The Left’s Desperate Call for Interest Rate Cuts: Boosting Renewable Energy Amid Rising Inflation.
In recent times, there has been a growing clamor among leftist circles to have the Federal Reserve cut interest rates. This is based on the belief that higher interest rates are hampering the “country’s ability to combat the climate crisis.” As the media increasingly speculates about a potential rate cut in September, clean energy companies and their Wall Street backers are hoping that lower interest rates will alleviate the heavy borrowing costs for “Big Renewables” over the last two years.
According to Charlie Gailliot, a global co-head of climate at private equity firm KKR, “The energy transition is very capital-intense. In a lower rate environment, you’ll see a tailwind for the renewable energy industry.” Tim McDonell from Semafor elaborated further, stating that interest rates have a particular impact on the renewable energy sector due to its struggle with profitability in the volatile power market. Cheaper borrowing means better margins and provides a modest buffer against political risks associated with the energy transition, such as Donald Trump’s presidential campaign.
Renewables started gaining mainstream attention during the 2010s when interest rates were at or close to zero, creating a kind of “training-wheels” environment in which cheap borrowing made it easier for project developers to meet investor expectations. However, as interest rates rise, there is concern that clean energy projects are becoming more expensive and less competitive with traditional fossil fuel sources.
Jen Harris, the director of the Economy and Society Initiative at the William and Flora Hewlett Foundation, highlighted how raising interest rates to fight inflation can slow down efforts to combat climate change. Clean energy projects typically involve heavier upfront financing costs that become more expensive with higher rates. A 2020 report estimated that raising rates from 3% to 7% could increase the cost of a renewable energy project by roughly a third for projects in the United States. Additionally, higher interest rates have hurt poorer consumers who rely on variable credit card rates and auto loans.
In March, Sens. Elizabeth Warren (D-MA) and Sheldon Whitehouse (D-RI) wrote to Federal Reserve Chair Jerome Powell, arguing that higher interest rates are blocking America’s transition to green energy. They stated that the Fed’s decision to rapidly raise interest rates in 2022 and potentially keep them too high for too long has halted advances in deploying renewable energy technologies, delayed significant climate and economic benefits from these projects, and jeopardized opportunities to create new green jobs and cut electricity costs.
The senators concluded their letter by urging Powell to consider cutting interest rates throughout 2024 to allow for continued progress on clean energy projects and the associated climate and economic benefits. Despite the Federal Reserve’s mission “to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy,” leftist politicians and environmentalists argue that higher interest rates are hampering America’s ability to combat the climate crisis and transition towards renewable energy sources.