Why 2026 could make energy and insurance pricier

Dubai: Households may feel the climate transition most sharply through two everyday pressure points in 2026, electricity bills and insurance availability. A new cross-sector outlook on sustainable finance trends points to a more pragmatic energy shift, shaped by energy security, rising power demand driven by data centres and electrification, and the growing cost of extreme weather, which is already testing insurability in high-risk markets.

Energy policy is moving into a phase where affordability carries equal weight with emissions goals. According to Moody's Sustainable Finance 2026 Outlook, low-carbon investment will continue, as wind and solar are cost-competitive in many markets. Yet, total fossil-fuel spending is also likely to persist where governments and utilities need a reliable baseload supply. Demand is rising across the board, from digital infrastructure to cooling, with emerging markets accounting for the bulk of new growth.

Companies and governments are expected to balance transition ambition with security of supply. In the US, the report points to utilities planning additional natural-gas generation alongside low-carbon capacity to meet AI-driven demand. In the Asia-Pacific region, coal remains sizable even with rapid renewables deployment, reflecting the scale of demand growth. Europe is described as recalibrating climate policy around competitiveness, including scaling back some mandatory sustainability disclosures. The EU carbon border adjustment mechanism, which takes effect on January 1, 2026, is also flagged as an area that could face pushback if costs are passed on to consumers.

Longer-term supply-chain resilience is becoming part of the transition conversation, too. Trade barriers and industrial policy are increasing in advanced economies to protect domestic manufacturers and secure critical minerals used in the transition and digital infrastructure. China’s dominance in clean-energy manufacturing remains a central factor in global deployment, while competition around materials such as batteries and rare earths adds another layer of geopolitical and cost risk.

Physical climate risks are moving from a long-term concern to a near-term credit driver. The report argues that adaptation and resilience investment will increasingly influence credit strength, particularly where insurance coverage is limited or withdrawing. It cites Swiss Re data showing global economic losses from natural catastrophes totalled $135 billion in the first half of 2025, with only around 59% covered by insurance, highlighting the “protection gap”.

Insurers, according to the report, are protecting profitability by raising premiums, limiting coverage or exiting certain markets. That shift can ripple through the broader economy via weaker property values, lower tax revenues and a greater burden on governments after disasters. Public-sector responses are expected to intensify, including measures to support insurability, investment in flood protection and nature-based solutions, plus greater use of predictive analytics and early warning systems.

Natural-resource management is flagged as a growing fault line, with water stress and deforestation-related risks emerging more prominently. Water consumption by data centres is singled out as a rising point of tension in water-stressed regions, alongside tightening regulations that could push operators towards more water-efficient practices. Disruptions linked to nature and climate risks can also feed directly into consumer prices through higher input costs in food and beverages, which then pass down supply chains.

Affordability is framed as a political and social risk. The report notes that in advanced economies, the rising cost of basic services, including electricity, can fuel voter dissatisfaction and complicate policy delivery. It highlights bill inflation in the US and the EU since 2021. It warns that the investment needed to expand and decarbonise power systems could translate into customer rate increases that outpace wages and inflation in some jurisdictions.

AI is positioned as both a demand shock and a governance challenge. Data centres are driving up power demand, while fragmented rules on data protection and sovereignty could raise compliance costs for businesses. Cyber and data controls are flagged as uneven, with the report identifying gaps in internal policies governing the use of proprietary data with public AI tools.

Investment in the transition is already large and growing, with global energy transition investment surpassing $2 trillion in 2024, according to BloombergNEF data cited in the report. Even so, it estimates an annual investment gap of $2.7 trillion by 2030, with emerging markets facing the biggest constraints due to higher capital costs and limited public balance sheets. Private credit, blended finance, guarantees and newer sustainable debt themes such as resilience and adaptation are expected to play a bigger role, while carbon markets continue to evolve under the Paris Agreement framework.

In 2026, electricity affordability, insurance resilience and AI-driven demand are converging into a single risk story that will shape both household costs and corporate credit decisions, with adaptation spending and credible transition planning becoming decisive differentiators.