Climate Change Regulation

Are carbon emissions becoming a key determinant of global trade terms? Climate change is scrambling norms, pushing together strange bedfellows and rewriting the rules for global trade. For example, a newly introduced Bill from two R senators mimics EU’s CBAM, taxes imports based on carbon intensity and has the support of the Citizen’s Climate Lobby. While tariffs have sucked all of the oxygen out of the news cycle, two Republican Senators (Cassidy from LA and Graham from SC) introduced legislation, the Foreign Pollution Fee Act of 2025, that would impose fees on imported goods based on their pollution intensity as compared to U.S. equivalent products. The bill is designed to level the playing field for environmental standards and end environmental arbitrage. According to the authors: 🛢️"The United States economy is 55 percent more carbon-efficient than the global average; on average, goods produced in China generate more than 3 times the carbon emissions equivalent American-made goods, while Russian made goods produce 5 times the emissions, which gives foreign polluters an unfair cost advantage over American manufacturers." 💰Fees would range from 200% for China and Russia to 0% for France. Fees are tiered, with higher charges for products with greater pollution intensity. Additional multipliers apply to goods from nonmarket economies and foreign entities of concern. 🏭The act targets specific sectors known for high emissions, including iron, steel, aluminum, cement, glass, fertilizer, hydrogen, solar components, and certain battery inputs.  Like CBAM, the proposed bill is an attempt to protect US jobs and would pressure high carbon intensity countries to decarbonize faster. Adam Rome Glenn Hurowitz Auden Schendler Andrew King Eric Orts Maxine Bédat Leslie Johnston, M.Sc. Lisa Sachs Judy Samuelson Tim Mohin Mark Trexler Joel Makower Brendan May Denise Hearn Andreas Rasche Gil Friend • Sustainability OG

NEW ANALYSIS: Meeting European climate goals will require a stark contraction in fossil gas use. But in many countries gas grid planning is based on the assumption of infinite gas grid use. Despite the substantial implications for gas grid users and infrastructure, current grid planning does not adequately reflect this new reality. This misalignment poses a substantial barrier to the transition towards a sustainable energy system and underscores the need for more holistic planning. Alignment of energy infrastructure planning with other planning processes could better support climate and social goals. Regulations regarding heat planning, for instance, have significant consequences for gas grid infrastructure development, heating appliance regulations and consumer burdens. Infrastructure planning processes also do not yet address the support needed to ensure vulnerable energy users are able to fully participate in the transition to cleaner, more efficient technologies. Our study provides comprehensive information on the current state of the gas grid, its development, and the regulatory framework in selected European countries, and identifies current regulatory barriers for the phase-out of fossil gas. It concludes with recommendations on how Member States could better align energy infrastructure planning with the attainment of national and EU climate targets: - Adopt a national phase-out target and give energy regulators a net zero mandate. - Make the regulatory framework fit for the gas phase-out. - Adopt integrated heat and grid planning. - Plan future gas infrastructure based on realistic assumptions about future availability of zero-carbon heating technologies. - Track and collect harmonised data at the EU level. - Protect vulnerable customers. More in our Regulatory Assistance Project (RAP) & Oeko-Institut e.V. report released today.

On 12 May 2025, Russia initiated the first-ever WTO dispute against the European Union’s Carbon Border Adjustment Mechanism (CBAM) — a landmark move that has global trade and climate policy watchers on high alert.   CBAM imposes a carbon charge on imports of selected products into the EU, effectively externalising its climate ambition by regulating emissions from production processes outside its territory. Russia’s complaint extends beyond CBAM itself to also challenge free allowances granted under the EU Emissions Trading Scheme (ETS) to EU exporters deemed at risk of “carbon leakage.”   Russia argues that: 1.    CBAM violates WTO rules, including the GATT 1994, the Accession Protocols, and the Agreement on Import Licensing. 2.    The free ETS allowances constitute a prohibited export subsidy under the WTO Subsidies Agreement.   Consultations are underway, but a panel request may follow soon. Other WTO Members have the option to join the dispute or initiate their own complaints.   One twist: Russia is not a party to the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), meaning that any WTO ruling may be appealed “into the void” — further exposing the fragility of the global trading system at a time when legal certainty is most needed.   This is a systemically significant case, particularly for Trade Experts amongst other stakeholders — it will help define how far unilateral, trade-related climate measures like CBAM and the EU Deforestation Regulation can go without breaching WTO rules.   A classic example of how political and security risk between countries affects trade. Pleasure to deliberate on legal texts and interpretations, given this is a breather from the tariff wars for now.   #CBAM #WTO #ClimateJustice #ETS #CarbonLeakage #EUTradePolicy #Sustainability #TradeAndEnvironment Economic Laws Practice (ELP)

