Low Carbon Scotland - meeting the emissions reduction targets 2010-2022: report

2. Proposals and Policies

2.1 For the purposes of this Report:

• A 'policy' is considered to be a course of action which has been wholly or largely decided upon. In many cases, policies will have committed funding and/or legislation and timescales. Some policies can be implemented directly by the Scottish Government. Others are clear policies to support and campaign for others, especially the UK and EU, to take action. Wherever possible, the contribution of policies to the achievement of annual targets have been quantified.
• A 'proposal' is considered to be a suggested course of action, the details of which might change as this course of action is explored and evidence is gathered. Some proposals in this document have been initiated by Scottish Ministers, and are set to become firm policies once development work is complete and/or financial resources allow. Many other proposals have been put to Scottish Ministers as options to consider, and this report sets out the analysis which would assist Ministers in future to take decisions on the way forward. Wherever possible, the contribution of proposals to the achievement of the annual targets, and the costs of doing so, have been quantified. There are inevitable uncertainties in aspects of these estimates.
• A "supporting and enabling measure" is a measure that does not directly lead to a reduction in emissions, but which can work towards removing barriers or maximising the success of the other policies. In some cases the supporting measures will indirectly affect emissions.

2.2 The above definitions have been provided to assist in articulating where measures lie on the spectrum of the policy-making process between full implementation and early ideas which require further development. Inevitably, some measures will fall in the middle of this spectrum, for example where a clear direction has been set on policy, but details of certain elements of that policy have yet to be decided.

2.3 Chapter 9 sets out how the content of this Report, in terms of both policies and proposals, will be taken forward. The schedule of work to develop and or/implement each policy and proposal in this document will start from the position that the policy or proposal presently occupies in the Government's programme.

The trajectory

2.4 A full year-by-year breakdown of the estimated emissions impact of proposals and policies is shown in Annex B of this Report, which gives some background on assumptions, uncertainties and the sources of data.

2.5 The analysis shows that:

• all of the policies that have been introduced since 2006 are expected to result in 38% reduction in emissions by 2020 compared to 1990;
• if the EU were to move to a 30% target for 2020 and tighten the EU Emissions Trading System ( ETS) cap from 2013 accordingly, Scottish emissions would be reduced by a further 4 percentage points in 2020, with similar effects in surrounding years. It is the Scottish Government's firm policy to press the EU to move to 30% and to press the UK Government to match Scotland's target of 42%;
• these policies would ensure that annual targets were met in some years. But these policies alone provide insufficient assurance that all annual targets can be met;
• if all of the proposals for the non-traded sector delivered the abatement expected, emissions would meet and exceed the annual targets in all years, and be well over 42% lower in 2020 than 1990, thereby meeting the interim target in the Climate Change (Scotland) Act 2009;

• implementing all of the proposals identified in the Report would then allow all of the annual targets to be met, and there would also be some flexibility in the event of any proposals being impossible to implement or less effective than expected.

The analysis also shows that:

• Substantial progress is being made toward achievement of annual targets and the interim target of 42% by 2020;
• A critical success factor in ensuring we can achieve the targets is a more ambitious trajectory for the EU ETS cap;
• With or without a change in the EU ETS, proposals will need to be successfully developed into policies in the years to come;
• Not all the proposals in this Report will be necessary, and others may be suggested and introduced over time;
• There remains uncertainty over the underlying data and the contribution of particular proposals and policies to delivery of the targets. It is not possible, or indeed desirable, to set a firm programme for the next 10 years, and expect that the programme will not evolve. It will be added to and some elements developed. The scope for innovation is significant. The implementation of this Report on Proposals and Policies will therefore require close monitoring and evaluation of progress.

