Sustainability Newsletter – April 2025

The International Energy Agency (IEA) stated that China’s oil demand for fuels has reached a plateau. Structural shifts in China’s economy and the rapid deployment of electric vehicles (EVs) are curbing the country’s oil-based fuels growth much earlier than models forecasted and will have a significant impact on energy markets.

Quick recap: According to the IEA, China’s consumption of key oil-based fuels—gasoline, jet fuel, and diesel—experienced a slight decline in 2024, averaging around 8.1 million barrels per day (mb/d). This figure represents a 2.5% decrease from 2021 levels and is only marginally higher than 2019 statistics. The reduction in fuel consumption is largely attributed to China’s shift from a manufacturing-driven economy to a services-oriented model, coupled with the expansion of EVs in the transportation sector. Government policies and subsidies have incentivized the adoption of low-emission vehicles, which now constitute about half of all car sales in the country. Outside of oil-based fuels, China’s overall oil demand for petrochemicals (for the production of products like plastics, clothing, fertilizers, and more) continues to increase. But given the size of its economy, it consumes significantly less oil compared to higher-income nations. For context, China accounted for 60% of global increase in overall oil demand between 2013 and 2023, but represented less than 20% of last year’s rise, largely as a result of its slowdown in fuel use. Additionally, China’s combined demand for all three fuels remains lower than U.S. demand for gasoline alone and is also four times less than demand in OECD nations with a collective population size comparable to China’s. China aims to reach a peak in its carbon emissions before 2030, with domestic forecasts showing oil demand reaching a turning point in 2025.

Why is this interesting? Oil prices have in large part been supported by China’s demand. We may however be entering into a new era, where Chinese energy independence results in demand contraction. While China’s EV demand is booming, with BYD now making more electric vehicles than any other OEM globally, recent actions in the first quarter of 2025, such as President Trump’s announcement of a 25% tariff on imported passenger vehicles and light trucks, Canada’s suspension of the zero-emission vehicle rebate program, and Europe’s weakening fuel economy targets for 2025 could adversely affect the EV sales outlook outside of China.

According to the International Renewable Energy Agency (IRENA), renewable energy accounted 92.5% of total global power expansion in 2024, reaching a record annual growth rate of 15.1%. But progress still reflects geographic disparities and falls short of the 16.6% annual growth rate needed to meet the global target of tripling renewables by 2030. What does this trend reveal for future energy investments?

Quick recap: IRENA reported a significant surge in global renewable power capacity in 2024, reaching 4,448 gigawatts (GW). 585 GW was added that year alone, representing 92.5% of total power expansion. This also represents a 15.1% annual growth rate – an increase over the 14.3% growth reported in 2023 – marking the highest annual increase since 2000. Solar and wind energy continued to dominate renewable capacity expansion, jointly accounting for 96.6% of all net renewable additions in 2024. Despite this progress, the current capacity falls short of the 11.2 terawatts (TW) needed to meet the global target set at COP28 to triple installed renewable energy capacity by 2030, which would necessitate an annual growth rate of 16.6% from a 2022 base year. Geographically, the majority of capacity increase occurred in Asia (mostly in China) by 421.5 GW reflecting a 21.5% growth. By contrast, Europe’s capacity expanded by 70.1 GW (9% growth) and in North America by 45.9 GW (8.7% growth). Overall, IRENA found that renewable energy’s share of total installed power capacity globally reached almost half (46%) in 2024. However, it highlights that many energy planning questions still need to be addressed to establish renewables as the most significant source of electricity generation – including in the context of grid reliability and adaptation to variable renewable power.

Why is this interesting? The record increase in global renewable power capacity reflects the net-zero investment boom of the past decades which has helped to make renewable energy cost competitive. However, a new report by The Carlyle Group suggests future investment drivers in ‘The New Joule Order’ will be driven by energy security, not climate concerns. As nations adopt a diversified energy mix of joules across multiple sources – from pro-fossil fuel energy in the U.S., renewables and nuclear in Europe, to dramatically increasing the installed renewable base in fossil fuel importing China – investors may look to mirror this diversification in their portfolios to mitigate macro and financial risks.

The UK Government announced it is “actively considering” the case for linking its Emissions Trading System (UK ETS) with the European Union’s equivalent carbon market. If approved, a linkage could foster deeper market liquidity, enhance carbon price stability, and align climate policies, potentially leading to more efficient and cost-effective decarbonization efforts across both regions.