As indicated on the European Central Bank Blog a few days ago, 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗖𝗵𝗮𝗻𝗴𝗲 is no longer “the Tragedy of the Horizon" as Mark Carney put it, but an 𝗶𝗺𝗺𝗶𝗻𝗲𝗻𝘁 𝗱𝗮𝗻𝗴𝗲𝗿. In the next five years, extreme weather events could already put up to 5% of the euro area’s economic output at risk, according to the new short-term scenarios of the Network for Greening the Financial System (#NGFS). Integrating climate risk into credit risk management involves assessing and quantifying the potential financial impacts of climate change on lending and investment decisions. This includes both physical risks (like extreme weather events) and transition risks (like policy changes). By incorporating these factors into credit risk models, financial institutions can better understand and manage their exposure to climate-related financial risks. In the UK, integrating climate-related risks into credit risk assessment is a growing priority for financial institutions and regulators. The Bank of England is actively working on incorporating climate risks into its monetary policy operations and is encouraging firms to enhance their climate risk management capabilities. The deadline for responding to the UK Prudential Regulation Authority's (#PRA) consultation on its updated climate risk management expectations is July 30, 2025. This consultation paper, CP10/25, focuses on enhancing how banks and insurers manage climate-related risks. The PRA's key findings as to areas for improvement by banks included: (1) scope to expand the range of loan portfolios subjected to a climate risk assessment, to pick up impacts on underlying collateral, refinance risk and ability to repay; (2) enhancement of data granularity and working towards embedding climate risk in loan-level credit risk assessments; and (3) expanding the range of climate scenarios considered, to better identify borrowers and sectors implicated by climate risk Climate risks can impact the probability of default (#PD) and the loss given default (#LGD) on loans, 𝗽𝗼𝘁𝗲𝗻𝘁𝗶𝗮𝗹𝗹𝘆 𝗹𝗲𝗮𝗱𝗶𝗻𝗴 𝘁𝗼 𝗵𝗶𝗴𝗵𝗲𝗿 𝗰𝗿𝗲𝗱𝗶𝘁 𝗹𝗼𝘀𝘀𝗲𝘀 for lenders. Climate risks can also affect the value of collateral, particularly in sectors heavily exposed to climate change impacts.  This compilation addresses this important topic highlighting the latest research and insights covering both credit risk integration and accounting implications of climate change. #riskmanagement #climaterisk #transitionrisk #physicalrisk #ECL #IRB #probabilityofdefault #creditrisk #lossgivendefault #recoveryrate #impairment #defaultrisk #riskassessment #riskmanagement #riskmeasurement #granularity #dataquality #stresstesting #scenarioanalysis #financialstability #globalwarming #climatechange #emissions #netzero #loanportfolio #borrowerdefault #creditloss #information #research #knowledge #resources #futurerisk #emergingrisk #novelrisk

Have you seen the draft bill from the House Ways and Means Committee that recommends changes to the ITC? If you haven’t, and you work in the renewable energy industry, you should. It’s a big deal. The article I’ve posted below from Solar Power World offers a concise overview and a link to the full draft bill. If made into law, this bill would step down the ITC rapidly in 2029. That doesn’t alarm me so much – that’s plenty of time. But it must be accompanied by sensible safe harbor provisions. For those of you who are newer to the industry, there is a clear, long-established precedent for safe harboring based on start of construction, giving developers and financing partners certainty when they begin a project as to what level of tax credits are locked in. But in this version of the bill, safe harbor is activated when the project reaches commercial operation. For utility-scale projects, it can take years to reach that point and is largely outside of the control of the solar company. Delays to COD can come from the utility interconnecting the project, bad weather, and supply chain issues, among many other reasons. If adopted, this provision would cause real damage to the industry as the uncertainty around the tax credits applicable to the project would prevent projects from being financed long before the 2029 deadline.  The second main concern with this proposal is the “Foreign Entities of Concern” (FEOC) restrictions that further complicates claiming the ITC. As of now the FEOC language is ambiguous but seems to be administratively impossible to follow and requires further clarification that could take years to develop. Ambiguity is bad for business. The solar industry is aligned with the Ways and Means Committee and this Administration in not wanting Chinese entities or other FEOCs to benefit from tax credits. But it needs clear, quantifiable rules to follow in order to continue to bring manufacturing back to the U.S. and deliver affordable electricity to meet our growing energy needs. *What can we do?* We need to reach out to our House and Senate representatives, particularly to those on the Senate Finance Committee, and express these concerns. The Senate Finance Committee will be picking up the bill next. Mike Crapo (Idaho) and Ron Wyden (Oregon) are the ranking members. The full list of members is here: https://lnkd.in/euVH2iEm Solar Power World article https://lnkd.in/e_tgCicP Special thanks to Kelsey Misbrener for such a great, fast report on this. And thanks to Laura Klein for going with SEIA to the Hill yesterday.

