This report does not constitute a rating action.

(Editor's note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically in regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. The forecasts herein were generated before the U.S. added 50% to its tariffs on China and China responded in kind. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).)

Recent climate policy developments point to both changing investment priorities and easing pressures to decarbonize in the U.S. and Europe. However, S&P Global Ratings doesn't believe this necessarily means less financial risk for corporate entities. Policies still diverge between markets, and shifts generally decrease the visibility of investments, notably for long-term projects.

We have taken few negative credit rating actions in the past five years due to increasing pressure from decarbonization policies and don't anticipate significant positive actions stemming from potentially easing regulatory pressures. On the contrary, we remain cautious about how companies may react and adjust their plans. We believe climate transition is a megatrend that will shape the economic landscape over the coming decades, despite whatever short-term impacts we may see.

Here, we answer questions from investors on how climate policy developments may influence credit risks for rated corporations. We also explore challenges that companies may face amid climate policy divergences between the U.S. and Europe, especially combined with other increasing pressures such as trade tariffs.

Frequently Asked Questions

What credit implications do you see from the shifting landscape?

Fast-changing global environmental policies are blurring the lines for corporates on decarbonization strategies. Incentive policy packages may shift or disappear, planned regulatory constraints may be pushed back or removed, and market demand may not meet more expensive greener products. This can reduce project returns (more credit negative), limit cost increases, or slow the pace of required investments (more credit positive). Unpredictable policy environments can also affect companies’ willingness to invest in the transition.

Companies must navigate geopolitics, changing trade tariffs, evolving policy tools, and regulations that differ significantly among the U.S., Europe, China, and other countries and affect how they set and achieve their own decarbonization targets. In this context, corporates have generally not made a leap of faith on decarbonization, remaining prudent on their investments. We expect limited rating actions as a result but believe decarbonization paths will remain rocky.

Chart 1

What are the key U.S. climate policy changes in early 2025?

The new U.S. administration has increased emphasis on energy production and cost, notably to manage the increasing needs stemming from reindustrialization objectives, data centers, and AI expansion. It plans to increase oil and natural gas production on federal lands, including the expansion of fossil fuel leasing, and has rolled back all climate related pledges or risk monitoring. In addition, the administration’s focus on reshoring manufacturing via higher trade tariffs will likely raise the cost of imported clean technologies (among other goods). Beyond cost pressures, it has also led to more uncertainty for access to key inputs such as rare earth and critical minerals as China retaliates with export bans.

We note that the first Trump administration already reduced federal climate initiatives. We believe any such actions could reduce investment toward decarbonization absent new federal policies that promote climate goals, as they raise uncertainty around these technologies’ potential returns. Trade policies could put more emphasis on oil and gas as sources of energy, given the U.S.’s advantage in this sector compared to clean technologies. Initiatives focused on more nascent technologies such as carbon capture and storage or green hydrogen could be more challenging to bring to market at a competitive price than established technologies such as solar, which is already cost-competitive.

Actions so far include:

