Navigating Carbon Border Adjustments: A Case Study Analyzing the Impacts and Strategies for Trinidad and Tobago’s Ammonia Exports

The introduction of the European Union’s (EU’s) Carbon Border Adjustment Mechanism (CBAM) significantly impacts carbon-intensive export sectors in economies of Small Island Developing States, particularly Trinidad and Tobago’s (T&T’s) ammonia industry. This study evaluates the economic implications of CBAM on T&T’s ammonia exports using historical production, natural gas consumption, and trade data (2004–2024) to establish emission baselines and projections for up to 2034. By employing linear programming optimization and sensitivity analyses, this study quantifies CBAM’s potential revenue impacts of CBAM under various emission factors, carbon prices, and market scenarios. The results indicate that under a business-as-usual (BAU) scenario, T&T’s ammonia exports to the EU could face an average CBAM tax burden of 22%, significantly affecting export revenue and economic stability. Notably, reducing emission factors by 37%–75% through mitigation technologies like carbon capture and storage could almost entirely negate these costs in the near term. The findings highlight critical vulnerabilities in the T&T’s ammonia sector due to CBAM, but also highlight strategic decarbonization pathways. The analysis advocates urgent policy interventions, including emission reduction investments, export market diversification, and domestic carbon pricing strategies, to maintain economic resilience and competitiveness in a global economy, increasingly governed by stringent climate-related trade measures. This study uses T&T’s ammonia sector as a case study and provides a methodological framework for adapting this work to other CBAM-exposed sectors locally and carbon-intensive economies globally. 

Introduction

The European Union’s Carbon Border Adjustment Mechanism (CBAM), formally operationalized in 2023, represents a defining shift in the intersection of trade and climate policy. Conceived to complement the European Union’s (EU’s) Emissions Trading System (ETS), CBAM aims to impose a carbon cost on imports equivalent to that faced by domestic producers, thereby minimizing the risk of carbon leakage and encouraging decarbonization beyond EU borders [1], [2]. Under this mechanism, embedded emissions in imported goods, including ammonia, fertilizers, cement, iron, and steel, will be progressively priced through a transitional reporting period (2023–2025), with full financial compliance beginning in 2026.

For Small Island Developing States (SIDS), CBAM’s implications of CBAM are complex. These economies, often reliant on narrow export portfolios and carbon-intensive sectors, may face trade penalties despite their minimal contribution to global emissions. Trinidad and Tobago (T&T) embodied this vulnerability. While contributing less than 0.1% to global GHG emissions, T&T maintains one of the world’s highest per capita emission rates due to the petrochemical sector powered by natural gas. The country’s economy is heavily dependent on ammonia, urea-based fertilizers, and methanol exports, which now confront the potential erosion of its competitive advantage in the EU markets.

In this study, we present the first empirically grounded sector-specific analysis of CBAM’s potential impacts of CBAM on T&T’s ammonia industry. We combined historical emissions and trade data (2005–2024) with forward-looking projections and linear programming-based optimization to evaluate the cost burden, abatement thresholds, and strategic export decisions under multiple CBAM scenarios. This study aims to provide both a methodological contribution and an urgently needed policy lens for carbon-constrained trade adaptation in fossil-fuel-dependent SIDS.

Background and Literature Review

CBAM Objectives, Design and Early Debates

When CBAM was developed to safeguard climate ambition within the EU by levelling the playing field for EU producers subject to ETS obligations and discouraging offshoring of carbon-intensive production. The mechanism is structured around product-specific benchmarks, phase-in rates, and emissions reporting, with final design features shaped by trade law considerations and political negotiations [3], [4]. Ammonia is among the sectors initially covered, with methanol and additional chemicals expected to be included by 2030 [5], [6].

Despite its climate rationale, critiques have emerged regarding CBAM’s limited sectoral scope, administrative burden, and compatibility with WTO principles such as non-discrimination and technical neutrality [7], [8]. More broadly, concerns about global equity, historical responsibility, and developing countries’ capacity to comply have positioned CBAM at the heart of global climate justice discourse [2], [9].

Empirical Modelling and Trade Exposure

Most modelling efforts around CBAM focus on large economies (e.g., China, India, and Russia), often applying general equilibrium (CGE) or input–output models to simulate macroeconomic or sectoral impacts. These studies confirm that carbon-intensive exporters without carbon pricing frameworks face significant trade exposure, although national impacts vary based on export structure, emission intensity, and mitigation potential [10], [11].

In contrast, limited attention has been paid to small, fossil-fuel-driven economies, such as T&T, where CBAM’s coverage may disproportionately intersect with core export sectors. A study by the UK Foreign, Commonwealth, and Development Office (2024) highlighted T&T’s petrochemical exposure as among the highest in the Caribbean, noting that ammonia alone represented over 10% of total EU-bound exports in 2022. The IMF [8] further estimates that CBAM could impose a fiscal burden equivalent to 0.8% of GDP annually under current emission levels and carbon pricing assumptions.

TandT’s Sectoral Risk Profile

T&T’s industrial economy is heavily reliant on petrochemical production, particularly ammonia, urea-based fertilizers, and methanol, all of which are generated using natural gas as both feedstock and an energy source. This gas-intensive production model, established through decades of industrial development from the 1980s onward, has enabled high-output, export-oriented growth but at the cost of elevated process emissions. Notably, the average ammonia production emission factor in T&T is approximately 1.57 tCO₂ per tonne of NH₃—exceeding the indicative CBAM benchmark values currently under review for EU imports.

