The economics of decarbonizing Europe’s ammonia industry: Policy, pathways and trade-offs in a hard-to-abate sector
This study applies a robust techno-economic framework to explore four key decarbonization pathways – unabated steam methane reforming (SMR), SMR with carbon capture and storage (CCS), biomass-based hydrogen (BIOH₂), and renewable hydrogen via alkaline electrolyzer cells (AEC) – across 52 existing ammonia production locations in Europe from 2030 to 2040. These pathways are examined under various policy settings, including RED III, CBAM, RFNBO, and Low-Carbon Fuels directives.
In the absence of policy support, SMR remains the most cost-effective option, primarily due to the depreciation of existing infrastructure at many plants, resulting in lower overall costs. Meanwhile, well-structured incentives can substantially enhance the competitiveness of renewables-based ammonia in regions with strong solar and wind resources.
Strict hourly time-matching rules for green hydrogen significantly raise production costs, emphasizing the need for more flexible policy approaches and robust energy infrastructure.
The analysis also indicates that US-produced ammonia from CCS, BIOH₂, or AEC can meet EU carbon intensity thresholds – reinforcing that if genuine market competitiveness is sought, harmonized and fair carbon accounting must be in place.
Overall, the findings highlight the importance of coordinated strategies and adaptive policy instruments in establishing a cost-effective, low-carbon ammonia sector in Europe.
By: Abdurahman Alsulaiman, Kong Chyong
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