CBI Economics researched the impact of the growing net zero economy and how net zero hotspots relate to the levelling-up agenda.
Economic growth and the use of finite natural resources have been strongly associated. However, the growing strength of the net zero economy has demonstrated that a different path can be taken by businesses and government to sustain growth.
The Energy & Climate Intelligence Unit commissioned us to explore the size, scale, and regional distribution of the net zero economy. The report mapped the UK’s net zero hotspots and the businesses driving the country’s transition to net zero greenhouse gas emissions.
Can the net zero economy bolster the UK economy?
We evidenced some 20,000 businesses contributing to the net zero economy generating a total of £71 billion in Gross Value Added (GVA) for the UK Economy per year.
Looking deeper the net zero economy was 1.7 times more productive, in terms of GVA per employee, than the national average for the UK economy, thereby providing a potential solution to the UKs continued productivity problem. Historically, UK productivity has grown at an average rate of slightly above 2% per year but since the 2008 global recession the UK’s average productivity growth rate has fallen to well below 1% per year.
The net zero economy creates high-skilled employment opportunities. Average wages within the net zero economy were 28% higher than the UK average of £33,400. Areas with high employment within the net zero economy look as though they will have a premium in wages, which could bring further benefits to these areas via increased wages and spending.
Transitioning to net zero will boost investment within the UK. Venture funding into the net zero economy has seen remarkable growth with a constant annual growth rate of over 30% between 2016 to 2021 and reached £710 million in 2021.
Which sectors will see the greatest benefit from a strengthening net zero economy?
CBI Economics modelling identified those sectors likely to be the biggest drivers of jobs and growth.
- Labour-intensive sectors, such as the wholesale and retail trade sector, within the net zero economy contributed the most to employment activity within the UK.
- Energy and construction created the most net zero economic activity to the UK.
Energy continues to stand out as an important driver since it forms an input to nearly every product and service to power the economy. With the UK's introduction of the British Energy Security Strategy and a shift towards UK energy independence, the net zero transition offers an opportunity for the UK economy to become increasingly self-sufficient and more resilient to external pressures.
Does the net zero economy support the Levelling Up Agenda?
An enlightening takeaway from the findings was seeing just how supportive of regional growth the net zero economy is and it will be a key progressor of the Levelling Up Agenda. One key finding is that every region in the UK sees stronger economic impacts from the net zero economy when compared to London.
The net zero economy can promote strong productivity across the UK, even in regions with historically lower productivity. An example of this being, that in the Midlands (East and West) the net zero economy is 2.5 time more productive than the regional average.
Economic modelling at the constituency level by CBI Economics identified 20 areas where the GVA contribution by the net zero economy to local constituencies was particularly strong, coining them net zero hotspots. These hotspots were distributed across the UK with the Leicestershire and Warwickshire hotspot and the North East Scotland and Shetland hotspot being two of the standout performers.
About CBI Economics:
For further insights into the net zero transition or other emerging sectors for your local authority, region, or business, CBI Economics, the CBI’s economic consultancy division, can develop bespoke analysis and insights for your needs. You can find out more about our services here and get in touch here.
