{"id":17685,"date":"2022-04-08T11:15:50","date_gmt":"2022-04-08T10:15:50","guid":{"rendered":"https:\/\/www.economicsobservatory.com\/?post_type=question&p=17685"},"modified":"2022-04-08T11:15:51","modified_gmt":"2022-04-08T10:15:51","slug":"conflict-climate-and-constitutions","status":"publish","type":"question","link":"https:\/\/www.economicsobservatory.com\/test\/conflict-climate-and-constitutions","title":{"rendered":"Conflict, climate and constitutions"},"content":{"rendered":"\n

Newsletter from 8 April 2022<\/strong><\/p>\n\n\n\n

In the aftermath of the atrocities uncovered this week in the city of Bucha, Ukraine, Western governments have intensified their sanctions on Russian individuals and goods. Shifting European energy<\/a> supply away from Siberian oil and gas is key to cutting off the Kremlin\u2019s sources of foreign exchange. It may also bring a potential \u2018double dividend\u2019 if it leads to increased use of renewable energy sources, such as nuclear power<\/a>.<\/p>\n\n\n\n

In an article for the Economics Observatory <\/a>this week, Raj Patel (associate director of policy at Understanding Society<\/a>) explains that while supply-side energy policies are favoured politically even without war, emissions reductions on the demand side will also have an important role to play if the UK is to reach its net-zero emissions targets. Around 20% of greenhouse gas emissions can be directly attributed to households \u2013 and research<\/a> evidence suggests that households could be indirectly responsible for as much as 80% (for example, through emissions in the supply chain for food and clothing).<\/p>\n\n\n\n

The Understanding Society<\/a> survey of a representative sample of UK households is a useful tool for revealing potential changes in behaviour that could benefit the planet. Pessimistically, the data show that households make the easiest but least effective efforts when trying to be greener \u2013 turning off lights and saving water \u2013 rather than more significant life changes, such as walking to work or taking fewer flights. But on the brighter side, the data also indicate that increasing active travel is<\/em> feasible for many commuters.<\/p>\n\n\n\n

To appreciate how the UK can make the transition to a low-carbon economy, as well as the distributional consequences of doing so, Raj highlights the need for granular, linked datasets. The impact of the transition on households will vary based on emissions levels. For example, people living in homes that are inefficient in their use of energy and families that have multiple petrol cars will be more affected.<\/p>\n\n\n\n

But our working lives are important too \u2013 delivery drivers who have to change to electric vehicles may suffer short-term disruptions, but technological change that causes their jobs to be replaced by drones, for example, would be much more significant.<\/p>\n\n\n\n

More broadly, the effects of production on the environment remain absent from GDP figures. In a data piece for the Observatory<\/a> on Wednesday, Elias Wilson (University of Bristol) analysed the updated quarterly national accounts for the end of 2021. GDP growth was revised upwards by 0.3 percentage points for the period from October to December, indicating annual GDP for 2021 of 7.4%. This is the largest annual increase since the Second World War, and it means that GDP is now only 0.1% lower than before the pandemic began.<\/p>\n\n\n\n

Elias argues that this is largely a mechanical rebound from the devastating recession caused by Covid-19 in 2020. Indeed, output excluding government spending (such as the generous Covid-19 support measures) has not recovered so much, remaining nearly 3% below the its level in the fourth quarter of 2019. Exports of goods and services are also depressed in comparison with other G7 countries, with Brexit frictions potentially looming over trade.<\/p>\n\n\n\n

This could be a cautionary tale for a potential second Scottish independence referendum. In a new piece for the Observatory series on constitutional change<\/a> in Scotland, Brad MacKay (University of St Andrews) looks at how business leaders assess these risks and opportunities<\/a>.<\/p>\n\n\n\n

Evidence on how firms react to regulatory uncertainty is mixed, but many seem to adopt a \u2018wait and see\u2019 approach to further investment. Research on the specific effect of political independence is limited, but what little data there are suggest that large businesses tend to oppose constitutional change (for example, Medina and Molins, 2014<\/a>). Brad notes that firm size is also likely to be a proxy for factors such as ownership structure, which may be the true driving force behind this effect.<\/p>\n\n\n\n

Brad\u2019s earlier research finds that 90% of executives reported uncertainty around the 2014 independence debate (MacKay, 2013<\/a>). Digging deeper, concerns about risk overshadowed potential opportunities, particularly for large, UK-facing and publicly traded companies with Scottish headquarters. On the other hand, private companies, which are typically free of pressures from external shareholders, generally exhibited a greater willingness to absorb downside risks.<\/p>\n\n\n\n

The 10% of leaders who emphasised opportunities over risks were largely from medium-sized businesses trading mostly within Scotland or globally, rather than with the rest of the UK. This suggests that the structure of a business and its key market locations explain risk appetite more accurately than generic classifications \u2013 a result also found in pre-Brexit business surveys.<\/p>\n\n\n\n

The heightened uncertainty in the UK since 2016 is unlikely to change the opinions of Scottish executives if another independence vote does go ahead. With 60% of Scottish exports going to the rest of the UK, it will remain Scotland\u2019s largest export market even if membership of the European Union were possible post-independence. But while the recent experience of Brexit would make any constitutional change less of a surprise than it might have been before, it does not necessarily mean that it would be any less painful.<\/p>\n\n\n\n

Observatory news<\/h3>\n\n\n\n