Driving zero-carbon transitions and productivity growth in the UK
Cambridge Econometrics with support from a panel of academic experts carried out macroeconomic modelling analysis for The Productivity Institute to explore the potential impacts of decarbonisation on the UK economy.
Our global macroeconomic model, E3ME, was used to explore the impacts of scenarios reflecting key decarbonisation policies featured in the UK Government’s 2020 Ten Point Plan and the 2021 Energy Security Strategy, relative to a baseline without these policies.
How impacts differed under two alternative versions of the wider world was explored; one in which other major economies act to accelerate decarbonisation alongside the UK, and another in which they do not.
The policies that were modelled impact the take-up of four key technologies: offshore wind, solar PV, private passenger electric cars, and heat pumps used in domestic dwellings.
Key Findings
Within sectors, productivity is increased by policies which accelerate decarbonisation. However, at the same time, total employment increases in all scenarios which is is predominantly due to the increase in household consumption that the energy bill savings enable. The economy as a whole is larger as a result of these policies.
As a result, there is a compositional shift in the economy, with an expansion of relatively low-productivity consumer service sectors, which means that economy-wide productivity effects are small but negative. The increase in low-productivity jobs as a proportion of total employment and resultant downward impact on economy-wide productivity outweighs increases in within-sector productivity that arise from the take-up of new technologies and increased economies of scale.