This exposure is significant: as of 2023, more than 33% of T&T’s ammonia exports were directed to countries that were either within the EU or aligned with its carbon pricing direction, with EU-bound exports alone comprising a substantial share of sectoral foreign exchange earnings [6], [12]. The lack of a domestic carbon pricing scheme coupled with the absence of a sector-specific Monitoring, Reporting, and Verification (MRV) system places the country at a comparative disadvantage under the CBAM framework. Exporters may face considerable compliance costs beginning in 2026 unless mitigation measures, such as efficiency upgrades, emission reductions such as carbon capture and storage (CCS), or strategic market reallocation, are identified and adopted.

While broader analyses have flagged the vulnerability of carbon-intensive economies to CBAM-induced trade disruption [13], [14] few studies offer granular, forward-looking assessments tailored to the structural realities of SIDS. For T&T, whose export portfolio includes several CBAM-covered sectors, such as fertilizers, iron and steel, and other inorganic chemical compounds, empirical analysis across all exposed industries is critical to inform national mitigation and trade strategies. This study fills this gap by using the ammonia sector (export code: 2814) as a focused case study, given its economic importance, emission intensity, and strategic role in national foreign exchange earnings.

Analytical Approaches to Emission Estimation and Trade-Contrained Optimization

A growing body of literature has emphasized the importance of pairing emission estimation methodologies with trade and economic modelling tools to understand the implications of carbon pricing instruments, such as the EU CBAM. Central to these assessments is the quantification of embedded emissions in traded goods, which directly determines the carbon liability under border adjustment mechanisms. Numerous studies analyzing cross-border carbon pricing impacts have employed the Intergovernmental Panel on Climate Change (IPCC) Tier 1 methodology for emission estimation, particularly in data-limited contexts because of its transparency, replicability, and alignment with international reporting norms [15]. Although Tier 2 and Tier 3 approaches offer plant-level specificity, their data requirements often render them impractical for developing countries without comprehensive monitoring, reporting, and verification (MRV) systems in place.

In parallel, the use of linear programming (LP) and related optimization techniques has gained traction in evaluating the economic effects of climate-trade policy interactions. LP models have been widely applied to simulate trade behavior under regulatory constraints, enabling researchers to explore optimal production and export decisions while accounting for carbon price shocks, emissions caps, and market restrictions. For instance, Böhringer and Rutherford [10] employed LP-based approaches to examine the distributional impact of carbon taxation in multiregional trade systems. More recent studies, such as those by Chepeliev and Corong [9], have adapted similar frameworks to estimate welfare and trade shifts under unilateral CBAM regimes, highlighting the disproportionate exposure of carbon-intensive exporters without domestic carbon pricing instruments.

These models allow for the integration of variables, such as production volumes, sector-specific emission factors, carbon price trajectories, and destination market emissions benchmarks, to simulate policy scenarios and identify breakeven thresholds for profitability. By applying LP modelling to sector-level trade flows, particularly in commodities such as steel, cement, and fertilizers, researchers have been able to assess the sensitivity of net revenue and market access to CBAM design parameters and global climate-policy asymmetries [10].

In this context, this study builds on these methodologies to investigate how a small, fossil-fuel-reliant economy, such as T&T, might navigate trade-offs under CBAM constraints. By reviewing and adapting proven analytical tools from the literature, this study contributes to the emerging literature on carbon border adjustments in resource-dependent and structurally vulnerable economies.

Methodology

Building on the literature that highlights the role of emission factor estimation and trade modelling in understanding CBAM impacts [15], this study adopts a structured data-driven approach to assess the exposure of the T&T’s ammonia sector. The analytical framework integrates emissions estimation using the Tier 1 IPCC methods with linear programming-based trade simulations under CBAM pricing scenarios.

As shown in Fig. 1, the methodology unfolds in four key stages: (1) historical data collection and emission source identification, (2) projection modelling and EF computation, (3) business-as-usual (BAU) impact assessment from 2026 to 2034, and (4) sensitivity analysis incorporating variable assumptions such as carbon price trajectories and benchmark shifts. This sequential process enables replicable and policy-relevant evaluation of sectoral vulnerabilities and strategic responses.

Fig. 1. Methodological framework.

Data Collection and Sources

To conduct the analysis, historical data on ammonia production and natural gas utilization in T&T were collected for the period of 2004–2024. Annual ammonia production (in tons) was obtained on a per-plant basis, providing insight into the operational capacity and output of individual facilities. However, data on natural gas utilization were only available at the aggregate sectoral level, without plant-level breakdowns. Consequently, natural gas consumption (in million standard cubic feet per day, MMSCFD) was treated as a macro-level national indicator representative of the entire ammonia production sector. Both ammonia production and natural gas utilization data were sourced from the Ministry of Energy and Energy Industries (MEEI) of T&T [16].

Annual ammonia export data were gathered from the International Trade Centre (ITC) database using HS code 2814, covering exports to the European Union (EU) and the Rest of the World (RoW). For each year, the total export volume (in tons) and corresponding export value (in USD) were extracted from the online data portal [17]. This enabled the computation of unit export values (USD/ton) for both the EU and RoW markets over the 2005–2024 period. To support the GHG emissions estimation, emission conversion factors were sourced from the IPCC 2006 Guidelines for National Greenhouse Gas Inventories. These data were used to estimate direct CO₂ emissions based on ammonia production volumes and natural gas usage. Furthermore, the carbon cost adjustments under the Carbon Border Adjustment Mechanism (CBAM) for ammonia were derived from the European Commission’s official benchmark documentation [16].

