Abstract of this article appeared in Financial Express
The most viable path forward is to decontrol the urea sector and allow market competition, similar to other fertilisers.
Urea causes three major environmental problems: nitrogen pollution, ozone layer depletion, and climate change, largely because of its overuse and inefficient use.
One of the core priorities in this year’s Budget is “productivity and resilience in agriculture”. Under this, the government plans to promote natural farming, enhance the production of pulses, oil seeds, and vegetables, transform agricultural research, and prioritise climate-resilient crops. While these are important and much-needed goals, the road to productive and resilient agriculture goes through a reformed fertiliser sector, especially urea. Here’s why.
Since the Green Revolution, the nation has relied on urea to provide the nitrogen necessary for higher crop yields. Today, urea accounts for 56% of all fertilisers, and nearly 80% of all the nitrogenous fertilisers used. However, this over-reliance has a very high cost for the economy and environment. Urea causes three major environmental problems: nitrogen pollution, ozone layer depletion, and climate change, largely because of its overuse and inefficient use.
The overuse of urea in India has reached unsustainable proportions. While the recommended ratio of nitrogen, phosphorus, and potassium (NPK) fertilisers is 4:2:1, in 2022-23 the ratio of actual applications was 11.8:4.6:1. On top of this, the nitrogen use efficiency (NUE) is only 35%, compared to more than 50% in North America, and close to 80% in a few European countries. This means that only about 35% of the nitrogen in urea is used by crops; the rest is lost to the environment, leading to water and air pollution, and soil degradation.
Today, nitrate pollution of surface water and groundwater has reached alarming levels in many states of India, especially in Punjab, Haryana, and Uttar Pradesh. It is estimated that the cost of water pollution due to urea in India is about $30 billion yearly, more than the turnover of the urea industry. There is also widespread soil sickness due to imbalanced application of urea, which has been highlighted by the prime minister numerous times.
Today, nitrate pollution of surface water and groundwater has reached alarming levels in many states of India, especially in Punjab, Haryana, and Uttar Pradesh. It is estimated that the cost of water pollution due to urea in India is about $30 billion yearly, more than the turnover of the urea industry. There is also widespread soil sickness due to imbalanced application of urea, which has been highlighted by the prime minister numerous times.
The burden of urea on the economy is equally staggering. Urea subsidy has skyrocketed from less than 500 crore in 1980-81 to168,692 crore in 2022-23. Today, urea subsidy is about 85-90% of the cost of production; it used to be 20-40% of the production cost in the 1980s. The problem is compounded by the fact that this production is based on imported natural gas. In 2022-23, 84% of urea was produced from imported natural gas, and about 21% of total consumption was imported urea. So, nearly 90% of urea consumed in the country was either imported or produced using imported natural gas.
Urea, therefore, sits at the intersection of food, energy, and environmental security. Thus, decarbonising urea production to reduce reliance on imported natural gas and optimising consumption is critical to a resilient agricultural sector. The good news is that technological advancements in the manufacturing and application of urea can solve many of the above-mentioned problems.
Green Urea Mission
A detailed study by me and my colleagues found that it is possible to halve urea consumption in the next two decades from the current levels without compromising food production by strengthening existing policies such as promoting natural farming, enhancing NUE, and reducing the proportion of urea in nitrogenous fertilisers. Most importantly, it is economically viable to transition the existing urea manufacturing plants based on natural gas to green hydrogen and renewable energy by 2050. Our plant-by-plant modelling results show that green urea, produced from green hydrogen, is the cheapest route for India to produce urea from 2027 onwards. The average levelised cost of green urea between 2025 and 2050 is about $475/tonne compared to $540/tonne for grey urea produced from natural gas.
To achieve the desired results, the government will need to launch a Green Urea Mission, integrated with the National Green Hydrogen Mission, to transition the urea manufacturing sector to green urea. The mission should also have a 30:30:30 target for 2050: increasing the area under non-chemical farming to 30%, improving NUE by 30%, and reducing the proportion of urea in nitrogenous fertilisers by 30%.
If the Green Urea Mission is adopted, imports will be eliminated, subsidies will be reduced by 65%, and GHG emissions will decline by over 60%. Water and air pollution will also be significantly mitigated, and land degradation will be reversed. Most importantly, it will drive the growth in the two emerging industrial sectors — green hydrogen, and carbon capture and utilisation. The monetary value of these benefits is about $1 trillion in the next 25 years.
However, the mission’s success will depend on the extent of government control over the urea sector. Currently, the industry is highly regulated, has low profitability, and lacks incentives to innovate and modernise. The average age of urea plants is 30 years, with 45% of units over 40 years old, operating through renovation and modernisation (R&M). Our modelling results show that R&M is the most expensive way to produce urea.
The most viable path forward is to decontrol the urea sector and allow market competition, similar to other fertilisers. This would drive technological advancements, improve efficiency, and reduce prices. Such measures are necessary for building a future-ready agricultural sector.
Chandra Bhushan is one of India’s foremost public policy experts and the founder-CEO of International Forum for Environment, Sustainability & Technology (iFOREST).