Climate policy under a new world order

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The impact of America's retreat from its global climate commitments, and its decision to dump its domestic environmental regulations, has reverberated far from its borders. The tsunami of negative climate policy announcements has shaken the foundations underpinning support for ambitious climate policy almost everywhere, in turn threatening a much deeper slowdown, or even a broad reversal.

A recent report from the climate forecasting consortium Inevitable Policy Response (IPR) shows how the United States withdrawal has driven a record global slowdown in climate policy momentum. IPR's analysis found that while supportive climate policies dropped by 7.5% up until Q3 2025 versus the same period in 2024, decelerating or regressive policies surged by 575%.

The US accounted for the majority of the climate policy reversal (70%), but other large economies, including India, Brazil, Canada, and the European Union have also softened climate disclosure and reporting rules, cancelled or watered down electric vehicle and renewable energy mandates, or otherwise sought to reduce the burden associated with environmental regulations.

By contrast, carbon pricing has remained steadfast. Although some countries have cancelled or sought to defer carbon pricing schemes targeted at households (e.g., Canada's consumer carbon tax and Europe's ETS2), other countries including China, Brazil, Turkey, Japan, India and many others, have eagerly adopted carbon pricing mechanisms across vast swathes of their economy.

The gradual build-up in the number of government interventions over the past two decades created a climate policy flywheel, one where additional policies were bolted on only after a careful period of consultation and analysis. The events of the past twelve months or so have shaken governments to the core, but in attempting to back out of their more ambitious climate policy rules and regulations, they risk throwing the baby out with the bathwater.

The climate policy U-turn may have alleviated the short-term burden on households and businesses, but it risks setting the stage for a long-term net loss as investors lose confidence in climate tech, forgoing future innovation and cost reductions, and forcing society to pay a steep cost in adapting to climate change.

In this article I take a look back at how climate policy has evolved over the past 20-30 years (mandates versus markets), what lessons we can draw from different approaches (policy combinations and sequencing), and what it means going forward in a bifurcated, new world order.