Projection Modelling and EF Computation

To estimate future trends and carbon intensity, a two-stage methodology was implemented. First, the GHG inventory was computed using activity data and IPCC [15] guidelines; second, and forward-looking projections were developed for key production and trade variables.

GHG Inventory and EF Estimation Projection

The GHG inventory for T&T’s ammonia production sector for 2004-2024 was computed using the Tier 1 method from the 2006 IPCC Guidelines for National Greenhouse Gas Inventories [15]. Total annual carbon dioxide (CO₂) emissions were calculated using natural gas consumption as the primary activity driver. Equation (1) computes total annual CO₂ emissions from natural gas consumption, forming the basis of the sector’s GHG inventory.

Let:

• $N{G}_y$: total natural gas consumption in year, $y$ (in GJ [converted from MMSCFD if required using 1 MMSCF = 1037 MMBTu]) [18]

• $E{F}_{NG}$: EF for natural gas (in tCO₂ per GJ)

• $E_y$: total CO₂ emissions in $y$ (t)

Then:

(1) $$\begin{array}{r}{E}_y=N{G}_{y}E{F}_{NG}\end{array}$$

The annual EF (tCO₂/tNH₃) was derived by normalizing the total emissions with the ammonia production volume. Equation (2) converts total annual emissions into an EF by normalizing CO₂ output to ammonia production, allowing cross-year comparison of process efficiency.

Let:

• $A_y$: total ammonia production in years (tons)

• $E{F}_{A,y}$: EF for ammonia in y (tCO₂/tNH₃)

Then:

(2) $$\begin{array}{r}E{F}_{A,y}=\frac{E_y}{A_y}\end{array}$$

To project future emissions, linear extrapolation models were developed using historical trends from 2004 to 2024 for both natural gas consumption ($N{G}_y$) and ammonia production ($A_y$). These projections were used to extend the emission estimates by 2034. Equation (3) projects total CO₂ emissions for future years based on historical natural gas consumption trends.

For each future year y > 2025, total projected emissions were computed as:

(3) $$\begin{array}{r}{E}_y^{proj}=N{G}_y^{proj}E{F}_{NG}\end{array}$$

Equation (4) extends the projection by estimating corresponding EFs, which serve as inputs for subsequent CBAM cost analysis. Projected EF:

(4) $$\begin{array}{r}E{F}_{Ay}^{proj}=\frac{E_y^{proj}}{A_y^{proj}}\end{array}$$

These projected values form the basis of the carbon intensity used to evaluate the economic impacts of carbon pricing (CBAM/ETS) in later modelling steps.

Export Value Projections

The quantities of ammonia exported to the EU and RoW were projected using the same linear forecast method applied to historical export volumes (2005–2024). However, to isolate the carbon cost impacts from volatile pricing dynamics, export revenues beyond 2024 are computed using a static unit value approach. Equation (5) determines projected export revenues using static unit values, enabling a simplified linkage between production forecasts and fiscal outcomes.

Let:

• $Q_{m,y}$: projected export volume to the market, $m$ in $y$ (t)

• $U_{m,2024}$: unit export value to $m$ in 2024 (USD/ton)

• $R_{m,y}$: projected revenue from $m$ in $y$ (USD)

Then:

(5) $$\begin{array}{r}{R}_{m,y}=Q_{m,y}{U}_{m,2024}\end{array}$$

This approach allows for simplified revenue modelling under deterministic pricing. However, this assumption is recognized as a limitation, as it does not account for dynamic market factors, such as commodity price fluctuations, energy input costs, or geopolitical influences on trade. Future iterations of this analysis can be expanded to include stochastic pricing models or market scenario analyses to reflect these variables more realistically.

Methodological Assumptions and Limitations

Several simplifying assumptions were adopted to ensure model tractability and comparability with similar CBAM assessments. These include:

1. Linear extrapolation of trends: Historical ammonia production and export data were projected using linear extrapolation without stochastic demand fluctuations.

2. Fixed scenario parameters: Carbon prices and CBAM benchmark values were held constant within each scenario to isolate the effects of EF variation.

3. Sector-level aggregation: Energy consumption and emission estimates were derived from aggregated national statistics due to the unavailability of disaggregated plant-level data.

Although these assumptions introduce some uncertainty, they enable a transparent and replicable framework suited to data-limited contexts typical of small island economies. Future studies incorporating stochastic price modelling and facility-level datasets could enhance robustness and precision.

While this study applies a deterministic export-price assumption for clarity, it does not include stochastic price variability or Monte-Carlo simulations of market shocks. This simplification isolates CBAM-specific impacts but should be interpreted as a limitation. Future work incorporating probabilistic sensitivity analyses could improve realism in revenue forecasting.

BAU Impact Assessment (2026–2034)

To improve clarity, the following subsections outline, step-by-step, how baseline emissions, CBAM costs and sensitivity parameters were estimated, ensuring transparent linkage between input data, equations and outcomes. A BAU scenario was developed for the period of 2026–2034. This preliminary analysis assumes that no mitigation investments are made within the sector, and that the carbon intensity of ammonia production remains unchanged relative to the projections developed in the previous section.

CBAM Phase-in Factors and Benchmarking Approach

The annual phase-in schedule of CBAM obligations was derived from PwC and EY [5], as shown in Table I, which outlines a gradual implementation from 2026 to 2034 by declining CBAM adjustment factors.

