The Environmental Authorisations (Scotland) Amendment Regulations 2025 Final Business and Regulatory Impact Assessment

Section 3: Costs, impacts and benefits

Quantified costs to businesses

Costs, where they can be determined, have been summarised based on each impacted stakeholder group for the option that the 2025 Regulations represent (option 2). We do not have a full picture of exact costs, so elements of this final BRIA are by necessity qualitative.

It is not possible to estimate the extent and scale of some of the impacts of the new activities in the Regulations proposed. This is simply because data is not available as some of these new activities are still being developed and in the early stages of deployment, not just in Scotland but globally (carbon capture, utilisation and storage).

The charging scheme for regulating the new activities will be based on SEPA’s current charging scheme. This is consistent with current policy and best practice whereby charges to potential environmental polluters are designed to facilitate full cost recovery for SEPA’s regulatory activity. Charges are the subject of a separate consultation and the levels at which they will be set are not yet known.

The focus of this section is on considering additional/differing costs to affected stakeholder businesses associated with Option 2 when compared with the status quo (‘do nothing’ option 1).

Sewage Sludge

Additional costs associated with the 2025 Regulations will fall to the operators who apply sewage sludge (and other waste) to land and who will require a permit (currently operators pay charges for registration of their exemptions, so this represents a change in how companies are charged rather than introduction of fees). They will have to pass a ‘fit and proper’ person test and pay subsistence fees for their permits. The additional fees paid by operators will cover SEPA’s costs to conduct additional regulation. Sewage sludge suppliers (including Scottish Water, and other PFI operators) of the sewage sludge to land operators may end up paying these additional costs if they are passed up the supply chain by the companies they supply to.

Carbon Capture, Utilisation and Storage

For CCUS activities, any cost estimates are highly uncertain because these activities do not yet exist at scale. However, as this provision is about extending existing regulatory obligations that apply to carbon capture activities at sites that are currently subject to PPC permitting, we anticipate that costs to business from regulation of related activities at other sites would be similar. New businesses and businesses who undertake new operations are responsible for ensuring that they comply with all legal requirements. SEPA will need to engage with businesses in these sectors to raise awareness of the need to apply for an authorisation and will make necessary information about permitting requirements and processes available via their website and helplines.

Business operators will incur the main costs associated with this new regulated activity. We do not know very much about the current or future scale of the industry that will be brought into regulation but introducing the Regulations now, before the industry emerges, will enable operators to include costs of permitting and compliance in the early stages of development for their business plans. Given that the industry does not yet exist at scale, any costs associated with Regulation cannot strictly be classed as additional.

Non-Waste Anaerobic Digestion

From desk-based investigations into publicly available information about this sector, we estimate that there are up to 10 -20 non-waste anaerobic digestion (AD) plants in Scotland that will be impacted by this Regulation. In the waste sector there are currently 25 AD plants authorised in Scotland.

For non-waste AD, SEPA contacted potentially affected businesses but these did not provide responses that would allow one to understand whether costs might need to differ from those that apply to the waste AD sector, as currently regulated. As the activities are very similar, we think it is reasonable to assume that costs would be similar to those currently borne by the waste AD sector. The main additional costs will be for operators of the facilities who currently do not require an authorisation to operate. They will incur costs associated with registration or permit application (total for all operators estimated to be around £50,000/year; costs of authorisation will differ between operators depending on authorisation level) and, where necessary, investment costs for changing their operations to comply with permit requirements. The public consultation resulted in some limited information on indirect costs (that is, costs for businesses to comply with regulation based on what is required for waste AD sites): one stakeholder stated that, while they supported bringing non-waste AD under the 2018 Regulations as non-waste AD operations have similar environmental and human health considerations as waste AD operations, costs to retrofit mandatory secondary containment could come to £900,000 in additional costs, while for other sites, retrospectively fitting secondary containment could be nearly impossible due to buried pipes. They stated that existing sites would need time and investment to adapt their processes to meet the new requirements. Because of the apparent wide range of compliance readiness in this sector, based on this response, and the varying levels of authorisation that will be applied, it is not possible to give indicative overall costs per operator. It should be noted that the respondent here did support this new activity, and their comment was more related to how the activity will be introduced in practice; the information is useful to understand necessary transition periods for bring this activity under regulation. SEPA, as the regulator, works with operators and has the ability to make case-by-case assessments to, for example, set conditions in permits designed to bring operators into compliance in a way that does not cause unacceptable impacts to their business or the environment.

Electricity generators

There is no centrally held information on the number of generator sites or banks of generators that will be brought into scope of regulation with the 2025 Regulations in Scotland, although we anticipate the number to be in the hundreds based on information supplied by SEPA.

