and the high costs associated with green hydrogen. The growing import dependence and potential relocation of production to regions with more favorable policies further complicates the situation.
To ensure a smooth and viable transition, policymakers must strike a delicate balance between achieving environmental objectives and maintaining the economic viability of the fertilizer sector. By addressing the infrastructure, cost, and policy hurdles, Europe can foster a renewable ammonia industry that supports both global food and energy security.