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.”

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