It’s been a rough year for anyone who looks to climate policy as a catalyst for innovation. Q4 made sure the lesson landed.
The quarter opened with the International Maritime Organization (IMO) postponing a long-anticipated vote on a net-zero framework that had been years in the making. Approval seemed inevitable – until intense lobbying by the United States derailed the agreement in early October.
November brought Brazil’s turn hosting COP30 Brazil, which yielded little in the way of consensus. One attendee described the experience as “biblical,” citing torrential flooding and pavilion fires.
December, so far, has spared us such headline-grabbing events. But before the sun sets on 2025, there may yet be more tears in Whoville. We’re not waiting around for that. Our job is to track progress where it exists and innovation where it advances.
Getting our Holiday Calm On
Q4 delivered its share of under-reported good news. After October’s IMO punt, many observers argued that aligned nations should move ahead without waiting for those lagging. Within weeks, evidence appeared that this was more than rhetoric…
…Brazil Leads on Biomass
Backed by an International Energy Agency (IEA) preliminary finding that biomass inputs for biofuels and chemicals could sustainably quadruple, Brazil led an effort joined by Japan, Italy, the UK, and others committed to policies that accelerate biomass-based substitutes—such as sustainable aviation fuel and renewable diesel—capable of decarbonizing sectors that resist electrification.
(Readers can scroll to the end for a primer on biomass and its potential climate benefits. Those already fluent may read on.)
…Europe Forges Ahead
The EU released a bioeconomy investment strategy, and announced a sweeping agreement to achieve 90% industrial decarbonization by 2040. This matters because Europe’s most recent parliamentary election shifted the balance to the right, raising doubts about the durability of its climate commitments. These recent actions suggest the newly elected Parliament believes voters may disagree on how to decarbonize, but they still expect emissions to fall – dramatically.
The Big 2025 Overview
Let’s get into the useful numbers – some of which are sobering, regardless of one’s eggnog intake levels.
China Roaring into the Future
China’s economy remains 87% fossil powered. Yet the government’s determination to eliminate dependence on foreign – largely fossil – energy could not be clearer. In Q4, China’s annual trade surplus reached $1 trillion, exceeding the entire GDP of all but the world’s ten largest economies. A fast-growing share of that surplus comes from the tools of the energy transition.
The data is here:
- 80% of global solar manufacturing
- 65% of wind manufacturing
- 65% of global wind and solar capacity additions since 2022
- 80% of global recycling capacity for lithium, cobalt, and nickel
- 90% of global cathode active-material capacity
- 97% of anode active-material capacity
- 60% of passenger electric-vehicle manufacturing
- 90% of electric-truck manufacturing
- 59% of global shipbuilding orders, over 40% of which are alternative-fuel capable
- 0% of the 50+ hydrogen projects cancelled globally in the past year
Each of these industries depends on large, intricate supply chains. In China, those supply chains are expanding in scale and efficiency alongside their manufacturing customers.
For years, a popular Western narrative predicted Chinese growth would founder on the inefficiencies of centralized economic management. The evidence increasingly points the other way. The Economist recently reported that after Western pharmaceutical firms outpaced China in COVID-19 vaccine development, China streamlined its regulatory approvals and can now complete drug trials faster than any Western country. It would be unwise to assume China cannot replicate that agility in its energy-transition sectors.
The U.S. Chose… a Different Path
In 2025, the U.S. entered what can be fairly called a clean-economy recession.
- More than 40 clean-energy projects were cancelled, eliminating 20,000 jobs and $24 billion in investment (roughly 18% of clean-sector investment since 2021)
- Solar, storage, and alternative-fuel investments suffered the largest losses
- Electric-vehicle manufacturing stagnated below 1.5 million units
- Ford announced an historic $19.5 billion write down in its EV business
- Wind and solar capacity additions continued to grow—but slowly.
