A transformative wave is sweeping across the UK economy, driven by the accelerating green transition, promising to reshape productivity on a scale never before seen. New research led by the universities of Exeter and Manchester offers compelling evidence that shifting towards low-carbon energy systems in power generation, transport, and heating not only benefits these sectors directly but also unleashes a much broader productivity boost across the entire economy. This productivity enhancement stems from fundamentally lower operating costs enabled by cheaper, cleaner energy, which ripple through all industries reliant on energy inputs.
At the heart of this groundbreaking study lies a techno-economic simulation model analyzing low-carbon transitions in electricity, heat, and mobility throughout the UK economy, projected up to 2035. What differentiates this analysis is its comprehensive approach, capturing both direct and indirect effects on labor productivity. By integrating sectoral changes with economy-wide repercussions, the model reveals an overarching multiplier effect: as energy services become cheaper, firms of all kinds experience reduced costs, enhancing operational efficiency and freeing capital for reinvestment and innovation.
Crucially, the research highlights that the full productivity gains depend on the degree to which reductions in energy production costs translate into lower prices for consumers and businesses. Dr. Jean-Francois Mercure, who leads Exeter Climate Policy, emphasizes that current market structures sometimes inhibit this transmission. For example, electricity prices set by the cost of natural gas can sustain elevated prices, limiting the pass-through of savings generated by the falling costs of renewable resources such as wind and solar. Unless these cost savings are effectively passed on, the benefits risk being captured as profits by energy firms and network operators instead of generating broader economic gains.
This nuanced insight warns policymakers that supporting regulatory frameworks must ensure energy market reforms that align pricing mechanisms with underlying production costs. Such reforms would enable the UK economy to harness the full potential of innovation in renewables and electrification technologies, amplifying positive feedback loops between decarbonization and economic growth. Without these interventions, the green transition could contribute less to productivity advancement than it deserves.
Beyond the UK, the study’s implications resonate globally, especially for countries heavily reliant on fossil fuel imports. For these energy importers, the transition presents a unique opportunity to reduce costs and improve competitiveness in a rapidly evolving global marketplace. Dimitri Zenghelis from the University of Cambridge stresses that this dynamic constitutes a global race for competitive advantage, one that the UK cannot afford to sit out. Meanwhile, fossil fuel exporting nations face a complex challenge, needing to diversify their economies swiftly to offset potential economic losses from declining demand for carbon-intensive energy.
The findings decisively challenge the outdated notion that environmental sustainability must come at the expense of economic growth. Economist Hector Pollitt, co-author of the study, asserts that the offshore wind industry in the UK exemplifies how green technologies can drive productivity increases and job creation. Technology, particularly in the green sector, acts as a powerful engine of innovation, disrupting traditional economic assumptions that positioned emissions reduction and growth in opposition.
Underpinning this research is significant support from The Productivity Institute and funding by the UK Economic and Social Research Council, underscoring governmental recognition of the intersection between climate policy and economic productivity. The study, published in the journal Climate Policy, opens fresh avenues for exploration into how low-carbon transitions influence labor productivity through changes in energy supply chains, technology deployment, and economic behavior.
Coinciding with the study’s release is the inauguration of Exeter Climate Policy (ECP), a pioneering research unit launched to bridge the gap between sophisticated climate-economic models and actionable policy. Situated within the University of Exeter, ECP aims to provide governments and finance ministries with tailored economic analyses that reflect local resources, institutional constraints, and socio-political realities. By equipping policymakers with tools to simulate varying green transition scenarios, ECP endeavors to make policy design more resilient and practically oriented toward transformative decarbonization.
Professor Jean-Francois Mercure elaborates on ECP’s mission, emphasizing that each country’s journey to net-zero is unique and complex. Models customized to regional specifics enable stakeholders to visualize policy outcomes before implementation, mitigating risks and improving decision quality. This collaborative and independent body will work closely with governmental and international partners, including the European Commission, the Brazilian Ministry of Finance, and the World Bank, to co-create evidence-based policy interventions crucial in the global climate response.
University of Exeter’s leadership underscores the institution’s commitment to addressing the climate challenge through actionable research and strategic partnerships. Professor Lisa Roberts, President and Vice-Chancellor of Exeter, highlights the university’s Strategy 2030, which prioritizes impactful climate action, echoing the urgency faced by policymakers worldwide. ECP embodies this commitment by translating academic rigor into practical solutions aimed at accelerating a zero-carbon future that is both fair and economically vibrant.
This study and accompanying institutional advancements mark a pivotal step in reconceptualizing the green transition not as a burden but as a catalyst for economic modernization. The research’s comprehensive modeling illuminates how technological innovation in low-carbon energy can serve as a linchpin for broader productivity improvements, reshaping competitive landscapes on multiple scales. These findings present a compelling narrative for integrating economic and environmental objectives to achieve sustainable growth.
Furthermore, the research elucidates the critical importance of market structures and pricing mechanisms in realizing the full benefits of renewable energy. Without structural changes ensuring energy cost savings reach end-users, economic efficiencies generated upstream may remain latent, curtailing the transition’s transformative potential. The policy implications are clear: coordinated regulatory reforms must accompany technology deployment to unlock systemic productivity gains.
In an era where climate commitments increasingly drive economic policy, this study offers a scientifically robust blueprint for reconciling emissions reduction with growth ambitions. By prioritizing sectoral integration and emphasizing economic spillovers, the research lays a foundation for nuanced policymaking that leverages green innovation as a core driver of prosperity. The holistic approach championed by Exeter Climate Policy is poised to shape the next generation of climate-economy modeling and policy design across the globe.
As the UK positions itself at the forefront of this green revolution, academic insights and policy innovation are converging to chart a course toward a sustainable, productive future. The synergy between cheaper renewable energy, smarter market policies, and collaborative international engagement paints an optimistic portrait of an economy thriving while decarbonizing. This research stands as both a call to action and a roadmap for how nations can harness climate strategies to unlock unprecedented economic opportunities.
Subject of Research: The effects of low-carbon transitions on labor productivity in the UK electricity, heat, and transport sectors using techno-economic modelling.
Article Title: The effects of low-carbon transitions on labour productivity: Analysing UK electricity, heat, and mobility with a techno-economic simulation model
News Publication Date: 3-Jul-2025
Web References:
https://exeterclimateforum.com/
https://gsiexeter.co.uk/
https://greenfuturessolutions.com/
References:
“The effects of low-carbon transitions on labour productivity: Analysing UK electricity, heat, and mobility with a techno-economic simulation model.” Climate Policy, 2025.
Keywords: Economics, Carbon emissions, Economic growth
