While increased production costs of blue and green ammonia remain a challenge, demand from newer sectors like shipping and power can be key for ammonia decarbonization.

Approximately 98% of ammonia value chain emissions stem from the hydrogen production stage, which is heavily reliant on fossil fuels, particularly natural gas, for both feedstock and energy needs.³⁹⁸

Over the past five years, ammonia scope 1 and 2 emissions have plateaued at approximately 0.42 gtCO2.³⁹⁹ Current production processes like SMR and ATR, rely heavily on natural gas, rely heavily on natural gas and contribute to 73% of ammonia production, resulting in a high emission intensity of 2.4 tCO2e per tonne.⁴⁰⁰ Coal gasification, accounting for 26% of ammonia production, carries an even higher emission intensity of around 3.9 tCO2e per tonne. To meet the industry net-zero trajectory by 2030, emissions must be reduced by 37%.⁴⁰¹

The 2050 net-zero fuel mix necessitates reducing the fossil fuel share from 99% to around 30%.⁴⁰³ This transition can be primarily achieved by decarbonizing
the hydrogen input, either through electrolysis-based hydrogen or CCUS-based blue hydrogen, resulting in a potential 93% reduction in cumulative emissions by 2050.⁴⁰⁴ To achieve net zero, these pathways should be complemented by biomass-based ammonia production or methane pyrolysis.

To decarbonize the ammonia sector, the primary pathway involves clean hydrogen production. This can be achieved through green ammonia, using electrolysis powered by clean power, or blue ammonia, which combines CCUS with existing SMR/ATR processes. The production cost increase for low-emission production can vary from 40% to over 120% depending on the production route and region.⁴⁰⁵ Globally, SMR/ATR with CCUS is cheaper than electrolysis, though regional variations exist.

Electrolysis for hydrogen production offers a means to eliminate CO2 emissions entirely from ammonia production and break away from fossil feedstocks. However, it is expected to be available only after 2025 and might come at a production cost increase of a minimum of 120%. The current planned electrolysis project pipeline capacity is around 180 MT, with 50% of that expected to be online by 2030.⁴⁰⁶ Green ammonia production technologies are gaining momentum. For instance, ThyssenKrupp Industrial Solutions has developed a technology that can produce green ammonia from water, air and electricity generated from renewables using alkaline water electrolysis technology.⁴⁰⁷

To decarbonize fossil fuel-based ammonia production via SMR or ATR, capturing emissions through CCUS is crucial. Capture technologies like amine-based scrubbing are already established to capture rich CO2 process streams, but technologies for capturing dilute streams need to be further advanced. Producing blue ammonia incurs a production cost increase of a minimum of 40%. Currently, around 1% of the production is blue ammonia, with a planned capacity of approximately 40 MT.⁴⁰⁸

The future role of supporting technologies like methane pyrolysis and biomass gasification in low-emission ammonia production remains uncertain due to technical challenges such as low hydrogen purity and biomass availability. Methane pyrolysis is expected to be commercially available by 2025, but the readiness of biomass gasification is uncertain.

Meeting a three-fold increase in demand for low-emission ammonia by 2050⁴⁰⁹ requires significant investments in clean power capacity and CO2 handling infrastructure, estimated at $2.6 trillion.⁴¹⁰

Most of these investments will be needed for clean power capacity to generate electrolysis-based green hydrogen, which will account for around 70% of ammonia in 2050.⁴¹¹ To achieve this, the industry will need up to 1,320 GW of clean power capacity by 2050, equivalent to the entire generation capacity of the US.⁴¹²

The remaining funds will be allocated for CO2 storage and transport to enable CCUS-based hydrogen production. As technology advances and the learning curve progresses, CapEx for these infrastructure needs is expected to decrease, potentially accelerating their adoption.

Currently, technologies like methane pyrolysis and biomass gasification are projected to play a very small part in ammonia manufacturing by 2050,⁴¹³ and
their infrastructure requirements remain uncertain.

