Higher interest rates threaten low-carbon energy sector, prompting calls for targeted subsidies and climate finance support.

The study by Woodmac suggests that higher interest rates could affect the energy and natural resources sectors unevenly. Low-carbon energy technologies, which are highly capital intensive and often reliant on subsidies, are particularly vulnerable due to the higher gearing level for power and renewables firms. The study also noted that higher debt and interest rates may increase government spending, potentially limiting transition efforts by reducing subsidies and tax incentives. The authors suggested that targeted and non-discriminatory subsidies could be considered, as they are efficient and prevent nationalistic subsidy battles counterproductive to meeting global emissions targets. They also suggested that climate finance from both private and public sectors could be leveraged to support green investment for climate change mitigation and adaptation in developed and developing economies.