Outlook 2025: Prospects for the race to net zero

In 2025 mature technologies like solar and wind power as well as electric vehicles (EVs) will continue on their path of exponential deployment - despite some setbacks in some jurisdictions where incumbents start to panic as they realise they have lost ground they may never make up. 

In other words, don’t be fooled into thinking that the EV revolution is slowing down just because Volkswagen is closing German car plants¹  – look at the rate EV-maker BYD²  is building new facilities outside of China. Just follow the global growth numbers as costs continue to fall.

Next-wave technologies will go beyond first-of-a-kind facilities and start to show exponential growth to scale, supported by sectoral policies in key countries. These include sustainable aviation fuel, low-carbon cement, long-duration energy storage and zero-carbon shipping.

More and more funds will be launched to provide the capital for these industrial technologies as well as the large amounts needed for grid strengthening and growing opportunities in nature-based solutions.   

Developing market growth

Awareness of the role of guarantees and insurance in derisking, especially in emerging markets, will continue to grow. For example, while the World Bank still lends significant amounts to developing countries, it intends to pivot from “primarily being a lending institution to also being a leveraging one” – via a new guarantee platform to mobilise private sector capital.³

The shift in understanding of emerging market risk will continue, with renewable energy continuing to show remarkable growth in China and India, extending to other countries in Latin America, Africa and Southeast Asia. Indonesia’s recent announcement that it will phase out coal burning by 2040 is an example of growing confidence in the renewable power future.⁴

And the remarkable decline in solar costs will continue to translate into bottom-up growth of panel deployment such as we are seeing in Pakistan - driven by consumers and small-and-medium enterprises recognising the low cost and increased reliability – as well as top down through country plans.

Recent research by RMI shows that roughly three quarters of emerging markets are in the sweet spot of having super-abundant renewable resources and not relying on hydrocarbon exports for foreign earnings.⁵  This means they have both the opportunity and the motivation to substitute volatile fossil fuel imports for low cost home generated power.

The UK: Leading the way?

The UK will continue to show an international lead, with its recently announced Nationally Determined Contribution (NDC) targeting an 81% reduction in emissions by 2035.⁶  Expect the new government to continue to follow up with specific sectoral policies, responding to Climate Change Committee (CCC) criticism of previous lack of specificity in industrial heat, buildings and agricultural emissions.

The CCC will lay its detailed recommendations for its seventh Carbon Budget before parliament in February, showing a pathway to a 90% reduction in the early 2040s and net zero by 2050.⁷

The key political tension will centre on how to implement policies where the upfront costs of the transition are fairly distributed in time and across demographic groups. Recent large investments by the National Wealth Fund in social housing retrofit may hint at the direction of travel.⁸

This leadership is already helping in the year leading up to COP30 in Belém, Brazil, where all countries are required to submit enhanced NDCs. As well as the UK, Brazil, and the United Arab Emirates already increased their ambition at COP29 and expectations are high that more and more countries will raise their ambition as required by the Paris Agreement.

Capital flows

Latin America will continue to grow in confidence with abundant renewables in many countries such as Chile allowing them to displace hydrocarbon imports, and a strong minerals sector benefiting from the growing need for copper and lithium, in particular.

The conversation about how much capital needs to flow to emerging markets will become increasingly sophisticated with catch-all observations about the high cost of capital being replaced with more precise analysis of where conditions are ripe and what is needed elsewhere. 

For example, a growing number of African countries are creating the conditions for international investment to flow – with Nigeria, Kenya and Namibia all recently leaping into the top 10 emerging markets in Bloomberg’s ClimateScope assessment of clean technology investment readiness⁹ .

Expect a return to confidence and growth for international carbon markets. This has been boosted by completion of Article 6 negotiations at COP29 in Baku¹⁰ , ongoing improvements in standards on both the supply and claim side thanks to the Voluntary Carbon Markets Integrity Initiative and the Integrity Council for the Voluntary Carbon Market.

There is also a potential move towards recognition of limited use of carbon credits in corporate transition plans to net zero both via an updated Science Based Targets initiative standard¹¹  and national jurisdictions such as the UK converting transition planning recommendations into regulations.

Greater expansion vs. geopolitics

China will continue to dominate multiple sectors from solar production to critical minerals processing and EVs. Countries tempted to use tariffs to protect their incumbents who woke up 10 years too late will discover the world is a big place and there are plenty of countries who will welcome Chinese manufacturers with open arms both for the production jobs and the oil import-replacing electrification benefits.

I expect to see more Tesla and BYD factories popping up in Latin America, Southeast Asia and on the edges of the Europe and the US (in Turkey and Mexico respectively for example).

It will be interesting to see if US President-elect Donald Trump’s wilder tariff war promises are toned down by some of the market-savvy experience of his new team.  And don’t expect the Inflation Reduction Act (IRA) to be dismantled in a hurry. Trump 1.0 was elected on a promise to bring back coal, but coal fired power plants were retired faster in his presidency than that of Barack Obama¹² . And Trump 1.0 did not remove wind tax credits despite pulling out of the Paris Agreement – and it is hard to see him removing the massive carrots that the IRA represents in predominantly ‘red’ states.

Markets have a power that overwhelms ideology – costs will continue to tumble, the benefits of import substitution and job creation will drive policy reform, demand signal strengthening, increased investment and further cost reduction. Despite a more fractious geopolitical context the race to net zero will continue to accelerate in 2025 across energy and industrial technologies.

My one wish for the new year is that the renewed focus on land restoration and regenerative agriculture at December’s United Nations Convention to Combat Desertification COP16 in Riyadh will set up the Brazilian presidency of the climate gathering in Belém in November 2025 to give these markets a much-needed boost and set them too on an exponential trajectory to 2030.

Sadly, the one thing that is guaranteed is that human and economic suffering because of extreme weather will continue and we remain some way off the exponential results of our innovations catching up and overtaking the damage already caused.

Nigel Topping is an external advisory member of the AXA IM Investment Institute.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of AXA Investment Managers.