Table I. Diminishing CBAM Factors for the European Union [19], [20]

Year, y	CBAM Factor, Fy
2026	97.50%
2027	95.00%
2028	90.00%
2029	77.50%
2030	51.50%
2031	39.00%
2032	26.50%
2033	14.00%
2034	0.00%

As shown in Table I, the progressive decline of CBAM adjustment factors from 97.5% in 2026 to 0% in 2034 illustrates the EU’s gradual transition toward full carbon cost internalization. This steady reduction effectively increases exporters’ exposure to carbon prices over time, emphasizing the urgency for emission mitigation in early years.

These annual phase-in values, denoted as Fy, begin at 97.5% in 2026 and decrease to 0% by 2034. This reflects the increasing level of CBAM cost internalization over time. Equation (6) specifies the CBAM benchmark EF adopted for ammonia imports under EU regulations, representing the reference threshold for compliance. In accordance with EU’s benchmark methodology for ammonia [3], the CBAM benchmark EF was taken as

(6) $$\begin{array}{r}E{F}_{CBAM}=1.57tC{O}_2/tN{H}_3\end{array}$$

This benchmark represents the default allowable embedded emission level under the CBAM framework for ammonia imports.

Estimating Emissions Subject to CBAM

The embedded emissions per ton of ammonia exported to the EU were defined as the annual sectoral E, $E{F}_{A,y}^{proj}$, which was previously calculated using projected natural gas utilization and ammonia production. Equation (7) defines the annual emissions subject to CBAM, capturing the difference between sectoral and benchmark emission intensities. Using this, the net emissions subject to CBAM in any given year, y, were calculated as [5], [6]:

(7) $$\begin{array}{r}{E}_{CBAM,y}=max(0,E{F}_{A,y}^{proj}-F_{y}E{F}_{CBAM})Q_{EU,y}\end{array}$$

where $E_{CBAM,y}$ is the total tCO₂ subject to CBAM in year $y$, $Q_{EU,y}$ is the projected quantity of ammonia exported (tNH₃) to the EU market. The max function ensures that no CBAM tax is applied if sectoral emissions fall below the adjusted benchmark.

Revenue and Cost Calculations

Equation (8) estimates baseline export revenues under the BAU scenario, prior to CBAM cost adjustments. To evaluate the fiscal impact of the CBAM, the following metrics were computed for each year from 2026 to 2034:

Projected Export Revenue (BAU):

(8) $$\begin{array}{r}{R}_{EU,y}=Q_{EU,y}{U}_{EU,2024}\end{array}$$

Equation (9) calculates the annual CBAM tax cost based on projected emissions and carbon price assumptions.

CBAM Tax Cost:

(9) $$\begin{array}{r}{C}_{CBAM,y}=E_{CBAM,y}{P}_{C{O}_2}\end{array}$$

where $P_{C{O}_2}$ is the assumed carbon price, which is fixed at USD 70/tCO₂ in the BAU scenario.

Equation (10) determines the resulting net export revenue after deducting CBAM liabilities.

Net Export Revenue with CBAM:

(10) $$\begin{array}{r}{R}_{Net,y}=R_{EU,y}-C_{CBAM,y}\end{array}$$

Equation (11) expresses the CBAM tax on a per-ton basis, facilitating comparison across emission scenarios.

CBAM Tax Unit Cost:

(11) $$\begin{array}{r}U{C}_{CBAM,y}=\frac{C_{CBAM,y}}{Q_{EU,y}}\end{array}$$

Equation (12) converts total CBAM costs into a percentage of export revenue, highlighting the relative fiscal burden.

CBAM Tax Burden (% of Revenue):

(12) $$\begin{array}{r}{T}_y=\frac{C_{CBAM,y}}{R_{EU,y}}\ast 100\mathrm{\%}\end{array}$$

These outputs enable a comparative impact sensitivity analysis across scenarios and inform recommendations on emission reduction thresholds, pricing resilience, and market re-strategization.

Sensitivity Analysis and Variable Assumptions

To complement the baseline assessment of EU CBAM’s financial impact on T&T’s ammonia exports, a multi-parameter sensitivity analysis was conducted. This approach is critical for identifying policy levers and investment strategies to mitigate carbon cost exposure and improve long-term sectoral competitiveness. The sensitivity analysis focuses on five core parameters that directly affect the emission-adjusted revenue outcome under the CBAM regime. These include: $E{F}_{A,y}^{proj}$, $P_{C{O}_2}$, $E{F}_{CBAM}$, $U_{EU,y}$, and $Q_{EU,y}$.

Ammonia Production EF (EFA,yproj)

The main controlled variable from T&T’s ammonia producers’ perspective is EF; therefore, a deeper focus was placed on evaluating the impact of potential technological improvements or deteriorations. The following abatement scenarios were modelled for the projected ammonia EF:

• BAU: No change

• +25%: efficiency deterioration or operational challenges.

• −10%, −25%, −50%, −75%: Reflects phased decarbonization strategies, such as

Deployment of CCS

Waste heat recovery through HRSG

• Fuel switching to blue or green hydrogen

• Retrofit and modernization of inefficient plants

Additionally, a linear programming optimization approach, similar to that of Böhringer and Rutherford [10] and Chepeliev and Corong [9], was incorporated to maximize the annual EF reduction, thereby minimizing the total CBAM tax liability across the projection horizon (2026–2034). This informs T&T producers of the minimum activity needed to avoid CBAM taxes and maintain their BAU projection volume and revenue. The objective function of the optimization equation can be expressed as

$$\begin{array}{r}MinimiseE{F}_{A,y}^{proj}\end{array}$$

Subject to:

$$\begin{array}{r}{C}_{CBAM,y}=0,\end{array}$$

$$\begin{array}{r}{C}_{CBAM,y}=E_{CBAM,y}{P}_{C{O}_2},\end{array}$$

$$\begin{array}{r}{E}_{CBAM,y}=max(0,E{F}_{A,y}^{proj}-F_{y}E{F}_{CBAM})Q_{EU,y},\end{array}$$

$$\begin{array}{r}E{F}_{A,y}^{proj}\ge 0\end{array}$$

All the coefficients are known constraints; therefore, the problem is linear. Because $Q_{EU,y}>0$ and $P_{C{O}_2}>0$, the zero-tax constraint is satisfied only when the bracketed term equals zero, yielding the closed-form LP solution: Equation. (13) presents the optimized EF derived from the linear programming model that minimizes total CBAM tax liability.

