The long-term effect of renewable electricity on employment in the United Kingdom

Highlights

• Novel econometric methodology to estimate renewable energy net employment impact.

• Method employs relatively aggregated data on UK national level.

• 1 GWh increase in annual renewable energy creates 3.5 long-term jobs.

• Renewable energy generates about 6 times more jobs than nuclear.

• Generation of 12.000–150.000 new jobs in the UK by 2030.

Abstract

Assessment of the employment impact of renewable electricity technologies is generally implemented through either complex and data-intensive methods (such as Computable General Equilibrium models) or simplistic approaches, normally focused on specific energy generation technologies, such as employment factors. In contrast, this article proposes a transparent and easily reproducible econometric methodology based on the Vector Error Correction model that uses aggregated and widely available data. The model is applied to the power generation sector in the United Kingdom using annual data from 1990 onwards and provides evidence that the long-term employment impact of renewable technologies is much higher than the impact arising from deploying nuclear or natural gas technologies. The impulse response function analysis indicates that a permanent 1 Gigawatt-hours increase in annual electricity supply generated by renewable technologies creates 3.5 jobs in the long-term period. Finally, this study derives the implications of the findings in the context of decarbonisation scenarios for the power sector in the United Kingdom and assesses the extent to which decarbonisation pathways based on renewable electricity contribute to stimulating employment in the generation sector.

Introduction

Renewable technologies are an integral component in the mitigation of climate change [1]. The deployment of renewable energy technologies is sometimes considered a win-win scenario for both the environment and economic welfare, as they reduce carbon emissions and create employment in various sectors of the economy through direct and indirect effects. The International Renewable Energy Agency [2] indicates that renewable energy has a “considerable future potential” for net job creation, a suggestion generally backed up by most studies in the literature [3].

Since 2012, the deployment of renewable technologies has substantially increased, leading to the renewable energy sector globally employing 11 million people in 2018 [4]. The rapidly increasing maturity of renewable technologies along with the rising numbers of created jobs make it crucial that one investigates the employment effect of renewable electricity. Although there is a large number of papers doing so, these studies tend to focus on specific technologies, locations and plants and to discard the employment effect of fossil and nuclear generation technologies [5].

Based on extensive literature review, Cameron and Zwaan [5] conclude that the magnitude of the net employment effect varies significantly among countries, technologies and empirical methodologies, with no clear consensus over the long-term sustainability of renewable jobs. This article helps fill this gap by developing a novel methodology to assess the long-term employment effect of different types of power generation technologies, including conventional thermal, from a macroeconomic perspective so that an estimate of the net job creation can be obtained by using the results from this article in combination with national decarbonisation scenarios. The approach of this study is rigorous but simple and can be implemented by using relatively aggregated data. The methodology is applied to renewable electricity produced in the United Kingdom (UK) as a case study. Employment in the UK energy generation sector is modelled as a function of a) economic activity and b) the level of electricity generated by conventional thermal (oil and coal), combined cycle gas turbine (CCGT), nuclear and renewable technologies. The proposed econometric methodology has relatively low data requirements, as it is based on a Vector Error Correction (VECM) model. This means that it can be estimated on national data for employment and economic activity in the power sector (regardless of the technology being used) and the amount of electricity produced by different power generating options. Therefore, the main advantage of this approach is that it avoids the data burden typical of Input-Output (IO), Computable General Equilibrium (CGE) and macroeconometrics sectorial models [5], with the additional advantage that the relationships estimated in this model are transparent, contrary to other approaches, such as CGE models, using several elasticity parameters, not always made explicit in the studies. The proposed approach is implemented in the case of the UK electricity generation market as it is highly competitive [6] with diverse energy mix, a significant proportion of which has been increasingly being generated by renewable technologies.

By quantifying the employment impact of a number of electricity technologies, the proposed methodology can be applied on the back of the output of energy system models which produce deployment scenarios of electricity generation technologies to achieve a certain level of decarbonisation. This implies the possibility of computing the net effect on empoyment from the deployment of renewable technologies and fossil-fuel based plants. In addition, the proposed methodology can be easily replicated across countries therefore increasing the empirical evidence base while taking into account the context of a particular country, such as industrial and labour policy, technologies being used in power generation and labour productivity. All variables used are observed annually, although one could use quarterly or monthly data, when they are available. The ability to use annual observations instead of more granular ones increases the applicability of the method which uses data which are readily available for the member countries of the Organisation for Economic Co-Operation and Development (OECD). Thus, this study is of interest to both UK policymakers and government officials while replication of this study in other countries would be of similar interest to policymakers in the countries of interest.

This paper is structured as follows. Section 2 reviews the recent literature on employment and renewable electricity. Section 3 analyses the UK electricity supply market. Section 4 explains the methodological approach while Section 5 provides details on the data used in. Results are presented in section 6 and discussion on policy relevance can be found in Section 7. Section 8 concludes.