Scottish Budget 2019-2020: carbon assessment

Annex A – Methodology

1. The figures presented in this report are estimated using the Scottish Government Environmental Input-Output Model (EIO) 2014.

2. The EIO is constructed using the Scottish Government Input-Output Tables 2014 (taken from the 1998-2015 Tables published in July 2018), UK Blue Book 2017 consistent Input-Output Tables 2014 and UK Analytical Tables 2014, UK Environmental Accounts 2014 (July 2018) and HM Treasury GDP Deflators, October 2018.

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://www2.gov.scot/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 2014 for the UK, this year the base year of the EIO model has been updated from 2013 to 2014.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 2013 version to the latest published version for 2014
• The updating of the year used to calculate emissions factors from 2013 to 2014

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 downward revision to estimated greenhouse gas emissions arising from the 2018-19 Draft Budget of around 5%.

6. The majority of this revision arises from the change in the GHG emissions factors between 2013 (the year for which the old model was constructed) and 2014 (the year for which the new model was constructed). The largest driver of change here is the reduction in the GHG intensity of the electricity industry in the UK and Scotland due to the changing generation mix (particularly the decline in use of coal-fired electricity generation).

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. Other sources of revision include changes to the classification of a small number of budget items, changes in the underlying Scottish and UK Input-Output Tables between the old 2013 versions and the 2014 versions used in the new model, revisions to the forecast GDP deflator, and price changes between 2013 and 2014 which were not well approximated by the change in the GDP deflator.