(13) $$\begin{array}{r}E{F}_{A,y}^{proj(opt)}=F_{y}E{F}_{CBAM}\mathrm{\forall }y\in [2026-2034]\end{array}$$

Each year’s $F_y$ directly defines the required minimum EF to nullify CBAM liability. $E{F}_{A,y}^{proj(opt)}$ serves as the year-specific decarbonization target; that is, any sectoral $E{F}_{A,y}^{proj}$ at or below $E{F}_{A,y}^{proj(opt)}$ nullifies the CBAM tax, while higher intensities trigger the cost outcomes quantified in the prior EF scenarios.

EU CBAM Carbon Price (PCO2)

Owing to the potential tightening of EU ETS regulations and carbon market volatility, the following bounds are evaluated:

• Low scenario: USD 52.50/tCO₂ (−25%)

• High scenario: USD 87.50/tCO₂ (+25%)

EU CBAM Benchmark EF (EFCBAM)

This benchmark may fluctuate as EU producers decarbonize or explore other technologies for their ammonia plants, or provide concessions for carbon-intensive vulnerable countries. The analysis includes:

• Low scenario: 1.18 tCO₂/tNH3 (−25%)

• High scenario: 1.96 tCO₂/tNH3 (+25%)

Export Unit Value to the EU (UEU,y)

Rather than using the static per-ton export value $U_{EU,2024}$ fixed across 2025–2034, the following price sensitivity scenarios are included to capture market volatility for the EU market:

• −25%: Represents declining global fertilizer prices or buyer-side bargaining.

• +25%: This reflects price surges during energy crises or limited supply.

Export Volume to the EU (UEU,y)

Export volumes to the EU were assumed to follow BAU projections using historical extrapolation. However, future work may incorporate trade reallocation feedback caused by the imposition of the CBAM, including the following:

• Reduction in EU-bound exports

• Diversion to non-EU markets

• Increased domestic utilization (e.g., blue hydrogen, urea, or power-to-ammonia)

A ± 25% scenario margin was applied to help understand the dynamics of flexible bilateral trade channels, offset mechanisms, and early CBAM registry complications, which may reduce EU market dependency and smooth transition risks.

Results

Projected Ammonia Production, Exports and EFs

Fig. 2 shows the historic ammonia output fluctuated between 4.5 and 5.5 Mt NH₃/year from 2004–2021, falling sharply to ≈4.0 Mt in 2022–2024 as several plants experienced prolonged downtime. The linear-trend projection suggests a partial recovery, reaching ~4.4 Mt in 2025 and then tapering gently to ≈4.2 Mt by 2034. Historical EF (yellow line) ranged from 2.26 tCO₂ /tNH₃ (2020) to 2.64 tCO₂ /tNH₃ (2013). The projection (red line) stabilizes at ~2.43–2.45 tCO₂ /tNH₃ over 2025-2034, reflecting the long-run average of recent operating years rather than any assumed abatement.

Fig. 2. Ammonia historic and projected production (tonnes NH₃) and EF (tCO₂/tNH₃) in T&T.

Fig. 2 demontrates that while ammonia output has remained relatively stable, EF have shown minimal long-term improvement. This indicates that process efficiency gains have been limited and that carbon intensity in T&T’s ammonia production remains structually high. Between 2005 and 2023 in Fig. 3, total ammonia exports averaged ~3.5 Mt NH₃/year, dominated by RoW destinations (dark-blue bars). EU shipments (green bars) rarely exceeded 0.4 Mt NH₃/year. Projections hold RoW exports at ~3.0 Mt NH₃/year, while EU exports are assumed constant at ~0.75 Mt NH₃/year for 2025-2034 in line with the BAU trade forecast (light-blue and orange bars, respectively).

Fig. 3. Ammonia historic and projected export (tonnes NH₃) and export value (USD/tNH₃) from T&T to the European Union and the rest of the world.

Historical unit values were highly volatile, peaking at ~1,250 USD/tNH₃ in 2023 amid the global energy shock. For the forward baseline, a static price assumption is applied: 535 USD/tNH₃ for EU sales (red line) and 433 USD/tNH₃ for RoW markets (black line). These anchors isolate the CBAM effects from commodity price variability and form a reference for subsequent cost-impact calculations.

As illustrated in Fig 3, exports to the EU comprise a small yet steady share of total ammonia trade, confirming that although EU exposure is moderate, the CBAM could significantly affect a key portion of foreign-exchange earnings if unmitigated.

