This week was marked by sharp geopolitical developments in oil markets, confirmation of 2025 as one of the hottest years on record, and continued regulatory momentum in carbon pricing and climate risk supervision. In carbon markets, the EU reaffirmed the full implementation of CBAM, and a UK–EU ETS linkage is officially on the table. Meanwhile, the UAE and Saudi Arabia are advancing their compliance market ambitions. In clean energy, Europe braces for a record solar Q1, and cross-border renewable trade in Southeast Asia has resumed.

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Macro and Oil Markets

New global data confirms that 2025 was either the second- or third-hottest year on record, with average temperatures reaching 1.44°C above pre-industrial levels. The World Meteorological Organization stressed that long-term temperature increases continue to be driven by greenhouse gas accumulation, despite natural variability such as La Niña.

Oil prices fell this week following US President Trump’s signal that Washington would hold off on military action against Iran. The temporary de-escalation, coupled with expanded US engagement in Venezuela, pulled Brent down by nearly 3 percent to around 64.64 dollars per barrel. Chevron is reportedly set to receive an expanded license to operate in Venezuela, with other firms including Valero, Marathon, and Glencore also in talks.

Crude inventories in the US rose by 3.4 million barrels, the largest weekly increase since November, adding to concerns about oversupply in the face of potential Venezuelan and Iranian export recoveries.

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Carbon Markets

The EU confirmed that CBAM has been successfully operational since January 1. Over 1.66 million tonnes of CBAM-covered goods were declared during the first week, with 98 percent coming from the steel and iron sectors. The Commission reported stable processing times and noted that more than 12,000 economic operators had submitted authorisation applications. Over 4,100 importers received authorised declarant status, and the Commission urged all other affected operators to complete their CBAM registration.

Formal negotiations between the EU and the UK on linking their carbon markets will begin next week. The linkage would allow UK exporters to avoid CBAM-related tariffs. While the EU is aiming for swift talks, no target date for a deal has been set. The UK government has not provided a public timeline but reiterated its commitment to securing an agreement.

At the Carbon Forward Middle East conference, officials from the UAE and Saudi Arabia confirmed plans to establish national compliance carbon markets. The UAE registry is expected later this year, while Saudi Arabia aims to launch its system by 2028. Both countries are currently building monitoring and verification systems and considering whether to pursue full compliance models or regulated voluntary schemes.

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Voluntary Carbon Markets

Verra reported a sharp increase in Letters of Authorisation (LoAs) being issued by host countries, which are needed for Article 6 trading under the Paris Agreement. The LoA pipeline for Africa and MENA has grown significantly, and credits with LoAs are now commanding premiums of up to 80 percent. However, UAE officials voiced concern over high fees under Article 6.4 and suggested bilateral arrangements under Article 6.2 may offer greater flexibility.

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Renewables and Energy

Europe is projected to reach a record level of solar generation in the first quarter of 2026, following a 14 percent rise in output last year to 284.5 TWh. Solar now accounts for more than 10 percent of Europe’s electricity mix. However, the region is also facing increased curtailment and a growing number of negative price hours, driven by limited storage and excess renewables.

In Southeast Asia, Laos resumed power exports to Singapore through cross-border transmission via Thailand and Malaysia. The deal covers 100 megawatts under the LTMS-PIP 2.0 framework and represents a continuation of regional cooperation on low-carbon power trade.

A Danish-Swedish CCUS partnership received EU funding to establish a cross-border collaboration platform for biogenic CO₂ use in sustainable fuels. The initiative is focused on integrating CCUS into the regional energy system and creating a Center of Excellence for long-term development.

South Korea’s climate ministry mandated a full fleet transition to electric and hydrogen vehicles across its 16 affiliated agencies. The plan includes ships, vehicles, and construction equipment, with implementation beginning this quarter and full electrification targeted by 2035.

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Corporate Sustainability and Regulation

The EU’s three financial regulators issued joint guidelines on integrating ESG risks into supervisory stress tests. Starting in 2027, national regulators must incorporate ESG scenarios into their financial resilience assessments for banks and insurers. The guidelines prioritise physical and transition climate risks and advise a stepwise approach based on data availability and sector exposure.

Microsoft signed the largest-ever deal for soil carbon credits, agreeing to purchase 2.85 million tonnes from Indigo Carbon over 12 years. The agreement underscores rising demand for nature-based removals despite broader volatility in the voluntary carbon market.