Researchers from the University of Exeter have analysed the impacts of the low-carbon transition in power, transport and heating on UK productivity.
With renewable energy now cheaper than fossil fuels in most of the world – and still getting cheaper – the findings show these three industries directly benefit UK productivity.
The research team warn that this productivity boost depends on cheaper energy prices being passed on to consumers, not kept as profits by energy companies.
The study is published to coincide with the launch of the Exeter Climate Policy, which advises policymakers on reaching a low-carbon future.
Does cheaper energy directly benefit UK productivity?
“The power, transport and heating industries are not themselves leading sources of productivity growth in the UK,” explained Dr Jean-Francois Mercure, who leads the Exeter Climate Policy.
“However, if these energy services become any cheaper, every other sector across the entire economy can operate more cheaply, freeing up unspent income for other things, causing economic growth.”
Commenting on whether cheaper energy production necessarily results in cheaper energy for businesses and households, Dr Mercure said: “This is not always the case currently.
“For example, as long as the cost of gas is used to set electricity prices, the benefits of cheaper solar and wind energy will continue to be captured as profits by producers, the grid operator or electricity distributors, whose shareholders may keep it as wealth and not necessarily spend it back again.”
The global race to harvest low-carbon energy sources
The study analyses the UK economy from now to 2035, but the findings are relevant to other nations that import substantial fossil-fuel energy.
Dimitri Zenghelis, from the University of Cambridge, said: “The paper makes the case not just for climate policies, but for smart economic policy more broadly.
“We provide compelling evidence to show how this is a global race for competitive advantage that the UK economy can’t afford to sit out.
“For an energy importer like the UK, the clean transition is a win-win. Even fossil fuel exporters can benefit, though it’s time to diversify fast.”
How the Exeter Climate Policy can help navigate the green transition
Based at the University of Exeter, the Exeter Climate Policy (ECP) offers independent economic analysis to help governments and finance ministers create policies that are resilient, effective, and country-specific.
“For each country, the low-carbon future looks different, constrained by local resources, political realities, changing tides, debt burdens, existing inequalities and economic structures,” stated Dr Mercure.
“To move forward, governments need access to climate-economic models that are tailored to their region and the specific problems they face, to visualise how different policy options could play out in practice.”
The ECP team are experienced in deploying these models and working with international policy partners, including the UK Government, the European Commission, the Ministry of Finance of Brazil, and the World Bank.
Taking a collaborative and independent approach, they can work with governments to co-create tools and policy interventions they need.
Professor Lisa Roberts, President and Vice-Chancellor of the University of Exeter, concluded: “Working with policymakers, Exeter Climate Policy will provide practical policy design for effective decarbonisation, economic transformation, and a zero-carbon future that is fair and resilient.”