The Senate version of the OBBBA passed today; Here is what I could dig up with regards to energy policy: 𝐖𝐢𝐧𝐝 & 𝐒𝐨𝐥𝐚𝐫 ▪Phase-out schedule: Projects must begin construction by the end of 2025 to receive 100% of Inflation Reduction Act (IRA) credits, dropping to 60% in 2026, 20% in 2027, and eliminated for projects starting in 2028 or later. ▪Service deadline exception: Projects must be "placed in service" (begin operating) by December 31, 2027, to qualify for credits, placing a significant burden on large-scale projects. 𝘌𝘹𝘤𝘪𝘴𝘦 𝘵𝘢𝘹 & 𝘍𝘌𝘖𝘊 𝘳𝘶𝘭𝘦𝘴: ▪An excise tax of up to 50% for wind and 30% for solar is imposed on projects built after 2027 (or starting after enactment but before 2028) if they receive "material assistance" from a Foreign Entity of Concern (FEOC) in excess of a stipulated threshold. ▪Credits can be denied or penalized under FEOC rules beginning January 1, 2026. ▪The Senate removed a broader excise tax on all wind/solar projects, reintroducing it specifically for FEOC-related contexts. 𝐂𝐫𝐢𝐭𝐢𝐜𝐚𝐥 𝐌𝐢𝐧𝐞𝐫𝐚𝐥𝐬 & 𝐑𝐄𝐄𝐬 ▪45X advanced manufacturing credit: Phases out as follows: 75% in 2031, 50% in 2032, 25% in 2033, and ends after 2033. ▪Foreign restrictions & transferability: FEOC restrictions apply. Transferability of the credit is generally retained, though some sources suggest it might be repealed for certain components sold after December 31, 2027. 𝐆𝐞𝐨𝐭𝐡𝐞𝐫𝐦𝐚𝐥 ▪Geothermal remains eligible under clean energy tax provisions. ▪Residential-geothermal ITC phase-out rules remain intact, and credits are preserved with no major structural changes. 𝐂𝐚𝐫𝐛𝐨𝐧 𝐂𝐚𝐩𝐭𝐮𝐫𝐞 & 𝐒𝐭𝐨𝐫𝐚𝐠𝐞 (𝐂𝐂𝐒/𝐂𝐂𝐔𝐒) ▪45Q credit: Remains intact and inflation indexing continues. ▪FEOC rules apply, restricting transfers to FEOCs. 𝐎𝐢𝐥 & 𝐆𝐚𝐬 ▪Permitting & leasing: The bill repeals the methane tax, unlocks federal lands, and supports expanded offshore leasing auctions through 2040. ▪Royalties: Revert to pre-IRA levels. ▪Production projections: Industry commentary forecasts modest growth, but specific numbers are models, not explicit benchmarks in the Senate text. 𝐂𝐥𝐞𝐚𝐧 𝐇𝐲𝐝𝐫𝐨𝐠𝐞𝐧 ▪45V hydrogen production credit: Facilities must begin construction by January 1, 2026; the credit expires thereafter. No repeal for facilities beginning construction before that date. 𝐂𝐥𝐞𝐚𝐧 𝐅𝐮𝐞𝐥 (45𝐙) ▪Clean fuel production credit is extended. ▪Increased FEOC restrictions apply starting in 2026. ▪A 20% reduction in value of the 45Z credit applies to fuel produced from feedstocks grown or produced outside U.S., effective January 1, 2026. 𝐒𝐮𝐦𝐦𝐚𝐫𝐲 ▪Pretty bad news for wind, solar and hydrogen, but not as bad as it could have been if A) the tax credit phaseout was immediate, and B) the excise tax remained ▪Bullish for oil and gas, carbon capture and, to a lesser degree, geothermal and critical minerals ▪House GOP is not happy about the changes...we will see what happens next!

