UK Corporate Leaders Group: tackling cost of living and decarbonisation creates win-wins for the UK

Cambridge Econometrics recently worked on a report by the UK Corporate Leaders Group on how to address the cost-of-living crisis in the UK whilst also decarbonising the economy.

The report revealed that policies which seek to simultaneously address the cost-of-living crisis whilst reducing emissions had long-term benefits for the economy, environment and society.

Our global macroeconomic model E3ME was used to determine the macroeconomic and distributional outcomes of three different policy packages to support UK households with the 2022 cost-of-living crisis.

The policy packages costed the same to implement, but differed in type of measure, focus on low-income and vulnerable households, and how well they address climate change and the need to transition to net zero emissions:

1. A climate positive package: Measures include targeted support for low-income, vulnerable households in the short term, and in the medium- to long-term a focus on increased uptake of energy efficiency and low carbon heating measures plus investment in public transport.
2. Neutral policy package: Measures include the short-term measures already announced to address the cost-of-living crisis in March 2022 (this includes the Energy Bills Rebate package plus elements of the 2022 Spring Statement). The medium- to long-term measures include government investments with no preference for the climate outcomes.
3. Climate negative package: Short-term and medium- to long-term measures in this package lead to environmental outcomes that could be seen to contradict the net zero target.

Key findings

• All modelled policy packages deliver similar economic impacts in the short and medium term, but in the long-term the largest benefit is delivered by the climate positive package.
• The climate positive package leads to an increase in household welfare, especially for low income and vulnerable households.
• Energy efficiency measures and the uptake of heat pumps in the climate positive package led to a substantial reduction in household carbon dioxide emissions by 2050, while only small emissions reductions are achieved through the climate neutral policy package.
• Policies aiming to simultaneously address the cost of living and energy crises and reduce emissions have better long-term impacts for the economy, environment and society.
• Tackling the cost-of-living crisis with measures which do not target support towards vulnerable households and/or contribute to decarbonisation would present a ‘missed opportunity’.
• Findings reveal the opportunity to direct the funds to address the cost-of-living crisis in a way that maximises their ability to also tackle other important long-term government priorities.

Click here for the policy briefing.