• A 90-day pause on the disbursement of funds appropriated through the Inflation Reduction Act of 2022 and Infrastructure Investment and Jobs Act of 2021, including for electric vehicle (EV) charging stations through the National Electric Vehicle Infrastructure Formula Program and the Charging and Fueling Infrastructure Discretionary Grant Program. The same executive order includes the review of processes, policies, and programs for issuing grants, loans, contracts, or other financial disbursements.
• Simplifying the permitting processes for oil and gas exploration, production, and refining. As part of the declared national energy emergency order, the administration directs agencies to utilize statutory emergency powers to speed up development and authorization of energy projects. The order defines energy as “crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and critical minerals.” It therefore does not apply to solar, wind, batteries, or other sources.
• Temporary exclusion of U.S. coastal waters from wind energy leases, which may trigger the end of the nascent U.S. offshore wind industry, notably in the Northeast.
• Reconsideration of the Environmental Protection Agency’s (EPA) rule on methane emissions (Waste Emissions Charge), announced March 12, 2025, for petroleum and natural gas systems that exceeded certain intensity thresholds, and a rule that set carbon targets for power generation and limits the use of coal and gas power generation to below certain emission rates.
• For the auto sector, removal of the “electric vehicle mandate”, notably by removing regulatory barriers to motor vehicle access; terminating where appropriate state emissions waivers that function to limit sales of gasoline-powered automobiles; and considering the elimination of subsidies that favor EVs over other technologies.
• Withdrawal from the Paris Agreement on climate change, thereby no longer committing to limit the rise of global temperatures to below 2 degrees Celsius from pre-industrial levels with efforts to limit it to 1.5 degrees Celsius. The directive ordered the U.S. ambassador to the U.N. to facilitate the withdrawal, and revokes and rescinds the U.S. International Climate Finance Plan. Furthermore, it directed the Treasury secretary to immediately cease or revoke financial commitment made by the U.S. under the U.N. Framework Convention on Climate Change.
• The Federal Deposit Insurance Corp.’s withdrawal from the Network of Central Banks and Supervisors for Greening the Financial System. The Federal Reserve also pulled out of the working group.

We understand some actions are or will be challenged in the courts, and the outcomes are unclear. Congress also could retake legislative measures to revise the above-mentioned steps undertaken by the executive branch. While we do not believe these actions would fully unwind the progress to decarbonize the economy, they would certainly reduce intensity and pace in that direction. We believe some states, local governments, and other organized groups could continue efforts to decarbonize their economies. For example, California voters approved Proposition 4, a $10 billion bond focused on preparation for the impact of climate change. We note that some states have benefited from the Inflation Reduction Act.

Chart 2

At the same time, how is climate policy evolving in Europe?

Rising trade tensions, industrial policy developments in key European export markets (especially China), and lack of competitiveness in energy-intensive industries in Europe (particularly since the invasion of Ukraine and energy price spike) have prompted a rethink of the EU’s competition and green industrial policies. The Clean Industrial Deal seeks to address these issues by favoring the roll-out of cheap renewable energy, providing policy support to create more demand and supply for market development of clean products, loosening state aid rules to help create “national” or “European” champions that can compete globally, and reducing the excessive regulatory burden by simplifying and reducing administrative hurdles (e.g., subject matter experts exempt from Carbon Border Adjustment Mechanism, CBAM, reporting), all without modifying decarbonization goals. At the same time, the EU seeks to get more technology transfer from its main competitors, such as requiring knowledge sharing from Chinese companies that invest in the European automotive supply chain.

In addition, European countries are confronting competing priorities with an evolving political landscape defined by tighter fiscal constraints and the not so distant cost-of-living escalation. Policymakers now especially focus on defense spending and energy security. Decarbonization now ranks lower in priority. The multiplication of priorities and limited fiscal space (aside from Germany) has reduced public funds available or allotted to the climate transition.

As part of the Strategic Dialogue on the Future of the Automotive Industry, European Commission President Ursula von der Leyen anticipates taking a softer regulatory stance toward penalties on automakers that miss EU carbon dioxide emissions targets in 2025. The European Commission will propose amending the carbon dioxide standards regulation for cars and vans. This would allow manufacturers to meet targets by averaging performance over a three-year period (2025-2027) and offset shortfalls in one or two years with excess achievements in the other year(s) while still aiming for the 2025 targets.

Key sustainability regulations and disclosure rules face simplification. The omnibus package announced in November 2024 by European Commission President von der Leyen follows former European Central Bank president Mario Draghi’s report on the future of the EU’s competitiveness. The package, made public on Feb. 26, 2025, outlines proposed changes and streamlining of the EU core sustainability reporting regulations: the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), CBAM, and EU Taxonomy. The Omnibus also includes changes to the CBAM. The European Commission has so far proposed general simplification of such regulations, targeting the scope or making certain disclosures voluntary. For example, the proposed CBAM changes would include a new de minimis threshold for imported goods that would qualify, removing about 90% of importers. Large importers such as automakers would still be fully captured.