Milestones

2.6 The Climate Change (Scotland) Act sets clear targets for reductions in emissions. This Report, wherever possible, seeks to outline milestones of progress and examples of existing activity. Examples of milestones and activities in how we will "green-up" our supply of energy and improve the efficiency of how we use energy, moderate energy demand and save carbon are as follows;

• 80% of Scottish electricity demand to come from renewable sources by 2020;
• 11% of Scotland's heat to come from renewable sources by 2020;
• A 12% reduction in total final energy consumption by 2020;
• Carbon Capture and Storage to be fitted to new or existing Scottish coal power stations and be economically and technical proven by 2020;
• Every home to have loft and cavity wall insulation, where this is cost-effective and technically feasible, plus simple measures such as draught-proofing and pipe lagging;
• Every home heated with gas central heating to have a highly efficient boiler with appropriate controls;
• At least 100,000 homes to have adopted some form of individual or community renewable heat technology for space and/or water heating;
• A mature market for low carbon vehicles, resulting in average efficiencies for new cars of less than 95 gm/kmCO ₂e;
• An electric vehicle charging infrastructure in place in Scottish cities;
• Personalised travel planning advice provided to all households;
• Effective travel plans in all workplaces with more than 30 employees;
• At least 10% of all journeys made by bicycle;
• Targets for the number of farm businesses that have adopted Farming for a Better Climate measures;
• Targets for the number of farm businesses undertaking nutrient management plans;
• Incorporation of peatland restoration data into the net Scottish emissions account, subject to UNFCCC agreement on an international methodology;
• 100 million trees planted by 2015;
• Requirements for certain priority wastes to be sorted at source and collected separately or, as appropriate, treated after collection;
• Phased introduction of bans on materials that may be landfilled: food waste and dry recyclables from 2015; and all biodegradable waste by 2017.
• Both business and public sector to contribute fairly towards reducing Scottish energy consumption by 12% by 2020, the target in the Energy Efficiency Action Plan.
• Individual public bodies will have all set and be monitoring their own ambitious annual energy efficiency targets;

• All businesses will have access to consistent energy and resource efficiency advice.

Presentation of proposals and policies

2.7 Meeting the annual targets will require a range of actions by all sectors of society - central government, local government and the public sector, businesses, individuals and communities. Some of these actions will be strategic in their nature, such as energy, agriculture or planning policy; others will be targeted and discrete, such a policy to increase the number of homes with insulation. In many cases the action needed will be groundbreaking and the exact result is not known.

2.8 Because of the complexity of the range of actions needed to meet Scotland's statutory emissions reduction targets, and the uncertainties as to their impact, the following approach has been taken in this Report in order that the proposals and polices are presented as clearly and consistently as possible:

• A broad approach has been taken when identifying policies. For example, individual district heating projects are not identified - instead, the potential for renewable heat across the whole of Scotland has been considered.
• Policies have been grouped so that those that result in the same outcomes are considered together. For example, a single figure has been given for the impact of UK and Scottish policies aimed at increasing the number of homes with insulation.
• A distinction has been made between policies for which the resulting emissions reductions can be estimated in a direct way, and measures which will be necessary to achieve the level of reductions envisaged but whose impact is not so direct. The latter are described as 'supporting and enabling' measures. Emissions reductions have not been attributed to supporting and enabling measures.

• Emissions reductions in Scotland will be achieved through a mix of EU, UK and Scottish policies. Where savings come from UK policies their impact in Scotland has been estimated by using figures from the Department of Energy and Climate Change, making sensible assumptions about what Scotland's share of the savings will be.

2.9 The figures presented in this Report represent the best current estimates of the impacts of the proposals and policies. However, the uncertainty around each figure is appreciable and therefore the analysis presented should be considered provisional, with estimates subject to change as policies are developed and implemented over time and the evidence base improves.

2.10 A summary diagram of the proposals and policies in this Report in relation to the interim target of 42% by 2020 is shown in Annex A. The diagram indicates, in a very simplified way, the key points of interaction with a number of related statutory and non-statutory plans and strategies.

