December 11, 2023 | McKinsey & Company |
Agriculture, contributing to 24% of global greenhouse gas emissions, faces a challenge in decarbonization due to limited emission reduction technologies. However, a breakthrough lever has emerged—replacing fossil-fuel-based ammonia with green ammonia in fertilizer production. Gray ammonia, responsible for 1.2% of global emissions, can be almost fully decarbonized through green ammonia, contributing significantly to greenhouse gas reduction.
A McKinsey analysis reveals that transitioning to green ammonia could cut emissions by an average of 5% in ten typical European consumer food products. Fertilizer producers are already exploring greener alternatives, with projects worldwide aiming for substantial emissions reductions. Green ammonia's impact extends beyond emissions reduction; it aligns with consumer demand for sustainable products, offering a competitive advantage.
Despite these benefits, challenges remain. Green ammonia projects require increased access to green financing and significant renewable power capacity expansion. Uncertainty in future green ammonia prices necessitates collaboration to absorb higher costs throughout the value chain. Consumer willingness to pay premiums for sustainability presents an opportunity to finance green ammonia projects, signaling a path toward a more sustainable agriculture sector.