The Plan and the Tax
The National Farmers’ Union of the UK has a shiny new plan. If imported ammonium nitrate hits £500 a tonne, the government should pay growers up to 70% of the extra cost, capped at £50,000 per business. The union calls it a mirror of the compensation schemes the European Union runs for its farmers: state money, priced, capped, and triggered by a specific market price.
The same government is planning to add a carbon tax to imported fertilizer. The Carbon Border Adjustment Mechanism - CBAM - commences on 1 January 2027, and fertilizer is in scope, alongside aluminium, cement, hydrogen, and iron and steel. Importers of covered goods will pay the state for the emissions embedded in what they bring in. The government says the tax is “not expected to add large costs.” It also points to a “record £11.8bn investment” in farming this Parliament.
So at the same moment, one part of the state is preparing to tax the imported input, and another part is being asked to refund the cost of that same input. The farmers are asking the state to compensate them for a cost its own border tax will add to, at a price trigger the market has already hit several times this year.
This is the two-hands exhibit, and it deserves a closer look: the arguments on both sides are stronger than the coverage suggests.
What a Carbon Border Tax Is Supposed to Do
The logic of CBAM is coherent, and it is not a scam.
The UK Emissions Trading Scheme prices carbon for domestic manufacturers. British steel, cement, and fertilizer producers pay for their emissions. Imported goods carry no such charge, giving overseas producers a price advantage that has nothing to do with efficiency. The risk is carbon leakage: emissions-intensive production leaves the UK, output moves to countries without a carbon price, and the global total barely changes.
The border tax is the standard answer to that problem. Price the emissions embedded in imports, and importers pay what domestic producers pay. The level playing field is restored. British heavy industry - the firms that actually pay the ETS - asked for exactly this. When the government says CBAM will stop overseas producers undercutting British firms, it is describing its own rationale. The European Union’s version began charging in January 2026.
So far, so simple. The trouble starts with the other hand.
The Second Price on the Same Molecule
The United Kingdom already prices carbon at about £229 a tonne at the pump: 52.95 pence of fuel duty on a litre of petrol, divided by the 2.31 kilograms of CO2 it produces, with VAT on top pushing the effective price toward £350. We did the arithmetic in The Carbon Tax That Already Exists - a carbon tax above most official estimates of the damage, running for decades without the name.
Now consider fertilizer. Nitrogen fertilizer is made from natural gas, and most of its embodied carbon comes from the ammonia step, where the gas is both feedstock and heat source. That carbon is already priced in petrol and in homes. A border tax on the same fertilizer is a second price on the same molecule, collected on top of the first.
That is the pivot of this story. The stated purpose of CBAM is to make imports face what domestic manufacturers pay. But the UK is not a country without a carbon price. It prices CO2 at £229 a tonne at the pump - above the social cost estimates its own government departments use - and is now adding a border levy on top for a subset of goods. The question is why one molecule should be priced twice, and who decided the second price should land on food.
The Pause That Almost Happened
Watch how the state treated its own tax when the politics turned.
In late May the Guardian reported that ministers were in talks about suspending the carbon tax on fertilizer before it started, as part of a package to curb food inflation. Government sources said they were looking at suspending tariffs on a range of fertilizers to discourage farmers from leaving fields fallow. There was tension inside the machine: the Treasury did not want to amend the Finance Act 2026, which suspension would require, while the business department pushed to cut prices. A proposal was discussed with the NFU, nothing was confirmed, and the suspension died quietly. A government spokesperson said the tariff consultation “does not relate to the UK’s CBAM.”
The pause was floated. The pause was not kept. That is a revealed preference: the state weighed delaying its own tax against the revenue, and chose the revenue. By July the answer was on the record in Parliament: the government “remains committed to implementing CBAM from 1 January 2027,” initial liabilities “will be modest,” and CBAM, “like all taxes, will be kept under review by the Chancellor.” That last clause is the retreat door, left open and labeled.
The Escalation Chain
Now the other side of the ledger, because the farmers have run a textbook escalation since the suspension died.
Step one was the warning. The NFU said CBAM risked “having a material impact on growers’ and farmers’ ability to produce food at a time when we must grow domestic food production” - the words of deputy president Paul Tompkins.
Step two was the delay demand: postpone the fertilizer element for at least 12 months and review it, because it could undermine food production.
Step three is the compensation scheme. The Fertiliser Resilience Plan sets a trigger: if imported ammonium nitrate hits £500 a tonne, growers should be able to claim up to 70% of the additional cost, capped at £50,000, mirroring the EU schemes. The union’s own document supplies the context: the UK imports around 60% of its nitrogen fertilizer, and the remainder produced domestically uses wholly imported ammonia.