Most of the proposals will be subject to negotiations between member states in the European Council and the European Parliament, which is likely to take some significant time. Meanwhile, the EU Parliament agreed on April 3, 2025, to the “Stop-the-Clock” proposal that delays the application of the CSRD by two years for companies not yet subject to it and one year for the CSDDD. This will give legislators more time and avoid companies having to comply with regulations that are likely to change. However, proposed changes to the content of those regulations are under review by Parliament and the Council, and the outcome uncertain.

Table 1

EU’s proposed significant simplifications to key sustainability regulations
Corporate Sustainability Reporting Directive	EU Taxonomy	Corporate Sustainability Due Diligence Directive	Carbon Border Adjustment Mechanism	Autos
80% of firms removed from scope	Simplifying reporting requirements (some elements voluntary)	Postpone reporting to 2028	90% of companies removed from mechanism via new de minimis criteria	More flexibility in meeting carbon dioxide standards
Postpone reporting until 2026-2027	Revising Green Asset Ratios	Due diligence limited to Tier 1 suppliers	99% of emissions still expected to be covered	Social leasing and corporate fleet electric vehicle uptake measures to be introduced
Source: S&P Global Ratings.

How do you consider these changes in credit analysis?

Three sectors are more exposed by these policy shifts: oil and gas, power and utilities, and autos. With timing and the extent of the related credit risks and opportunities uncertain, we have not taken any rating actions related to them based on the following:

Oil and gas: In the U.S., the new administration will have a limited impact on oil production. It will likely make it easier to drill on federal lands and garner drilling permits, but economics and commodity prices will remain the deciding factor. For gas, benefits could be more visible. Over the next 4-5 years, we expect liquefied natural gas capacity buildout will likely more than double U.S. gas feedstock to approximately 14 billion cubic feet per day. A slower pace in the development of new wind and solar projects could also present an opportunity for natural gas to address supply concerns and shortfalls.

Regulated utilities and unregulated power: For both European and U.S. utilities, the main credit risks related to climate transition risk stem from the pressure on credit metrics and funding from heavy investments, combined with considerable leverage just as sovereign interest rates increase in Europe. Decarbonization necessitates massive capital expenditure and financing needs. We believe this remains true as sector decarbonization targets are unchanged. In the U.S., we believe the more uncertain investment environment for renewables may slow investments and alleviate balance sheet pressures. In addition, reconsideration of the EPA’s 2024 rules aimed at reducing pollution from fossil-fuel-fired power plants would reduce the risk of increased costs for utilities, specifically regarding the requirement to install carbon capture and sequestration or storage technology on coal-fired power plants intending to operate beyond 2039.

Autos: European Commission President von der Leyen’s softer regulatory stance means automakers in Europe will have until 2027 to comply. This will remove the risk of heavy financial penalties and support margins and cash flow over 2025-2026. Neither the 2030 target (a reduction of 50% for vans and 55% for cars from the 2021 baseline) nor the 2035 ban on the sale of all vehicles with tailpipe emissions are changing, for now at least (see “Auto Brief: Automakers Breathe Easier As CO2 Sanctions Ease”, published March 4, 2025). In the U.S., the pause on EV infrastructure funding and removal of the mandate will likely exacerbate the slowdown in EV adoption from 2024. We believe automakers and suppliers will benefit from positive product mix due to higher sales of more profitable internal combustion engines, which will also help fund their transition needs. However, we view the short-term benefit to cash flow from delays in EV product development spending and related capital commitments as a credit negative long term. It will delay scale benefits and manufacturing efficiencies, making it harder for manufacturers to reduce costs and attract the next wave of buyers. This would further widen the gap between incumbents and first movers such as Tesla and BYD Auto (that can leverage their technology and scale in the EU and China). It could also introduce potential missteps on product rollout strategies around hybrid vehicles, tooling allocations away from EVs, and capital allocation decisions regarding internal combustion engine platform refreshes.