Quick recap: The UK Government has acknowledged an interest in linking its UK ETS to the EU ETS. The UK government says it will discuss the prospect with EU officials at a major UK-EU Summit in May. A potential linkage would align with the UK Government’s broader goal of enhancing trade and investment relations with the EU while addressing unnecessary trade barriers. Under the UK-EU Trade and Cooperation Agreement (TCA), both parties agreed to collaborate on carbon pricing and seriously consider linking their respective emissions trading schemes. According to Clear Blue Markets, the European Commission has emphasized that linkage would require alignment between the ambition levels of the UK ETS and the EU ETS, particularly given the significant disparity in allowance prices. Despite this difference, market reactions have been optimistic on the initial news with a strong rally on UK Allowance (UKA) prices. While the linkage is expected to be bullish for UKA prices, Clear Blue Markets does not anticipate it to have a reciprocal effect on EU Allowance (EUA) prices due to adjustments in the EU ETS cap. 

Why is this interesting? The road to linkage can be a long one, as demonstrated by Washington State. In November 2023, it announced plans to link its carbon market with California and Québec, with all three governments expressing mutual interest in March 2024. Later that year in November 2024, Washington state’s Climate Commitment Act (and carbon market) survived a ballot measure that tried to repeal it. Last month, a new white paper was published to inform Washington’s negotiations with California and Quebec, as regulatory and linkage processes are still ongoing and not expected to conclude until 2026 or 2027. When California and Québec linked in 2014, they created a single market, resulting in greater market stability and consistent pricing through a larger pool of buyers and sellers.

CDR.fyi, in partnership with Sylvera, have published findings from their 2025 Carbon Dioxide Removal (CDR) Market Outlook Survey. This year, the survey reveals evolving corporate carbon removal purchasing strategies, as uncertainty around net-zero standards and high CDR prices hinder demand, and create a gap between supplier expectations and buyer willingness to pay.

Quick recap: The 2025 survey gathers insights from durable CDR suppliers (e.g. durable CDR methods are defined as having permanence of at least 100 years such as direct air carbon capture and storage, and bioenergy with carbon capture and storage) and from purchasers of durable and nature-based CDR as well as reduction credits. Key findings suggest that upcoming decisions from net-zero standard setters will significantly influence the CDR market. Notably, 65% of respondents cited clear net-zero standards, such as the revision of the SBTi’s Corporate Net Zero Standard, as a major motivator for purchasing durable carbon removals. The survey also highlights a trend toward mixed portfolios of carbon credits, with nature-based volumes projected to exceed durable volumes by a ratio of 6:1 in 2025. However, by 2050, this gap may narrow to 1.2:1. Pricing remains a crucial factor, with 52% of purchasers ranking it as a top consideration, especially as the next wave of buyers is likely to be more price-sensitive than early adopters. A notable disparity exists between buyer expectations and supplier pricing across most CDR methods, which could impede market growth. For instance, according to a prior CDR.fyi pricing survey, biochar suppliers require $187 per metric tonne in 2025 and $180/mt in 2030 to achieve reasonable profit, while buyers consider $155/mt in 2025 and $130/mt in 2030 as “expensive.” Additionally, 64% of suppliers plan to seek financing in the next two years, underscoring the need for financial support to scale operations.

Why is this interesting? While the survey highlights rising interest in durable CDR methods, challenges with scalability and operational execution must be addressed for widespread adoption. A new whitepaper by Arca, showcases the scalability and multi-billion dollar opportunity of removing carbon dioxide from the atmosphere at scale through carbon mineralization of mining waste. Key points in the paper include an estimated US$100 billion annual revenue stream for mining, a projected US$1.2 trillion carbon credit market by 2050, the utilization of abundant mine waste for CO2 capture, and the scalability of carbon mineralization technologies.

The Loan Syndications and Trading Association (LSTA), together with the Loan Market Association (LMA), and Asia Pacific Loan Market Association (APLMA), released updated Sustainable Finance Frameworks to reflect latest market consensus and best practices for green, social and sustainability-linked loans. This is the first revision for the industry-setting loan principles since 2023.

Quick recap: LSTA and its partner associations have published updated versions of the Green Loan Principles, Social Loan Principles, and Sustainability-Linked Loan Principles, collectively referred to as the “Sustainable Finance Frameworks”. These revisions, the first since 2023, were developed through extensive collaboration among financial institutions, law firms, and external review providers, aiming to reflect market consensus and best practices. The primary objective of the 2025 updates to the Sustainable Finance Frameworks is to introduce clearer differentiation between mandatory requirements, recommendations, and options to assist market participants, and the removal of the previous “grandfathering” language, which had caused uncertainty. Other key updates include aligning project use-of-proceeds categories in the Green and Social Loan Principles to address recent market changes; and refinements to the Sustainability-Linked Loan Principles defining transition purposes to more sustainable business practices and recognizing various financial characteristics beyond standard margin ratchets to reflect similar trends in the bond market.