The traded sector and electricity generation

2.11 Emissions from electricity generation and heavy industry are covered by the EU Emissions Trading System ( EU ETS) and are known as the "traded sector". The EU ETS operates through the trade of greenhouse gas emissions allowances throughout the EU, where one allowance represents one tonne of carbon dioxide equivalent (CO ₂e). A fixed ("capped") number of allowances is allocated or auctioned to participants, who can then trade them with other participants so that their allowances match their emissions year by year. In this way, the EU ETS incentivises the reduction of greenhouse gas emissions where this costs less than buying allowances, and therefore where it is most cost-effective to do so.

2.12 For the traded sector, the Net Scottish Emissions Account ( NSEA) will count Scotland's share of the EU-wide emissions cap rather than the actual emissions from Scottish participants. This approach is in line with international practice and reflects the fact that the reduction of the emissions cap in the EU ETS is fixed, and is not directly affected by the policies of individual member states.

2.13 This approach has the additional benefit of smoothing the reported emissions from the traded sector, which vary as a result of factors such as the weather, or fuel prices affecting the balance of fuels used for thermal generation. Reducing the volatility is particularly important with an annual targets framework such as that required in the Climate Change (Scotland) Act, where the margin for error is much less than with the UK's five-year carbon budget approach.

2.14 For this reason, electricity generation policies will not affect Scotland's emissions as measured against the targets and are not included in the tables at Annex B. The traded sector is covered in more detail in the Technical Appendix.

2.15 The total number of allowances available under the EU ETS each year is set in advance, and reduces over time. Since Scotland counts a set share of these allowances in the NSEA, the rate at which the emissions cap is reduced dictates the rate at which Scotland's emissions can be reduced. Currently, the EU ETS allowance cap is set at a level that will achieve economy-wide emission reductions of 20% by 2020 relative to 1990. The EU has committed to strengthening its target to 30% by 2020 if there is a suitable global climate deal. If Scotland is to achieve a 42% reduction in overall emissions by 2020 it is important that the EU target is strengthened to 30% in order to drive greater emissions savings from the traded sector.

2.16 Scottish Ministers were represented for the first time in the UK delegation at the United Nations climate change conference in Cancun in December 2010. The UK Government has recognised the importance of working with the Scottish Government to make the economic case for a low carbon economy, including cutting EU emissions by 30%. Scotland has the opportunity to deal directly with other national governments on climate change, and can help shift international opinion towards the inevitability of a low carbon economy. Scotland has also been an active member of The Climate Group's States and Regions Alliance for many years, and is also a full member of The Climate Group. Sub-national Governments are responsible for implementing up to 80% of policies on climate change, and Scotland can make the bridge to the work of sub-national governments across the globe.

2.17 Figure 2 shows the estimated trajectory of the Scottish traded sector emissions under each of these scenarios.

Figure 2: Estimated Scottish traded sector emissions under EU 20% and 30% targets

Estimating emissions reductions

"Business as usual" emissions projections

2.18 To quantify the effect of policies to reduce emissions it is necessary to consider what would happen to emissions in the absence of such policies under reasonable assumptions about economic growth, fuel prices, growth in the population and number of households etc. The emissions reduction ("abatement") resulting from a policy can then be subtracted from the "business as usual" emissions to calculate what emissions are likely to be with the policy in place.

2.19 The Scottish Government has compiled reference projections for 2009 to 2022 for the non-traded sector which estimate what would happen in a "business as usual" scenario. These projections include effects of all policies up to and including the UK and Scottish Climate Change Programmes 2006. These are shown in Figure 3, and the abatement presented for policies throughout this Report are the savings against these projections.

2.20 In the absence of policies beyond 2006 emissions in most sectors would be roughly flat out to 2022. Residential emissions would fall slightly as a result of energy efficiency measures installed under the supplier obligation, and transport emissions would rise slightly, after a fall from 2009-2011 resulting from the recession.

2.21 More notably, in the "business as usual" scenario, sequestration by forestry would decline by around 4 MtCO ₂e between 2009 and 2022. This is a legacy of historical woodland creation rates, which declined in the 1990s after high levels of planting in the 1970s and 1980s.

