Despite the impressive growth rates achieved for solar capacity installations, fossil fuel consumption continues to rise in absolute terms, because primary energy demand is still growing strongly. Global coal consumption, for example, continued to increase last year, breaching 164 exajoules (EJ) for the first time. The y/y increase of 1.6% was markedly higher than the latest 10-year average growth rate of 0.2% y/y. As a result, energy-related emissions exceeded 40 GtCO2e for the first time ever in 2023, up 2.1% y/y to a new record, a steep increase on the 10-year average growth rate of 0.8%.
Global power demand forecasts are being revised higher, due to the vast expansion of data centres and the AI boom. There is also growing evidence of emerging “negative feedback loops” whereby accelerated climate change leads to higher power demand, which in turn raises the consumption of fossil fuels, generating more emissions, and warming the planet further. India’s demand for coal-based power has risen by 7.3% this fiscal year to an all-time high, as the longest ever heatwave pushes up demand for air conditioners and other cooling appliances. India is expected to add 15.4 GW of coal power capacity in the year to March 2025, the most in nine years. Carbon dioxide is now accumulating in the atmosphere faster than ever.
Climate change is just one of the many risks facing sovereign bonds in the coming years. Companies looking to pass on the costs of greater environmental regulations to consumers, will add to inflationary tendencies. Some would argue that interest rates need to be slashed, to support a faster rollout of new renewable energy projects. However, it is not so simple. If the latest data show anything, it is that faster renewable capacity installations alone may not suffice. Lowering interest rates to support renewables, would provide a fillip to overall economic growth, but it could also, paradoxically, lead to further negative supply shocks, as emissions keep rising, and climate change worsens. Dual interest rates for green energy are one potential option. But the bottom line is that technological progress is not enough: global growth, for now, is far too strong to make enough progress on emissions reductions.
