A Regulatory Dead End: Industry Versus Farmers

A report entitled Holding the line on the EU carbon border adjustment mechanism (by Kimberly Clausing, Ignacio García Bercero, Marilyn Pereboom, and Catherine Wolfram), published on 24 February 2026, deals with the first serious crisis in the history of the Carbon Border Adjustment Mechanism (CBAM). On 1 January this year, the mechanism came fully into force, requiring importers to purchase emission certificates, but just two month later France and Italy, supported by their farmers, demanded a levy exemption for fertilizers, referring to their need to protect farmers from a price rise. The authors, associated with Bruegel and academic institutions, are claiming that the exemption will not benefit farmers but harm the climate policy and undermine European fertilizer producers. The authors see CBAM as a means to preserve the mechanism that should help the European chemical industry survive as Russian gas is replaced with more expensive LNG while competitors have access to cheaper feedstock.

The authors estimate the impact of CBAM on fertilizer prices at 2 to 4 percent and claim the farmers’ panic to be groundless. They cite a calculation based on plant-level emission data; assuming a carbon price of EUR 80 per tonne, they find that a new equilibrium price for ammonia would be just 4 percent higher, i.e. 2 percent above its current price. The price in the market is set by domestic producers that have some unused capacity; so, even with CBAM in place, they will be able to keep the prices at their current level. But this assertion overlooks the total configuration of costs. The farmers suffer not only from CBAM but also because fertilizer production in the EU remains expensive due to gas prices, which the authors mention casually but draw no conclusions. Raising production on unused capacity from structurally more expensive feedstock only means that the differential costs will be shouldered by farmers.

Referring to manufacturers’ response, the authors write that Fertilizers Europe calls the possible exemption ‘totally unacceptable’, while the Norwegian Yara company threatens to revise its multi-billion investment in projects with Air Products. The European producer wants the State to reimburse it for the differential costs and impose a tax surcharge on cheaper imports. The authors broadcast the viewpoint of capital-intensive plants, as opposed to thousands of farmers that are sustaining real losses right now.

In criticizing Article 27a that permits emergency suspension of CBAM, the authors are technically right, as predictable rules are important to investors. Still, Article 27 is the last defense that lets Brussels step back if need be. The authors insist on purely formal rules – to make CBAM operational under all circumstances, even with destructive consequences for consumers also in Europe.

The question is who exactly is protected, and at what price for Europe. The European chemical industry is being rescued at farmers’ and consumers’ expense, which could actually save plants and jobs in the short term. But, in the long run, that perpetuates structural backwardness and means that European farmers become less competitive, food more expensive, and dependence on political decisions from Brussels even stronger.