With renewable energy now cheaper than fossil fuels in most of the world, a joint academic study outlines how businesses, and the UK more widely, will gain through cheaper power, transport and heating.

The research team – led by the universities of Exeter and Manchester – makes clear that this boost depends on cheaper energy prices being passed on to consumers, not kept as profits by energy companies.

The study was published today 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 the university’s new programme. “However, if these energy services become any cheaper, every other sector across the entire economy can operate more cheaply, freeing unspent income…[for] 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...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.”

Whilst the study analyses the UK economy from now to 2035, the findings are relevant to other nations that import substantial fossil-fuel energy.

Dimitri Zenghelis, of the University of Cambridge, said the research 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,” he noted. “Even fossil fuel exporters can benefit, though it’s time to diversify fast.”

Economist and co-author Hector Pollitt commented: “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.”

The research was supported by The Productivity Institute, funded by the UK Economic and Social Research Council. The paper, The effects of low-carbon transitions on labour productivity: Analysing UK electricity, heat, and mobility with a techno-economic simulation model, is published in the journal Climate Policy.

---