Market Overview

This week, key developments across carbon markets, renewable energy, and global trade have shaped the market outlook. The EU carbon market is experiencing turbulence, with analysts predicting future price surges. Meanwhile, the UK government is reassessing its renewable energy funding, and China’s trade slowdown is adding to economic concerns. Here’s a closer look at the major events from Week 10.

Carbon Markets

• The EU carbon market remains volatile as EU Allowance (EUA) prices fell sharply, sparking concerns over future supply constraints. However, analysts view this as a buying opportunity, emphasising that anticipated market shortages over the next two years are likely to stabilise prices.\
• Meanwhile, analysts predict that the EU’s new carbon market, covering road transport, buildings, and small industries, will feature the highest allowance prices in the world by 2030, with forecasts reaching nearly €150 per tonne. This would make the EU the most expensive cap-and-trade system globally, reinforcing its role as a leader in carbon pricing.
• The voluntary carbon market also saw a significant policy shift as a global carbon offset standard approved three new methodologies for clean cookstove projects. These initiatives aim to reduce emissions from household fuel consumption, improve air quality, and enhance buyer confidence in carbon credits. The Integrity Council for the Voluntary Carbon Market (ICVCM) has introduced stricter monitoring requirements to minimise the risk of over-crediting, ensuring stronger environmental and social benefits.

Renewables and Biofuels

• The UK government is reportedly considering cuts to GB Energy’s funding, a move that could impact the country’s renewable energy transition. Initially backed by £8.3 billion, GB Energy was expected to drive offshore wind expansion and support decarbonisation efforts. The Treasury’s review could lead to reductions in funding for low-interest renewable energy loans, raising concerns over the UK’s ability to meet its 2030 clean energy targets.
• In Indonesia, industry leaders stress that the country must expand biodiesel production capacity by an additional 4 million kilolitres to meet future B50 biodiesel blending mandates. Indonesia currently has a 40% palm oil biodiesel blend but aims to increase this to 50%, requiring significant infrastructure investment. This expansion is crucial as Indonesia remains the world’s largest palm oil producer, with biofuels playing a key role in its energy transition strategy.
• The Trump administration’s review of offshore wind projects is also creating uncertainty in the US renewable sector. Officials suggest that projects already under construction will be treated differently from those still in the proposal phase. Trump’s stance on offshore wind, highlighting cost concerns and potential cancellations, has caused uncertainty among developers. Industry experts warn that US offshore wind development may stall without policy clarity.

Macroeconomics and Trade

• China’s economy faced another setback as imports unexpectedly declined, reflecting weaker domestic demand and escalating trade tensions with the US. Over January and February, China reduced imports of key commodities, including grains, iron ore, and crude oil, as part of its strategy to manage strategic reserves. This decline coincides with the impact of new 10% US tariffs on Chinese goods, which came into effect at the start of the year. The situation escalated further on 4th March, when the US doubled tariffs on China to 20%, prompting Beijing to retaliate with 10-15% tariffs on US agricultural exports.
• Chinese policymakers are now prioritising domestic consumption, with Premier Li Qiang announcing a 2025 economic growth target of around 5%. However, concerns remain over weak household demand, a struggling property sector, and deflation risks, with analysts warning that China is entering its longest deflationary period since the 1960s. To counter this, officials are considering interest rate cuts and further liquidity injections to stabilise economic growth.
• The global climate agenda also faced diplomatic challenges, with UK and US climate envoys urging world leaders to maintain emissions reduction commitments, despite shifting geopolitical priorities. The UK reaffirmed its commitment to net-zero targets, while Japan and Germany stepped up their support for Indonesia’s energy transition, following the US withdrawal from the $20 billion Just Energy Transition Partnership (JETP). The US exit raises concerns about the long-term viability of climate financing in developing nations.

Key Takeaways

The EU carbon market continues to be unpredictable, with recent price drops creating buying opportunities, while analysts forecast record-high carbon prices by 2030. The voluntary carbon market saw progress in offset credibility with new clean cookstove methodologies. In the renewable sector, the UK may scale back its funding for GB Energy, while Indonesia is under pressure to expand its biodiesel capacity to meet B50 targets. Meanwhile, the Trump administration’s offshore wind policy review is creating uncertainty for US renewable projects. On the macroeconomic front, China’s import slump and ongoing trade tensions with the US are impacting global supply chains, while its domestic economy faces deflationary risks. Finally, climate diplomacy remains in focus as the UK and Japan reaffirm their climate commitments, even as the US pulls back from international energy transition agreements.