Persistent high interest rates will complicate the global transition to low-carbon energy sources since they negatively impact renewables and nascent technologies more than the hydrocarbons, metals and mining sectors, according to Wood Mackenzie.
“Higher interest rates disproportionately affect renewables and nuclear power. Their high capital intensity and low returns mean future projects will be at risk,” Wood Mackenzie Head of Economics Peter Martin said Apr. 18 in a press release.
Due to a low gearing ratio, companies in the metals, mining and oil and gas sectors will be relatively unaffected by high interest rates, Martin said.
The higher interest rates represent a major headwind for the energy transition, which is currently estimated to require $75 trillion in investment in order for the world to reach net zero by 2050. A higher cost of capital impacts the energy and natural resource industries, in particular the cost and pace of the transition to low-carbon technologies, Martin said.
Martin suggested policymakers address three policy priorities related to high interest rate headwinds, including a focus on subsidy efficiency, bolstering carbon markets and mobilizing climate finance.
“The good news is that there are actions policymakers can take now to help offset or at least mitigate the burden of higher interest rates,” Martin said. “Policymakers need to remove obstacles such as slow permitting and project approval, as well as offering clear, consistent and sustained incentives, to support the uptake of low-carbon energy and nascent green technologies.”
Recommended Reading
Texas LNG Export Plant Signs Additional Offtake Deal With EQT
2024-04-23 - Glenfarne Group LLC's proposed Texas LNG export plant in Brownsville has signed an additional tolling agreement with EQT Corp. to provide natural gas liquefaction services of an additional 1.5 mtpa over 20 years.
ConocoPhillips Looks to Scale Portfolio, But Citgo Auction Not a Factor
2024-05-15 - ConocoPhillips has a long-term ambition to boost its LNG offtake capacity to between 10 mtpa to 15 mtpa as it keeps a short-term eye on the auction of Citgo Petroleum.
Report: Freeport LNG Hits Sixth Day of Dwindling Gas Consumption
2024-04-17 - With Freeport LNG operating at a fraction of its full capacity, natural gas futures have fallen following a short rally the week before.
US NatGas Flows to Freeport LNG Export Plant Drop Near Zero
2024-04-11 - The startup and shutdown of Freeport has in the past had a major impact on U.S. and European gas prices.
Cheniere’s Next Corpus Christi LNG Stage Online by Year-end
2024-05-13 - Cheniere executives are optimistic the first LNG cargo will depart from Train 1 of its Corpus Christi Stage 3 project by the end of 2024, and that the company will bring all seven trains at the project online before the end of 2026.