Path to net-zero gets bumpy for US, European utilities

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Taylor Kuykendall:

Welcome to Energy Evolution, the podcast where we dive deep into the latest developments in energy sector and explore the evolving landscape of sustainability. I'm your host, Taylor Kirkendall.

Eklavya Gupte:

And I'm Eklavya Gupte. And today we're unpacking a series of insightful articles from our colleagues in the S&P Global Commodity Insights newsroom that shed light on how various industries are navigating their net-zero commitments amid unprecedented global economic and political headwinds.

Taylor Kuykendall:

That's right, Eklavya. We'll be focusing on the utility sectors in the US and Europe today, but the articles touched on a variety of sectors across the energy landscape and beyond. So for example, in metals and mining, we learned that despite this ongoing political volatility, miners are pushing forward with their decarbonization efforts. Over in the chemical sector, companies are facing this tough balancing act where they're trying to juggle growth investments while still aiming for these ambitious 2030 climate goals that are coming up real soon.

Eklavya Gupte:

While in oil and gas operators are for now still holding on to the high level net-zero targets, but there is a notable shift in execution. Many are reconsidering or even canceling specific renewable projects that were originally designed to help achieve these goals. This reflects the challenging economics of decarbonization in a volatile commodity price environment. In the liquefied natural gas or LNG space, companies find themselves in the middle as the EU sticks by its methane emissions regulation on imported fuels despite pushback from the US government. The Trump administration signals a clear intent to expand US LNG exports and reduce regulatory barriers. And this is creating a fascinating tension between market access requirements and domestic policy priorities. We also look at shipping where companies are making significant investments in marine fuels or alternative fuels, but US opposition to the International Maritime Organization's net-zero framework could alter the trajectory of the green bunker fuel transition.

Taylor Kuykendall:

That's right. So back to today's episode. See, in the US we're seeing a trend where power sector emissions are on the rise and several power companies are backtracking on some of their interim targets. Meanwhile, across the Atlantic, EU utilities are facing their own set of challenges as some of Europe's largest utilities and power producers are reigning in their investments in green energy.

Eklavya Gupte:

Joining us today are Karin Reeves, who wrote the piece on US Utilities and Alex Blackburn who authored the article on EU Utilities. Welcome to the podcast.

Karin Rives:

Thanks for having us.

Alex Blackburne:

Yeah. Hi everyone.

Taylor Kuykendall:

Hi Karin. Let's start with you. Really high level. Tell us what are the differences that we're seeing when it comes to US utilities commitments to net-zero goals compared to last year when we were doing this series?

Karin Rives:

Hi Taylor. Yes, our 2025 utility survey really marks a pretty major departure from what we saw a few years ago when US power companies try to outdo one another with ambitious climate goals. First of all, we've seen companies dial back their communication around climate goals and change how they talk about energy, presumably to align with new policies coming out of Washington. For example, the CEO of NextEra, the largest US power company, was echoing Trump administration messaging this summer when he spoke with investors and he said that NextEra is, "Firmly aligned with the administration's goal to unleash American energy dominance." And this is a company that just a couple of years ago advertised that it would reach net-zero without offsets and NextEra also pledged to lead the decarbonization of the entire US economy. And we also seen some companies backtrack on their climate goals this year, several utilities added caveats to their 2015 net-zero goals or they canceled interim 2030 emission reduction targets.

Eklavya Gupte:

And can you elaborate on the impact of the Trump administration's policies on these utilities climate commitments?

Karin Rives:

A number of utilities mentioned policy uncertainty and some of them are hedging their climate commitments on what state and federal policies will look like in coming years. They also mentioned tax incentives for clean energy production that are being phased out. That is also a big concern and policy and market uncertainties along with unknown future energy demand have utilities in a pretty difficult spot right now. And that helps to explain why climate change and sustainability are on the back burner in 2025, even for some companies that operate in states with emission reduction mandates.

Taylor Kuykendall:

And as all these different states are very different, all the utilities are different. I'm just wonder wondering, can you maybe tell me some more things that stood out to you? Maybe some specific examples of the types of changes, whether it's direction or momentum when it comes to these goals?

