This report, the 19th report for The Economy 2030 Inquiry, provides a hard-headed assessment of the opportunities presented to UK plc by the move to net zero, and considers how best these can be unlocked. It does this by considering carefully the UK’s pre-existing relative strengths in technologies, goods and services that are relevant for net zero. It also undertakes a series of ‘deep dives’ into key areas in the UK’s decarbonisation journey to investigate the extent of UK strengths that can be built upon to accelerate domestic deployment of related technologies as well as unlock export opportunities. Finally, it assesses how the UK’s financial sector can be oriented towards delivering the investment needed for net zero, and for realising related opportunities in the UK.

The UK government has committed to increase R&D support for clean technologies in an effort to meet its net-zero target by 2050. The opportunity cost of such programs crucially depends on the value of knowledge spillovers that accrue from clean relative to other (emerging) technologies. Using patent information to measure the value of direct and indirect knowledge spillovers, we derive estimates for the expected economic returns of subsidising a particular technology field. Our method allows comparing fields by the returns a hypothetical additional subsidy would have generated within the UK or globally. Clean technologies are top-ranked in terms of within-UK returns, with Tidal and Offshore Wind showing particularly high returns. In terms of global returns, emerging technologies such as Wireless, as well as Electrical Engineering outperform Clean by a small margin. We also find that cross-border knowledge spillovers are important for all technology fields, with global return rates over ten times larger than within-UK ones. In sum, our results suggest that the opportunity cost of R&D support programs for clean innovation in the UK is low at worst. 

Innovation and its diffusion have already played an important role in the global response to the pandemic; with rapid progress on the development of Covid-19 vaccines and treatment, and more generally via the increased adoption of digital technologies that have allowed businesses and individuals to adapt to social distancing requirements.

In the economic recovery, innovation and diffusion will be key to addressing a number of structural challenges facing the UK economy which were already present before the pandemic struck. These include the need to improve the UK’s longstanding poor productivity performance, to address largescale disparities in economic performance across and within regions, and the need to re-orient the economy towards reaching net zero emissions of greenhouse gases by 2050. Among advanced economies, the UK is not alone in facing the challenges of poor aggregate productivity growth since the financial crisis and largescale regional inequalities, but these challenges are particularly pronounced here (for recent discussion, see Valero and Van Reenen, 2019)

This is a Special report for the LSE Growth Commission, produced with the Centre for Economic Performance, that provides a set of actionable recommendations to the UK government to drive sustainable growth in the context of passenger vehicles. Subsequent reports in the series will cover other areas of the economy.

The race is on between economies to become cleaner, smarter and more efficient. For the United Kingdom to be competitive in this race, it first needs to understand where the transition to net-zero greenhouse gases brings opportunities to boost resource and labour productivity and the quality of jobs. Then it must orient policies, investment and regulation to seize these opportunities across the economy in order to stimulate sustainable and inclusive growth in the UK over the coming years. This report sets out the principles to guide these processes. It focuses on the goods and services related to passenger vehicles, identifying the multiple areas in which the UK could be competitive: opportunities lie in diverse goods and services across value chains and stages of innovation.

UK greenhouse gas (GHG) emissions are declining and have been declining for some time. As of 2018, the UK emitted 449 million tonnes of CO2 equivalent (tCO2e). That corresponds to a reduction of 43% relative to 1990 levels, which should make it easy to meet the 2020 target of a reduction of 37%. Moreover, the UK has a framework of long-run targets developed by the Committee on Climate Change, an independent body of experts advising government. At present, this requires a reduction of 51% by 2025 and 57% by 2030. In addition, shortly before resigning as prime minister, Theresa May introduced a so-called 'net zero' target, requiring a reduction of emissions to (net) zero by 2050.