Geopolitical Uncertainty, Carbon Market Adjustments, and Next-Generation Renewable Strategies

This week saw growing tension between international climate goals and domestic economic pressures. From the US Supreme Court's scrutiny of global tariffs to EU ministers proposing a delay to ETS2, regulatory frameworks are being tested across various jurisdictions. Meanwhile, global carbon markets are reacting to new demand drivers from the EU's 2040 target and Malaysia’s proposed carbon tax. In the renewables space, hybrid PPAs are gaining traction, but wind output volatility and policy gaps continue to challenge progress. With evolving corporate ESG regulation and net-zero roadmaps under review, the energy transition remains both a political and economic balancing act.

‍

Macroeconomics & Geopolitics

The US Supreme Court appeared sceptical of President Trump’s expansive use of emergency powers to impose global tariffs, signalling a possible judicial limit on executive trade authority. A ruling against the administration could reshape the economic landscape by forcing up to $100 billion in refunds and weakening a key tool of Trump’s trade policy.

In Germany, the federal government’s proposed industrial electricity subsidy of €50/MWh is seen as a temporary reprieve for heavy industry. While the measure could bring short-term relief, experts argue it fails to address deeper structural challenges, especially as European competitors offer cheaper energy access. The subsidy is expected to cost €1.5 billion annually for three years.

The EU signalled flexibility on ESG directives amid rising international pressure. Criticism from Qatar and US state attorneys general has prompted Brussels to re-evaluate the scope and jurisdictional reach of its CSRD and CSDDD frameworks. A scaled-back legislative package is now under negotiation, with a European Parliament vote expected next week.

‍

Carbon Markets

Compliance Markets

EU environment ministers proposed delaying the launch of the EU ETS2 for buildings and road transport by one year to 2028. The suggested deferral reflects member state concerns about consumer price impacts. While the European Commission insists the delay won’t derail 2030 climate goals, it plans to introduce additional market stability measures and auction design changes to manage price expectations.

Malaysia is preparing legislation for a carbon tax targeting heavy-emitting sectors, with an initial price of $3.60 per tonne. The tax would apply to industries such as iron, steel, and energy, with implementation expected by 2026. The proposal aligns with Malaysia’s emissions peaking plan for 2029–2034 and could generate over $210 million annually.

Voluntary Markets

EU member states agreed that up to 5% of the bloc’s 2040 emissions reduction target may be met using international carbon credits. This could create demand for as many as 1.3 billion high-integrity units between 2031 and 2040. Market participants expect the EU to adopt strict criteria, likely centred around the UN’s Paris Agreement Crediting Mechanism, but exact eligibility rules remain unclear.

‍

Renewables & Biofuels

Germany’s wind output is forecast to fall to its lowest level this year, following a record October. Calm weather is expected to suppress both wind and solar generation, pushing up spot electricity prices. The volatility highlights Europe’s ongoing challenge with balancing renewables and seasonal energy demand.

Hybrid PPAs are emerging as a response to market cannibalisation and negative pricing. At the Dutch Re-Source conference, market leaders emphasised the growing appeal of contracts bundling renewables with battery storage. Developers and off-takers see these structures as key to risk mitigation and long-term price stability, especially in solar-heavy markets.

Brazil may significantly expand ethanol and biomethane usage by 2040. A new study forecasts ethanol demand more than doubling, driven by exports and decarbonisation in aviation and shipping. Biomethane could replace up to 70% of diesel in heavy-duty transport, supported by early-stage policy mandates and infrastructure investments.

Neste reported strong Q3 performance, reaffirming its leadership in sustainable aviation fuel (SAF). The company noted rising demand across Europe and continued regulatory tailwinds. Neste is expanding global SAF production capacity and confirmed a €531 million comparable EBITDA for the quarter, with long-term market confidence reinforced by new partnerships.

‍

Corporate Sustainability & Regulation

A report from Forests & Finance revealed that banks have provided $425 billion in financing to forest-risk commodities since 2015. Despite pledges to align with net-zero goals, lending has continued to palm oil, beef, soy, and timber producers. Asset managers have also increased holdings in the sector, raising scrutiny ahead of COP30.

The EU’s ongoing ESG regulatory cycle remains contentious. While CSRD and CSDDD are being simplified to reduce legal risk and administrative burden, backlash from global trading partners persists. The final direction of these frameworks will depend on parliamentary negotiations and member state alignment in the coming weeks.

Thailand submitted its updated NDC, advancing its net-zero target by 15 years to 2050. The country also set an absolute emissions cap for 2035 and outlined sector-specific plans to decarbonise power, transport, and industrial sectors. The plan includes $7 billion in investment needs and targets 51% renewables in the power mix by 2037.

‍

Closing Note

Week 45 highlighted the delicate interplay between ambition and pragmatism in the global energy transition. While carbon markets and renewable strategies evolve in response to demand and price pressures, regulatory clarity and geopolitical alignment remain pivotal. With COP30 approaching, the next round of negotiations will test how much flexibility governments are willing to offer, and at what cost.