New research has found that the green transition could significantly boost productivity across the UK economy. The study, led by researchers from the universities of Exeter and Manchester, examined the impact of transitioning to low-carbon alternatives in the power, transportation, and heating sectors. As renewable energy continues to fall in cost and is now cheaper than fossil fuels in most parts of the world, the direct beneficiaries of this shift are these three energy-intensive sectors. However, the research emphasises that the most substantial benefits will not be limited to these industries alone, but will be felt across the broader economy, as the cost of essential services such as electricity, transportation, and heating falls, enhancing overall productivity.

The findings suggest a knock-on effect whereby cheaper energy inputs reduce operational costs for businesses across all sectors, effectively unlocking unspent income that can then be redirected into other areas of the economy, thereby stimulating growth. Dr Jean-François Mercure, who heads Exeter Climate Policy and led the study, noted that power, heating, and transport are not typically drivers of productivity growth. Yet, if energy services become cheaper, all other sectors stand to gain by operating more cost-effectively. However, the study stresses that these economic gains depend on whether the reduced energy costs are genuinely passed on to consumers, rather than being absorbed as profit by utility companies and their shareholders.

Currently, structural barriers are preventing these benefits from reaching the broader economy. Dr Mercure highlighted a key concern: despite falling renewable energy costs, electricity prices remain tied to the price of natural gas, which distorts the pricing mechanism and allows producers or distributors to pocket the savings instead of passing them on to consumers. This dynamic means that the potential productivity gains from a cleaner, cheaper energy system are not automatically realised and will require reform to ensure benefits are equitably shared. In other words, cheaper production does not guarantee more affordable access, and policy will play a decisive role in correcting this imbalance.

The research, which projects outcomes through to 2035, also carries broader global implications. Countries that rely heavily on imported fossil fuels, such as the UK, stand to benefit the most from the green transition. On the other hand, nations whose economies are closely tied to fossil fuel production may face net losses unless they begin to diversify rapidly. Dimitri Zenghelis of the University of Cambridge, a contributor to the study, called it not only a compelling argument for climate policy but also for smart economic policy. He framed the transition as a global race for competitive advantage that the UK cannot afford to ignore, stressing that clean energy represents a win-win opportunity for energy importers.

Hector Pollitt, another economist involved in the study, challenged the outdated belief that environmental policy and economic growth are mutually exclusive. He pointed to the UK’s offshore wind industry as a prime example of how climate-friendly initiatives can drive technological innovation and productivity. Pollitt argued that it is time to abandon the false dichotomy between emission reductions and economic development. Instead, green technology should be embraced as a powerful engine of growth in its own right, capable of reshaping the financial landscape for the better.

Coinciding with the publication of this research is the official launch of Exeter Climate Policy (ECP), a new policy advisory unit based at the University of Exeter. ECP aims to support governments and finance ministers in crafting resilient, effective, and locally tailored policies for the low-carbon transition. Professor Jean-François Mercure, Director of ECP, emphasised the need for region-specific climate-economic models that take into account a country’s unique circumstances, including resource availability, political conditions, and economic disparities. With experience working with international bodies like the UK Government, the European Commission, Brazil’s Ministry of Finance, and the World Bank, ECP offers an independent, collaborative, and evidence-driven approach to shaping the policies required for a fair and prosperous net-zero future. Supported by Green Futures Solutions, the initiative underscores the University of Exeter’s broader mission to lead transformative climate action as part of its Strategy 2030.

More information: Jean-Francois Mercure et al, The effects of low-carbon transitions on labour productivity: analysing UK electricity, heat, and mobility with a techno-economic simulation model, Climate Policy. DOI: 10.1080/14693062.2025.2522836

Journal information: Climate Policy Provided by University of Exeter