Green transition will boost UK productivity

The green transition will boost productivity across the UK economy, new research suggests.

Researchers, including The Productivity Institute’s Frank Geels and Dimitri Zenghelis, analysed the impacts of the low-carbon transition in power, transport and heating. With renewable energy now cheaper than fossil fuels in most of the world – and still getting cheaper – the findings show these three industries benefit directly from the transition.

But the far larger knock-on effect is an economy-wide productivity boost, as all businesses gain from cheaper power, transport and heating.

The research team – led by the universities of Exeter and Manchester and supported by The Productivity Institute – warn that this 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 Exeter Climate Policy, which advises policymakers on reaching a low-carbon future.

“The power, transport and heating industries are not themselves leading sources of productivity growth in the UK,” said Dr Jean-Francois Mercure, who leads Exeter Climate Policy.

“However, if these energy services become any cheaper, every other sector across the entire economy can operate more cheaply, freeing 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.”

Global race

The study analyses the UK economy from now to 2035. The findings are relevant to other nations that import substantial fossil-fuel energy. However, for large fossil fuel producers, economic losses could exceed the gains.

Dimitri Zenghelis, from the University of Cambridge and The Productivity Institute, 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 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.”

Economist and co-author Hector Pollitt said: “It’s time to move on from the old way of thinking.

“The story that there must be a trade-off between reducing emissions and growing our economy was never true – the UK’s offshore wind industry proves that.

“Technology drives productivity growth and green technology is no exception.”

Helping governments

Dr Mercure added: “Exeter Climate Policy exists to do this kind of work – helping governments and finance ministers create policies that are resilient, effective, and country-specific.” The research was supported by The Productivity Institute, funded by the UK Economic and Social Research Council.

The paper, published in the journal Climate Policy, is entitled: “The effects of low-carbon transitions on labour productivity: Analysing UK electricity, heat, and mobility with a techno-economic simulation model”.

This week, the University of Exeter is hosting Exeter Climate Forum – a major gathering of scientists, policymakers and businesses to discuss the climate emergency, and action to address it. Exeter Climate Policy is supported by Green Futures Solutions, the University of Exeter’s initiative for connecting organisations with climate expertise, insights, and solutions to drive sustainable change.