The main costs of this option will fall to operators of combustion plant which generate power with an aggregated rated thermal input of 1 MW or more. The majority of these generators don’t currently require an authorisation so SEPA does not hold complete records of these plant (SEPA hold records for individual plant that have a thermal input capacity of five or greater MWth). As stated above, SEPA believes the number of these generator sites to be in the hundreds. It has not been possible to collect accurate details here, but some of the information submitted during the consultation is useful to give a (mostly) qualitative view of costs.

Island communities rely on generators as power generation back up when there are faults with subsurface cables and sometimes at peak usage times. Generators are also used on the mainland for multiple purposes. If the operators pass these additional costs of generation onto all consumers, then those in these communities may incur further costs.

There are several options including replacing, upgrading or substituting existing plant that cannot meet new Emission Limit Values (ELV) that will apply through permitting to meet air quality standards after transitional periods once the 2025 Regulations are made. It is possible to retrofit abatement (selective catalytic reduction, SCR) to existing plant, but size constraints at some locations make this not viable. A second option is to replace existing plant with new plant that meet the new standards. And a third option is to replace existing plant with mobile plant (that also have SCR abatement to meet the new NOx emission standard). The stakeholder, SSE plc, estimated costs of ca £250M to replace existing plant across the islands where they operate to give back-up capacity of 145MWth^[3]. This option, as well as the other two that both also involve SCR abatement, additionally include costs associated with buying and transporting the urea that is required for the abatement; they estimated these at a total of £3.25M per annum across the islands where they operate. The stakeholder also argued that replacement of existing plant with mobile units would be a retrograde step, because these units don’t have the high stacks of the existing plant that aid dispersion of gaseous emissions in general, even though they would meet new ELV set through permits.

In relation to the islands, an important point to note is that no single approach fits all requirements given the differing range of situations, issues and pressures with emergency supply provision on the different islands. An investment strategy is in place to improve resilience of supply from the mainland that is estimated to reduce reliance on generators for backup supply at some plant by 90%. However back up supply will still be required, but this could also be met by alternatives to generators. The same stakeholder considers battery storage still to be not viable or cost effective given the potentially longer spells of running required (battery back up with current technology would last only hours or days). Alternative fuels are also an option, but require abatement in the same way that fossil fuels do.

It is our view that the stakeholder has presented a reasonable argument in relation to back-up supply on the islands. Based on this, and related discussions with the sector on their plans for investment and improvements, the 2025 Regulations include specific provisions to address the issue of island generation back up. Forcing companies that provide power to distribution networks on the islands to comply with the 2025 Regulations to the same timescales, 1 January 2029, as for other situations (where the operator and communities are not reliant on subsea cables for their connection to the national grid) is disproportionate and unfair. Although the regulations are not directly related to carbon emissions, doing so would also go against the principles Scottish Government has in relation to a Just Transition.

The specific exemptions in the 2025 Regulations, and time-limited exemptions that will allow a different approach on the islands, will not change the overall costs of complying with the provisions but will spread costs over a longer timeframe and give operators a practical way of replacing generator capacity on the islands with new equipment/alternatives in line with their longer term investment programme. It is our view that the inclusion of these exemptions allows this new activity to take effect in a proportionate way, and will still lead to an improvement for air quality and a level playing field for operators over an acceptable time period.

Other impacts

The 2025 Regulations will also have impacts for the regulator and potentially for consumers/communities. Costs and benefits fall not only to operators but also SEPA and local communities. Impacts for SEPA are covered below in section 4. If operators that provide a service to the general public, for example electricity suppliers, choose to pass on any additional costs then customers may see an increase in these service charges. We think the 2025 Regulations strike the right balance in that business is given time to adjust, and in the case of the regulation of generators the provisions will bring Scotland into closer alignment with similar regulation in England and Wales, meaning that there will be a levelling of the regulatory playing field for businesses that operate across the nations.

Overall the 2025 Regulations will bring significant environmental benefits for the general public and local communities. These include implementation of the recommendations from the Scottish Government’s sludge review, which will reduce odour and water pollution from sludge application to land. They will also make it clearer for the public to know who to contact with respect to odour issues arising from sewage sludge activities because SEPA will be empowered to act across the whole supply chain. They will reassure communities local to potential new carbon capture installations and the general public that any environmental impacts associated with this new technology will be controlled. They will significantly reduce the risk of potentially serious environmental incidents associated with non-waste anaerobic digestion plant. They will reduce the risk of air quality impacts for communities that are local to large aggregations of electricity generators (but it should be noted that the 2025 Regulations’ exceptions for island communities’ back-up power generation mean that improvements in local air quality resulting from these operations may only be seen over a longer timeframe). In the longer term, they should also help facilitate a switch away from combustion generators to low carbon electricity generation, thereby contributing to reductions in greenhouse gas emissions.

Scottish firms’ international competitiveness

The 2025 Regulations should not disadvantage Scottish businesses’ ability to compete internationally, and should not affect Scotland’s attractiveness as a destination or capital investment opportunity, as the 2025 Regulations do not directly impact these things.

