This week’s wrap-up covers key developments in global macroeconomics, major shifts in carbon markets, transformative decisions in renewable energy, and significant progress in corporate sustainability. The European Central Bank (ECB) and the US Federal Reserve offered cautious economic forecasts, while Europe agreed to crucial amendments on carbon border adjustments. Meanwhile, the Trump administration put forward substantial increases to biofuel mandates. The ECB also set new, ambitious ESG targets, and recent market studies raised concerns regarding potential regulatory reforms in carbon markets.

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Macroeconomics

ECB Highlights Risks Amid Ongoing Uncertainty

Fabio Panetta, member of the ECB’s Governing Council, warned of considerable and difficult-to-quantify risks to Europe’s economic outlook, citing persistent geopolitical tensions and uncertainties surrounding US trade policy. Although inflation remains near the 2% target at 1.9%, ECB officials remain cautious and stress the need for flexibility in response to evolving global economic dynamics. Interest rates are expected to remain steady at 2% in the short term.

Federal Reserve Maintains Rates, Signals Cuts Later in 2025

The US Federal Reserve held interest rates unchanged at 4.25%–4.5%, but signalled the possibility of two rate reductions before the year’s end. The Fed highlighted ongoing uncertainties - particularly regarding tariffs and their economic effects - and emphasised a patient approach. Chair Jerome Powell reaffirmed a commitment to flexibility, acknowledging internal divisions over the timing and necessity of potential cuts in the face of economic ambiguity.

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Carbon Markets

EU to Exempt 90% of Firms from Carbon Border Levy

The European Union struck a major compromise by exempting roughly 90% of importers from the Carbon Border Adjustment Mechanism (CBAM). A 50-tonne CO₂ threshold per importer per year was agreed, easing administrative complexity. Nevertheless, the revised regulation will still cover 99% of emissions from high-emitting sectors such as iron, steel, aluminium, and cement - maintaining the scheme’s environmental integrity.

Taiwan Proposes Integrated Carbon Market with Japan and Korea

Taiwan’s Environment Minister, Chi-Ming Peng, proposed the development of a regional carbon trading market with Japan and South Korea. While the proposal remains in early stages, it aligns with Taiwan’s broader regional strategy to curb emissions. Taiwan’s domestic carbon levy already targets significant emitters.

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Renewables and Biofuels

Spain Identifies Mismanagement Behind Major Power Outage

Spain published its findings on the widespread blackout in April, attributing the disruption to operational missteps by grid operators and insufficient backup generation. While renewable energy sources were not at fault, the report recommends major upgrades, including improved voltage regulation and infrastructure investments, to prevent future incidents.

Trump Administration Proposes Expansion of US Biofuel Mandates

The US Environmental Protection Agency (EPA), under the Trump administration, has proposed increasing biofuel blending requirements under the Renewable Fuel Standard (RFS) to 24.46 billion gallons by 2027, up from 22.33 billion gallons in 2025. The move prioritises domestic production, reduces import reliance, and demonstrates strong federal backing for US agriculture and biofuel industries.

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Corporate Sustainability and ESG

ECB Aims for 7% Annual Emissions Reduction in Corporate Bond Portfolio

The ECB unveiled new ESG targets, aiming to cut emissions intensity in its €331 billion corporate bond portfolio by 7% annually. Since 2021, a 38% reduction in emissions intensity has already been achieved. The ECB also introduced new indicators to assess exposure to biodiversity-impacting sectors, further aligning with the EU’s climate policy objectives.

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Environmental and Sustainability Regulation

Study Warns Against Including Carbon Credits in EU ETS

A study by the Oeko-Institut, commissioned by Carbon Market Watch, warned against integrating international carbon credits or CO₂ removal credits into the EU Emissions Trading System (ETS), citing concerns over integrity. The report recommended relying on internal mechanisms, such as the market stability reserve, to avoid risks and volatility associated with external credits.