Building common ground around the energy transition and carbon markets

How do you view the energy transition – as a challenge or an opportunity?

I see it as both. It’s a multi-decade, secular transition that represents one of the most exciting investment opportunities for us and our clients over the next several decades. But it is also a significant challenge. To succeed, we must all collaborate to ensure the transition is executed properly, at the right pace, and at scale. It must be a just transition for the Global South, and it needs to be affordable and sustainable globally. Neither of these goals will be easy to achieve. Getting the pace right is going to be critical to ensure energy security, something that has become especially important here in Germany. AI will also be important: it is already having a positive impact in terms of improving energy efficiency in many cases; conversely however AI’s exponential growth more widely will inevitably push future energy needs higher, even as we aim to reduce emissions.

How has Bank of America’s perspective on the energy transition evolved in the last year?

We have been encouraged by the scale of investment and level of engagement that we now see right across the public and private sectors. We are continuing to drive, develop and support the transition of the energy system for the future, and are on track to meeting our 10-year goal to mobilise and deploy $1.5 trillion in sustainable finance by 2030 that is aligned with the United Nations Sustainable Development Goals. While our commitment has not changed, the markets in which we operate have become increasingly complex, and our approach has evolved to become more sophisticated. Collaboration is fundamental to success, ensuring that together we seek solutions to reduce their carbon footprint, assisting them in identifying technologies and pathways that can be deployed and followed as they transition, and providing a full suite of financial solutions, including lending, capital raising, advisory, investment services and risk management. No single country or company can solve these pressing issues alone. Public and private partnership is key to unlocking systemic solutions to positively impact the rate of transition.

What are your key asks of stakeholders in Berlin?

My main challenge to everyone is: Can we do more? And on a secondary level: Can we collaborate and partner more effectively, with greater impact? For banks like ours, that means partnering constructively with governments, multilateral development banks (MDBs), philanthropic entities, and private capital to drive blended finance solutions. Corporates should think about how they can create markets, provide long-term demand visibility (offtake), and take on more risk to build the energy markets of tomorrow—whether in biofuels, sustainable aviation fuels (SAF), hydrogen, carbon capture, solar, or wind. Governments must align on the need for every possible energy solution—nuclear and small modular reactors (SMRs), carbon capture, new battery technologies, nuclear fusion, and direct air capture. The private and public sectors will need to pull every available lever to achieve the energy transition. As one client put it to me, this is an "and" problem, not an "or" problem. We need all hands-on deck, working together to ensure we succeed.

What role do banks play in the energy transition, and how are you innovating in this space?

As one of the world’s largest banks with a well-developed international footprint, our role is to engage with clients right around the globe — large and small and across sectors —as they map out strategies to transition toward a more secure and sustainable, low-carbon future. This includes solutions to reduce their carbon footprint, assisting them in identifying technologies and pathways that can be deployed and followed as they transition, and providing a full suite of financial solutions, including lending, capital raising, advisory, investment services and risk management, to help them meet their goals.

We’re also focused on areas where we can expand our product capabilities and existing capital mobilization activities and innovate by bringing new financing solutions to bear for our clients and

communities — all with a focus on an affordable, clean, and more secure energy future. One key area of innovation is in carbon markets. We see these as creative tools to finance the energy transition, complementing our traditional balance sheet support for both projects and corporations.

What, in your view, is the role of carbon markets?

Carbon markets are a key lever to decarbonise the real economy. A robust carbon market is expected to play an increasingly important role in achieving decarbonization at lowest cost in addition to providing resiliency, preserving biodiversity and other co-benefits. Developing a high-integrity, liquid, and efficient voluntary carbon market, in addition to a new compliance carbon market will be essential for companies and countries as they work toward their own decarbonization targets. Putting a price on carbon is a way to step up the incentive to cut emissions. Carbon markets offer companies and countries the flexibility to find the most affordable ways of achieving those emissions cuts.

What have carbon markets achieved, and where are they headed next?

Carbon markets have achieved remarkable results over the last 20 years. If you look at Europe, carbon emissions last year were their lowest since 1966. Carbon markets helped achieve that. Working together with other incentives, carbon markets drove a substantial increase in renewable energy. Now that much of the power sector’s emissions have been cut, the focus will shift to harder to abate sectors. Different legislation has driven companies to invest in clean technologies, innovate and adopt sustainable practices. At the same time, it’s important that more ambitious climate policies are not undermined by carbon leakage, that is, the shift of carbon intensive production to locations with weaker standards. Here, carbon border taxes could help to level the playing field for companies and encourage their carbon intensive peers to decarbonize their production.

How can we make carbon markets more effective?

We recognize the important role that high-integrity carbon credits play in reducing global emissions. However, there is certainly scope for more of the revenue raised by carbon markets to be channelled back into investments in low carbon technologies. Today, governments raise significant sums from selling carbon emission permits but only a small percentage of those sales proceeds end up being invested in clean technologies. This should change. Many of these technologies are expensive and need financial support. Just as renewable energy was supported for many years by subsidies and feed-in tariffs, the technologies to decarbonise hard to abate industrial sectors require financial support to bring down the costs and make them more scalable and affordable. We also plan to engage with the Integrity Council for the Voluntary Carbon Market, Voluntary Carbon Markets Integrity Initiative, Global Carbon Trust, Energy Transition Accelerator, and other convening organizations with the intention of improving the framework and governance of a market for high quality carbon credits. We have also made direct investments in leading infrastructure platforms to help build efficient and transparent environmental commodities markets in support of the energy transition