The choice of technology adoption will depend on regional infrastructure availability. In regions where CO2 transport and storage infrastructure will be
affordable, technologies like SMR and ATR with CCUS will continue to scale up. Such geographies showing early promise include North America and the North Sea. Similarly, clean hydrogen may be adopted in locations where low-cost clean power sources are already accessible. For instance, ENGIE and Mitsui are collaborating on one of the world’s first industrial-scale clean power-based hydrogen projects to supply feedstock to Yara’s existing ammonia operations in Western Australia.⁴¹⁴

The ability of customers to absorb a green premium of 40-120% per tonne remains untested beyond prototype projects as low-emission ammonia represents less than 1% of global supply.⁴¹⁵

Higher fertilizer prices resulting from the added production of low-emission ammonia could lead to an increase in food prices by up to 15%, posing a risk to food security.⁴¹⁶ Therefore, demand for low-emission ammonia from conventional applications is likely to remain limited until policy measures, such as cross-industry subsidies, come into effect.

Embracing low-emission ammonia will have a disproportionate impact on low-income and developing countries, where fertilizer prices are more closely linked to food security.⁴¹⁷

Ammonia players will need to strategically adapt to effectively address increased demand from new applications like shipping, power and hydrogen transport. This will include scaling the required low-emission production capacity and proactively securing early offtake agreements to ensure market foothold. However, several factors can impact the eventual demand for low-emission ammonia like weak regulations or availability of substitutes like availability of methanol as a shipping fuel or long-distance pipeline network to transport hydrogen.

Recent evidence indicates emerging demand signals. The first shipment of independently-certified blue ammonia has already arrived in Japan for use as fuel in power generation.⁴¹⁸ The ammonia was produced by SABIC Agri-Nutrients
with feedstock from Aramco and sold by Aramco Trading Company to the Fuji Oil Company. Also, the launch of the new Platts ammonia forward curve is an indication of the growing interest in green and blue ammonia,⁴¹⁹ underscoring the increasing importance of price transparency in this sector. The absence of standardized definitions, certifications and traceability may hinder consumers from making informed decisions on paying a premium for green ammonia and limited the industry’s understanding of market potential.

Public policies supporting clean ammonia production are emerging, particularly within the broader hydrogen policy landscape. However, additional policy frameworks are essential to facilitate the necessary technology and infrastructure deployment. Policies should also drive decarbonization while safeguarding food security.

These policies should promote the expansion of electrolyser manufacturing capacities and the implementation of CCUS technologies to facilitate clean ammonia production. Regulatory frameworks should encourage the growth of clean power generation and CO2 transport and storage infrastructure. Furthermore, policies should aim to stimulate demand for ammonia in new applications, such as a fuel in shipping or as a hydrogen carrier.

Many producing regions are beginning to adopt policy measures across the four readiness enablers, especially those with clean hydrogen consumption targets. For instance, the US and the EU have implemented encouraging policy frameworks that include innovation funds, infrastructure support and production tax credits.

The ammonia industry will need almost 1.5 times the amount of current investments annually to transition to low-emission assets with capital directed towards deploying electrolysers and CCUS.⁴²⁹ These technologies could require cumulative investments of $970 billion by 2050. This implies annual investments of $36 billion, in addition to the regular annual CapEx of $23 billion.⁴³⁰ Ammonia plants have long lifespans (up to 50 years). The current average age is around 25 years, but this varies regionally. Plants in Europe (9% of production) are around 40 years old on average and expected to witness an investment cycle in the next 10 years, so the investment should focus on low-emission assets to avoid emissions lock-in.⁴³¹

Current industry profit margins of 21%⁴³² and WACC of 9%⁴³³ suggest that the industry is not positioned to absorb these additional costs and generate sufficient returns to fund through its own generated cash flows. Some region-specific investment momentum exists. For example, Neom Green Hydrogen Company has achieved financial close on the world’s largest green hydrogen production
facility at a total investment value of $8.4 billion.⁴³⁴

Various financing models can be considered based on sectoral and regional context. The early investment of public funds, which could be done efficiently through development banks, could lead to faster deployment of the technologies and hence a faster decline in their cost. This could create competitive advantages to countries and regions that act fast and position themselves ahead of the curve. Regional variation in capital requirements will depend on the technology route and access to capital. Regions with low-cost CO2 transport and storage and existing investment momentum like North America could direct capital towards deploying ammonia assets with CCUS as compared to regions with lower cost renewables, to earmark capital for electrolyser deployment.

Approximately 91% of large publicly traded companies consider climate change as a key consideration for their strategic assessment and integrate it into their operational decision-making.⁴³⁵ Meanwhile, 5% of companies are building basic
emissions management systems and process capabilities. Finally, 4% of companies acknowledge climate change as a business issue.