In 2025, carbon taxes and emissions trading schemes (ETS) are expanding across the world. This will have significant implications for energy traders, their suppliers, and customers, influencing everything from cost structures to competitive positioning.
The proliferation of carbon taxation mechanisms, ETS systems, and reporting requirements can feel overwhelming. However, 2025 is poised to bring increased interoperability and cross-border reach, potentially simplifying compliance and enabling new strategic opportunities in the energy industry.
Direct carbon pricing in the energy sector will increase the cost of high-emission energy products. Meanwhile, carbon pricing in other industries will create growing demand for low-carbon energy alternatives. Even companies that are not directly subject to a carbon tax or ETS will feel the effects as costs ripple through supply chains, reshaping competitiveness and investment decisions.
This article is an extract from our recent report: 5 Key Trends to Watch in Energy & Decarbonization in 2025.
In 2024 and moving into 2025, the harmonization of carbon pricing and reporting schemes is a crucial discussion point. Greater interoperability could bring us closer to a global carbon price, simplifying compliance but also increasing the urgency for companies to decarbonize. A more standardized global approach could accelerate the energy transition and drive market incentives towards low-carbon energy solutions.
However, there remains a possibility of further fragmentation. Divergent policies and frameworks across jurisdictions could make compliance more complex for multinational companies, increasing administrative burdens while slowing the pace of decarbonization.
The agreement on Article 6 of the Paris Agreement at COP29 paves the way for a standardized international carbon market. Companies may gain new opportunities to offset emissions and manage carbon tax liabilities through voluntary carbon credit purchases. This could introduce additional flexibility in carbon pricing strategies.
Following the 2024 reduction of the EU emissions cap by 90 million allowances, the 2025 ETS update mandates emissions certificates from cargo and passenger ships of 5,000 gross tonnage or more. By 2026, the system will fully cover emissions from maritime transport, impacting global shipping costs and trade flows.
The EU’s Carbon Border Adjustment Mechanism (CBAM) reporting requirements are now fully in place. While energy products are currently excluded, discussions around expanding CBAM to refined products from 2029 onwards could significantly impact energy importers.
However, February of 2025 brought some proposed updates to CBAM. Specifically, the EU Commission has proposed increasing the thresholds for compliance, which, if enacted, would relieve approximately 180,000 businesses from reporting responsibilities.
The UK is broadening its ETS coverage, bringing more sectors and products under regulation. Starting from 2026, the maritime sector will be incorporated, focusing on domestic maritime transport involving vessels of 5,000 gross tonnage and above. This expansion aims to ensure that maritime fuel prices reflect their environmental impacts, incentivizing the adoption of low-carbon fuels and efficient technologies. Furthermore, the scheme will also recognize non-pipeline transport methods for carbon capture and storage, promoting decarbonization across industries. By 2028, the UK ETS will further expand to cover waste incineration and energy-from-waste facilities. These changes are part of the UK's broader strategy to meet its net-zero emissions target by 2050.
Singapore is expanding its carbon market initiatives, developing itself as a major carbon services and trading hub. The country launched its Singapore Carbon Market Alliance (SCMA) to facilitate access to high-quality Article 6 carbon credits for Singapore-based companies, supporting their climate goals and contributing to global sustainability efforts.
Additionally, Singapore has introduced a carbon tax regime, which is set to increase progressively, and allows companies to offset up to 5% of their taxable emissions using international carbon credits from 2024, providing businesses with new mechanisms for offsetting emissions and managing compliance costs.
North American developments
State-level carbon pricing in the U.S. is gaining momentum, while Canada continues tightening its emissions policies. However, under a potential Trump administration, federal policies may shift, creating regulatory uncertainty. Similarly, Canada may see a conservative government in the near future, calling into question its trajectory on emissions reductions.
Middle-income countries are increasingly adopting carbon pricing through crediting mechanisms. Examples include Indonesia’s carbon tax framework and Brazil’s ETS. These developments indicate a broader shift towards global carbon pricing integration, though implementation challenges remain.
As carbon pricing expands, energy traders will face heightened cost pressures on high-carbon assets. The financial sector is increasingly incorporating carbon costs into credit risk assessments, influencing the availability and cost of capital. Traders who proactively adjust their sourcing strategies will be better positioned to maintain competitiveness in a shifting market.
Understanding where and how carbon pricing applies to your supply chain is essential. Traders should conduct a comprehensive audit of their suppliers’ exposure to ETSs, carbon taxes, and CBAM regulations. This analysis should include:
Developing a dynamic carbon risk assessment framework can help traders anticipate price shifts and adjust sourcing strategies accordingly.
As carbon costs increase, sourcing low-carbon alternatives will become a key differentiator. Energy traders should consider:
By integrating carbon intensity considerations into procurement decisions, traders can gain a competitive edge while managing financial risks associated with tightening carbon regulations.
The global landscape of carbon pricing is evolving rapidly, and 2025 marks a pivotal year for energy traders. While increasing costs and regulatory complexity present challenges, they also offer strategic opportunities. Traders that proactively map their carbon exposure, align with lower-carbon supply chains, and engage with evolving market mechanisms will be best positioned to navigate and capitalize on the changing carbon pricing landscape.