Welcome to our monthly newsletter, Carbon Market News Roundup, the goal of which is to introduce our audience to a new asset class market in the making: the carbon market. Our previous issues, along with the rest of our commentaries, may be read here.
In the last issue, we highlighted the risks of climate change, including extreme weather, economic damage, and lives lost, as well as the uncertain outlook for American climate policy. In this issue, we look at challenges facing green investing and carbon removal strategies, a new International Maritime Organization (IMO) plan to charge fees on shipping emissions, and the effects of climate change on energy demand.
Scaling Carbon Solutions Amid Climate Challenges
How Climate Tech Investing Is Being Shaped by Trump’s Tariffs and Orders
Coco Liu & Michelle Ma, Bloomberg
Big Bets on Speculative Carbon Capture Tech Ignore Today’s Solutions
Michelle Ma & Dave Merrill, Bloomberg
The dual realities of climate tech and carbon removal illustrate the complexity of addressing the global climate crisis: while significant progress is being made, structural and strategic hurdles persist. The U.S. climate tech sector is experiencing a surge in venture capital funding, defying expectations under the Trump administration’s policy uncertainty.
Source: Bloomberg
However, this growth is not immune to challenges, particularly as federal support for clean energy initiatives hangs in the balance. The overwhelming reliance on direct air capture (DAC) and bioenergy with carbon capture and storage (BECCS) in carbon removal investment reflects a narrow focus that risks excluding alternative technologies that could offer greater potential.
One of the critical issues with this investment strategy is the disproportionate emphasis on DAC and BECCS, which have garnered substantial financial backing due to federal tax credits and their perceived scalability. These methods dominate despite concerns about their efficiency, high energy use, and problematic carbon accounting. Enhanced weathering and ocean alkalinity processes, for instance, remain underfunded despite their promise of durability and scalability in capturing and storing CO₂. Critics argue that reliance on DAC, buoyed by the oil and gas industry’s influence, limits innovation and undermines efforts to diversify the carbon removal landscape.
The lack of diversity among buyers of carbon removal credits further compounds the issue, with companies like Microsoft responsible for the majority of purchases to date. This concentration risks stunting the industry’s growth and the scaling of novel technologies beyond pilot projects. Moreover, carbon removal should primarily target legacy emissions and the unavoidable emissions from sectors like aviation and agriculture. Using captured CO₂ for purposes such as extracting fossil fuels is not only counterproductive but must be rapidly curtailed to ensure the industry’s integrity and effectiveness.
Political uncertainty adds another layer of complexity, especially for the U.S. climate tech sector. The Trump administration’s potential rollback of the Inflation Reduction Act and its moratorium on certain clean energy funding programs create an unstable environment for startups relying on government support. Green hydrogen and direct air capture projects are particularly vulnerable, with private equity unlikely to bridge the funding gap left by reduced federal involvement. Stable and consistent policy frameworks are essential to maintain momentum in decarbonization efforts and provide confidence to investors and entrepreneurs alike.
In response to these challenges, climate tech companies are adapting their strategies, including rebranding efforts to align with the administration’s rhetoric. This shift illustrates the sector’s resilience and innovation, as companies find ways to navigate turbulent political landscapes while continuing to contribute to climate goals. However, true progress in climate tech and carbon removal requires a unified effort to diversify investments, prioritize scalable and verifiable technologies, and address immediate emissions reductions alongside legacy emissions.
Source: Bloomberg
To ensure a sustainable and effective path forward, the carbon removal and climate tech industries must expand beyond their current narrow focus, embracing promising alternatives and creating a collaborative ecosystem of public and private stakeholders. With significant global emissions reductions needed to limit warming to safe levels, scaling up novel carbon removal technologies and aligning investment strategies with long-term goals are imperative. The gap to achieving the necessary scale is immense, with current carbon removal volumes falling drastically short of the billions of tons required annually by mid-century. Only through diversification, innovation, and consistent support can these sectors meet the demands of the climate crisis and create a viable future.
IMO Approves Carbon Fee for Maritime Shipping
UN passes landmark carbon levy on ships, defying US threats
Oliver Telling & Kenza Bryan, Financial Times
US to retaliate against international carbon levies on ships
Oliver Telling, Financial Times
The International Maritime Organization’s (IMO) recently approved plan to impose fees on shipping emissions is a critical step in addressing the maritime sector’s environmental impact, but it has sparked intense international debate. The measure, which will charge ships up to $380 per tonne of CO₂ emitted above decarbonization targets starting in 2028, aims to push the largely fossil fuel-dependent industry towards net-zero emissions by 2050.
