Scaling the Industrial Transition 2025

A change in the policy landscape Global climate policy is shifting from voluntary ambition to enforceable accountability. Across regions, disclosure mandates, performance standards and carbon pricing mechanisms now make verified emissions data a condition for market access – not just a signal of corporate reputation. As incentives and compliance frameworks converge, verified carbon intensity is becoming a key determinant of cost, financing and competitiveness. This shift is giving rise to hybrid policy models that tie emissions verification directly to economic outcomes – embedding carbon performance into the rules of trade and investment. The result is a fragmented global policy landscape: compliance rules are designed and enforced locally, but their economic reach extends across borders. Multinational firms face a complex landscape of overlapping and sometimes conflicting systems, requiring them to balance diverse reporting regimes and price signals. Yet, as most incentives remain domestically focused, many exporters bear compliance costs without enjoying corresponding financial advantages. The policy landscape is evolving unevenly across regions: –Europe is deepening compliance frameworks through the expansion of the Emissions Trading System (ETS2), the implementation of the Carbon Border Adjustment Mechanism (CBAM) and sector-specific measures such as FuelEU and ReFuelEU. While CBAM directly links verified carbon performance to market access, FuelEU and ReFuelEU focus on driving decarbonization in transport through renewable fuel mandates and efficiency standards. Together, these measures embed carbon pricing and emissions accountability directly into trade, transport and industrial value chains. –US policy remains largely incentive-led at the federal level, anchored in the Inflation Reduction Act (IRA), but recent changes and early terminations of key tax credits – including for renewables, electric vehicles and charging infrastructure – have introduced significant uncertainty. State-level initiatives (e.g. California’s Cap-and-Trade Program and Clean Fuel Standard) continue to advance more compliance-oriented mechanisms.17 –The Middle East and Latin America are establishing the foundations of compliance through measurement, reporting and verification (MRV) frameworks, green taxonomy standards and early regional coordination on carbon-pricing readiness and cross-border trade alignment. While most regimes remain in the preparatory or “pre-compliance” phase, these frameworks position both regions for future participation in carbon markets and cross- border trade alignment. –Asia is scaling emissions trading systems and disclosure rules, with China’s ETS expanding into new sectors, Japan and South Korea integrating corporate carbon reporting, and India piloting carbon-credit and MRV systems. The policy model is shifting from ambition to accountability – but in a regionally fragmented way. Incentives such as tax credits and innovation funds now coexist with mandatory standards, disclosure obligations and pricing mechanisms. This dual structure enhances transparency but raises compliance complexity and geographical asymmetry – shaping investment risk and competitiveness. For investors and exporters – especially those in emerging and trade-exposed economies – inconsistent policies across jurisdictions amplify uncertainty and raise the cost of capital. In this compliance-driven landscape, carbon performance defines both market access and competitive advantage. Yet, without greater policy alignment, uneven rules risk turning the global transition into a patchwork of regional markets rather than a cohesive global system. Economic viability has become the key barrier to scale Economic viability has always mattered, but its importance has sharpened as rising interest rates, cost inflation and fragmented policy signals reshape the conditions for investment. What was once a low-cost capital environment that masked structural weaknesses has given way to one where financing, execution and policy coherence now jointly determine what can scale. For instance, a recent analysis by the IEA shows that a 5% increase in interest rates only modestly raises the levelized cost of electricity (LCOE) for natural gas but raises the LCOE for wind and solar by around 30%.18 The IEA also finds that both hydrogen and CCUS projects are showing signs of delay, with around 20% of planned CCUS capacity and a growing share of low-emissions hydrogen projects being deferred beyond their original timelines due to cost inflation, permitting hurdles and supply- chain constraints.19 These setbacks underscore a broader reality: while technical progress continues, execution and financing remain the defining bottlenecks. Across low-carbon sectors, many 1.3 Industrial transition dynamics in 2025 Global climate policy is moving from ambition to accountability, with carbon performance now defining cost, access and competitiveness. Scaling the Industrial Transition: Hard-to-Abate Sectors and Net-Zero Progress in 2025 11