Fertilising Climate Policy: The Dual Impact of CBAM on EU Agricultural Emissions and Regional Disparities

Stepanyan, D., Zamani, O. ORCID: https://orcid.org/0000-0001-5516-7965, Heidecke, C., Pelikan, J., Rieger, J., Osterburg, B., & Gocht, A. (2026). Fertilising Climate Policy: The Dual Impact of CBAM on EU Agricultural Emissions and Regional Disparities. Journal of Agricultural Economics 10.1111/1477-9552.70060. (In Press)

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Abstract

The Carbon Border Adjustment Mechanism (CBAM), scheduled to become fully operational in 2026, is designed to complement the EU Emissions Trading System (ETS) by replacing free emission allowances and preventing carbon leakage to non‐EU regions. CBAM initially covers energy‐intensive sectors, including mineral nitrogen (N) fertiliser production. Although mineral N fertiliser production is already included in the EU ETS, it is currently exempt from carbon charges owing to full compensation through free allowances. The phase‐out of these allowances and the introduction of CBAM are expected to increase the prices of both imported and domestically produced fertilisers, indirectly affecting the EU agricultural sector. This study quantitatively assesses the impacts of the expected fertiliser price changes on the EU agricultural sector and related environmental outcomes using the Modular Applied GeNeral Equilibrium Tool (MAGNET) and the Common Agricultural Policy Regionalised Impact (CAPRI) model. The results indicate that the combined effect of phasing out free allowances and implementing CBAM will double mineral N fertiliser prices. Higher prices are projected to reduce demand, leading to a 21.4% decline in domestic production and a 37% reduction in imports. Overall mineral N fertiliser use in the EU is expected to decrease by 22%, partially replaced by manure. Consequently, EU agricultural factor income is projected to fall by 7.7%, primarily affecting high‐input regions. Meanwhile, non‐EU agricultural income is projected to rise slightly by 0.05%, driven by higher exports. EU agricultural greenhouse gas emissions are expected to decrease by 22 megatons of CO 2 ‐equivalent, with no significant increase globally.

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