Carbon Assessment of the 2018-19 Draft Budget

Annex A – Methodology

1. The figures presented in this report are estimated using the Scottish Government Environmental Input-Output Model ( EIO) 2010.

2. The EIO is constructed using the Scottish Government Input-Output Tables 2013 (taken from the 1998-2014 Tables published in July 2017), UK Blue Book 2016 consistent Input-Output Tables 2013 and UK Analytical Tables 2013, UK Environmental Accounts 2013 (July 2017) and HM Treasury GDP Deflators, November 2017.

3. A fuller description of the model and its associated Greenhouse Gas effects estimates that this assessment is based upon can be found at: http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/Input-Output/CarbonAssessment.

Revisions to the Environmental Input-Output Model

4. With the release of new input-output analytical tables covering the year 2013 for the UK, this year the base year of the EIO model has been updated from 2010 to 2013. This has involved a number of additional changes to the model:

• The updating of the underlying Scottish Input-Output model and UK closed economy input-output model from the 2010 version to the latest published version for 2013
• The updating of the year used to calculate emissions factors from 2010 to 2013 alongside the regular annual updates of:
• Updating the emissions data from ONS environmental accounts to the latest published version
• Updating the forecast GDP deflator used to project estimates to the budget year to the latest version published by HMT.

5. These changes have led to a large downward revision to estimated greenhouse gas emissions arising from the 2017/18 budget of around 20%

6. Of this change, approximately 70% of the total revision arises from the change in the GHG emissions factors between 2010 (the year for which the old model was constructed) and 2013 (the year for which the new model was constructed). This reflects the parts of the Scottish and UK economy directly or indirectly supported by Scottish Government spending becoming less GHG intensive over time.

7. However, care should be taken when interpreting the revision to imported GHGs. Given the lack of a world economy model and emissions factors, the EIO model uses the UK economy as a proxy for the world economy. Changes in emissions intensities in the UK economy may not be representative of changes in the world economy, for example due to different technologies being used, or if more carbon intensive activities move overseas and are replaced by imports.

8. The remaining 30% of the revision is mainly accounted for by other changes in the underlying input-output tables between the old 2010 versions and the 2013 versions used in the new model. These changes include the adoption of ESA2010 accounting standards for the tables (in particular, the capitalisation of R&D and other activities which were counted as intermediate consumption under ESA1995), as well as underlying changes in the economy between 2010 and 2013.

9. One further impact of methodological change between the old and new models is that some Scottish emissions which were previously counted as indirect emissions are now counted as direct emissions due to a change in the accounting treatment of social transfers in kind market production ^[6] .