Environment

Impacts

Our fertilizer products help replace nutrients removed through harvesting to support the sustainable
production of food, fiber and fuel. By optimizing production on existing farm land we minimize habitat
and recreational land destruction.

We work to minimize negative impacts created through our mining, processing, transportation and use of
our products. If we do not do this well, we can negatively impact water, air and soil quality through our
emissions and wasteful consumption of raw materials.

Issues

• Climate Change - Regulations regarding the reduction of greenhouse gas emissions have come into effect in Alberta. Given the facts that we have already made significant reductions in greenhouse gas emissions and current technology limits additional reductions, it will be a challenge for us to further reduce our operational greenhouse gas emissions.
• Nutrients in the Environment - Excessive nutrient use can trigger a variety of environmental issues, such as eutrophication, hypoxia and increased greenhouse gas emissions. Nutrients enter the environment from a wide range of sources including runoff from urban development, atmospheric deposition, sewage, industrial discharge and agriculture (soil erosion, manure and fertilizers).
• Reclamation and Remediation - Land that has been impacted by our mining operations and legacy companies must be reclaimed to protect the environment.
• Water Availability - The availability and quality of water is increasingly becoming an issue throughout the world.
• Air Quality - With increased urbanization and industrialization, air quality is attracting increased local and national attention, and resulting in expanded emission standards.

Involvement

Agrium works with industry associations and governments to develop policies, standards and systems that protect the environment. NGOs are engaged throughout this process by government and multi-stakeholder groups. Our employees implement, measure and continually improve the performance of our environmental systems.

Implementation

The primary tool that guides us in implementing sound environmental practices is our Environment, Health and Safety Management System (EHSMS). Our EHSMS indirectly addresses all facets of environmental management, from air emissions and wastes, to water use and reclamation. We continue adopting recommendations from a major external review in 2005 of the corporate EHSMS. This has led to system enhancements to improve EH&S performance in the past two years.

The corporate level EHSMS was revised in 2007 and all business units are expected to revise and implement their own EHSMS by the end of 2008. As we grow, we need to ensure that new facilities implement an EHSMS that is consistent with our corporate policies.

Climate Change

Directly and indirectly, we generate a significant amount of greenhouse gases through the production, distribution and use of our products. In an effort to reduce these emissions, we have developed a comprehensive three-pronged strategy with stakeholders, targeting:

• Improvements in energy efficiency within our operations;
• Carbon capture and storage; and
• Reduced emissions in agriculture.

Improvements in Energy Efficiency

Ammonia (NH₃) is the building block for nitrogen fertilizer. About 60 percent of the natural gas required to produce ammonia is used to provide the hydrogen (H) component and results in carbon dioxide (CO₂) emissions. These emissions cannot be reduced given current process technology. The remaining natural gas can be managed to increase energy efficiency and reduce CO₂ emissions. Due to the increasing cost of natural gas, Agrium has worked to increase energy efficiency to maintain our competitiveness since the early 1990s. This early action has been successful in reducing combustion CO₂ emissions.

Energy efficiency and greenhouse gas emission benchmarking done by Canada's nitrogen producers in partnership with the Government of Canada department, Natural Resources Canada (NRCan) in 2003, showed our sector to be among the most energy efficient nitrogen producers in the world. In 2004, the Canadian Fertilizer Institute engaged NRCan's Varennes Canmet Energy Technology Centre and their recommended consultant to carry out an analysis of two of our sector's larger production operations to assess opportunities to further reduce combustion emissions. This work showed that, at most, a three to five percent improvement in CO₂ emission intensity is possible. Given our early action to improve energy efficiency, finding a further five percent reduction in combustion emission intensity is challenging, but we are looking for all economical efficiency improvements in our nitrogen operations.

We continue to pursue cost-effective savings in energy that reduce greenhouse gas emissions at our facilities. We installed a cogeneration facility at our Carseland, Alberta nitrogen operations in 2002. Cogeneration makes more efficient use of natural gas to produce electricity and steam. In addition to providing power and steam to our operation, the facility exports power to the provincial power grid. As part of our potash production expansion at Vanscoy, Saskatchewan, we installed more energy efficient product dryers in 2006, improving energy efficiency at that facility by 13 percent.

Carbon Capture and Storage

The International Energy Agency studied carbon capture and underground injection for enhanced oil recovery in Saskatchewan and estimated that 99.8 percent of the CO₂ injected will remain underground for at least 5,000 years. We will continue to work with government and other stakeholders to confirm the details of carbon capture and storage.

We continue to seek opportunities to capture CO₂ from our nitrogen production facilities for enhanced oil recovery, industrial use or underground storage. At our Borger, Texas operation, more than 185,000 tonnes of CO₂ were captured in each of 2006 and 2007 for enhanced oil recovery. In 2007 we signed an agreement to capture significant CO₂ emissions from our Redwater, Alberta facility for enhanced oil recovery by other companies. This project is scheduled to become operational in late 2011 subject to approvals.

