The economic impacts of UK trade-enhancing industrial policies and their spillover effects on the energy system

02 Aug 2018

Key messages

  • The “spillover” effects of non-energy (primarily economic) policies on the energy system are of considerable interest from a policy perspective. In this working paper we analyse 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 a large part transmitted via their effects on the economy, we adopt a computable general equilibrium model of the UK (UK-ENVI) that fully captures the interdependence of the energy and economic systems.
  • Our simulation results suggest that an across-the-board stimulus to exports stimulates all major economic indicators, and increases total energy use significantly. The energy intensity of GDP increases - not 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, in the absence of offsetting policy initiatives.
  • Ultimately, a knowledge of such spillover effects of economic policies on the energy system creates the potential for more effective and efficient policy making.
Working Paper