The University of Exeter’s latest research has shed light on the intricate relationship between the UK’s low-carbon transition and productivity, challenging the energy sector to rethink its approach to pricing and profit. The study, published alongside the launch of the Exeter Climate Policy, argues that cheaper renewable energy could significantly boost UK productivity—but only if the savings are passed on to consumers and businesses.
Dr. Jean-Francois Mercure, leading the Exeter Climate Policy, explains that while power, transport, and heating aren’t major drivers of productivity themselves, cheaper energy across these sectors could reduce costs for every other industry. “If these energy services become any cheaper, every other sector across the entire economy can operate more cheaply, freeing up unspent income for other things, causing economic growth,” he says. However, the caveat is clear: energy companies must pass on these savings rather than pocketing them as profits.
The research highlights a critical issue: the current pricing mechanisms often prevent these benefits from reaching end-users. “As long as the cost of gas is used to set electricity prices, the benefits of cheaper solar and wind energy will continue to be captured as profits by producers, the grid operator or electricity distributors,” Dr. Mercure warns. This raises questions about the fairness and efficiency of the energy market, particularly as renewable energy becomes increasingly cost-competitive.
The study’s findings extend beyond the UK, offering insights for other energy-importing nations. Dimitri Zenghelis from the University of Cambridge emphasizes the global stakes: “The paper makes the case not just for climate policies, but for smart economic policy more broadly. We provide compelling evidence to show how this is a global race for competitive advantage that the UK economy can’t afford to sit out.” For fossil fuel exporters, the message is clear: diversification is essential.
The Exeter Climate Policy (ECP) aims to bridge the gap between research and action, providing tailored economic models to help governments navigate the green transition. Dr. Mercure stresses the importance of localized solutions: “For each country, the low-carbon future looks different, constrained by local resources, political realities, changing tides, debt burdens, existing inequalities and economic structures.” The ECP collaborates with international partners, including the UK Government and the World Bank, to co-create practical policy tools.
This research could reshape the energy sector’s approach to pricing and investment. If energy companies fail to pass on savings from cheaper renewables, they risk stifling productivity gains and undermining the low-carbon transition. Conversely, transparent and fair pricing could accelerate economic growth while advancing climate goals. The challenge now is to translate these findings into actionable policies that ensure the benefits of cheaper energy are widely shared.