3 Climate Policy Developments To Follow In 2025

Climate policies are a key force to limit global warming. Through supportive policies, national governments have driven the adoption of electric vehicles and renewable energy, such as solar power. For instance, global electric car stock grew from zero to 10 million between 2010 and 2020, and the price of solar energy dropped significantly in countries like India and China.

Such policies drive the behaviour of companies as well as households. As much as 60% of the growth in energy investment in advanced economies can be attributed to private households' investments in solar panels, building efficiency improvements, and electric vehicle purchases, thanks to the strong policy signals several governments provided, based on analysis published in the World Energy Investment Report, 2024.

Given the importance of these policies in generating momentum for climate action by both the private sector and households, it's worthwhile to learn about key climate policy developments to watch out for in 2025, what they are, and why they are essential.

1. New Climate Commitments Of Countries: Nationally Determined Contributions

Countries are expected to submit their new Nationally Determined Contributions by the end of this year. These NDCs are an important component of the Paris Agreement, signed by over 190 countries in 2015, to address climate change. As part of the NDCs, countries announce targets such as reducing emissions from various sectors like the power sector, agriculture etc. These NDCs are expected to be updated every five years. Most countries submitted their first NDC in 2015, and several submitted an update in 2021.

Only four countries, accounting for 15% of emissions, have submitted their new NDCs. By the end of 2025, the United Nations expects over 190 countries to submit. The NDCs to be submitted this year will have targets by countries up to 2035. For example, in its latest NDC, the USA, one of the four countries that have submitted its new NDC, has communicated an economy-wide target of reducing its net greenhouse gas emissions by 61-66 percent below 2005 levels in 2035. The targets in the NDCs are based on the first global stocktake document of COP 28. The document estimated an emissions gap of 20.3–23.9 billion tonnes of carbon dioxide equivalent (38–45% of global annual emissions) to keep the temperature under 1.5 degrees Celsius by the end of the century.

What should be expected from the new NDCs this year? Greater ambition, according to experts, as the last round of updates were considered not ambitious enough to limit global warming to 1.5 degrees Celsius by the end of the century based on the estimates by United Nations. But what determines climate ambition? Research published in Nature shows that countries that engage in stakeholder consultations are more likely to have ambitious emission reduction targets. At the same time, there are concerns about NDCs not sufficiently including targets for critical areas such as food systems. Food systems, just like the energy and transport sectors, account for 33% of global emissions.

2. Impact Of The New Trump Administration On The Climate Policy Terrain Of United States

Another key headline to watch out for this year is how the Trump administration will handle policies that impact climate change. In 2020, when the Trump administration announced the exit of the US from the Paris Agreement, many were disappointed. Over 100 Environmental Rules were dismantled under the last Trump administration, according to a 2021 analysis by Havard and Columbia University.

The new Farm Bill of the US is one policy to watch out for in 2025. Will Congress pass a new Farm Bill in the next few months, and how will the components of this critical legislation impact efforts to address climate change? The last Farm Bill, 2018, expired in 2023. The bill is supposed to be revised every 5 years. The Congress could not reach an agreement on its contents in 2023, leading to extensions; the second extension came in December 2024 for 3 months. The Farm Bill was first introduced during the Depression era in the US to support struggling farmers. Over time, it expanded into a comprehensive list of farming and food rules worth billions of dollars. The 2018 farm bill was projected to cost the government 428 billion dollars in 5 years.

One particular component of the Farm Bill discussion concerns money for climate-smart agriculture practices. The version floated by Democrats has this provision, Climate-smart agriculture is an umbrella term used to describe practices that help reduce emissions from agricultural practices. The 2022 Inflation Reduction Act, or IRA, allocated nearly $20 billion in funding for these practices. The version proposed by Democrats, proposed rolling the leftovers into the new Farm Bill. That is missing in the draft version proposed by Republicans, according to a media source.

3. Implementation Of Regulation On Deforestation-Free Supply Chains In Europe

Europe is pioneering the development of regulatory requirements on sustainability. The EU Green Deal has several regulations encouraging companies to disclose information better. They require companies to disclose key metrics, from the amount of greenhouse gas emissions they release into the atmosphere to incorporating checks in their processes and management to protect natural resources such as land and water to which their supply chain is linked.

The EU Deforestation Regulation, EUDR, is a particular one to watch out for this year. By December 2025, all big companies dealing with commodities such as beef, cocoa, and palm oil must declare that their products sold in Europe are deforestation-free. Small companies will start complying with this in 2026.

The regulation requires companies importing into the EU to show detailed documentation, such as geolocation, to show that the products designated for EU markets did not originate from deforested lands. If they cannot, they will be fined and barred from selling their products in the European Union. The penalties can be as much as 4 % of the company's turnover in the EU. Companies not complying with the regulation will be listed on the EU Commission website, with a judgment on the violations.

Implementing the EUDR will be game-changing in halting illegal deforestation from high-risk countries such as Brazil and Indonesia. The regulation can impact as much as 22% of exports from Latin America. There are also concerns that if the regulations are not implemented correctly, it could adversely affect the earnings of farmers and small and medium enterprises of the exporting countries.

The policy developments discussed above can influence the climate agenda for 2025 and beyond. Keeping an eye out for what happens could be of great interest to readers' in this space.