Benefits to business

Sewage sludge

For sewage sludge operations, there will be multiple benefits associated with reductions in administration resource required by waste-to-land operators for whom the proposals will simplify the application process. In general, based on previous sector discussions with stakeholders through previous consultations and informal engagements during 2023, as well as engagement since, the benefits (to waste-to-land operators, but also SEPA, the general public, communities, and the environment) of the 2025 Regulations on sewage sludge are likely to outweigh additional costs to operators (or their customers) who apply sewage sludge to land.

Carbon Capture, Utilisation and Storage

The CCUS amendments will bring improved clarity of regulation and introduction of a level playing field for businesses operating in this sector. Other benefits are environmental and associated with controlling activities which have potential to cause environmental harm.

Non-waste Anaerobic Digestion

The (current) 25 permitted operators of waste-based anaerobic digestion facilities will benefit due to the levelling of the playing field with non-waste operators who are currently unregulated, even though their operations pose the potential for similar environmental impacts. From the baseline information we have available we anticipate that the additional benefits to the general public, local communities, currently permitted operators and SEPA outweigh the additional costs associated with permit applications and changes to working practices for operators of non-waste based anaerobic digestion facilities.

Electricity generators

There are multiple benefits associated with bringing electricity generators with an aggregated thermal input of 1MW or more at a single site into regulation, including levelling the playing field with combustion generation operators who are already regulated, reducing environmental impacts associated with combustion plant for local communities and the general public (part of many companies’ EMS goals), and potentially encouraging operators to switch away from combustion to low carbon electricity generation. The use of unabated generators can have a significant impact on air quality, and plant with a capacity of 1 MWth or more already need an environmental authorisation. Sites where smaller plant aggregate to greater than 1 MWth can have an equivalent environmental impact. It will provide a level playing field and ensure environmental risks are appropriately managed, with the aim of achieving proportionate and equitable regulation of generation activities based on risk to the environment.

Small business impacts

The changes to sewage sludge regulation should overall reduce the administrative burden for small businesses although, for the most part, the affected operators are generally not small businesses. We do not think the introduction of additional regulation in the CCUS sector will impact small business, as to date any pilot projects or plans for development have involved larger organisations/conglomerates.

Bringing non-waste anaerobic digestion into regulation could add an additional administrative and cost burden for small business operators. We do not know what proportion of these assets in Scotland that currently operate fall into this category. In the case of electricity generators, we are in a similar position, although in the case of the islands we understand that the majority of assets that would be newly in scope will be owned/operated by larger companies (ie. power suppliers).

Investment

We believe the impact of the 2025 Regulations on competitiveness and encouraging investment is low. The regulations will bring Scotland into closer regulatory alignment with the rest of Great Britain. The regulations align in ethos with companies’ EMS commitments, including larger entities’ investment and net zero plans.

Workforce and Fair Work

We do not believe the 2025 Regulations will impact on Fair Work First principles.

Climate change/ Circular Economy

The 2025 Regulations’ new activities and the changes in relation to sewage sludge, should contribute to moving towards a more circular economy and to reducing emissions of greenhouse gases. The reuse of sludge as a soil conditioner or fertiliser is a key part of the circular economy, preventing this resource from being lost; the regulations will make the required authorisation procedures around this activity easier for the operator to navigate and easier for SEPA to enforce. CCUS by its nature is about diverting carbon dioxide emissions that would otherwise add to the vast stock of human-produced greenhouse gases already in the atmosphere and oceans that is driving anthropogenic global heating, and regulating this activity will mean CCUS is done in a safe and responsible way. Introducing regulation for non-waste anaerobic digestion will ensure this activity, which reuses by-products or crops to produce a useful resource and biogas, will give certainty to the sector and make clear to those entering the sector their obligations to ensure they carry out this activity in a way that is safe and sustainable. Back-up electricity generators rely on fossil fuels in their operation. While the regulations will enforce a legal limit for NOx and other emissions to protect local air quality as opposed to limiting greenhouse gas emissions, this regulation brings into sharper focus power companies’ investment strategies towards meeting net zero as part of a just transition to more sustainable back-up power resource.

Competition Assessment

The 2025 Regulations will have an overall positive impact on competitiveness. They bring elements of SEPA’s regulation into line with England and Wales; they level the playing field for electricity generators because some operators of these plant in England and Wales have had to meet tighter emissions standards than equivalent plant in Scotland since 2018, and they level the playing field for the anaerobic digestion sector.

Consumer Duty

The goal of the 2025 Regulations is to simplify for both the regulator and regulated business the way that environmental regulation works in Scotland. When it comes to regulation of the four new activities, this will benefit consumers who will see positive impacts for air quality, noise and odour nuisance, and better clarity and transparency in decision making around environmental regulation. The Regulations are being introduced in such a way that consumers should not see an increase in e.g. bills for services they procure from affected operators (e.g. power companies), in as far as they may be related to the changes the 2025 Regulations represent.