Official government statistics are failing to take into account the value of businesses’ decarbonisation efforts, a new report has concluded.
The ‘Carbon Policy and Economy-wide Productivity’ report was commissioned by Energy Systems Catapult and delivered by economics consultancy Frontier Economics, and estimates that the current value of UK emissions reductions is around 0.4% of GDP.
This is expected to rise to 1% of GDP by 2030, a figure which the report claims is not being taken into consideration in productivity statistics released by the government today.
The Office for National Statistics (ONS) this morning reported a second consecutive quarterly drop in productivity, measured in GDP per hour worked, stating that productivity fell by 0.1% in the final three months of 2018.
However today’s report claims that by failing to take into account the economic benefit of avoided CO2 emissions, the official figures are “missing a significant piece of the puzzle”.
“It has long been known that better environmental regulations can help raise productivity by encouraging businesses to innovate. There is still, however, relatively little recognition of the impact of effective pricing and regulation of greenhouse gases on innovation and productivity,” said Matthew Bell OBE, director at Frontier Economics and former chief executive at the Committee on Climate Change.
“Reducing emissions is, in many cases, simply more efficient for many organisations. Lower heating or cooling costs, reducing waste in production processes and the wider supply chain – these actions are good for business, not just the environment.
“As we accelerate towards a low carbon economy, we must ensure policy is informed by the most complete measurement of productivity possible.”
The report offers three principal conclusions for government policy moving forward, chiefly that it needs to be more informed by a more complete measurement of productivity, including the creation of new formulae which take into account the positive value of output produced with lower emissions.
It also calls for a closer link between carbon pricing and environmental standards to help drive innovation, and more adaptable carbon policies linked to specific context to boost aggregate productivity.
“We know that carbon policies – whether taxes, regulation or public sector spending – are likely to increase innovation, and in turn productivity, as firms seek new lower carbon production methods or products. Just as the oil shock of the 1970s led the auto sector to develop more efficient cars, the carbon shock of the 21st century can help to galvanise innovation across the economy.
“We should embrace the clean growth opportunity created in meeting the Paris Agreement targets to reach net zero emissions in the second half of this century. But to do so we need a more comprehensive measure of economic productivity,” Bell added.