Agrium is a member of ICON, the Integrated CO₂ Network, a proposed system for the capture, transport and storage of CO₂ in Canada. ICON members represent a group of industry participants demonstrating climate change leadership by providing a framework for carbon capture and storage development in Canada. We believe that the nitrogen fertilizer industry is an excellent source for carbon capture and storage because the CO₂ is in a relatively pure form.

Reduced Emissions in Agriculture

Agrium has worked with stakeholders to develop an industry-wide nutrient stewardship system that will reduce nitrous oxide (N₂O) emissions by applying the right nitrogen products at the right rate, time and place through the implementation of best management practices. Although only small amounts of N₂O are released as a result of nitrogen fertilizer use, their release is of concern because N₂O has almost 300 times the global warming potential of CO₂.

In addition to our involvement in developing best management practices, we have also developed a series of controlled-release nitrogen products that reduce N₂O emissions and increase crop yields. While controlled-release technology is not new to turf and horticulture businesses, ESN is the first controlled-release technology developed for large acre crops such as corn and wheat. This offers a new practice that growers can use to provide crops with nitrogen at the right time and rate. In 2007, more than 122,000 tonnes of ESN were sold. It is estimated that this would reduce field N₂O emissions by about 260 tonnes or 77,000 tonnes of CO₂ on an equivalent basis. Due to the product's ability to increase yield, less nitrogen production is required. This avoids an additional 50,000 tonnes of CO₂ emissions.

We are supporting the development of a stakeholder-endorsed protocol that will provide growers with tradable offsets for on-farm reductions in N₂O emissions. This will enhance the economic sustainability of these practices and provide an incentive for their increased adoption. Numerous stakeholders, including scientists, will validate the specific best management practices and the credits provided for their implementation.

Nutrients in the Environment

To address stakeholder concerns that nutrients are entering the environment from the use of our products on farm, Agrium is working with industry associations, researchers, NGOs and government to establish a nutrient stewardship system. This includes the establishment of best management practices and long-term measures to monitor performance and support continuous improvement.

To date Agrium has successfully co-developed the 4R Nutrient Management System. The system has been adopted by the Canadian Fertilizer Institute in Canada, The Fertilizer Institute in the United States, the International Plant Nutrient Institute, and is currently being integrated into the International Fertilizer Industry Association's Global Framework for Fertilizer Best Management Practices. These associations are now working with researchers, government and NGOs to establish educational programming, best practice research and measurement systems to support long-term implementation for agricultural and urban use. Agrium participates in the taskforces that are established within each association to guide implementation and direct industry-wide research in this area. A multi-stakeholder nutrients council has been created in Canada to ensure ongoing stakeholder involvement.

Through numerous industry associations, we are participating in the International Nitrogen Initiative with NGOs and researchers to assess the impact of nitrogen on the environment. Our company Agronomists and other internal experts are directly participating in this initiative.

We believe that we can have a significant impact in developing nations by providing technologies that provide them with greater control over nutrient release rates and timing, using our controlled-release technology. This technology can be implemented with minimal investment in equipment and education to help these nations meet their growing food requirements, while reducing nutrient losses to the environment. Clearly, farmers will still need to know how to use these products to avoid over-fertilization.

Reclamation and Remediation

Environmental remediation liabilities relate to existing conditions caused by past operations that result in a current legal obligation to perform clean-up activities. We have a total of 197 sites designated as environmental remediation liabilities and have $117 million in reserves to address them.

We have a number of areas that are currently under reclamation or remediation due to mining, the production of tailings and facility closures. Two of our largest efforts are underway at Lynn Lake, Manitoba and Conda, Idaho.

Water Availability

Due to increasing industrial, urban and agricultural development near our operations we are working with the communities where we operate to become more efficient in our water use. The Alberta Government has been actively developing new water use and discharge standards for the Industrial Heartland area, which encompasses our Redwater and Fort Saskatchewan, Alberta facilities. We are actively collaborating with the province and local governmental agencies to develop these standards.

As part of our response to the fact that the Borger, Texas region is in the midst of a multi-year water shortage, in 2005 we started using wastewater from the city of Borger sewage treatment plant as cooling water. Currently our Borger facility reuses over 3.5 million litres of water per day that would otherwise come from the area's already scarce water supply.

Air Quality

In response to air quality concerns being raised at local and national levels, our Canadian operations anticipate the introduction of tougher emission standards and operating conditions to control certain pollutants (nitrogen oxides - NO_x, sulphur oxides - SO_x, and NH₃). These emissions are not only recognized as pollutants but also as contributors to the formation of particulates. In anticipation of these regulations, we are replacing existing burners with low NO_x burners in 2008 in our Fort Saskatchewan operation. We will continue to explore these types of opportunities at other facilities.