Will we see some progress in #Carbon Border Adjustment Mechanisms in 2024? In the EU, the transitional phase started in Oct 23 with the definitive period starting in 2026 reaching 100% of the embedded emissions in 2034 [1] In the UK, #CBAM will be in place from 2027 with more details on design to come in 2024 [2] Canada launched a consultation in 2021 [3]. The #climateclub launched at #COP28 (with 37 members) includes "dialogue on #carbonleakage" in one of its 3 pillars with a report to be delivered by Q2 24 [4]. G7 also included #carbonpricing/leakage in the latest communique [5] and the G20 mentions carbon pricing [6] Is the US next? Carbon pricing has always been a difficult (political) discussion. In 2023, 5 bills that included carbon pricing/CBAM were introduced in Congress with 3 of those in the past 2 months [7]: - PROVE IT Act [8] (D+R). Provides benchmarking by assessing the #emissions intensity of various (imported) goods including #industry, #cleantech (#solar, #wind, #batteries, #hydrogen, #biofuels), #fossilfuels, and #criticalminerals. The scope is cradle to grave (Scope 1-3) - Foreign Policy Fee Act [9] (2R). This only introduces the CBAM component on the additional emissions intensity from exporting countries vs average emission intensity of domestic goods. It does not introduce a carbon price on domestic production and it does not price the bulk of the emissions (only the differential). The methodology for the tax is not defined, but it is delegated to the DoE - Clean Competition Act [10] (3D). Carbon pricing on both domestic and imported goods but only for the (Scope 1+2) emissions above a benchmark. USD 55/tCO2 starting in 2025 increasing by 5%/yr + #inflation. The benchmark is the US industry average decreasing by 2.5%/yr for the first 3 years and 5%/yr thereafter. It includes exemptions for countries with similar policies and LDCs - MARKET CHOICE Act [11] (D+R). Starts at USD 35/tCO2 in 2025 increasing by 5%/yr + inflation. Covers all fossil fuels and all GHG with the penalty imposed on the producers. Covers industrial processes and it has exemptions for CCS (This is the 3rd time this bill is introduced [12, 13]) - Energy Innovation and Carbon Dividend Act [14] (2D). It covers domestic production and imports of fossil fuels and industrial goods. Revenues from domestic production to be redistributed to citizens as monthly dividends and from imports to the Green Climate Fund (of the UNFCCC). Price starts at USD 15/tCO2 in 2023 with an annual increase of USD 10/tCO2 + inflation *D and R refer to the Democrats/Republican Senators introducing the bills, which means there is bipartisan support for these measures Over time, there have been 15 bills that have proposed carbon pricing/CBAM [15] (Exhibit) What do you think? Will any of these make it through Congress ? Is there enough time for the legislative process given the upcoming presidential elections in November? Is it realistic with the Republican majority of the House?

On your marks !! This weekend, we've reached a significant milestone in Europe's #StrategicAutonomy, Climate, and #IndustrialPolicy: the Net-Zero Industry Act (NZIA) is now in force. This regulation aims to boost the manufacturing of technologies essential for a decarbonised energy system, create green jobs, and enhance our economy's resilience. As a Regulation, it is immediately applicable across all EU countries. Let's break down #NZIA's key provisions. 1️⃣ Increasing investment certainty: - Clear objectives to ramp up manufacturing of net-zero products to meet at least 40% of deployment needs. - Strengthening the business case for industrial decarbonisation and energy-intensive industries, NZIA will help convert facilities to CO2-neutral processes and ensure hard-to-abate industrial emissions are captured and stored. 2️⃣ Streamlined project lead times: - Permit-granting for strategic gigafactories must complete within 12 months; even shorter for smaller facilities. - Streamlined rules for speeding up complex processes, including environmental impact assessments. Next step: using digital tools and AI to create the fastest and most predictable industrial permitting regime. 3️⃣ Creating demand for sustainable products: - Non-price criteria will underpin public procurement and auctions, focusing on resilience, sustainability, innovation, and cybersecurity. We urge EU Member States to apply these criteria promptly. 4️⃣ Leveraging novel concepts to boost skills, innovation and clustering: - Net-Zero Industry Academies will enhance skills across the #SingleMarket. Regulatory sandboxes will provide tailored frameworks for innovative companies. - Net-Zero Acceleration Valleys will promote industrial clustering. 5️⃣ Nurturing strategic projects: - Strategic projects will receive priority status for administrative processes and financing advice through the Net-Zero Europe Platform. #NZIA will also integrate significant financing and support. 💵 InvestEU: Updated guarantee agreements support net-zero manufacturing investments. The EIB has allocated €45 billion until 2027 for green transition investments. 💵 STEP Regulation: Managing Authorities are amending programs to support net-zero technology value chains using ERDF, Cohesion Fund, ESF+, and JTF. 💵 National resources: 6 Important Projects of Common European Interest (IPCEIs) in cleantech are already approved, with more expected. 9 Member States have approved net-zero schemes, with Germany having a matching aid scheme. Moving forward with NZIA in force, we focus on implementation with work ahead, including training and adapting mindsets. My teams started early and EU countries have shown strong commitment. The business case for NZIA is robust and will strengthen with each step we and EU countries take. Europe means business with NZIA. Want to know more ? ➡ https://europa.eu/!6CXmDy #NetZeroEU #NetZeroIndustry #GreenDeal #EUIndustry #CleanTech #Competitiveness

