Research: Climate-friendly cost-of-living policies offer best outlook for UK economy

Policies aiming to address both the cost of living crisis and the climate crisis promise better long-term economic and social outcomes for the UK than either a business-as-usual strategy or alternative plans for tackling soaring inflation, a fresh analysis published today has concluded .

Research by Cambridge Econometrics modeled several policy scenarios and their impacts on the UK economy in the short, medium, and long terms, and found that over the long-term the largest benefits are delivered by the most ambitious climate policy scenario.

Under such a scenario, both the economic stimulus from spending on decarbonisation as well as the long-term energy savings from boosting energy efficiency throughout the economy are projected to lead to a slight increase in employment and GDP, according to the research firm.

Such efforts would additionally help to lower energy bills and increase household welfare, especially among low income and vulnerable households, at a time when soaring inflation, food prices, and energy costs are putting immense strain on poorer households and the wider economy, it said.

And, crucially, the ‘climate positive’ policy scenario modelled in the research points to a significant reduction in household CO2 emissions of 26 per cent by 2050 compared to today’s levels, thanks to the efficiency increased uptake of energy measures and heat pumps.

The research was carried out on behalf of the Corporate Leaders Group (CLG), a coalition pushing for climate action in the UK backed by a host of major corporates including Unilever, Signify, Velux, Amazon, Sky, and Lloyds Bank Group.

Beverley Cornaby, CLG UK’s policy lead, said the research showed UK government policies could deliver better outcomes for people as well as the economy when they are aligned to the country’s 2050 net zero targets.

“Climate change is inextricably linked into every major issue affecting countries and affected in the 21st century,” she said. “It is therefore vital that we do not view every new crisis that emerges as a siloed issue that is disconnected from this. Both the cost of living crisis and the climate crisis disproportionately affects the poorest and most vulnerable in society, who also have fewest resources to cope with changing circumstances.

“This new report clearly indicates that a climate-aligned cost of living policy strategy will deliver long-term positives for GDP, society and the environment.”

The research findings come amid growing concern about the resilience of the UK economy to rising inflation and pressure on food and energy supply chains exacerbated by the Covid-19 crisis and Russia’s invasion of Ukraine.

Business and society leaders have repeatedly called on the government to respond to severe civil economic headwinds and energy security concerns by launching a major building insulation and clean energy drive this summer in order to curb demand for energy ahead of winter, when bills are expected to rise yet further due to soaring wholesale gas costs.

In order to support households facing rising energy and living costs, the government last month unveiled a package of fresh measures paid for via a windfall tax on oil and gas companies. Moreover, this weekend the Prime Minister floated proposals for reforms to electricity market rules and signaled his support for new fossil fuel projects, arguing such moves could bolster energy security. Reports have also suggested the government is considering diverting funding from public sector energy efficiency schemes to boost funding for domestic energy efficiency upgrades. However, to date the government is yet to announce significant new funding for energy efficiency programs and Ministers have been reluctant to urge the public to take steps to save energy.

CLG today therefore reiterated calls for the government to ensure it aligns efforts to tackle the cost of living crisis and energy security concerns with the UK’s net zero target by focusing on reducing energy demand and future vulnerability to supply shocks, with a range of measures targeted at the needs of different household incomes levels.

It said long-term incentives were needed to encourage homes and businesses to switch from fossil fueled energy and appliances to electric alternatives, such as heat pumps, as well as efforts to facilitate investment in affordable zero carbon energy and stable electricity supplies.

Backing CLG’s calls, trade body Energy UK’s deputy policy director Charles Wood stressed that the best long-term solution to the worsening cost of living crisis in the UK was to reduce demand while decarbonising the power system.

“Energy bills are not likely to return to their previous levels for the foreseeable future and it is therefore vital that we take a longer-term approach to the cost-of-living challenge,” he said. “Similarly, the recommendation for Government to facilitate investment in affordable zero carbon energy is crucial. We need a policy landscape that encourages, not deters, the investment needed to meet our climate change targets.”

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