The effects of low-carbon transitions on labour productivity: analysing UK electricity, heat, and mobility with a techno-economic simulation model

Mercure, Jean-Francois, Pollitt, Hector, Geels, Frank W. and Zenghelis, Dimitri (2025) The effects of low-carbon transitions on labour productivity: analysing UK electricity, heat, and mobility with a techno-economic simulation model. Climate Policy. ISSN 1469-3062

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Abstract

The low-carbon transition is generally portrayed as involving costs to the economy through lower productivity and generating benefits through avoided impacts of climate change. This mainstream economic narrative hinges on two critical assumptions that stem from an allocation perspective: that low-carbon technologies are more expensive than high-carbon ones, and that low-carbon investment displaces resources from their optimal allocation. However, evidence increasingly suggests that neither assumption may be true. Drawing on evolutionary and complexity economics and making different, empirically-supported, assumptions about innovation dynamics, structural change, and the endogenous creation of finance, this paper examines the impacts on UK labour productivity of a low-carbon transition in the power, transport and heat sectors using a coupled macro-econometric and technology model (E3ME-FTT). Using realistic assumptions, the model results show moderate but positive productivity increases in the transition that stem from technological learning-by-doing and productivity growth in specific sectors, which induces investments that ultimately lead to expanded economic capacity across the economy.

Item Type:	Article
Additional Information:	© 2025 The Author(s)
Divisions:	Grantham Research Institute
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor G Geography. Anthropology. Recreation > GE Environmental Sciences
Date Deposited:	15 Jul 2025 10:36
Last Modified:	15 Jul 2025 18:21
URI:	http://eprints.lse.ac.uk/id/eprint/128830

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