Market Overview

This week witnessed significant developments in carbon markets, renewable energy policies, and global trade dynamics. The EU is refining its CBAM regulations, China’s solar sector is undergoing a shift, and geopolitical tensions are influencing macroeconomic forecasts. Here’s a closer look at the key updates from Week 9.

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Carbon Markets

• The European Commission has proposed raising the CBAM threshold to ease compliance for small importers while postponing the sale of CBAM certificates by one year. This change is expected to generate €1.2 billion in savings while still covering over 99% of emissions. The delay provides businesses with additional time to adapt to the EU’s new carbon pricing framework.
• Canada has launched a request for information (RFI) to assess industry interest in supplying carbon dioxide removal (CDR) credits. The C$10 million procurement initiative supports the country’s net-zero 2050 strategy by scaling up carbon removal solutions.

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Renewables and Biofuels

• New projections indicate that China’s solar expansion will slow in 2025, with new capacity additions forecast between 215 GW and 255 GW—an 8% to 23% decline from last year’s record 277.57 GW. The slowdown is attributed to the introduction of a market-based power pricing mechanism, which introduces revenue uncertainty for investors. However, rising electricity demand from electric vehicles, data centres, and industrial consumers will continue to drive long-term solar growth.
• Several SAF projects in China have been postponed due to the absence of clear policy mandates. Despite initial investments exceeding $1 billion, companies are struggling to market SAF domestically or export it. Beijing has yet to introduce blending mandates, which were expected to require 2-5% SAF in jet fuel by 2030. This regulatory uncertainty is causing production delays and financial risks for SAF producers.
• The Clean Maritime Fuels Platform is advocating for urgent investment in clean shipping fuels, estimating that European shipping will require €40 billion annually to transition to sustainable alternatives by 2050. High production costs, technological risks, and the lack of long-term pricing mechanisms remain key challenges in scaling clean maritime fuels.

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Macroeconomics and Trade

• President Donald Trump has suggested imposing a 25% tariff on all EU imports, including automobiles and pharmaceuticals, potentially starting on April 2. This move could escalate trade tensions between the U.S. and EU, with European Commission President Ursula von der Leyen warning of retaliatory tariffs. The EU ran a $236 billion trade surplus with the U.S. in 2023, and any new tariffs could significantly impact transatlantic trade relations.
• The EU is planning to allocate revenues from the Emissions Trading System (ETS) to fund industrial decarbonisation projects. A newly proposed Industrial Decarbonisation Bank will manage €100 billion in funding sourced from ETS auctions, the Innovation Fund, and the InvestEU program. The initiative aims to help industries transition to low-carbon production without losing competitiveness to markets like China and the U.S.
• Mexico’s Senate has approved a new energy reform that strengthens the role of state-owned enterprises Pemex and CFE while maintaining limited private-sector participation. The reform prioritizes CFE’s electricity generation over private renewables and grants Pemex greater flexibility in forming investment partnerships. While the policy aligns with Mexico’s energy self-sufficiency goals, it raises concerns about reduced competition and regulatory uncertainty for foreign investors.

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Key Takeaways

China’s solar expansion is slowing due to new market-based pricing mechanisms, but long-term demand remains strong. Uncertainty in China’s SAF industry is leading to delays in project timelines, highlighting the need for clear government mandates. Trump’s proposed 25% tariffs on EU imports could trigger a trade confrontation, with Brussels prepared to retaliate. The EU’s newly proposed Industrial Decarbonisation Bank will use ETS revenues to fund industrial sustainability projects, while Mexico’s energy reform strengthens state-owned enterprises but raises concerns about market competition and foreign investment.