The impact of a stimulus to energy efficiency on the economy and the environment: A regional computable general equilibrium analysis

Sustainable development is a key objective of UK national and regional policies. Improvements in resource productivity have been suggested as both a measure of progress towards sustainable development and as a means of achieving sustainability. Making ‘more with less’ intuitively seems to be good for the environment, and this is the presumption of current UK policy. However, in a system-wide context, improvements in energy efficiency lower the cost of energy in efficiency units and may even stimulate the consumption and production of energy measured in physical units, and increase pollution. Simulations of a computable general equilibrium model of Scotland suggest that an across the board stimulus to energy efficiency there would actually stimulate energy production and consumption and lead to a deterioration in environmental indicators. The implication is that policies directed at stimulating energy efficiency are not, in themselves, sufficient to secure environmental improvements: this may require the use of complementary energy policies designed to moderate incentives to increased energy consumption.