Peter McGregor

Achieving the targets for reducing greenhouse gas emissions set out in the UK Climate Change Act will require a significant transformation in the UK's energy system. At the same time, the government is pursuing a new UK Industrial Strategy, which aims to improve labour productivity, create high-quality jobs and boost exports across the UK. The economic and the energy systems in the UK are tightly linked and so policies adopted in one area will produce spillover effects to the other. To achieve the objectives set out in the two strategies it is therefore vital to understand how the policies in the energy system will affect economic development and vice versa. This study seeks to contribute to this by investigating how an increase in exports (a key pillar in the UK Industrial Strategy) could impact energy- and industrial policy. We address this question by systematically comparing the results of two types of energy-economy models of the UK, a computable general equilibrium model and a macroeconometric model. In terms of the implications of a successful export promotion strategy, the models agree that there is likely to be a beneficial impact on the economy, but an adverse impact on CO2 emissions and energy intensity. This reveals the extent of any policy adjustment that would be required to maintain a given level of emissions and serves to emphasise the need to complement UK industrial policies with appropriate action on energy use and carbon emissions to meet statutory carbon targets set by the Climate Change Act (2008). Our second main conclusion is that there are advantages to having a diverse mix, or portfolio, of energy-economy models with each having comparative advantages depending on: prevailing circumstances (including the state of the economy); the time-period of interest and the nature of the policy question being addressed.