The Challenge
The UK’s first six carbon budgets were set without quantitative analysis of their potential macroeconomic and distributional impacts, partly because the necessary modelling tools were not available. The Seventh Carbon Budget, covering 2038–2042, set out the emissions reductions needed to meet the UK’s climate targets, with significant implications for investment, technology and industrial practices. The Department for Energy Security and Net Zero (DESNZ) identified a need for better evidence on how these changes could affect economic growth, inflation, employment and households with different levels of income and wealth.
This Sprint aimed to address that gap by developing an agent-based modelling approach to assess the wider economic impacts of the Seventh Carbon Budget. It also explored how complexity economics could help government understand the interactions between climate policy and the wider economy, supporting more informed decisions about the transition to net zero.
The Solutions
The Sprint developed an agent-based macroeconomic model to explore the economy-wide effects of policies associated with the Seventh Carbon Budget. By modelling interactions between different parts of the economy, the approach offered a way to investigate how decarbonisation policies might affect economic performance and how their combined effects could differ from those of individual measures.
Preliminary results suggested that the Seventh Carbon Budget could support GDP growth, with broadly neutral effects on inflation and unemployment. However, these findings remain subject to uncertainty while the team validates and quality-assures its UK household-data baseline.
The Sprint produced Complexity Economics Insights for the Seventh Carbon Budget which was submitted as written evidence to the Environmental Audit Committee’s inquiry. Other outputs included an extended abstract, research and policy briefings, and presentations for government stakeholders. Further working papers are planned as the research continues.
The Pathway
The Sprint brought together an interdisciplinary team at the University of Oxford’s Institute for New Economic Thinking (INET Oxford), combining expertise in economics, mathematics, physics and computational modelling. Researchers adapted an existing agent-based modelling framework, developed a UK-focused baseline and explored policy scenarios relevant to the Seventh Carbon Budget.
Close collaboration with DESNZ helped shape the work as government priorities evolved. As economic growth became a stronger focus, the team prioritised preliminary analysis of growth, inflation and employment, while planned work on distributional impacts was not pursued as extensively. A DESNZ analyst seconded to INET/Agile helped connect researchers and civil servants, while regular meetings, presentations and informal discussions enabled the team to respond to policy questions and navigate sensitivities around data and findings. The Sprint also provided opportunities to share emerging evidence, explain the modelling approach and build understanding of how agent-based modelling could inform policy.
What Happened Next?
The Sprint contributed to policy discussions surrounding the Seventh Carbon Budget. Its policy briefing was cited three times in the Carbon Budget impact assessment, and the team reported that its presentations and discussions with DESNZ officials strongly informed the assessment’s macroeconomic analysis.
The project also helped raise awareness of agent-based modelling across government. Four seminars introduced officials to the approach: three for DESNZ analysts, each attracting more than 100 attendees, and a fourth for analysts and scientists across government, attended by around 500 people. The fourth seminar led to a new cross-government network on agent-based modelling. DESNZ also provided an additional £18,000 to extend the secondment of its analyst to INET Oxford.
Following the work of the Sprint, the next phase of the research will focus on consolidating and validating the model, completing planned working papers and using forthcoming publications to re-engage policy stakeholders. Further funding is being explored, including potential support from the Natural Environment Research Council (NERC) to continue the work for another year. This could provide a foundation for further research into the relationships between climate policy, economic growth and inequality.
