The value of a low-carbon Britain

Tackling climate change – with a clear policy that meets the first carbon budgets recommended by the Committee on Climate Change (CCC) – makes clear economic sense for the UK.

Reducing the UK’s carbon emissions by around 60% by 2030 (as recommended by the CCC) would:

  • increase UK GDP by 1.1% in net terms
  • result in at least 190,000 additional jobs being created across the UK economy
  • mean households are financially better off compared to a scenario where little is done to reduce emissions.
That is what The Economics of Climate Change Policy in the UK - a report from Cambridge Econometrics in collaboration with Pr Paul Ekins of UCL - has found.

How the UK will be better off if we reduce carbon emissions

Compared to a scenario where little is done to reduce the UK's emissions - the analysis found that by 2030, the investment in a low-carbon infrastructure would:

  • Mean that GDP is 1.1% higher;
  • Create at least 190,000 additional jobs
  • Increase avg. annual household incomes by £565
  • Increase the Government's revenues by £5.7bn per year
  • Reduce imports of oil and gas by £8.5bn per year, thereby improving the UK’s energy security
  • Improve air quality - the reduction in emissions from road transport alone would mean that healthcare expenditure could be reduced by £96m to £288m annually

What is the Cambridge Economics model?

Cambridge Econometrics uses a macro-econometric model (called MDM-E3) that uses real life data - including the past behaviour of UK households and businesses - to understand what impacts a particular policy is likely to have on the UK economy.

This model is different from the “equilibrium” models often used by the UK Treasury, which relie on the assumption that the economy is always working in the most efficient way possible and that there is no involuntary unemployment (everyone who wants a job has one).

Equilibrium models often take a negative view of environmental policies because they are just seen as interfering with an optimum functioning economy.

By contrast, Cambridge Econometrics’ model does not assume that the economy is in a perfect state. It is based on the observation that the economy goes through highs and lows, with periods where the economy is not "at full capacity" and there is involuntary unemployment.

The projections and outcomes compare a scenario where the UK meets its first four carbon budgets with a scenario where the UK does little to reduce its emissions. All findings relate to the state of the economy in 2030 and are expressed in real 2013 prices.

Support for a low-carbon UK

“Uncertainty is scary for any leader and often the risks of change can make it difficult to act - but that doesn’t mean you shouldn’t. In my experience you never have all the information you’d like but there’s a tipping point when you have enough to make an informed decision. This report is a valuable contribution to the cumulative knowledge we have on the need to decarbonise our national infrastructure. It goes beyond understanding the kinds of upfront investments that will be needed, to show the additional positive benefits for our economy of doing so.” Sir Ian Cheshire, Kingfisher Group Chief Executive

“Since we launched our sustainability plan (Plan A) in 2007 we’ve seen a clear business case for managing and reducing our emissions. We have become more efficient, made our business more resilient and begun to future proof ourselves for a carbon constrained future. This report is an important piece of work demonstrating that these business benefits can be scaled up across the wider UK economy to help households, companies and Government.” Mike Barry, Director, Plan A, Marks & Spencer

“This landmark report is the latest confirmation of what many economists and business leaders have been saying for a long-time: that taking early action to avoid dangerous levels of climate change makes economic sense. It provides a clear and compelling message that building a low-carbon economy would provide net economic benefits to the UK. Our renewable energy customers need consistent government policies which support these technologies and provide investor confidence in the sectors." Peter Collins, Group & UK Head of Corporate Responsibility, RSA

"I welcome this report, which challenges the popular assumption that meeting of greenhouse gas emission reduction targets must result in a drop in GDP with households being hit in the pocket. It is encouraging to see analysis which shows that meeting carbon targets can translate into positive benefits for the economy, including significant job creation. As a representative of the offshore wind industry, I'm very encouraged that the report presents a strong case for the UK to hold its nerve in supporting the development of renewable technologies so that investor confidence in the sector is maintained." Benj Sykes, Uk Country Manager, Head of Asset Management, Dong Energy

“This research shows that strong climate policies create jobs and can help boost growth. Without strong policy, the UK’s reliance on imported energy will grow and the UK will miss out on the economic benefits of decarbonisation. Failure to implement policies which will deliver a low-carbon transition is therefore the real long-term risk to the economy. Policy makers do not have to choose between economic growth or emissions reductions. Meeting the fourth carbon budget is a smart strategy for achieving both.” Stephanie Pfeifer, Chief Executive, Institutional Investors Group on Climate Change

“Uncertainty is scary for any leader and often the risks of change can make it difficult to act - but that doesn’t mean you shouldn’t. In my experience you never have all the information you’d like but there’s a tipping point when you have enough to make an informed decision. This report is a valuable contribution to the cumulative knowledge we have on the need to decarbonise our national infrastructure. It goes beyond understanding the kinds of upfront investments that will be needed, to show the additional positive benefits for our economy of doing so.” Sir Ian Cheshire, Kingfisher Group Chief Executive

“This report demonstrates that investing in homegrown renewable energy, including onshore wind - the most cost-effective form of renewable energy, is crucial to reduce our reliance on imported fossil fuels and regain the energy independence that British business needs.” Gordon MacDougall, Managing Director of RES Western Europe