2025: A crossroads for the energy transition?

The fight against climate change will reach a critical turning point in 2025—a year marked by geopolitical tensions and economic risks, yet also filled with hope.

By Ignacio J. Domingo  

2025 presents a fitting opportunity to reflect on the progress made and the obstacles faced in the ongoing battle against climate change. It stands out as a pivotal moment, marking key decision points along the journey toward achieving energy neutrality.  

This year also marks 30 years of climate summits, known as COPs (Conferences of the Parties), launched by the United Nations after officially recognizing greenhouse gases as a global emergency. They began their journey three years later, in Berlin (1995). Some of them have been truly iconic, such as the Kyoto Protocol-COP3-in 1997, in which their famous protocol was committed to by the countries to monitor their efforts to cut CO2 emissions. Others have been of massive importance, like the 2015 summit in the French capital (the 21st), which led to the Paris Agreements, setting the limit for global temperature increase at 2 degrees Celsius above pre-industrial levels.  

At the same time, it places the first major checkpoint for decarbonizing the planet by 2050 just five years away. This milestone is set by Paris's Sustainable Development Goal (SDG) 13, which calls for global CO2 emissions to be reduced by 45% below 2010 levels. Europe has raised the bar by setting a more ambitious target, requiring its partners to cut their emissions by 55% in line with its EU Fit for 55 Rules.  

The midterm assessment, however, yields a failing grade. The last time the experts at the Bulletin of the Atomic Scientists set the Doomsday Clock, humankind was placed at 90 seconds to midnight, the closest point to the apocalypse - the Earth's twilight - since the Doomsday Clock began in 1947. But there are more warning signs. The Copernicus service confirmed that 2024 was the hottest year on record and the first to surpass the 1.5-degree limit. This threshold represents the strictest target set by the UN’s Intergovernmental Panel on Climate Change (IPCC), agreed upon by all nations in 2018 to fast-track energy neutrality by mid-century.  

Despite this scientific evidence, the debate on accelerating the energy transition seems to be subject to review by 2025. The Trump administration has once again pulled the USA out of the Paris Agreements and expresses its desire to slow down decarbonization just as renewable energies are becoming cheaper, despite some progress made at the last two COPs - at the 28th in Dubai and at the 29th in Baku. The first, by signing the phased elimination of fossil fuels, and the second, by announcing financial support from industrialized powers—$300 billion annually until 2035—for the green agendas of developing countries. Although it falls short of the $1 trillion agreed upon for 2025 or the $2.4 trillion for 2030, it remains a crucial step forward.  

Geopolitics adds environmental risks 

Transcendental events are looming large in the world order. Private estimates of the annual bill for global energy transition range from 3 to 12 trillion, The Economist states, clarifying that the second prediction is exaggerated and emphasizing that the energy transition is "much cheaper" than believed due to a technological boom that the market "underestimates", while "overestimating the planet's energy demand". In 2024, according to the IEA, $3 trillion, 3% of the world's GDP, was invested in sustainable energies, with almost three quarters coming from the private sector.  

To make matters worse, investments with ESG criteria are likely to suffer setbacks after the paralysis of the 2022-23 biennium, in which they stagnated at $31 trillion. In this scenario, the world’s three largest economic powers could face imbalances.  

China begins 2025 as a dominant force in technology, value chains, as well as commercial capacity for electric vehicles. It’s their big guarantee of energy transition, as shown by the vetoes of Washington and Brussels on their export power. In a thriving global market, where 9 out of 10 countries are embracing electric vehicles, the vast majority are equipped with engines and batteries made in China.  

"The large-scale integration of this productive segment into the economy of the Asian giant sets a precedent for industrial decarbonization in the transportation sector" and a stimulus towards "sustainable mobility", states the scientific editorial Frontiers. In 2024, electric vehicle sales exceeded 10.97 million vehicles, according to the China Passenger Car Association (CPCA), a 41.6% increase from 2023, and its export weight increased by 1.016% between 2018 and 2023, when 1.6 million vehicles were sold. The last quarter of 2024 showed signs of exhaustion, however.  

Meanwhile, Trump’s initial executive orders leave no doubt when it comes to his support for fossil fuels. "We have the largest amount of oil and gas of any other country and we will use it to halve the cost of U.S. energy within a year." This shift threatens to disrupt the $100 million in direct aid from the Biden Administration's Inflation Reduction Act (IRA), the $207 million allocated for sustainable projects and eco-friendly fertilizers for farmers, as well as the $31.4 billion in tax credits to promote wind and solar energy by 2024, within the $421 billion that the IRA had planned for between 2025-2034.    

Europe, meanwhile, is working to integrate the recommendations of the Draghi Report into its green roadmap. According to the former president of the ECB, the transition is a niche of opportunities that demands synchronizing all EU policies with its climate objectives and aligning them with multiple decarbonization plans as well as with the advances in competitiveness that must be set up to safeguard the security of the internal market and lower the European energy bill to rates that allow it to compete with the US and China.  

In principle, this transition has public support, as 94% of citizens support measures to boost the fight against climate change, according to a survey by the EIB. "The leap towards decarbonization progressed along the right path in 2024, but it has to speed up in order to achieve net zero emissions by 2050," warns the European Climate Neutrality Observatory, which urges the EU to "take initiatives that foster favorable conditions for the transition when needed, align with Fit 55 and close the investment gap in technology." 

ING estimates the capital needs of utilities in Europe at 160 billion euros this year to decouple renewable electricity generation from its fossil components, within an investment climate that the ECB acknowledges is subject to energy scarcity, as Draghi points out. "Intensively used companies experience low profit margins, even as prices have fallen from their maximum levels." In other words, competitiveness deficits. That's despite the €110 billion investment boom in renewables in 2023, a year defined by the shutdown of Russian oil and gas supplies. 

Ignacio Domingo has spent most of his 30 years of professional practice analyzing geopolitical, international economic and capital market issues in Expansión and collaborating with media channels such as El Confidencial, Capital, Estrategias de Inversión and El Diario.es, among others. He received the award as a first runner-up for the Citigroup Award, which recognizes the best annual economic reporting.