How have your credit ratings evolved amid decarbonization trends?

We have taken very few rating actions on corporate entities the last four years stemming from climate transition risks, primarily because of the large and increasing gap between policy pledges and tangible effects of regulations. Companies so far have limited net-zero investments. Our credit ratings measure the capacity and willingness of an entity to meet its financial commitments as they come due. We consider factors that materially influence creditworthiness and about which we have sufficient visibility and certainty.

At this stage, we believe pressure to decarbonize sectors with hard-to-abate emissions has been increasing but is uneven given variation between countries’ climate change ambitions. Most policy and private sector decarbonization targets, out to 2030, appear manageable from credit and operational perspectives, and rely largely on electrification, use of cleaner technologies, and efficiency measures.

Based on the approaches to date, European corporates may in many ways be leaders in climate mitigation, notably to comply with more stringent climate regulations. This is because of sometimes significant and early research and development (R&D) investments. Notably, companies would comply with more stringent regulations and more scarce or more expensive access to resources and energy, increasing their cost structures. Yet the first-mover position may in many cases not result in market leadership or improved profitability. A weak ability to scale up in the market (still evolving regulations in Europe, lack of domestic consumer appetite for higher-cost innovations, lack of consumer incentive outside EU, and competitive landscape on less sustainable products) is a key factor.

To the contrary, U.S. entities have recently benefited from standardized subsidy schemes and regulatory frameworks on targeted sectors and relaxed regulations on others. This facilitated investments and access to capital and removed the mandatory R&D investment burden--disconnected from market expectations, thereby not incurring the same regulatory costs as their EU counterparts. For more details, see “Sustainability Insights: Why Climate Risks Are Changing So Few Corporate Ratings”, published April 12, 2023, and “Decarbonizing Hard-To-Abate Sectors: Credit Quality Implications And Six Key Observations”, published June 25, 2024.

How do you monitor evolving climate transition risks?

Climate policies that corporates are typically--or could be--exposed to imply differing credit transmission channels that affect their stand-alone credit profiles, such as:

• Policies that focus on a ban or phase out certain activities increase overall industry risk, which could be geography-specific. This could change competitive position if those industries trade globally.
• The introduction of carbon taxes or emissions trading schemes could directly affect companies’ cost base. Although such policies tend to be signaled in advance, giving companies time to prepare, there can be short-term impacts. Eventually, this may also spark new investments to mitigate the impact of taxes, affect cash flow, or increase leverage.
• Subsidies can stimulate investments in specific activities by simply making them more cost-effective, improving cash flow. Clarity on how and when climate transition and physical climate risks relate to creditworthiness can be low since the transmission channels tend to be indirect and vary across sectors.

Scenario analysis can help deepen understanding of risks in different sectors or regions may evolve and affect ratings. This type of analysis is particularly useful when uncertainties are high (as is often the case for climate risks) since it can provide insight on possible outcomes and highlight potential vulnerabilities. We have defined plausible scenarios for analytical purposes--three for climate transition risks, four for physical climate risks--in line with our “White Paper: Assessing How Megatrends May Influence Credit Ratings”, published April 18, 2024. These scenarios are described in “White Paper: Scenarios Show Potential Ways Climate Change Affects Creditworthiness,” published July 25, 2024.

How and why do climate policies differ across jurisdictions?

Over the past decade and since the signing of the 2015 Paris Agreement, countries have taken different paths to tackle climate change. Policies to steer economies to lower emissions have varied substantially. New policies have proliferated globally, each having different financial implications, which corporates need to manage. Overall, the recent changes in the EU and U.S. point to a slower transition to net-zero globally as companies will face less pressure and support to invest in alternative technologies.

