How can the economy grow whilst also meeting its emissions reduction targets? This publication explores the trade-offs between emissions reductions and increasing exports for 30 different sectors.

By Grant Allan, Christos Barkoumas, Andrew Ross, and Ashank Sinha 

In this working paper, we look at the economic, energy, and emissions consequences for the UK of “non-energy” or “invisible energy” policies (Cox et al, 2019). These are policies which, while not explicitly energy-focused, impact on energy use and emissions.

We examine this from a sectoral perspective, looking at differences in consequences when policies are successful in raising exports for individual sectors of the UK economy.

The importance of a sectoral focus

This sectoral focus is of paramount policy relevance. Since 2017, policy documents such as the Industrial Strategy, the Export Strategy, and negotiated details such as the Sector Deals (there are ten to date) identify specific sectors in which Government is seeking to raise their economic contribution.

The Clean Growth Strategy identifies specific activities that offer opportunities for the UK economy to grow while reducing its global environmental impact and to explore economic opportunities in the global low carbon transition.  The UK Government’s adoption of net zero GHG emissions by 2050 will require a fundamental change to the way in which we live, work, and consume.

This makes it more important than ever to understand the consequences of policies (both energy and non-energy) which will impact not only on economic outcomes but also those which could also help to reduce the UK’s environmental impacts.

Our analysis

We use a multi-sectoral model of the UK economy, to capture the interdependence of the energy and non-energy sub-systems, and identify the potential impact on economic, energy and emissions indicators of successfully boosted sectoral exports. We assume that sectors do increase their exports and then observe the aggregate (i.e. whole economy) and sectoral economic impacts, as well as the changes in energy use and emissions from such outcomes being attained. The model contains 30 sectors, meaning that – in addition to reporting results at aggregate levels, we can also analyse results at sectoral levels.

We report the aggregate (whole economy) impacts on five indicators due to the same absolute increases in exports in each of the 30 sectors (see table below). These indicators cover economic measures of Gross Domestic Product (GDP) and employment, alongside the environmental indicators of overall energy use, total emissions, and the energy- and emissions intensity of the UK economy.


Key findings

First, for all sectors, the increase in export demand unambiguously increases GDP and employment. This is clearly reassuring for policymakers! However, this is not the case for output and employment – there are “winners” and “losers”, with some sectors crowded out by the expansion in other sectors raising prices, etc.

Second, a clear pattern emerges when we look at changes in energy intensity. Energy intensity of aggregate GDP only falls (i.e. improves) where exports are stimulated from Sector 19 onwards, i.e. moving towards the sectors typically termed “Services” (in addition to the “Construction” sector). As GDP increases with the stimulus to exports in each sector, reductions in aggregate energy intensity reveal the cases where the resulting increase in energy use is smaller than the increase in GDP.

Emissions intensity increases (i.e. worsens) where exports rise in a subset of the Primary and Manufacturing sectors, reflecting the direct emissions intensity of the sectors themselves (and through their supply chain).

Finally, increases in exports for three sectors actually lead to overall reductions in UK emissions. These sectors are “Transport support”, “Education health and defence” and “Other private services”. Part of the explanation for this reduction in emissions is the sectors’ own (i.e. direct) low emissions intensities, and that increases in these sectors exports “crowd out” more emissions-intensive activity elsewhere in the economy.

What does this mean?

The UK’s exporting success is key for economic activity and by implication energy use and emissions. Our analysis shows that it matters for energy use and emissions which sectors are successful in increasing exports. Successfully increasing exports in Service Sectors appears to simultaneously increase economic activity, while (also positively) lowering the energy- and emissions intensity of the UK economy.

Most critically, we have looked purely at the consequences of successfully increasing sectoral exports. As such, we can use these findings to identify policies (i.e. energy or non-energy) that would be required to offset any increase in energy use or emissions from this outcome alone.

Future UK emissions will be impacted by a wide range of factors, including the UK’s export outcomes. Many policies, such as those to decarbonise the power sector, will have a critical role to play in the UK meeting its UK climate change targets. Nevertheless, any increase in energy demand resulting from economic expansion will add to the challenge of achieving climate change targets. Our analysis demonstrates the need for a holistic perspective on the consequences of future UK energy as well as non-energy policies.

Further reading:

We have previously discussed the outcomes of non-energy policies such as those which might raise the total value of UK exports, improve labour productivity, and change the incidence of taxation policies.

About the authors:

Grant Allan is a Senior Lecturer in the Department of Economics and Deputy Director of the Fraser of Allander Institute at the University of Strathclyde.

Andrew Ross is a Research Associate in the Department of Economics and Deputy Director of the Fraser of Allander Institute.

Christos Barkoumas and Ashank Sinha worked on the publication as MSc students whilst studying at the University of Strathclyde