UK productivity figures fail to reflect value of a cleaner economy

Published: 5 April 2019

Official UK productivity statistics released today (5 April) fail to take account of the value delivered by business in reducing the nation’s carbon footprint, according to a new report.

Published by Energy Systems Catapult, the report estimates that the current value of the UK’s annual emissions reductions compared to 1990 levels is 0.4% of GDP, rising to 1% of GDP by 2030 – a value that is not counted in official figures released today.

The report argues that local and national governments should reflect carbon emissions in productivity measurement and pursue policies that recognise the link between carbon policy and changing economic activity, innovation and future productivity growth.

Matthew Bell OBE, former CEO of the UK Committee on Climate Change and Director of Frontier Economics, said: “Productivity is seen as one of the most important measures of the UK economy, yet the figures released today 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.

“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 UK has reduced emissions by more than 40% since 1990 while the economy has grown by around 70%, but as greenhouse gas emissions are largely unpriced – or underpriced – in productivity measurement (which focusses on GDP per capita or per hour worked), the benefit of those reductions is not fully reflected in official statistics.

The report, part of the Rethinking Decarbonisation Incentives (RDI) project ran by Energy Systems Catapult, argues that proper measurement would provide more accurate signals to help improve future productivity by directing money, jobs and effort into sectors more likely to grow.

Matthew added: “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.”

View report