Can network spending to support the shift to electric vehicles deliver wider economy gains? The role of domestic supply chain, price, and real wage effects

Abstract

The transition of societies to a low carbon future presents several important political economy challenges. For example, can the deployment of low carbon solutions deliver economic prosperity and support policy makers in developing decarbonisation policy pathways around which societal and political consensus can build and be sustained? Taking the example of decarbonising private transport in the UK, we use a computable general equilibrium model – informed by energy systems analysis – to consider the potential wider economy impacts, over different timeframes, of electricity network upgrade costs to enable the EV rollout required by 2050. We demonstrate opportunities for both transitory and sustained gains in GDP, employment, and earnings across the UK economy. The key source of sustained expansion is the strength of domestic supply chains supporting the UK electricity sector. However, the transition pathway is sensitive to how network upgrade costs and trajectories respond to the speed of consumer behaviour adjustments, and to the price impacts of constrained wider economy expansion, with notable implications for the price of electricity. The key outcome of concern for UK policymakers is how a lasting constraint on total labour supply means that the EV rollout is associated with lasting impacts on electricity and other consumer prices.