| dc.description.abstract | The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) will be effective from 2026, as a measure to reduce carbon leakage and ensure European competitiveness with the phase-out of free allowances in the Emission Trading System (ETS). This thesis investigates the potential effect of introducing CBAM on the nitrogen fertilizer industry by developing an ex ante partial equilibrium model towards 2030. The analysis examines free allowances while introducing CBAM. The thesis finds that CBAM will protect domestic industry more than free allowances but will in return increase fertilizer prices. The policy will give relatively higher costs for producers with a more carbon intensive production, which will cause suppliers outside the EU to leave the EU market. The analysis also shows that reducing free allowances in the ETS in combination with CBAM will reduce global emissions by 1,5%. For further EU emission reduction, it is necessary to shift to renewable energy solutions. The thesis therefore also studies the inclusion of the Renewable Energy Directive (RED III), which requires 42% of hydrogen, an important input for fertilizer production, to derive from renewable energy. Combining the reduction of free allowances in the ETS, CBAM, and RED III proves effective in reducing climate emissions and the risk of carbon leakage, only if the costs of green technology decrease. If costs of green technology remain high according to today’s prediction, the introduction of CBAM will have a negative effect on the EU industry and have zero effect on emissions.
Keywords: CBAM, ETS, nitrogen fertilizer, carbon price, carbon leakage, trade, GHG emissions, RED III, EU, Norway, partial equilibrium model, climate change, climate economics, 2030. | |
