Analysis: Fossil-fuel CO2 emissions to set new record in 2025, as land sink ‘recovers’

The 2025 Global Carbon Budget projects record-high total CO2 emissions, effectively flat year-over-year, as a 1.1% rise in fossil-fuel emissions to 38.1 GtCO2 is largely offset by a nearly 10% reduction in land-use emissions. Despite a short-term recovery in the land carbon sink, long-term climate change has weakened natural carbon absorption by 15% over the past decade, contributing to rising atmospheric CO2 concentrations, which are set to reach 425.7 ppm. Regionally, the US and EU are projected to see emissions growth in 2025 after prior declines, with the US alone accounting for 40% of the global increase, while China and India's growth moderates. This continued emissions trajectory indicates the carbon budget for 1.5C warming is virtually exhausted, signaling persistent climate transition risks and the urgent need for more aggressive decarbonization strategies.

Analysis

The Global Carbon Budget 2025 projects record-high fossil fuel CO2 emissions, rising 1.1% to 38.1 GtCO2, which is largely offset by a nearly 10% decrease in land-use emissions, resulting in total global emissions remaining effectively flat at 42.2 GtCO2. This marks 2025 as tied with 2024 for the highest global CO2 emissions on record, indicating a continued lack of rapid decarbonization.

Despite a short-term recovery in the land carbon sink to pre-El Niño strength, long-term climate change has weakened both land and ocean carbon sinks by 15% over the past decade, reducing their efficacy. This weakening has contributed significantly to the rise in atmospheric CO2 concentration, projected to reach 425.7 ppm in 2025, 52% above pre-industrial levels.

Regionally, the US and EU are projected to see emissions growth in 2025, reversing recent declines, with the US alone contributing approximately 40% of the total global increase. Conversely, China and India are expected to experience much slower emissions growth compared to the past decade, partly due to strong renewable energy deployment.

Critically, the remaining carbon budget to limit global warming to 1.5C is virtually exhausted, equivalent to only four years of current emissions. This underscores the severe challenge in meeting Paris Agreement targets and highlights persistent climate transition risks across all sectors.

Key Decisions for Investors

• Investors should intensify scrutiny of climate transition risks and opportunities, particularly in sectors heavily reliant on fossil fuels, given the effectively exhausted 1.5C carbon budget and projected record fossil fuel emissions
• Re-evaluate long-term exposure to companies with high carbon intensity, especially those operating in regions like the US and EU where emissions are projected to rise
• Consider increasing allocations to renewable energy, energy efficiency, and decarbonization technologies, as these solutions are critical for mitigating climate risks and are seeing accelerated adoption in key markets