BAUl EU CBAM Impact Assessment (2026–2034)

Fig. 4 shows that under the baseline assumption of unchanged carbon intensity and fixed unit prices, the projected EU export revenue (blue bars) rises from approximately USD 325 million in 2026 to ~USD 483 million by 2034, driven solely by the constant volume, constant price forecast. Because the phase-in CBAM factor, $F_y$, falls from 97.5% to 0% over the period, the annual $C_{CBAM,y}$ (red bars) escalated from ~USD 41 million in 2026 to ~USD 155 million in 2034. The average $U{C}_{CBAM,y}$ across the horizon is 115 USD/tNH₃, equivalent to an implicit surcharge of ~22% on the assumed FOB price of 535 USD/tNH₃.

Fig. 4. Projected BAU export revenue, CBAM tax cost, net export revenue, and CBAM tax burden for T&T's BAU scenario.

Fig. 4 shows that CBAM costs escalate sharply through 2034 even under constant production and price assumptions, reducing net export revenues and revealing the compounding fiscal burden of deferred decarbonization.

Sensitivity Analysis

TandT Production EF (EFA,yproj) Focus

As shown in Fig. 5, a +25% deterioration in $E{F}_{A,y}^{proj}$ reduces net revenue to approximately USD 275 million in 2026 and keeps it roughly flat by 2034—an average shortfall of approximately USD 33 million per year versus the BAU trajectory. A 10% reduction raises the 2026–2034 revenue path by approximately USD 13 million per year relative to BAU, while 25%, 50%, and 75% reductions deliver progressively stronger uplifts, with the –75% case reaching USD 444 million in 2034 (~35% above BAU).

Fig. 5. Net export revenue (millions USD) from EU with CBAM sensitivity at varying ammonia production EFs (BAU, +25%, -10%, -25%, -50%, -75%).

Fig. 5 highlights that net revenue is highly sensitive to changes in ammonia production EF ; even a 25% efficiency improvement produces noticeable fiscal gains, underscoring the economic case for targeted abatement.

Fig. 6 illustrates the linear programming results for the mitigation requirement and the optimal EF. The projected BAU emissions range steadily between 10.4–10.8 MtCO₂/year between 2026–2034 (blue columns). The green columns show the cumulative emissions that must be abated to drive $C_{CBAM,y}$ 0. The required mitigation increased from ~4 MtCO₂/year in 2026 to ~10 MtCO₂/year in 2034, tracking the phase-in of $F_y$. Correspondingly, the red line traces the minimum permissible $E{F}_{A,y}^{proj}$ that nullifies the tax. $E{F}_{A,y}^{proj}$ falls from 1.53 tCO₂/tNH₃ (2026) to ~0 tCO₂/tNH₃ by 2034, implying that complete neutralization of the CBAM liability eventually requires the sector to outperform the EU benchmark by 100%.

Fig. 6. Projected ammonia emissions (million tCO₂) required to be mitigated to negate CBAM and its minimum optimized EF (tCO₂/tNH₃) vs projected BAU values.

As shown in Fig 7, the volume of emissions requiring abatement rises steadily with CBAM phase-in, implying that progressive technological deployment such as CCS or fuel switching will be essential to maintain competitiveness.

Fig. 7. Total net revenue (2026–2034) for T&T’s ammonia export to EU comparison under varying (±25%).

Variables Comparison

Fig. 7 juxtaposes the aggregate net export revenue to the EU (2026–2034) obtained when each key CBAM-driver is shocked by ± 25% while holding all other inputs at their BAU levels. Two broad patterns were observed.

1. Market-side levers dominate the revenue envelope:

• A 25% increase in the export unit value to the EU lifts cumulative revenue to ≈ USD 3.85 billion, the highest of all positive shocks, whereas a 25% decline halves this gain (USD 1.99 billion).

• Analogously, a ± 25% change in export volume to the EU swings the total revenue between USD 3.65 billion (↑) and USD 2.19 billion (↓).

2. Policy-side levers deliver second order, yet material, effects:

• Tightening the ammonia-sector EF (+ 25%) erodes revenue to USD 2.62 billion; a 25% reduction raises it to USD 3.22 billion.

• A ± 25% shift in the carbon price translates into a USD 0.40 billion swing (USD 3.12 billion vs. USD 2.72 billion).

• A ± 25% adjustment in the CBAM benchmark EF (proxy ± 25% used for comparability) delivered the narrowest revenue band (USD 3.02–2.82 billion).

Fig. 8 reports the average CBAM-tax burden (2026–2034) that coincides with the revenue outcomes. The ranking reverses, emphasizing the tax-mitigation power of internal decarbonization:

Fig. 8. Average CBAM tax burden (2026–2034) for ammonia export revenues to EU comparison under varying (±25%) ammonia production EF, carbon prices, CBAM EF benchmark, export volume to EU, and export unit value to EU.

• The ammonia production EF is the single most influential determinant of tax pressure. A 25% reduction reduces the average burden to 14%, whereas a 25% increase drives it up to 30%.

• Carbon price volatility has the next-largest effect (16% vs. 27%).

• Variations in export volume leave the percentage burden unchanged (22%), confirming that CBAM is levied on a per-ton basis.

• A more generous CBAM benchmark EF (–25%) trims the burden to 19%, and a tighter benchmark (+25%) lifts it to 24%.

• Shocks to export unit values primarily alter the denominator, reducing (17%) or amplifying (29%) the implied burden rather than the absolute tax outlay.

Figs. 7 and 8 collectively illustrate that while market-side factors (export price and volume) drive total revenue, EF management remains the dominant determinant of CBAM tax pressure. Reducing process emissions thus yields the highest and most stable financial benefits.

