It’s too soon to predict what 2025 will mean for the energy transition. Much depends on the incoming administration’s policies, the resolution of global conflicts, and the direction of emerging technologies. As S&P Global Commodity Insights wrote in their 2025 outlook, “there is more uncertainty in energy markets heading into a new year than any year since the pandemic.”
Jefferies’ Sustainability & Transition Team is entering 2025 with ten key questions, covering the challenges and opportunities shaping the global transition. While the team brings perspectives on these issues today, developments in policy, technology, and markets could lead to a range of outcomes in the year ahead.
- Is the energy transition a viable investment theme for equity investors?
Yes, despite the underperformance of clean energy equities (ICLN) relative to oil and gas (IEO). The energy transition is much bigger than the performance of solar and wind producers compared to traditional energy companies.
Jefferies compiled a list of approximately 1,000 public equities across 27 subsectors related to the energy transition, representing a combined market cap of $18 trillion. A detailed analysis of the broader universe tells a different story about the transition’s investability and performance. Expect further insights on this subject in 2025.
- Will Climate Tech 2.0 repeat Climate Tech 1.0?
The team remains cautious about the scaling challenges facing climate tech companies, often referred to as the “missing middle.” These companies, struggling to transition from pilots to larger-scale projects, face significant hurdles, particularly in securing capital.
Jefferies has identified over 1,000 promising climate tech firms—across energy storage, sustainable aviation fuels, green hydrogen, nuclear, and more—that need significant scaling-up capital. In a high-interest-rate environment with uncertain government funding, this could be a challenge.
On January 13, 2025, Jefferies will host a seminar featuring leaders in climate tech, including Decarbonization Partners, Spring Lane Capital, Sila Nanotechnologies, and Commonwealth Fusion Systems, to explore these issues and investment opportunities further.
- Will investors look outside the U.S. for opportunities in the transition?
Jefferies anticipates a more global approach to energy transition investments in 2025. While U.S. investors have largely focused on the Inflation Reduction Act since its passage, significant decarbonization initiatives in countries like Japan, China, India, UAE, Saudi Arabia, and Brazil have been overlooked.
The firm expects global programs such as Japan’s GX Plan to gain investor attention as U.S. enthusiasm slows during a political transition. Jefferies sees these international markets as rich with opportunities in specific transition sectors.
- Is 2025 finally the year of climate adaptation?
Climate adaptation is a multi-trillion-dollar investment opportunity as economies worldwide contend with increasingly extreme weather. Data from the EU’s Copernicus Climate Change Service indicates that 2024 will be the hottest year on record, marking the first time global temperatures exceed 1.5°C above pre-industrial levels.
This year, Jefferies has highlighted investable themes like heat resilience, urban climate adaptation, and water management, offering stock ideas to address these challenges. The firm hopes to see more investment vehicles developed in public markets to support these critical areas.
- How will the carbon removal industry evolve?
Jefferies maintains long-term confidence in the carbon removal industry due to its necessity in reducing atmospheric CO₂ levels and its support from major governments and tech companies like Microsoft. However, the industry is going through transition, and Jefferies anticipates industry consolidation among the 800+ carbon removal companies currently operating.
Jefferies is producing a 15-part series, “How to Build a Carbon Removal Company,” featuring leaders from Direct Air Capture, Biochar, and Marine CDR, offering insights into where the sector is headed in 2025.
- How will companies commercialize sustainability?
Outside of the energy transition, companies across sectors are seeking to commercialize the sustainability megatrend.
Jefferies has developed a 10-part framework for how businesses can commercialize sustainability through capital raising, M&A, joint ventures, carbon markets, regulatory incentives, and more. Data from 1H24 showed sustainable debt surpassing $5 trillion since 2006, while green M&A activity continues to grow by both value and volume.
As companies move from “awareness-building” to executing sustainable strategies, Jefferies will use its framework to track developments and identify best practices across industries.
- Will AI agents change the labor market?
Jefferies has focused on human capital issues for nearly four years, and in 2025, artificial intelligence will be the firm’s singular focus.
Jefferies expects AI agents to be a transformative force in the labor market in 2025. These software programs, capable of independently performing tasks to achieve human-set goals, are being developed by companies like Salesforce, OpenAI, and Microsoft.
AI agents are already enhancing workflows, such as Salesforce’s Agentforce tools for sales and customer service. McKinsey estimates that generative AI could create over $2.6 trillion in annual value, with AI agents driving much of this impact.
- Which Republican Party becomes dominant: free market or populist?
Jefferies sees growing tension within the Republican Party between its traditional free-market faction and an increasingly influential populist wing. While the free-market camp champions deregulation and lower taxes, the populist side emphasizes trade protections, anti-Big Tech sentiment, and pro-worker policies.
How these factions influence the party’s economic agenda—particularly under the incoming administration—will shape policy debates around tariffs, unionization, and taxes in 2025.
- Will deregulation succeed and could it accelerate the energy transition in the US?
Jefferies is optimistic about the success of a deregulation agenda, including the Department of Government Efficiency (DOGE). In particular, the firm is monitoring deregulation’s potential to advance U.S. infrastructure projects critical to the energy transition. Proposed reforms to the National Environmental Protection Act (NEPA) could streamline permitting for grid infrastructure, nuclear projects, and utility-scale solar.
The firm will closely monitor developments under the incoming administration’s deregulation and government restructuring initiatives, which could provide bipartisan momentum.
- Will there be a global peace dividend in 2025?
2024 was a violent year. The ACLED’s Conflict Index shows global conflicts doubling over the past five years, spanning 50 countries.
Although most analysts expect extended global conflict, Jefferies believes the new administration could accelerate resolutions in Ukraine, the Middle East, and possibly China. A “peace dividend”—economic benefits from reduced defense spending—could follow, mirroring similar trends from the 1990s.
Jefferies plans to study the investment implications of such a shift, exploring opportunities that could emerge if global conflicts de-escalate in 2025.
