The Economic Impacts of UK Trade-enhancing Industrial Policies and their Spillover Effects on the Energy System

Research output: Working paper

Abstract

The wider impacts of energy policy on the macro-economy are increasingly recognised in the academic and policy-oriented literatures. Additionally, the interdependence of energy and economy implies that a (policy) change in the non-energy system impacts on the energy system. However, such spillovers on the energy system have not been extensively researched. We begin by analysing the impacts of export promotion policies - a key element of the UK’s Industrial Strategy - on the energy system and energy policy goals. As the impacts of such policies are, in large part, transmitted via their effects on the economy, we adopt a computable general equilibrium model - UK-ENVI - that fully captures such interdependence. Our results suggest that an across-the-board stimulus to exports increases total energy use significantly. This does not come directly through energy exports, but indirectly through the energy sectors’ linkages to other sectors. Export led growth therefore impacts on energy use - and significantly so. This in turn is likely to have an adverse impact on emission targets. Policy makers should be aware of the fact that a successful implementation of the Industrial Strategy may create significant tensions with the UK’s Clean Growth Strategy, for example, and with the goals of energy policy more generally. The importance of this effect will in practice depend upon: the mix of goods and services that are exported (an issue that we shall address once the export strategy is published); the success of low-carbon policies. Ultimately, a knowledge of the nature and scale of these spillover effects of economic policies on the energy system creates the potential for more effective and efficient policy making.
LanguageEnglish
Place of PublicationLondon
Pages1-47
Number of pages47
DOIs
Publication statusPublished - 31 Jul 2018

Fingerprint

Energy policy
Economics
Macros
Carbon
Industrial policy
Spillover effects
Economic impact
Energy systems

Keywords

  • energy policy
  • industrial strategy
  • trade policy
  • macro-economic impacts
  • low carbon policies

Cite this

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title = "The Economic Impacts of UK Trade-enhancing Industrial Policies and their Spillover Effects on the Energy System",
abstract = "The wider impacts of energy policy on the macro-economy are increasingly recognised in the academic and policy-oriented literatures. Additionally, the interdependence of energy and economy implies that a (policy) change in the non-energy system impacts on the energy system. However, such spillovers on the energy system have not been extensively researched. We begin by analysing the impacts of export promotion policies - a key element of the UK’s Industrial Strategy - on the energy system and energy policy goals. As the impacts of such policies are, in large part, transmitted via their effects on the economy, we adopt a computable general equilibrium model - UK-ENVI - that fully captures such interdependence. Our results suggest that an across-the-board stimulus to exports increases total energy use significantly. This does not come directly through energy exports, but indirectly through the energy sectors’ linkages to other sectors. Export led growth therefore impacts on energy use - and significantly so. This in turn is likely to have an adverse impact on emission targets. Policy makers should be aware of the fact that a successful implementation of the Industrial Strategy may create significant tensions with the UK’s Clean Growth Strategy, for example, and with the goals of energy policy more generally. The importance of this effect will in practice depend upon: the mix of goods and services that are exported (an issue that we shall address once the export strategy is published); the success of low-carbon policies. Ultimately, a knowledge of the nature and scale of these spillover effects of economic policies on the energy system creates the potential for more effective and efficient policy making.",
keywords = "energy policy, industrial strategy, trade policy, macro-economic impacts, low carbon policies",
author = "Ross, {Andrew G.} and Grant Allan and Gioele Figus and McGregor, {Peter G.} and Graeme Roy and Swales, {J. Kim} and Karen Turner",
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AU - Swales, J. Kim

AU - Turner, Karen

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AB - The wider impacts of energy policy on the macro-economy are increasingly recognised in the academic and policy-oriented literatures. Additionally, the interdependence of energy and economy implies that a (policy) change in the non-energy system impacts on the energy system. However, such spillovers on the energy system have not been extensively researched. We begin by analysing the impacts of export promotion policies - a key element of the UK’s Industrial Strategy - on the energy system and energy policy goals. As the impacts of such policies are, in large part, transmitted via their effects on the economy, we adopt a computable general equilibrium model - UK-ENVI - that fully captures such interdependence. Our results suggest that an across-the-board stimulus to exports increases total energy use significantly. This does not come directly through energy exports, but indirectly through the energy sectors’ linkages to other sectors. Export led growth therefore impacts on energy use - and significantly so. This in turn is likely to have an adverse impact on emission targets. Policy makers should be aware of the fact that a successful implementation of the Industrial Strategy may create significant tensions with the UK’s Clean Growth Strategy, for example, and with the goals of energy policy more generally. The importance of this effect will in practice depend upon: the mix of goods and services that are exported (an issue that we shall address once the export strategy is published); the success of low-carbon policies. Ultimately, a knowledge of the nature and scale of these spillover effects of economic policies on the energy system creates the potential for more effective and efficient policy making.

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