This study investigates the impact of emission caps on the economic viability and technical feasibility of retrofitting European ammonia plants for on-site, semi-islanded electrolytic hydrogen production. The European ammonia industry emits 36 million tons of CO₂ annually, primarily from steam methane reforming (SMR) hydrogen production. Electrolytic hydrogen production using renewable energy can reduce emissions by 85%, but stricter emission caps significantly increase costs. A 100% emissions reduction target raises the levelized cost of hydrogen (LCOH) to 6.3 EUR/kg H₂, making it less competitive in regions with limited renewable resources. However, a 1-cap (1 kg CO₂e/kg H₂) emission cap leads to a 95% reduction in emissions while maintaining cost-competitiveness with SMR in renewable-rich regions, with an average LCOH of 4.1 EUR/kg H₂. Increasing plant flexibility reduces costs, particularly in off-grid plants. The study highlights the importance of region-specific strategies to support the transition to electrolytic hydrogen in ammonia production. The results show that the 1-cap is a cost-effective emission reduction target, achieving a 51% reduction in emissions with only a 2% increase in cost compared to the 3-cap. The study also emphasizes the need for robust policy designs to address the challenges of transitioning to low-carbon hydrogen production.This study investigates the impact of emission caps on the economic viability and technical feasibility of retrofitting European ammonia plants for on-site, semi-islanded electrolytic hydrogen production. The European ammonia industry emits 36 million tons of CO₂ annually, primarily from steam methane reforming (SMR) hydrogen production. Electrolytic hydrogen production using renewable energy can reduce emissions by 85%, but stricter emission caps significantly increase costs. A 100% emissions reduction target raises the levelized cost of hydrogen (LCOH) to 6.3 EUR/kg H₂, making it less competitive in regions with limited renewable resources. However, a 1-cap (1 kg CO₂e/kg H₂) emission cap leads to a 95% reduction in emissions while maintaining cost-competitiveness with SMR in renewable-rich regions, with an average LCOH of 4.1 EUR/kg H₂. Increasing plant flexibility reduces costs, particularly in off-grid plants. The study highlights the importance of region-specific strategies to support the transition to electrolytic hydrogen in ammonia production. The results show that the 1-cap is a cost-effective emission reduction target, achieving a 51% reduction in emissions with only a 2% increase in cost compared to the 3-cap. The study also emphasizes the need for robust policy designs to address the challenges of transitioning to low-carbon hydrogen production.