🚢✈️⚙️ From Penalties to Progress: How Shipping, Aviation & Industry Are Quietly Funding Their Own Decarbonization New climate rules are turning polluters into funders—and building self-financing ecosystems in the process. Behind the headlines of climate policy, a deeper structural transformation is underway—one that’s redefining who pays for the green transition, and how. Across the IMO Net-Zero Framework, RefuelEU Aviation, and the EU ETS, a new logic is taking hold: 🎯Impose financial pressure on non-compliant actors 💰Capture financial flows from within the sector 🔄Recycle revenues to stabilize and accelerate the transition 📌 This isn’t just about taxing emissions. It’s about creating circular funding models—systems that punish inertia and reward transition. ⚙️ Regulatory Realism in Action - or public funding in disguise Governments are facing the hard truth: ❌They can’t fund the clean transition alone ❌Taxpayers are unlikely to support massive public subsidies ✅industries must play a central role in solving the very problem they contribute to. ✅Carbon-intensive sectors must finance their own transformation And so, a new funding model is emerging: Self-financing ecosystems—designed into regulation itself. 💡You emit? You pay. But you also help fund the solution—and if you move early, you benefit first. Governments are shifting from subsidizing green tech to regulating capital flows toward it. "If you want to operate in a fossil-fueled economy, you’d better help finance its replacement." 🔍Three Systems, One Logic The following frameworks don’t just impose costs — they recycle those costs into sector-specific transformation tools: 🚢IMO (Shipping) 🔹Charges up to $380/t CO₂e for high-emission vessels 🔹Proceeds go to the IMO Net-Zero Fund → Supports green fuels, port infrastructure, and just transition efforts ✈️ RefuelEU (Aviation) 🔹Penalizes SAF shortfalls at 2× the price gap → e.g. ~€2,700/t SAF or ~€13,900/t eSAF (2024 prices) 🔹Non-compliance penalty revenues support (e)SAF production scale-up via the EU Innovation Fund 🇪🇺 EU ETS (Economy-wide) 🔹Market-based carbon pricing: €60–€100/t 🔹100% of revenues must be spent on climate action and energy → But reinvestment is less targeted, and not sector-specific 🧠What’s the Behavioral Strategy? These frameworks aren't just compliance tools. They’re built on behavioral economics. From a psychological perspective, the most effective systems blend: 🔹The fear of financial consequences (to trigger change), and 🔹The reward of reinvestment (to sustain it) 👉It’s not either/or — effective systems blend both. By making industry part of the funding solution 🔹You discourage inaction with cost; 🔹You reward momentum with support; 🔹You build transition pathways from within These are not just regulatory instruments. They are the scaffolding of a new, self-funded clean economy. #IMO #RefuelEU #EUETS #ClimateFinance #Decarbonization #CarbonPricing #eSAF #Shipping #Aviation #PolicyDesign  

The UNEP FI – Bridging Climate and Credit Risk report delves into how 32 global banks are incorporating climate-related risks into their credit risk frameworks. These banks evaluate physical and transition risks across sectors like real estate, energy, and transport, focusing on exposure classes such as large corporates and SMEs. While expert judgment remains crucial, there is a notable shift towards data-driven approaches. The outcomes of climate risk assessments impact regulatory reporting, credit decisions, and client interactions, influencing activities like loan repricing and risk ratings. Despite progress in integrating climate risks into Probability of Default (PD) and Loss Given Default (LGD) models, their integration into internal models like IRB or rank-ordering is still limited. While scenario analysis, including NGFS scenarios, is prevalent, challenges persist with Scope 3 emissions data. More than half of the banks surveyed employ ESG scoring frameworks, but the methods of integration vary due to issues like data quality, methodological constraints, and resource limitations. The report advocates for refining climate-credit risk models, strengthening data governance, and promoting closer engagement with regulators. It emphasizes the necessity for banks to embrace proactive measures like stress testing, margin of conservatism, and broader sustainability integration to effectively navigate long-term climate-related credit risks.