Why is this interesting? These revisions had also aimed to enhance alignment with the International Capital Market Association (ICMA)’s Green Bond Principles, Social Bond Principles, Sustainability Bond Guidelines and Sustainability-Linked Bond Principles. Reporting is one of the four pillars of the ICMA Principles, which is the subject of a new report by the Climate Bonds Initiative (CBI). CBI’s comprehensive study of the post-issuance reporting of green, social, and sustainability-linked (GSS) bonds, issued between 2020 and 2023, found that the clarity, granularity, and accessibility of issuer disclosure (which are three key aspects of high-quality reporting) had all improved since its last study in 2021. However, areas still requiring improvement include the need for more information about lifetimes of projects and impacts; methodologies and baselines for several impact indicators; and quantitatively linking projects and impacts financed by GSS bonds and entity-level targets.

The U.S. Environmental Protection Agency (EPA) has announced 31 significant actions aimed at deregulating environmental policies to advance President Trump’s Day One executive orders. The EPA refers to the move as the “biggest deregulatory action in U.S. history” but this raises questions about the agency’s future approach to its core mission.

Quick recap: The EPA is revisiting key environmental regulations, echoing actions from President Trump’s first term when more than 100 environmental rules were reversed, revoked or otherwise rolled back. Among the 31 deregulatory actions announced in March 2025, the EPA is targeting the “holy grail” of environmental rules – the 2009 Endangerment Finding and all of its prior regulations and actions that rely on it. In 2009, the Endangerment Finding determined that greenhouse gas emissions, such as carbon dioxide and methane, threaten public health and welfare. It underpins various climate regulations under the Clean Air Act, allowing federal oversight of emissions from vehicles and power plants. While some advocates argue that these regulations impose economic burdens on industry and society, environmental groups caution that repealing the Endangerment Finding could face substantial legal challenges given the robust scientific evidence linking climate change pollutants to health risks. Other deregulatory actions include a reassessment of the Clean Power Plan; particularly for coal and natural gas; revisiting the National Ambient Air Quality Standards to eliminating the ‘social cost of carbon’ calculation from any federal permitting or regulatory decision; and reassessing regulations for light-duty, medium-duty, and heavy-duty vehicles, which were foundational to the Biden-Harris administration’s electric vehicle (EV) mandate.

Why is this interesting?   While these deregulatory actions highlight a broader debate between environmental stewardship and political agendas, many countries are finding their own path. According to the coalition, We Mean Business, there has been growing pressure in Europe to roll back sustainability regulations in response to US deregulation. However, it argues the real issue is regulatory predictability, not overregulation. Instead of dismantling progress, the EU could focus on streamlining compliance and removing red tape. The EU has proposed an Omnibus package of amendments to simplify sustainability rules for EU companies.

The Canadian Climate Institute, through its project 440 Megatonnes, published a series of insights in March discussing industrial carbon pricing in Canada – the cost impact, the benefits for decarbonization projects, what’s at risk if it was eliminated, and recommendations to modernize mechanisms. The Climate Institute’s insights are timely given that carbon pricing is among key issues in Canada’s upcoming federal election on April 28.

Quick recap: Industrial carbon pricing assigns a cost to greenhouse gas emissions, enabling large-emitter trading systems (LETS) to incentivize industrial emissions reductions through valuable credit markets. Examples include Alberta’s TIER system and the federal Output-Based Pricing System (OBPS). According to the Climate Institute, more than 70 major decarbonization projects in Canada, valued at over $57 billion, rely on these systems to generate performance credits that can be sold, making them essential for the viability of capital-intensive projects like carbon capture. If LETS were to be eliminated (for instance, if there was a potential change in federal climate policy), the Climate Institute warns of significant financial repercussions, devaluing billions of dollars in emissions credits held by industries. In Alberta alone, $5 billion in emissions credits are held by companies. The removal of these systems could also deter current and future investments made under the assumption of a stable carbon price and could leave taxpayers liable for investments made under these assumptions. For instance, the Canada Growth Fund’s $1 billion investment in an oil sands carbon capture project relies on the value of carbon credits for repayment. The Climate Institute instead recommends modernizing these mechanisms to include tightening performance standards, facilitating pan-Canadian credit trading, and preparing for future challenges like border carbon tariffs.

Why is this interesting? Carbon pricing policies rely on sustained public support for emissions reductions, but Canada recently eliminated its consumer carbon tax due to public divisiveness. According to the World Economic Forum (WEF), stakeholders need to ’sharpen up the carbon pricing narrative’ to overcome objections. In its article, WEF highlights that only 1% of emissions are priced adequately to meet Paris Agreement targets, highlighting the need for broader carbon pricing coverage and higher prices. To gain public support, it recommends reframing the narrative around three key aspects – economic solutions, carbon demand, and systemic change – while addressing common objections, such as affordability and global fairness.

In line with our commitment to make sustainability a reality for our clients and the communities we serve, CIBC Capital Markets continues to advise and lead significant client deals as part of a focused objective to help our clients achieve their sustainability goals.

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