It introduces two emission benchmarks, with stricter targets mandating a 17-21% reduction in greenhouse gas intensity by 2028-2030, while less ambitious goals are set at 4-8%. Revenue generated will fund the transition to low-carbon marine fuels, decarbonizing efforts in developing countries, and mitigating food security risks. Despite this progress, critics argue the plan falls short of the pace needed to meet climate goals, raising concerns about the potential prioritization of biofuels that could harm ecosystems.
The United States has strongly opposed the levy, citing economic burdens and potential global inflation, and has even threatened retaliatory measures, such as fees on Chinese-built vessels entering U.S. ports. The move aligns with the Trump administration’s broader resistance to international environmental agreements, further complicating IMO negotiations. Meanwhile, Pacific Island nations and environmentalists have advocated for a higher levy to accelerate the adoption of expensive but cleaner green fuels, framing it as a rare opportunity to address climate change and fund support for poorer countries. However, the effectiveness of the IMO’s measure will depend on sustained investment in innovative fuel technologies, rigorous enforcement, and international collaboration—factors that will determine whether this contentious compromise can effectively drive the decarbonization of the global shipping industry.
Climate Change’s Effect on Energy Demand
Carbon dioxide levels in atmosphere reach 800,000-year high
Attracta Mooney & Jana Tauschinski, Financial Times
Climate change drives surge in global energy demand
Kenza Bryan & Jana Tauschinski, Financial Times
The intertwined crises of climate change and global energy demand are creating a self-reinforcing cycle that highlights the urgency for decisive global action. The UN’s World Meteorological Organization (WMO) and the International Energy Agency (IEA) have documented alarming trends in rising temperatures and surging energy needs. In 2024, record-breaking heat linked to human-induced climate change exceeded 1.5°C above pre-industrial levels for the first time in a single year, while global energy consumption grew at an extraordinary rate. These developments underscore how the fight against climate change is being complicated by the very energy demands that the warming climate itself exacerbates.
Extreme heatwaves in countries like China and India drove massive increases in electricity use, primarily for cooling, which in turn elevated coal consumption. This dependency on fossil fuels continues to drive greenhouse gas emissions, contributing further to global warming. Despite years of declining energy use in advanced economies, soaring electricity consumption—fueled by intensifying climate extremes, the proliferation of electric vehicles, and the growth of AI-driven data centers—has reversed this progress. The 0.8% increase in greenhouse gas emissions from energy use in 2024 is a stark reminder of how deeply entrenched fossil fuels remain in our energy systems, even as the global transition to renewable and low-carbon energy accelerates.
Amid these challenges, there are glimmers of progress, particularly in the expansion of renewable energy and nuclear power. Solar and wind energy were deployed at unprecedented speeds in 2024, while nuclear power experienced a revival, backed by governments, financial institutions, and tech companies. Together, these two low-carbon energy sources reached a milestone, contributing to 40% of global electricity generation for the first time. However, the expansion of renewables alone has not been sufficient to counterbalance the rising demand for all types of fuel, including gas, which saw a surge in emerging economies. This disparity underscores the scale of effort required to accelerate the transition to sustainable energy sources.
The environmental consequences of these trends are becoming increasingly dire. The WMO’s report highlights record-breaking impacts on the planet’s oceans and cryosphere. Sea temperatures hit unprecedented levels for the eighth consecutive year in 2024, while the rate of sea-level rise has doubled over the past three decades. Glaciers are melting at alarming rates, with the Arctic’s sea ice shrinking to its lowest level in February and global sea ice levels reaching an all-time low. These changes, which could take centuries to reverse, illustrate the long-term risks posed by inaction on climate change and the severe impact on fragile ecosystems.
The energy-climate feedback loop serves as a warning that ignoring the realities of global warming and energy dependency will come at a steep cost. The combination of record-high carbon dioxide concentrations, rising temperatures, and intensified weather events has already left millions suffering from floods, storms, heatwaves, and other disasters. Experts emphasize that addressing this crisis requires a rapid and global shift away from fossil fuels, guided by scientific evidence and supported by decisive policy interventions. Without such measures, the consequences will continue to disproportionately affect ordinary people, particularly in vulnerable regions.
Recommended Reads
Pakistan faces existential threat from climate change and population growth
These ferries speed commutes and cut pollution – and they fly
What can carbon markets learn from the US Presidential election?
