Evaluating the Impact of Pro Environmental Energy Policy in Scotland and the UK : the Case of Increased Efficiency in Household Energy Use

In this thesis, I use multi-sectoral computable general equilibrium techniques to investigate the system wide impacts of improvements in households' energy efficiency use, and technical progress in delivering households' energy services, in Scotland and the UK. The thesis consists of three main, self-contained but correlated essays. The first essay looks the system wide impacts of an illustrative 5% energy efficiency improvement in households' energy use in Scotland and highlights the economic implications of increasing energy efficiency in a regional economy. I find that this results in a small economic stimulus, accompanied by a reduction in energy use that is less than the expected energy savings from the pure energy efficiency increase- the rebound effect. The stimulus is higher when migration of workers is allowed between Scotland and the rest of the UK. However, the higher expansion also delivers a higher rebound in energy use. The stimulus from the higher efficiency in energy use if further enhanced when I consider the impact of greater fiscal autonomy in Scotland, and allow for endogenous government expenditure or tax rates. The second essay analyses the distributional impacts of households' energy efficiency improvements in the UK, focussing the attention on effciency improvements in lower income households. I discuss whether there is an argument for the Government to fund household energy efficiency programmes via a temporary reallocation of current government expenditure or an increase in the income tax rate. While reallocating public spending has short-term negative impacts on demand over the period of the payment, the efficiency improvement delivers a net long-run stimulus However, an increase in income tax adversely affects the real take home wage and delivers a long-term reduction in GDP. In all scenarios, lower income households are able to increase their energy consumption and their income by approximately the same amount. The third essay looks at the consumption of energy intensive services using the example of private transport. Here I argue that private transport should be modelled as a household self-produced commodity, composed of refined fuels and motor vehicles. By using a simple partial equilibrium model, I show that technical improvement in motor vehicles can reduce refined fuels use, when there is enough substitutability between the two inputs, and depending on the price elasticity of demand for private transport. By taking the case of the UK, and using a CGE model, I find that technical progress in motor vehicles delivers a small expansionary improvement if the consumer price index is adjusted to account for the implicit price of private transport