Market Overview

‍This week’s headlines were dominated by debates over the future of Europe’s carbon pricing system, record-breaking renewable energy generation, and growing geopolitical tensions in global trade and climate policy. The EU’s Carbon Border Adjustment Mechanism (CBAM) continues to provoke controversy, while renewable energy reached major milestones in the UK and France. Meanwhile, the Trump administration has reignited trade concerns with new automotive tariffs and prompted industry negotiations over biofuels. In the realm of climate regulation, the United States and European Union are taking markedly different approaches, as legal disputes over oil drilling rights and climate disclosures continue to unfold. Here is a look at the key developments from Week 13.

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Carbon Markets

‍France and Italy are advocating for revisions to the EU’s CBAM, citing concerns over administrative burden and industrial competitiveness. Alongside Slovakia, they have urged the European Commission to reconsider phasing out free emissions allowances and to extend CBAM coverage to manufactured goods containing carbon-intensive materials. They argue that Europe’s focus on military preparedness and industrial recovery must not be compromised by carbon pricing measures that disadvantage exporters. The CBAM is currently in a transitional phase, with charges due to commence in 2026.

In the voluntary carbon markets, scrutiny over project quality is intensifying. A Bay Area non-profit recently approved just 1% of more than 5,000 reviewed carbon offset projects. Common shortcomings included lack of additionality, weak scientific methodology, and limited financial transparency—issues that are increasingly raising concerns about market credibility.

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Renewables and Biofuels

‍France’s solar industry is under pressure, as revised government plans to cut subsidies for medium-scale installations such as rooftops and carports are still expected to affect employment in the sector. While projects with existing funding can still enter new tenders, and self-consumed residential solar will continue to receive support, industry groups warn that uncertainty around auctions and delayed VAT reforms may slow installation rates. From mid-2026, incentives will favour European-manufactured "low-carbon" panels in a bid to offset Chinese competition.

On a more positive note, UK renewables surpassed 50% of total electricity generation for the first time in 2024, reaching 144.7 TWh—an increase of 6.5% compared to 2023. Wind and bioenergy were the main contributors, alongside the addition of 4.2 GW of new renewable capacity. Although Q4 saw a seasonal dip, the figures highlight a significant shift in the UK’s energy mix. Industry leaders are urging the government to retain a strong auction framework to sustain investment momentum.

In the biofuels sector, the Trump administration has invited oil and biofuel industries to negotiate the next phase of the U.S. Renewable Fuel Standard. Discussions have addressed future blending mandates, tax credits, and exemptions for refineries. While there is general support for increased renewable diesel volumes, the future of the Biden-era 45Z tax credit remains contentious. The new round of talks reflects a shift towards cooperation between historically opposed sectors.

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Macroeconomics and Trade

‍Trump’s announcement of a 25% tariff on automotive imports sent shockwaves through the global car industry. The move could raise vehicle prices by thousands of dollars, reduce production by up to 30%, and disrupt international supply chains. European and Asian manufacturers are bracing for heavy losses, while U.S. dealerships warn of job cuts. Analysts have likened the policy to a “chainsaw approach,” with potential political repercussions should markets respond negatively.

In a significant policy reversal, the U.S. Securities and Exchange Commission (SEC) has voted to cease defending its climate disclosure rules in court—another rollback of climate-related regulation under President Trump. These rules required firms to disclose emissions and climate-related risks, but enforcement was halted following litigation by industry groups. The sole Democratic commissioner sharply criticised the decision, describing it as a political move that undermines investor transparency.

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Climate and Environmental Regulation

‍Germany has approved a landmark spending package worth hundreds of billions of euros, lifting constitutional debt limits for defence and infrastructure investment, and enshrining its 2045 net-zero emissions target into law. The package is expected to stimulate growth and reinforce Germany’s leadership in both climate and security policy across Europe.

The Arctic has recorded its lowest winter sea ice extent since satellite measurements began, with just 5.53 million square miles of coverage. Scientists warn that this accelerates climate feedback loops by allowing the ocean to absorb more solar radiation. Antarctic sea ice also remains near historic lows. These findings come shortly after WMO data confirmed global temperatures breached the 1.5°C threshold in 2024.

Elsewhere, a U.S. federal judge ruled against a planned oil lease sale in the Gulf of Mexico, citing inadequate environmental and wildlife assessments. The ruling may lead to lease cancellations or the imposition of new environmental safeguards. Environmental groups have welcomed the decision, while the Department of the Interior awaits further legal guidance.

Meanwhile, the European Commission is reviewing key energy legislation in a drive to cut red tape and enhance industrial competitiveness. Both the Energy Efficiency Directive and the Renewable Energy Directive are under evaluation. While critics warn the reforms may dilute climate ambitions, business leaders argue that more streamlined regulations are essential for fostering innovation and investment.

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Key Takeaways

‍France, Italy and Slovakia are pressing for major changes to the EU’s carbon border mechanism, while voluntary carbon markets are facing increased scrutiny over project standards. The UK achieved a renewable generation milestone, though uncertainty clouds the outlook for French solar. U.S. biofuel policy may be reshaped through industry-led talks, while new auto tariffs are sending ripples through global trade. Regulatory retreats in U.S. climate policy contrast with Germany’s net-zero reforms and alarming Arctic climate signals. Court rulings and EU legislative reviews are reshaping energy and environmental governance across the board.