By Petter Østbø, Founder and CEO of Atlas Agro
The transition to green nitrogen fertilizer production is not difficult. We just need the will to do it.
The Urgency of Now
The urgency of the green industrial transition cannot be overstated. As the world faces the escalating impacts of climate change, the need for swift and decisive action to decarbonize industrial sectors including aluminum, cement, chemicals, steel, aviation, shipping, and trucking has never been more critical.
The climate benefit from shifting so-called hard to abate industries away from fossil fuels is substantial. Nitrogen fertilizer production, transportation and use contribute more than a billion tons of carbon emissions annually.
Atlas Agro is poised to fundamentally change how nitrogen fertilizer is produced with the world’s first at-scale green nitrogen fertilizer plants in the U.S. and Brazil. The idea is simple – local, green nitrogen fertilizer production powered by renewable energy.
But decarbonizing nitrogen fertilizer production will require the construction of 800[1] new green fertilizer plants, each costing more than a billion dollars, and taking three to five years to build. Today there are zero. Without a radical acceleration of new projects, we will not decarbonize in time.
While on a longer time horizon, the direction is clear, banks may not be able underwrite projects at the speed or scale we need before there is clear market and regulatory signals demanding green production. Market interventions are needed to bridge the perceived risk of green products and stimulate demand for decarbonization.
Market Interventions: Carrots, Sticks & Insurance
Current market interventions include subsidies like in the Inflation Reduction Act in the U.S., but they require taxpayers to foot the bill. Or taxes like EU’s Carbon Border Adjustment Mechanism (CBAM) and Emissions Trading System (ETS), but they require the customer to pay.
A more efficient and effective solution is to have the industry itself foot the bill. This could take the form of a ‘minimum price guarantee fund,’ serving as a form of insurance to accelerate the transition. This insurance fund would cover the difference between the market price of a green commodity and the price needed to repay loans to banks, if that should ever be necessary.
Unlike grants and loans, the fund would only be available to plants that actually produce, thereby avoiding the risk of investing in ventures that do not come to fruition. The plant owners would pay for the coverage as a de-risking tool, allowing the fund to grow and support additional projects over time.
For example, a fund of $300 million (USD) could back a single global scale fertilizer plant. Let’s assume every year for its first ten years in production fertilizer prices would be the lowest they have been the last ten years, without any green premium. While that is unlikely to happen, the project would need less coverage every year as the debt is paid down, allowing the fund to cover the next plant and so on. Over 20 years, such a fund could support the construction of seven global scale plants.
Public-private partnerships offer a potential solution to accelerate the energy transition, but they must be designed to address the financial market’s struggles with non-fossil business models. Traditional approaches, such as carbon taxes or financial support through grants and loans, place the burden on consumers or taxpayers. These methods, while helpful, are not sufficient to drive the scale and speed of the change required.
A minimum price guarantee fund, for which the industry itself would pay, offers an efficient and effective solution, providing the necessary financial security to accelerate the green industrial transition. By leveraging this innovative approach, we can ensure that industries like nitrogen fertilizer production can meet global climate targets and contribute to a sustainable future.
[1] Atlas Agro projection based on certain assumptions of plant size, population growth, dietary change, etc.
