UK Business Competitiveness and the Role of Carbon Pricing
Vivid Economics developed a comprehensive framework of business competitiveness and the role of carbon pricing. Vivid first identified the major components and determinants of competitiveness through an extensive review of the literature in the economics, industrial organisation and business strategy fields. The work then built a comprehensive, dynamic, and applicable framework of competitiveness that structures the drivers of competitiveness logically, distinguishing between the cost and market conditions that firms face and the actions that firms can take. To focus the analysis, the project also developed archetypes of competition. The project then applied the framework to map the role of carbon pricing in competitiveness, highlighting the channels through which carbon pricing impacts firms. It also identified actions, such as innovation and investment, that firms can take in order to maximise green upside in a net zero world and minimise carbon leakage risks. Finally, the work has built a framework that analyses carbon pricing holistically beyond the traditional carbon leakage assessment and will play a key role of policy assessment under net zero.