Karin Rives:

It's a pretty complex picture I think. Some analysts I talked to suggested that companies may also have found it just harder to get to net-zero than they initially thought it would be. So for example, Eversource, the New England utility was considered an industry leader when it announced back in 2019 that it would become carbon-neutral by 2030. But in June this year, Eversource reset its climate goals after reassessing its scope three target for indirect customer emissions, and it now aims for net-zero across all three scopes by 2050, which is 20 years later than its original goal. So many utilities in this year's path to net-zero survey either lost ground in their push to reduce greenhouse gas emissions over the past year or just didn't make much headway.

But at the same time, of course, some companies stand out for the progress they continue to make. An example of that would be Xcel Energy, which is shutting down its last coal plants in Colorado over the next few years. And this company has by now cut emissions 57% since 2005. Other examples are public service enterprise group based in New Jersey, which has already had a carbon free power fleet for two years. PG&E in California sells nearly carbon free electricity as does Constellation. So industry progress on net-zero goals overall is a pretty mixed bag.

Eklavya Gupte:

Thanks. What role does customer demand play in shaping the decisions of some of these companies?

Karin Rives:

Right. Washington policy of course is not the only thing driving some utilities to rethink their climate plans. This year, as you all know, rising demand for electricity from data centers, manufacturing, electrification are at the top of mind for many of these utility executives. And some companies are now ramping up investments in more natural gas fired resources or they're delaying the retirement of coal plants. Affordable power bills is another top talking point today that seems to have drowned out climate talk.

Taylor Kuykendall:

Okay, so now I want to pivot over to the EU for a little bit. Alex, I'm going to start with the same broad general question. Tell us what your story is all about. What are the big differences when it comes to utility commitments and net-zero goals compared to when we were checking in last year?

Alex Blackburne:

I would say much like the US, it's quite a mixed picture. So on the EU side we looked at a group of 20 companies, so that includes some of Europe's largest publicly listed utilities as well as a handful of the major state owned companies. And for the most part, companies appear to have kept their emissions reduction targets intact over the last year, however, some have moved to strengthen the goals. So one example would be British utility Centrica, which has been in the news a lot this year after being part of the investor group behind the Sizewell C nuclear power plant in the UK, Centrica released a new climate transition plan in January and that brought forward its scope one and two net-zero target by five years to 2040. The caveat here is that the majority of Centrica's emissions, so around 93% are scope three, and then the net-zero target for scope three remains at 2050, but still it's a sign of progress nonetheless.

I'll also perhaps just pick out Verbund, the Austrian state controlled utility, which a year ago was the only European utility in our analysis not to have a formal net-zero target. At the time, I explained that by saying it already generates the majority of its power generation from hydropower and other renewables. But nonetheless, in late 2024, it's set a new goal to reach net-zero across all three emissions scopes by 2050. Just to round things off, there's also a few companies who have weakened the targets. So one example would be German grid utility E.ON, which is now aiming to reduce its scope one and two emissions by 50% by 2030 instead of 75% previously.

Eklavya Gupte:

Thanks, Alex. Very interesting. And you mentioned that some utilities are sticking by their emissions targets even despite the fact that they've actually scaled back their investment plans. So can you tell us a little bit more about that dynamic?

Alex Blackburne:

Yeah, so European utilities have definitely not been immune to the global macroeconomic downturn that we've seen ripple across a number of industries. Many of the largest players such as Germany's RWE and Denmark's Ørsted have scaled back their capital expenditure plans in 2025. In doing so, they typically talk about market volatility, rising interest rates, geopolitical tensions, all of which have led to a more cautious approach to investment decisions. From a sector perspective, areas like offshore wind where projects run into the billions of euros and green hydrogen where there's still a lot of regulatory uncertainty, those have been among the hardest hit. However, as you say, while some are postponing investments, they're not seemingly abandoning their long-term emissions reduction targets.

So that's something that Markus Rauramo, CEO of Finland's Fortum, told us in an interview for the story emphasized that the queue of customers lining up for electrification projects remains strong, indicating a commitment to sustainability even amid all the uncertainty. Analysts here at Commodity Insights attribute this ongoing commitment partly to decreasing powered demand forecasts in Europe. This trend could lead to lower thermal generation, especially from coal. And as the share of renewables in the mix increases utilities overall, carbon intensity declines. And I think it was summarized best by Sylvain Cognet-Dauphin, who was an executive director in the European power market analysis team at Commodity Insights who said that an economic crisis is usually good for CO₂ emissions and doesn't require CapEx.

