In a groundbreaking development, the inclusion of wind and wave power in the calculation of countries' economies has been approved at the United Nations, with changes set to take effect in 2030. This shift marks the first time these renewable energy sources will factor into economic estimates, potentially increasing the size of the UK economy. Despite its small share in the total government budget, this inclusion is significant when compared to cuts in overseas aid and the fiscal headroom for meeting government rules.
The changes, described as "tweaks, rather than a rewrite" by Professor Diane Coyle of the University of Cambridge, aim to modernize the way economic size is gauged by recognizing the growing importance of renewable energy sources. Ben Zaranko of the Institute for Fiscal Studies (IFS), however, emphasizes that this is an "accounting" change rather than a real alteration to the economic landscape.
Wind and wave power's inclusion is expected to have a substantial impact on economic estimates. Should these new rules increase the estimated size of the economy by 2-3% in 2030, it could add approximately £2 billion to defence spending commitments. This increase would make spending promises tied to a fixed share of the economy more costly for sectors such as defence or aid.
Despite these potential adjustments, the Office for Budget Responsibility (OBR) announced it will not consider the new rules' impact when assessing government finances this March. As assets like oilfields are already included under existing rules, this move marks an expansion into newer energy sources.
The last update to these rules occurred in 2008, reflecting the necessity for periodic revisions to account for evolving economic landscapes. The inclusion of wind and wave power underscores a shift towards acknowledging renewable resources' role in national economies.