Executive Summary of Key Numerical Findings

This study quantifies the projected economic and emission impacts of the EU’s CBAM on T&T’s ammonia exports, integrating EF estimation, BAU projections, and sensitivity analyses over the 2026–2034 period. Historical ammonia output fluctuated between 4.0 and 5.5 million tonnes (Mt NH₃) during 2004–2024, while the corresponding EF averaged 2.43–2.45 tonnes of carbon dioxide per tonne of ammonia (tCO₂/tNH₃) throughout the projection horizon. Under the BAU scenario, assuming an EU carbon price of USD 70 per tonne of CO₂, the CBAM tax burden is projected to increase from approximately USD 41 million in 2026 to USD 155 million in 2034. This represents an average surcharge of about 22% on export revenue, equivalent to USD 115 per tonne of NH₃ sold to the EU market.

Export revenues under BAU conditions rise nominally from USD 325 million in 2026 to USD 483 million in 2034; however, the concurrent increase in CBAM costs results in declining net revenue over time. The analysis demonstrates that a 25% reduction in EF decreases average CBAM costs from 22% to 14% of total export revenue, while a 50%–75% reduction nearly eliminates CBAM-related charges. Linear-programming optimization results indicate that a minimum 37% reduction in EF by 2026, progressing toward zero by 2034, would fully offset carbon liabilities.

The sensitivity analysis further reveals that the EF and the carbon price are the most influential parameters. A ±25% change in EF alters total EU-bound ammonia revenue between USD 2.62 and 3.22 billion, whereas similar carbon price variation produces a net revenue shift of approximately USD 0.40 billion across the 2026–2034 horizon. These findings confirm that improving process-level emission efficiency provides the most direct and sustainable mitigation strategy under the CBAM framework, while market-based variables such as export price or volume exert comparatively moderate effects.

Discussion

The results of this study highlight significant near-term challenges for T&T’s ammonia industry under EU CBAM. Our findings show that without mitigation measures, ammonia exports could incur an average carbon cost of approximately USD 115 per ton of ammonia, representing around 22% of the export value between 2026 and 2034. By 2034, nearly one-third of gross ammonia revenues from the EU could be diverted to CBAM payments under current conditions, rising sharply from one-eighth in 2026 owing to the decreasing allocation of free allowances. Given the central role of ammonia in the T&T economy, these potential revenue losses—estimated at around 0.8% of GDP annually under high carbon-price scenarios—highlight substantial economic risks, affecting employment, fiscal stability, and industrial sustainability.

The analysis clearly highlights that decarbonization represents the most effective pathway for mitigating CBAM impacts. Reducing the EF of ammonia (CO₂ per ton of NH₃) offers the most direct benefit. For example, achieving a 25% improvement in emissions efficiency would lower CBAM costs from approximately 22% to 14% of the export value, whereas a 25% decline in efficiency would escalate costs by approximately 30%.

. Thus, investments in technologies such as CCS, renewable hydrogen, and process efficiency are economically imperative to maintain competitiveness in the carbon-constrained EU market.

While changes in carbon or export prices exert secondary influences, they are nonetheless significant. Higher EU carbon prices could increase the tax burden from 16% to 27% of the export value within the tested range. Conversely, shifting export volumes away from the EU would not alter per-ton CBAM costs–only reduce the amount of tax paid, underscoring that export market diversification alone is insufficient. Additionally, as global climate policies evolve, other markets (such as Japan, the UK, and the USA) may implement similar carbon measures in the near future (several have already drafted ETS policies [8]), reinforcing the necessity of reducing emissions rather than merely reallocating exports.

From an industrial perspective, T&T’s ammonia producers face difficult strategic choices: absorbing increased carbon costs through reduced margins or risking market share loss by passing costs to consumers. Individual plants experience varied impacts depending on their specific EFs, which potentially diverge from the national averages used in this study. Early CBAM implementation (2026–2030) may allow producers time for gradual adjustments. However, by the early 2030s, sustained exports of relatively high-carbon ammonia to Europe could become economically unviable.

Comparatively, other major ammonia-exporting nations, including Russia, North Africa, and Middle Eastern producers, face similar challenges, although T&T’s small, less-diversified economy increases vulnerability. Larger economies can more easily mitigate CBAM impacts through market diversification, an option limited to T&T owing to scale and potential market saturation risks. For instance, studies indicate that some major exporters could re-route a significant share of their exports to non-EU markets to avoid CBAM costs. In one illustrative scenario [21], roughly half of Russia’s potential export losses to the EU may be offset by redirecting shipments elsewhere, softening the overall blow. T&T’s ammonia producers might attempt a similar strategy – diverting more sales to regions without carbon tariffs (the Americas or Asia); indeed, the EU currently accounts for a relatively small fraction of global ammonia imports, suggesting that alternative markets exist. Such a trade diversion could provide temporary relief, allowing T&T to maintain export volumes by selling to countries with looser climate policies. However, this is not a panacea. Shifting markets may entail accepting lower prices or higher transport costs, and there is a risk of saturating alternate markets (especially if multiple CBAM-affected exporters do the same). Moreover, as mentioned, global climate action is accelerating other jurisdictions that may follow the EU’s lead, with carbon tariffs or stricter import standards in the coming years. This means that any respite avoiding the EU market could be short-lived. Therefore, while comparative examples show that partial circumvention of CBAM is possible, T&T’s long-term competitiveness will ultimately hinge on lowering the carbon content of its ammonia rather than on outmaneuvering the regulation, and its near-term response will determine whether its ammonia industry wanes or thrives in a low-carbon global economy.

