Scottish Budget 2023-24: high level carbon assessment

Annex A – Methodology

1. The figures presented in this report are estimated using the Scottish Government Environmental Input-Output Model (EIO) 2018.

2. The EIO is constructed using the Scottish Government Input-Output Tables 2018 (taken from the 1998-2019 Tables published in October 2022), ONS United Kingdom Analytical Input-Output Tables, 2018 (Blue Book 2021), ONS Environmental Accounts, Atmospheric emissions: greenhouse gases by industry and gas, 2018 (Published November 2022) and HM Treasury GDP Deflators as at 17 November 2022.

3. A fuller description of the model and its associated Greenhouse Gas effects estimates that this assessment is based upon can be found at: https://www.gov.scot/publications/about-supply-use-input-output-tables/pages/environmental-input-output/

Revisions to the Environmental Input-Output Model

1. With the release of new Input-Output Analytical Tables covering the year 2018 for Scotland and the UK, this year the base year of the EIO model has been updated from 2017 to 2018. This has involved several changes to the model:

• The updating of the underlying Scottish Input-Output model and UK closed economy Input-Output model from the 2017 version to the latest published version for 2018.
• The updating of the year used to calculate emissions factors from 2017 to 2018.

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 HM Treasury.

2. During preparation of the 2023-24 HLCA, an error was identified in the processing of Gross Fixed Capital Formation (GFCF) data affecting the 2022-23 HLCA estimates. The error caused some capital spending to be attributed to incorrect industries, leading to an overestimation of emissions. Correcting this error in the 2022-23 model reduced the total emissions estimate from the published 9.9 MtCO2e to 9.4 MtCO2e, a reduction of 5.6%.

3. Once corrected, updating to the latest version of the model with the regular changes listed in the bullets above leads to a downward revision to estimated greenhouse gas emissions arising from the 2022-23 budget of around 8% compared to results from the corrected old model.

4. Around half of the downward revision versus the corrected old model arises from the updating of the underlying input-output tables, with the remainder of the revision split between the updates to the HMT deflators and the GHG industry emissions ratios.

5. 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.