Defra: Economic analysis of policy pathways for increasing resource productivity

Improved resource productivity places less pressure on the natural environment. It reduces biodiversity loss and can contribute to net zero through reduced emissions from industry and waste disposal. This analysis demonstrated that policy pathways for increasing resource productivity can also lead to economic gains.

As part of ongoing work associated with The Environment Act, targets are being explored to drive improvements in material resource productivity.

Commissioned by the Department for Environment, Food and Rural Affairs (Defra), this report estimated the economic impacts associated with various policy pathways through which resource productivity targets could be achieved.

Policies Examined

Various policies were modelled to estimate their economic impacts and a ‘combined scenario’ modelled the aggregate impacts of all policies

This included regulatory policies to:

• reduce food and drink waste through behaviour change and improved resource productivity in the food and drink manufacturing sector
• increase resource productivity in the construction sector such as embodied carbon standards and targets aimed at encouraging the adoption of new materials, techniques and supply chain structures
• improve resource productivity in the vehicles sector such as car-sharing initiatives, consumer information campaigns and extended producer responsibility
• boost resource productivity in the electricals sector such as eco-design standards for electricals to increase product lifetimes, extended producer responsibility, kerbside collections and consumer information campaigns
• implement extender producer responsibility within the furniture sector.

Fiscal policies included:

• a reduced VAT rate for repaired, refurbished or second-hand goods in the furniture, electricals and construction sectors
• an increase in the price of aggregate materials and metallic ores
• an increase in the price of disposing of all material types via landfill
• government investment in initiatives to further encourage the creation of a circular economy.

Key findings:

• While the economic impacts of the resource productivity policies are small, there are positive impacts for GDP when all resource productivity policies are combined (a 0.9% increase in 2035). The policies reduce consumer prices by 2035, when economy-wide average prices are 0.6% lower than in the baseline scenario.
• Policies aimed at improving resource productivity in the construction and vehicles sectors see the largest economic gains in terms of GVA and GDP.
  • Within the construction sector, these gains are driven by the large efficiency gains and cost reductions due to reduced material consumption.
  • In the vehicles sector, the economic gains are driven by the reduction in imports of vehicles and metals and more efficient manufacturing processes.
• The magnitude of the economic gains varies depending on the policy pathway applied. Regulation-based pathways lead to greater gains in GDP compared to the fiscal policies.