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But rising interest rates have hurt these goals.
Interest rates are one of the reasons why developers have canceled large offshore wind projects in recent months, including two projects near New Jersey by the Danish company Ørsted and a Swedish business in the North Sea. In September, there were no bidders for a strong September offshore wind auction in the UK, as well as the impact of higher borrowing costs.
“It’s a fact that we don’t really appreciate how serious, negative interest is affecting our climate change efforts around the world,” said Sumant Sinha, CEO of Energy Development. Renew India ReNew Power. “He’s an innocent person in this whole situation of economic control and economic control, and people don’t know about it.”
In fact, high growth rates have hampered the economic foundations for large projects, forcing large investments and long payback periods – exactly the kind of projects the world wants to achieve. Its goal is to significantly reduce carbon emissions by the middle of the century.
Inflation has made it more difficult to wean the world off oil. Rising rates have made it impossible to refinance the debt needed to phase out coal plants, said Joseph Curtin, the power’s chief executive. and the cost to the Rockefeller Foundation. Long ago, he said, the fact that tens of billions of dollars have been collected by rich countries to help South Africa, Indonesia and Vietnam from coal.
Spiritual renewal is destructive
Central banks such as the Federal Reserve and the European Central Bank have been raising interest rates to ease inflation, trying to bring it back under control after the pandemic and the Russian war. in Ukraine.
But the actions, of course, had spillover effects. Especially for climate watchers, they have diverted capital from developing countries that will contribute the most of the planet’s greenhouse gas emissions for decades to come.
Renovation investment has cooled sharply in the Middle East and consulting firm Wood Mackenzie is predicting fewer new homes than previously thought, says Chris Seiple, vice chairman of its dynamic and innovative group.
The same effect is slowing offshore wind activity in Asia, a region heavily dependent on coal and oil and gas imports, said Mike Taylor, senior researcher with Abu Dubai-based International Renewable Energy Association, or IRENA.
At the same time, high interest rates have made it difficult to finance renewable projects even in rich countries.
Hydrogen, a source of hope for reducing the cost of heavy industry, is not financially viable at current rates, Seiple said. Only 7 percent of European hydrogen projects are scheduled to be financed for construction, according to research firm Bloomberg New Energy Finance. Italian energy company Enel abandoned its green hydrogen project in La Spezia last month.
The lack of funding for renewables has delayed the deployment of clean energy that scientists say is needed to combat climate change. Rates are a key driver of new volatility.
That’s because clean-energy projects typically get most of their capital up front, and then pay back the debt over many years with the revenue they get from electricity customers. The prices that the developers can pay are usually agreed upon before the financing is completed, making it difficult to withstand price fluctuations.
“The renewable industry is very different from traditional business,” said Ramon Mendez, the former energy secretary of Uruguay, in a press conference on Wednesday. “Renewables is just a financial business.”
Widening the gap
Economic equality is also at risk.
Emerging economies were already reeling under borrowing conditions before interest rates began to rise. And the interest rate crisis can more easily destroy jobs in developing countries where the risk – whether caused by politics or economics – is higher.
“We don’t have time left to afford those kinds of complications,” said Taylor’s IRENA. He said that the high prices have some projects in low and middle income countries by creating “waiting.”
The impact affects the world economy, said Avinash Persaud, the climate representative for the Prime Minister of Barbados Mia Mottley, who started a plan to change the world currency more directing capital to small nations.
High interest rates in places like the US and the EU attract investors to safe investments, such as US Treasury bonds, Persaud said. That dries up capital that can go to emerging economies, which must raise their own interest rates to lure investors. As a result, the cost of paying debts for countries that have been in debt for a long time has increased.
“We have seen the retreat of international capital, making it more difficult to make that green change in developing countries,” said Persaud in an interview.
Although the majority of renewable energy production occurs in China, the US and the EU, according to the International Energy Agency, the developed world is projected to drive the majority of global warming in the future. The slowdown in investment in these markets makes the goal of tripling renewable energy more difficult, prompting more countries to cut back quickly. gas to prevent accidents.
“That’s a very difficult challenge that we have in front of us,” said Mike Hayes, the head of innovation for the research firm KPMG.
Debt relief is a challenge as global debt rose to 92 percent of gross domestic product last year, compared to 84 percent in 2019, according to the International Monetary Fund. This is why governments have less resources to devote to clean energy, KPMG said in a November report.
What to do?
Policymakers recognize the gap between global climate needs and the willingness of the private sector to finance. French President Emmanuel Macron suggested earlier this month that renewable energy projects should have lower interest rates than coal-fired power plants, which are still being built at an inconsistent pace. and price estimates.
That is why some people are left to work on basic solutions. An effort officially announced by the special representative of the United States John Kerry on December 3 will be use credit to switch developing countries to clean energy. Rockefeller is working in partnership with the Monetary Authority of Singapore and ACEN Corp. is based in the Philippines on a loan to offer incentives for mothballing the South Luzon Thermal Energy Corp. coal plant. in the Philippines and switch to renewable energy.
On December 1, the World Bank pledged to allocate 45 percent of its funding for the next fiscal year to value-based investments, about $40 billion.
The high rates are attracting government organizations such as the US International Development Finance Corp. to reach the depth of the emerging economy to limit investment records through financial instruments such as guaranteed loans and insurance policies for projects, said Jake Levine, the chief executive officer of the price
“Rising interest rates has been a challenge across the board, including in the US,” he told reporters. “But they have increased in our markets a challenge that has long been one of the main reasons that capital is not flowing at the level we need.”
Sara Schonhardt contributed to this report.