Rethinking Trade Exposure: The Incidence of Environmental Charges in the Nitrogenous Fertilizer Industry

James Bushnell and Jacob Humber

Journal of the Association of Environmental and Resource Economists, 2017, vol. 4, issue 3, 857 - 894

Abstract: The imposition of environmental regulations to domestic manufacturing traditionally creates concerns over the impacts of those regulations on international competition and downstream product prices. The US nitrogen fertilizer industry has been considered by conventional metrics to be one of the most vulnerable to such effects. Since 2010 the industry has undergone increased concentration of producers and a dramatic reduction in natural gas prices. Our research establishes that the pass-through of changes in prices to domestic natural gas declined from 80% prior to 2010 to effectively zero through 2014. One implication of this change in pricing dynamics is that the imposition of greenhouse gas (GHG) regulations on producers of nitrogen fertilizers would have little impact on fertilizer prices. Within the context of a GHG cap-and-trade program, the allocation of emissions allowances would likely result in a transfer to fertilizer producers on the order of hundreds of millions of dollars with no impact on fertilizer prices, emissions, or quantity consumed.

Date: 2017
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