Illustration

Remediation Activities in Idaho

Nu-West Industries, Inc. (Nu-West), a wholly-owned subsidiary of Agrium, is performing reclamation and remediation activities at six closed mineral processing/phosphate mines located near the town of Soda Springs, Idaho. These sites were mined by a predecessor company of Nu-West and other third-parties from as early as 1955 to as late as 1993. Agrium acquired Nu-West in 1995.

We are addressing the presence of selenium in surface water and vegetation. Selenium is a trace mineral that is essential for optimal health, but becomes toxic at higher concentrations. It was discovered in late-1996 to be leaching from reclaimed lands associated with these mines. The source of the selenium is ancient marine sediments associated with the phosphate ore deposits. The selenium becomes mobile through natural weathering. Nu-West and the other Idaho phosphate producers have been working aggressively to remedy selenium issues associated with past operations and to implement best practices to ensure selenium issues don't become an issue on current and new mining operations.

Since 1996, Nu-West has spent more than $10 million investigating these sites and, collaboratively with other mining companies, developing long-term sustainable remedies.

Remediation Activities in Manitoba

Agrium, through our Viridian subsidiary, and in cooperation with the Manitoba Government, is remediating two mine sites near the town of Lynn Lake, Manitoba. These sites were closed in the 1970's and subsequently abandoned without reclamation of the tailings. Agrium purchased Viridian in 1996, after the sites had been abandoned, and has since been developing remediation plans and conducting remediation activities in cooperation with government agencies and interested stakeholders.

We installed and continue to operate a neutralization operation to reduce the acidity and metals in runoff from one mine and mill tailings area. At the other site, Agrium and the Manitoba Mines Branch are pilot testing a number of innovative treatment technologies such as: various capping approaches to minimize snowmelt and rainfall infiltration through the tailings; using bacteria to make the metals unavailable to other organisms; and progressive revegetation of the tailings area. Initial results show improvement of surface and ground water quality. Human health and ecological risk assessments have confirmed this progress.

For additional environmental stories, please see our website: www.agrium.com/in_the_community

Indicators

Fines and Penalties

In 2007, Agrium received fines and penalties, or reached settlements for environmental violations totaling $1.1 million. This is a large increase over previous years and is primarily due to a $750,000 settlement with the United States Environmental Protection Agency for air permit violations that occurred at a Royster Clark nitric acid plant in Cincinnati, Ohio prior to our acquisition. In addition to the fine, the settlement requires us to install pollution control equipment to reduce NO_x emissions from nitric acid production by 80 percent. Equipment improvements are expected to cost up to $2.5 million.

Our Management Approach to Environmental Protection

Major Environmental Risks & Opportunities	See Issues
Policy Commitments	See our EH&S policy, which was adopted in 1994 and more recently revised in 2005, at www.agrium.com. It states that we will: use an Environment, Health and Safety Management System (EHSMS) that includes setting and monitoring the performance and achievement of objectives and targets; conform with applicable laws, regulations and industry standards; promote partnerships with employees, customers, governments and communities to encourage the responsible management and use of our products and services; communicate our business activities and the risks associated with our operations to employees, customers, governments and communities; conduct formal audits, reviews and evaluations to ensure continual improvement; and design, construct, operate and maintain our facilities in a responsible manner.
Operational Responsibility	Agrium's Senior Director; EH&S oversees company-wide policies and programs related to the environment. Cross-functional groups, including corporate environmental staff, develop tools and provide advice on implementation and management at the business unit level. Business unit presidents are responsible for implementation of policies and practices. Our Corporate Environment Committee, comprised of senior management representatives, establishes the standards necessary to meet our environmental performance objectives.
Key Strategies and Procedures for Implementation	Our Environment, Health and Safety committee of the Board helps direct and govern our environmental efforts. Our EHSMS clearly defines expectations, requirements, practices and procedures. We track incidents to identify high potential and existing risks, and to enable early action.
Major Changes to Systems or Structures to Improve Performance	We have introduced a customized data management system to better track and analyze performance data.
Training and Awareness	Employees must confirm their commitment to our EH&S policy upon hiring and at least once every two years. An orientation training session is dedicated to EH&S. We publish stories regularly about Agrium's environmental issues and achievements in our employee newsletter, Food for Thought. We encourage strong commitment and awareness to EH&S through our President's Awards and related communications.
Monitoring and Follow-Up	We conduct internal EH&S compliance audits at all of our facilities on a three-year cycle. Corrective actions for shortcomings are identified and implemented. In compliance with regulations, we monitor air quality and water discharges at all production facilities.
Goals and Performance	Our aim is to reduce environmental events by 25 percent from 2006-2009. See performance data
Key Successes and Shortcomings	We continue to manage the environmental impacts of legacy mine sites. We are maintaining and reducing NO2 emissions by investing in new equipment.

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