In addition to the methodological assumptions noted earlier, another limitation concerns plant-level heterogeneity. Plant-level variability in EF may further influence CBAM exposure. While this study employed sector-average values due to data constraints, individual ammonia plants can differ significantly in thermal efficiency, catalyst performance, and maintenance practices. Such heterogeneity means that some facilities may already approach EU benchmarks, while others could face disproportionately higher carbon liabilities. Establishing plant-specific monitoring and verification systems would enable more accurate assessments and support targeted mitigation investments within the sector.

While this study provides a robust sector-level assessment, it is constrained by data aggregation. The use of national-level natural gas consumption as a proxy for plant operations may mask efficiency differences among facilities. Similarly, the linear projection of export trends does not capture potential market shocks or policy shifts. Future research incorporating plant-specific datasets, stochastic price simulations, and scenario-based modelling would improve result precision and policy relevance.

Finally, these insights have broader policy implications. CBAM effectively imposes an external carbon price on T&T exports, motivating domestic policy interventions. Introducing a domestic carbon pricing scheme (carbon tax or cap-and-trade) aligned with EU pricing could retain carbon revenue domestically, facilitating reinvestment in local decarbonization initiatives. The scale of the necessary emission reductions evident from the linear programming analysis in our study signals the urgency for transformative measures, including CCS deployment, blue or green ammonia development, and enhanced energy efficiency.

In conclusion, this study emphasizes the critical link between carbon competitiveness and economic resilience. For T&T, proactively taking steps to embrace decarbonization is both environmentally prudent and economically essential to preserve the viability of its ammonia sector and other ETS-exposed industries amid tightening global climate regulations. In the absence of such steps, however, the results of this study portend a difficult road ahead, where delayed action could translate into lost markets and economic contraction for one of the country’s flagship industries. Thus, the findings fundamentally highlight the need for T&T to treat carbon competitiveness as central to its economic strategy, ensuring that the ammonia sector remains a source of prosperity rather than a victim of global low-carbon transition. The following recommendations translate these findings into actionable strategies for policymakers and industry stakeholders.

Recommendations and Future Work

Building on the preceding analysis, several targeted actions are recommended to enhance the sector’s resilience to CBAM impacts. Several strategic and operational actions are recommended for T&T’s ammonia sector to mitigate the potential adverse effects of the EU’s CBAM and leverage opportunities arising from global shifts towards low-carbon ammonia.

1. Accelerate emission-reduction technologies

Immediate investment in emission reduction technologies should be prioritized. Given the substantial financial impact identified, technologies such as CCS, process efficiency improvements (e.g., catalyst improvements), and the incremental integration of blue and green hydrogen production pathways have become vital. The analysis highlights that achieving EF reductions in the range of 50%–75% can significantly negate CBAM-related costs. Therefore, proactive industry-wide audits, feasibility studies, CCS deployment, and energy efficiency retrofits should be initiated without delay.

2. Develop a domestic carbon-pricing framework

Therefore, it is crucial to develop and implement domestic carbon-pricing mechanisms. Establishing a domestic carbon price aligned with international markets, such as the EU Emissions Trading System, can retain carbon revenues domestically, incentivize low-carbon investments, and reduce CBAM liabilities. Future work should explore a detailed design of such mechanisms, assess fiscal impacts, and ensure revenue neutrality or positive redistribution impacts, particularly for affected communities.

3. Diversify export markets

Given the sensitivities highlighted in this analysis, particularly the dependency on ammonia production EFs and export prices, T&T s should strategically diversify export markets beyond the EU. Identifying and securing alternative long-term agreements with emerging markets actively seeking low-carbon ammonia, such as Japan, South Korea, and certain US states, will buffer against market fluctuations and regulatory risks. Moreover, future research and diplomatic efforts must explore bilateral and regional partnerships, including Article 6 ’scooperative approaches under the Paris Agreement, to further reduce emissions.

4. Establish plant-level Monitoring, Reporting and Verification (MRV)

Thus, a framework for MRV at the plant level is critical. Establishing transparent and internationally compliant MRV infrastructure will not only meet EU CBAM requirements, but also position T&T competitively in global low-carbon supply chains. Future work should prioritize the development of detailed MRV methodologies, digital tools, and the necessary technical capacity.

5. Expand future research scope

This study extends beyond the ammonia sector to cover all export areas under the EU’s CBAM, such as fertilizers, hydrogen, and methanol (as part of the EU’s expanded CBAM). This will provide local stakeholders with critical empirical evidence for conducting data-driven interventions to prevent the erosion of profits and market adaptation.

Overall, while CBAM introduces significant challenges, it also provides an impetus for the T&T’s ammonia industry to evolve sustainably. Future studies should expand the scope of this analysis, incorporating stochastic modelling approaches for market pricing, plant-level emissions data, and comprehensive socio-economic impact assessments to ensure an inclusive transition for all stakeholders.

Conclusion

This study evaluated the economic impacts of the EU’s CBAM on the T&T’s ammonia sector. Under a BAU scenario, significant revenue losses and increased carbon taxation were identified, underscoring the sector’s vulnerability to evolving carbon border regulations. Sensitivity analyses emphasized that strategic investments in emission reductions, particularly targeting at least a 37% decrease in sectoral emissions, could substantially mitigate CBAM exposure. The findings highlight an urgent need for T&T and other exposed carbon-intensive economies to prioritize technology adoption, diversify export markets, and develop domestic carbon policies to maintain global competitiveness and ensure the long-term sustainability of the ammonia industry and other ETS-exposed sectors.

Acknowledgment

We would like to express special thanks to Ms. Amy Clark for her assistance in the preparation of this research paper.

Conflict of Interest

The authors declare there is no conflict of interest.