Decarbonising heating - economic impact: report

Executive Summary

This report shows the potential economic impacts that might arise from a shift towards low carbon heating technologies in Scotland over the period to 2030. These are estimated based upon illustrative policy pathways which show the role that policy can play in shifting the future trajectory of Scottish heating demand away from fossil fuel-based technologies and onto a trajectory consistent with meeting the Scottish Government's decarbonisation goals.

• The modelling shows that there could be net positive economic impacts from the transition in the period to 2030.
• In 2030, there are an estimated 16,400 additional jobs created in our policy-compliant Extended scenario compared to a 'business as usual' reference case. Within this, there are a number of different dynamics taking place. Jobs are expected to be lost in fossil fuel-related industries, most notably in the manufacture of gas- and oil-fired boilers, and in the extraction, refinery and supply of these fuels (unless gas extracted offshore is exported to replace lower domestic demand), while jobs are likely to be created in the manufacture and installation of low-carbon heating technologies such as heat pumps and other forms of electric heaters where this happens within Scotland, and the generation and supply of electricity and other low carbon fuels. Compared to the reference case, around 11,600 jobs will be lost from reduced demand for fossil fuel technologies and fuels, and an estimated 28,000 jobs created via higher demand for low-carbon technologies and fuels. The majority of jobs (both from the individual flows and in terms of net effects) are created in the manufacturing and services sectors, reflecting the supply chains underpinning the technology and electricity supply industries.
• The analysis is subject to uncertainty, due to the assumptions that are required to be made to underpin the analysis. For example, we assume no change in the structure of the Scottish economy over the period 2021-30, and the analysis is carried out at a broad sectoral level, both reflecting data limitations. There is particular uncertainty around the spatial distribution of these impacts. Job losses in the oil & gas sector, if domestic demand cannot be replaced by demand for exports of gas, are likely to be focused in and around Aberdeen, reflecting the heavy specialisation of the sector in this region (including associated offshore activities). The changes in manufacturing demand from the shift in heating technologies presents both a risk and an opportunity to current regions specialising in this industry, including Fife and North and South Lanarkshire. The increase in electricity demand will provide major opportunities to regions currently specialised in the production or supply chains supporting renewable electricity generation, such as the onshore wind generation industry in North and South Lanarkshire.
• The impacts across different households is likely to be dominated by the changing nature of the costs associated with heating. Our analysis shows that subsidies can play a major role in equalising the costs of low- and high-carbon technologies, and ensuring that the typically higher up-front costs of heat pumps do not limit take up amongst financially constrained low-income households. In terms of the nature of the jobs created, the industries in which jobs are expected to be lost and created have a higher concentration of medium-low and low skilled workers than the Scottish average, but the specific nature of the jobs created will largely determine whether the new jobs can provide replacements or additional employment opportunity for those jobs lost in the shift away from fossil fuel-based technologies.
• The analysis is subject to several caveats, primarily related to the availability of data. The input-output framework that we use assumes spare capacity in the economy can be utilised to meet increased demand for new technologies and does not consider whether people with the relevant skills will be available in the workforce, either at the national or local level. The framework also assumes that supply chain linkages within the Scottish economy do not change over the period 2017 (the most recent year for which such data exists) and 2030 (the end year of our analysis). Finally, the input-output framework operates only at the broad sectoral level; it is not able to reflect the specificities (in terms of supply chains or imported content) of the very specific sub-sectors relevant to heating technologies (both high- and low-carbon).