Highlighting the need for policy coordination : the economic impacts of UK trade-enhancing industrial policies and their spillover effects on the energy system

Ross, Andrew G. and Allan, Grant and Figus, Gioele and McGregor, Peter and Roy, Graeme and Swales, J. Kim and Turner, Karen (2018) Highlighting the need for policy coordination : the economic impacts of UK trade-enhancing industrial policies and their spillover effects on the energy system. Fraser of Allander Economic Commentary, 42 (3). ISSN 2046-5378

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    Abstract

    The wider impacts of energy policy on the macro-economy are increasingly recognised in the academic and policy-oriented literature. Given the interdependence of energy and the wider economy, any economic policy change will impact on the energy system. However, such ‘spillovers’ on the energy system have not been extensively researched. This article analyses the impact 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 use a computable general equilibrium model - UK-ENVI – to Economic Commentary, September 2018 fully capture impact. Our results suggest that an across-the-board stimulus to exports significantly increases total energy use, not directly via energy exports but indirectly via linkages between the energy sector and other sectors. We show that export-led growth has significant impacts on energy use and, in turn, on emission targets. Policy makers need to be aware that the successful implementation of the UK Industrial Strategy may create significant tensions with the UK’s Clean Growth Strategy and wider energy policy goals. The scale of such impacts depend upon both the mix of UK goods and services exports and the success of low-carbon policies. A knowledge of the nature and scale of the spillover effects of economic policies on the energy system provides a platform for more effective and efficient policy making.