Macroeconomic effects of efficiency policies for energy-intensive industries: the case of the UK climate change agreements, 2000-2010.

This paper reports a study modeling the UK Climate Change Agreements (CCAs) and related energy-efficiency policies for energy-intensive industrial sectors. Bottomup estimates of the effects of these policies are introduced into the energy-demand equations of a topdown dynamic econometric model of the UK economy with fifty industrial sectors, MDM-E3. This allowed estimation of the effects of the reduced energy use for the outputs from the sectors, i.e. the reductions in unit costs of the energy-intensive industries, on the demand for their outputs (both in the UK and in the export markets). The model is solved as a counterfactual 20002005 and as a projection 20052010 in a series of scenarios to allow estimation of the effects of the policies on inflation and growth, as well as on overall energy demand and CO₂emissions. The system-wide finalenergy reductions is estimated to be 4.2mtoe, or 2.6%, of total final demand for energy by 2010, including a rebound effect of 19%, with negligible effects on inflation and a slight increase in economic growth through improved international competitiveness.