Each step is a concession: the warning says the tax will hurt, the delay demand says it is worth postponing a legislated tax, and the compensation scheme says the state should pay 70% of it. You do not ask the state to refund a tax that does not bite. The escalation chain is the farmers’ own evidence that the pass-through is real, and the price data backs them up. Ammonium nitrate moved from around £300 to an average of £514 a tonne in recent weeks. In April, urea hit £635 a tonne and imported ammonium nitrate hit £535, and prices have exceeded £500 several times since the conflict began. Industry groups say CBAM could add a further 7-30% on top. The trigger the NFU named is not hypothetical; it is the market they are already in.
Who Pays
Follow the money down the chain, because that is where tax incidence lives: the person who writes the check is rarely the person who bears the tax.
The importer pays the state at the border, and the importer is a fertilizer merchant, not a farm. The merchant passes the charge into the price per tonne; the farmer buys the tonne and eats the margin; the household pays at the checkout. The government’s own Treasury minister conceded the principle early on: in November 2024 the Exchequer Secretary told Parliament the government expected “no material impact on UK food prices.” Governments do not reassure the public about things that will not happen.
Now apply the 60% import figure to the carbon-leakage rationale. The tax is justified as protecting domestic producers from foreign pollution. But the UK does not produce most of its nitrogen fertilizer, and the domestic production that remains runs on imported ammonia. The tax’s own logic - shield domestic production - collides with the domestic industry’s dependence on the same imported supply chain the tax prices. What it actually shields is the fertilizer plants that survive on imported ammonia, and the merchants who pass the cost straight through. The levy has a threshold: importers of less than £50,000 of covered goods a year sit outside the direct charging regime, so the firms affected are exactly the ones with the scale to pass the charge on.
Who Profits
Name the winners. The Treasury gets a new revenue line, collected from a sector with no alternative supplier. The domestic producers who asked for the tax get the shield they lobbied for, at no cost to themselves. And if the compensation scheme ever activates, it becomes a new constituency: the state collects the tax, then pays up to 70% of a cost it added, capped at £50,000 per business. A tax and a refund scheme for the same input are not a contradiction; they are a policy pair, and both hands are the state’s.
The £50,000 cap is the tell. It is the state pricing its own admission: the tax will add costs to farms, and some of those costs will be refunded, but only up to a number, and only at a trigger. You do not cap a cost you believe is negligible.
The losers are the ones without a lobby. Households pay at the checkout, where food inflation is the only number the Treasury watches. Farmers get squeezed between a tax on their input and a government that answers every complaint with the £11.8bn investment line - money that flows into the same farming system. The compensation cap is not a rescue; it is a ceiling on the state’s exposure, set below the losses the market has already delivered.
Compared to What
Set the baseline, because “who pays” needs a starting point. UK food inflation ran at 1.3% in the year to July 2026, down from 1.7% in June - the lowest reading since September 2021, when it was 0.8%. Food prices have been broadly flat while the rest of the basket climbed, and the government counts that as an achievement.
That is exactly the baseline the pass-through will test. The CBAM charge lands on fertilizer in January, at a moment when ammonium nitrate already sits near the £500 trigger. Every tonne of imported fertilizer that carries the charge is a cost entering the food chain at the one point the government is proudest of. When the state says the tax is “not expected to add large costs,” the honest question is: compared to what? Compared to the £11.8bn of investment, or compared to the 1.3%?
Which Hand Is the Policy?
The state prices carbon at £229 a tonne at the pump and calls it fuel duty. It adds a border tax on imported fertilizer, priced on the same molecule, and calls it climate policy. When farmers warn that the tax will hurt, it floats a suspension and keeps the tax. When farmers escalate to a compensation scheme, it gets a trigger, a percentage, and a cap. One hand taxes, the other hand refunds, and both hands answer to the same Treasury.
Here is the question the episode reduces to. When a country already prices carbon at £229 a tonne, adds a second price on the carbon in imported fertilizer, and then writes a compensation scheme for the farmers the second price squeezes - which hand is the policy? And who decided that the second tax would land on the dinner table?
Sources
- NFU: Fertiliser Resilience Plan
- Farmers Weekly: Farmers demand halt to fertiliser carbon tax plans
- GOV.UK: Carbon Border Adjustment Mechanism factsheet
- GOV.UK: CBAM policy overview
- The Guardian: Ministers in talks over shelving carbon tax on fertiliser
- Hansard written answer: Fertilisers and the UK CBAM, 14 July 2026
- ONS: Consumer price inflation, July 2026
- AHDB: Where does the UK import fertiliser from?