Taylor Kuykendall:

Okay. So back up and zoom in a little bit. Can you kind of give us the wider European context behind all this, especially for our US listeners, you use the term policy, for example, in your story? What does that mean exactly?

Alex Blackburne:

So from a policy standpoint, it's clear that European energy policymaking has shifted in recent times to prioritize energy security, industrial competitiveness and so on instead of, for instance, climate change and net-zero, a case in point was European Commission President Ursula von der Leyen's recent State of the Union address, which really had a big focus on defense and security. And these two areas along with the economy, are really the top priorities for policymakers in Europe and for voters right now. And really this is what the policy reset is all about. It's the idea that costs and affordability are prioritized and the energy transition takes a backseat. Analysts here at Commodity Insights have actually modeled this policy reset scenario, and what's interesting is that the share of renewables in the EU '27 plus three, so that's the EU members plus Norway, Switzerland, and the UK is still expected to be higher in this scenario than the rest of the world's major economies such as the US and China. So Europe is still ahead of those countries.

Taylor Kuykendall:

And, Alex, what lessons do you think can be learned from the different ways we hear about how US and European utilities are approaching the way that they achieve net-zero goals?

Alex Blackburne:

I think the main message from the European utility side is that companies for the most part have shown quite a lot of resilience by maintaining their emissions reduction targets. Even amid all the macroeconomic challenges we've talked about, and from what Karin has talked about, that seems in contrast to many of the US utilities which have adjusted their commitments. For me, the main takeaway is the importance of stable regulatory frameworks. And in most major European markets, utilities do benefit from cohesive policies that encourage long-term planning. Right now, that's not so much the case in the US and I think it's particularly noteworthy that major players like RWE and Ørsted who have already mentioned are explicitly citing the US as a factor in their decision to scale back investments.

Eklavya Gupte:

And now one question for you both. What do you think are the big things to watch out for in the coming months, especially if you're trying to read the tea leaves on power sector investment in net-zero climate goals and maybe even some insider guesses on what topics you may be checking on into next year?

Karin Rives:

I am keeping a close look at the emissions trajectory. We're already seeing power sector emissions trending upward this year based on data from the Ember think tank. And this is definitely something to keep an eye on as US power companies continue to invest in natural gas-fired generation and keeping their coal plants operating.

Eklavya Gupte:

And, Alex, what about on the European front?

Alex Blackburne:

I'll perhaps just pick up one area which is offshore wind. These are projects which come with high capital costs and take many years to develop and build. And in both Europe and the US the sector is undergoing significant change. The situation in the US I'm sure you've covered before on this podcast, but obviously Trump is wielding his axe quite vociferously. And even the future of projects that are under construction looks uncertain. In Europe changes are much less dramatic but still very significant in that many countries are shifting toward two-way contracts for difference as a means of supporting future projects. This is after years of unsubsidized projects in certain markets and more recently a few high-profile auction failures. So in terms of things to watch, offshore wind is definitely one area given for many utilities. It's a big part of their investment plans. So how they adapt to the changes on both sides of the Atlantic will be a key indicator of the sector's future.

Taylor Kuykendall:

Okay, awesome. Thank you both so much for joining us, both of you. That was very insightful and thank you for all the work you did on the net zero project.

Alex Blackburne:

Thanks very much.

Karin Rives:

Thank you.

Taylor Kuykendall:

All right, listeners, now that's all for this episode. Thank you so much for tuning in and we hope you enjoyed this episode. I want to give a special shout out to the rest of our Energy Evolution podcast team that includes Eklavya Gupte, Camilla Naschert, Karen Willenbrecht, and Dan Testa. Also, big thank you to our agency partner, the 199 and the Commodity Insights digital content team. Now, lastly, please subscribe to Energy Evolution on your favorite platform so you don't miss any of the next episodes coming up. And hey, if you have any ideas for podcasts, themes, or guests, all you have to do is fire us an email at energyevolutionspglobal.com. Until next time, thank you so much for tuning in to Energy Evolution.