The UK government’s dual commitments—to achieving net zero carbon emissions by 2050 and boosting economic growth—present a complex balancing act. How these objectives intersect will shape the country’s green growth agenda and the envisioned “green industrial revolution.”
Research from the Cambridge Judge Business School sheds light on this challenge, focusing on the electricity sector’s total factor productivity (TFP)—a key measure of how efficiently inputs like capital, labor, and materials generate economic output. Using simulation models, the researchers assess how large-scale investments in low-carbon technologies might affect productivity over the coming decades.
A tough road ahead
The findings reveal a rocky path ahead. During the 2020s, TFP in the electricity sector is expected to fall by 3.24% annually as high investment costs outpace output. However, the outlook improves in subsequent decades, with productivity growth of 3% per year in the 2030s and 1.6% in the 2040s as clean energy adoption grows and fossil fuel reliance declines.
Other energy sectors face distinct hurdles. Natural gas must reduce costs in line with output to sustain productivity, while early investments in hydrogen are likely to outstrip returns, delaying TFP growth. These challenges underscore that even as energy demand rises under net zero policies, boosting productivity remains a significant hurdle.
“Net zero policies often imply trade-offs between environmental protection and economic growth,” the researchers caution. “Our analysis shows that productivity can stagnate or decline over prolonged periods, especially in the early stages of decarbonization. Policymakers should avoid overselling the idea that green growth inherently accelerates economic performance.”
Three Barriers to Green Growth
The research highlights three factors that complicate the promise of green growth in the UK:
- Investment Challenges
UK industry faces hurdles in scaling new technologies like hydrogen, nuclear power, and carbon capture, which require substantial investment and may be better suited to larger economies. - Labour Market Disruption
Transitioning to green jobs entails significant short-term costs, with workers in carbon-intensive sectors like oil and gas requiring reskilling and new roles. Supply chain disruptions further strain labour markets. - Limited Job Creation
Contrary to expectations, green industries often create fewer jobs than traditional sectors. Data from the International Energy Agency suggests that renewable energy projects generate only 1–2 jobs per million dollars of capital investment, with exceptions like solar installation. Energy efficiency projects in buildings and industry are far more labour-intensive by comparison.
Rethinking the Concept of Green Growth
The term “green growth” remains contested. Definitions vary between the OECD, which emphasizes sustainability, and the World Bank, which focuses on resource efficiency and resilience. The United Nations Environment Programme takes a broader approach, framing green economies as those that grow income and well-being while reducing ecological risks.
“Despite its popularity among politicians and environmentalists, the concept of green growth often overlooks the trade-offs between protecting the environment and achieving short-term economic gains,” the researchers argue. Their analysis underscores the difficulty of boosting productivity in sectors like electricity, where higher physical inputs and lower outputs are a reality in the early stages of transition.
For green growth to succeed, policymakers must focus on improving productivity—measured as output per input—within green industries. This may require grappling with politically sensitive issues like higher energy prices, which could emerge as net zero policies take hold.
“Rather than celebrating inputs like job creation or investment, the real test will be whether green industries can deliver outputs efficiently,” the researchers conclude. “Productivity growth will be crucial to making the green industrial revolution economically sustainable.”