The Ford EV losses are largely a function of being caught between rigid Biden-era regulations the company bet big on – and the erasure of those very same rules by the current Administration. If you are tempted to think this doesn’t much matter because, after all, the energy transition is only a small part of the economy – here’s a data point just for you:
At any point in history, the economy’s future has been shaped by innovation in how energy is produced, stored, delivered, and consumed. Water power was eclipsed by combustion turbines. Whale oil went out with the light bulb. Steam trolleys lost out to automobiles. History offers little reason to doubt this trend will continue. When it comes to the future of innovation in the energy economy, China is building a formidable lead over the United States.
The Wildcards: The Rest of the West
The EU, UK, Canada and Japan face a strategic choice with an historic opportunity to re-assert global economic leadership. Recent announcements offer cautious optimism.
EU/UK
Europe is an increasingly hospitable destination for clean-economy capital. Core regulatory components are generally stable and increasingly investible. Recently announced flexibility in vehicle mandates (hybrids allowed, no ban on internal combustion engines) should provide a better glidepath for manufacturers to balance near-term sales pressures with investments needed to compete with Chinese EV imports.
In our Q1 note we suggested this sort of pragmatism might return – and it matches regulatory adjustments we forecast in our Q3 note. Not everyone is thrilled with this development, but we see a more politically stable environment for investment and innovation as a result.
Canada
Canada’s trajectory remains uncertain. For decades, Canada has comfortably worked within the larger North American context to ensure seamless market conditions on the continent. Often this meant simply following the lead of the U.S. on many climate and energy policy choices. For now, that does not appear to be a politically viable option for the current government.
Prime Minister Mark Carney’s recent efforts to create a new path have drawn criticisms from climate activists. However, Canada has a large – and growing – investment in clean energy supply chains including renewable diesel and EV supplies that can no longer depend on finding US customers. Watch for Canada to look for trading alliances outside the continent to bolster existing energy transition investments.
Japan
Let’s not sleep on Japan as a rising power in this space. Japanese government and private sector appear to be steady – though perhaps not attention-grabbing – in exploring transitions from fossil energy. The government’s Green Transition strategy seeks to leverage $1 trillion to ensure a broad, coordinated, and well-financed effort to accelerate deployment of commercially viable industrial developments in hydrogen, battery materials, renewable energy and manufacturing. Here again, this may feel too incremental for many. We anticipate Japan – long seeking new sparks for its economy – may emerge as a commercial leader in this space.
Best Wishes for a Prosperous New Year
Congratulations to all for surviving a challenging year. 2026 promises to be a very New Year.
And now…
A Fun Primer on Biomass
Ahead of COP30, the International Energy Agency released a new assessment highlighting biomass as a climate solution. The basic chemistry is familiar: biomass (things that grow) and fossil fuels are made largely from carbon and hydrogen (hydrocarbons and carbohydrates – it kinda makes sense).
Biomass absorbs CO₂ as it grows. When fossil fuels are replaced with biomass-based energy or feedstocks, net emissions stop rising. Much like using wind or solar to displace fossil fuels, biomass-based energy is essentially carbon-neutral: The CO₂ comes from the atmosphere and is returned there.
Biomass energy can have an additional benefit when paired with carbon capture technologies. Excess carbon separated from the biomass in the fuel production process can be permanently returned underground. Done correctly – and there are many ways to do it incorrectly – biomass systems do even more than wind and solar to slow climate change. They reverse it, pulling CO₂ from the atmosphere via photosynthesis and storing it below ground through carbon capture and storage.
Let’s see a solar panel do that.
(Keep calm. We love solar too. All of the above. All of the above.)
AJW Quarterly Series: Finding Calm in the Chaos
A quarterly review of global forces across the energy transition, seeking the signal amidst the noise.
AJW is wading into the conversation because we see the upside in discerning the difference between caution and fear. We make no claim to clairvoyance – merely some hard-won insights, drawn from setbacks as well as successes during decades of working with dedicated and resilient energy leaders. We aim to help those seeking resilience, not retreat.
To learn more about our work – and to gain an experienced partner tested in the crucible of energy transition turbulence – visit https://ajw-inc.com/.