Jobs, Skills and Regional Implications of the Low Carbon Residential Heat Transition in the UK

This journal article was originally published in Energy Policy.

This study investigates the regional employment implications of the projected UK heat pump rollout, emphasising the availability of a skilled workforce as a crucial enabler. The UK labour market, however, faces persistent worker and skills shortages, posing delivery and cost challenges and triggering wage-cost pressures that could displace employment across the economy. This highlights an urgent policy need to understand not only the level, type, quality, and regional location of labour demand but also the drivers and potential mitigation strategies.

Using regional economic and workforce data, we map results from our dynamic economy-wide Computable General Equilibrium (CGE) model to provide new insights into the spatial distributional impacts of the UK heat pump rollout. Our findings indicate that net job creation is outpaced by real income gains, primarily driven by construction and manufacturing activities. Some regions exhibit lower relative job creation, partly due to rising labour costs affecting wage- and labour-intensive industries (e.g., finance, hospitality). Where energy efficiency gains from heat pump use translate to energy bill savings, the resulting boost to household spending power can help offset negative job impacts in consumer-facing sectors and host regions.

This novel integrated analysis makes a significant contribution by developing urgently needed, robust, and detailed evidence based on a strengthened understanding of the low carbon heat labour and skills demands, while also considering critical factors such as labour mobility and competition. The produced insight and the proposed approach has the potential to be applicable to analyse other energy transitions.

Key takeaways:

• Heat pump rollout boosts jobs and income in construction and manufacturing regions. Our results show that there will be large pockets of construction job creation (for network expansion and heat pump installation) in areas where large residential centres are located.
• The demand for skilled labour is also likely to increase labour costs, putting pressure on wages. We found that increasing labour costs negatively affect employment in many labour-intensive industries (e.g., finance, consultancies, hospitality etc.). Therefore, certain regions are lagging in terms of net job creation.
• Energy efficiency gains from heat pumps can boost consumer spending power. Our results also show that the higher energy efficiency of heat pumps could drive positive economic outcomes and long-term job creation. Focus is needed on reducing electricity prices relative to gas for better economic outcomes.
• Policy needs to coordinate regional levelling up with jobs and skills planning. Policymakers need to consider the regional distribution of job creation vs availability and assess the potential for job displacement. National and regional strategies to support retraining and mobility of the workforce, while also addressing barriers on equality, diversity and inclusion (EDI), will be essential to mitigate negative impacts on certain regions and sectors.