Climate policies aim to mitigate three types of market failures: the negative externality associated with carbon emissions, societal benefits of using less emission-intensive technologies, and absence of public goods needed to facilitate the transition. Carbon pricing and regulation are designed to put a cost on emissions, while technology support seeks to associate benefits with clean technology investments or production, often through subsidies. The third type ensures that public inputs are enablers and not barriers to the transition.

• Cost-driven policies: Carbon pricing can come with direct taxes on emission intensive products or by compliance in carbon markets, whereas firms trade emissions quotas. Regulation is a form of indirect carbon pricing and often sets standards or bans specific technologies associated with a target date. Both raise costs for producers.
• Incentive-driven support: Technology support comes in subsidies and tax rebates (e.g., EV purchase subsidies, renewable feed-in-tariffs, or tax credits for investments in “clean” technologies) and investment (e.g., public procurement or grants). It can also be market-based (e.g., tradable renewable/green certificates based on quotas or auctions) and include financial support (e.g., below market credit and equity or loan guarantees). Technology support can focus on different stages of the supply chain. Measures that focus on innovation and production of environmentally friendly technologies mostly target “supply-push” needs, while those that target consumption seek to establish end-market and “demand-pull” dynamics. As the market matures, measures tend to become more targeted either to promote specific technologies or include specific benchmarking metrics.
• Public inputs: These include lighter-touch interventions such as policy guidance, institutional alignments (e.g., changing permitting rules to improve renewable roll-out), increased public-private coordination (e.g., new institutions or state-owned enterprises), infrastructure investments (e.g., grid expansion to electrify the economy), and education (e.g., retraining support).

We find economic opportunities linked to energy security and industrial leadership are important incentives to push actors toward lower-carbon markets among different policies. Fossil fuel importers such as the EU are more likely than exporters to invest in cleaner technologies that should not affect the economic base, provide energy security benefits, and can over time reduce energy bills. Meanwhile, industrial leaders such as China or South Korea want to ensure their industries remain well-placed in the global supply chain to respond to rising demand for environmentally friendly products. They have used technology support policies to drive innovation and market development in the green economy.

Fiscal, distributional, and institutional constraints also shape possible policy strategies. Not all jurisdictions can spend on technology support and public inputs or have the institutional capacity to roll out regulation and carbon pricing. This means the mix of policy broadly falls into four types:

• Carrots: Technology support is used in jurisdictions with significant taxing power, an industrial base, skilled workforce, and innovative potential (e.g., mostly advanced economies in the U.S., South Korea, Japan, and China).
• Sticks: Carbon pricing and regulation are used in jurisdictions with limited fiscal means but well-developed policy-making capacity (e.g., California and the EU supranational), less so where a high share of income is spent on energy (e.g., emerging markets).
• Carrots and sticks: A mix of technology support and carbon pricing is used in developed jurisdictions with clear environmental goals and binding net-zero targets (e.g., EU member states and Nordic countries).
• Low hanging fruit: Low-cost policies, sometimes also targeting other issues (e.g., regulatory reforms and investments to improve energy access and supply) are used in emerging markets with limited fiscal and institutional capacity.

Related Research

• Auto Brief: Automakers Breathe Easier As CO2 Sanctions Ease, March 4, 2025
• White Paper: Assessing How Megatrends May Influence Credit Ratings, July 25, 2024
• Decarbonizing Hard-To-Abate Sectors: Credit Quality Implications And Six Key Observations, June 25, 2024
• White Paper: Assessing How Megatrends May Influence Credit Ratings, April 18, 2024
• Sustainability Insights: Why Climate Risks Are Changing So Few Corporate Ratings, April 12, 2023

Primary Contacts:	Pierre Georges, Paris 33-14-420-6735; pierre.georges@spglobal.com
	Terry Ellis, London 44-20-7176-0597; terry.ellis@spglobal.com
	Marion Amiot, London 44-0-2071760128; marion.amiot@spglobal.com
	Nicole Delz Lynch, New York 1-212-438-7846; nicole.lynch@spglobal.com