Figure 3: "Business as usual" projections of emissions for the non-traded sector, by sector, 2009 to 2022

Advice from the Committee on Climate Change

2.22 The UK Climate Change Act 2008 established the Committee on Climate Change ( CCC) to provide independent expert advice to government about all aspects of climate change, including the steps that must be taken to reduce the UK's emissions. Under the UK Act, the CCC must provide advice to the Scottish Ministers should they request it to do so. The Climate Change (Scotland) Act places statutory duties on the Scottish Ministers to request advice from the CCC in certain circumstances, including when they are preparing to set annual emissions reduction targets.

2.23 Annual targets were set in October 2010 which were informed by advice published by the CCC in February 2010 ²⁷ , and further advice from the CCC which took into account new information about the effects of the recession. The annual targets were also informed by the work of a cross-party Short Life Working Group. The papers considered by the Working Group, including the additional advice from the CCC, are available on the Scottish Government's website ²⁸ .

2.24 The CCC provided additional advice to the Scottish Ministers in January 2011 on a "fair and safe emissions budget", which is defined in section 4(6) of the Scottish Act as the aggregate amount of net Scottish emissions for the period 2010-2050 recommended by the CCC as being consistent with Scotland contributing appropriately to stabilisation of greenhouse gas emissions in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. The CCC advised that a fair and safe aggregate amount of net Scottish emissions for the period 2010-2050 would be 1,250 MtCO ₂e. Considering the other Scottish targets in this context, the CCC concluded that the 2020 target to reduce greenhouse gas emissions by 42% relative to 1990 levels is consistent with a EU's 30% emissions target, which in turn is appropriate as a contribution to required global emissions reductions in 2020 ²⁹ .

2.25 The set of proposals and policies outlined in this Report, and the assumptions that have been made about emissions projections and abatement potential draws, in part, on the CCC's advice to the Scottish Ministers.

Abatement from and costs of proposals and policies

2.26 A full year-by-year breakdown of the estimated impact of policies and proposals is shown in Annex B at the end of this Report, which gives some background on assumptions, uncertainties and the sources of data. These tables include climate change policies introduced since 2006 at the EU, UK and Scottish level, which will contribute to emissions reductions relative to the reference projections. Within the sectoral chapters tables show which policies have been included and give estimates of the abatement these policies will achieve in 2020. Although the annual targets have been set until 2022, the year 2020 has been chosen here since it is the interim target year and all previous publications including the Delivery Plan have used this year as the reference.

2.27 Proposals are listed separately in the tables at the end of this Report and in the sectoral chapters. Chapters 3 to 9 contain more detail about the status of proposals, the options for implementation and the action the Scottish Government is taking to develop the proposals into policies.

2.28 The costs presented in the tables throughout this Report are the total financial costs of implementing proposals. It has not been possible to show whether costs would be met by the Scottish Government, the broader public sector, businesses or individuals, as this would depend on exactly how a proposal was to be implemented. Where possible, an estimate of the cost-effectiveness of each proposal has also been shown. This represents the net financial cost or benefit of the proposal over its lifetime. A negative number denotes a net financial benefit.

2.29 The Technical Appendix that accompanies this Report describes how the figures presented here have been derived, the uncertainties involved in estimating the impact of policies to reduce emissions and the wider economic considerations relevant to this work.

The economic impact of proposals and policies

2.30 In its advice to the Scottish Ministers, in common with its equivalent advice to the UK Government, the CCC stated that the cost to the economy of meeting the 2020 target to reduce Scotland's emissions by 42% is likely to be less than 1% of GDP in 2020, which the CCC advises should be accepted given the global costs and consequences of not acting, which are estimated to be 5-20% of GDP. This is supported by a recent OECD report which highlights that ambitious policy action to address climate change makes economic sense and that delaying action could be costly in both economic and environmental terms ³⁰ .

2.31 There will be challenges in securing the economic benefits. Scotland (and the UK) is currently emerging from recession. Recovery is expected to be modest in the shortterm as the economy takes time to fully adjust to the effects of the recent global financial crisis. The recession has reduced the capital available for current investment purposes and will put significant pressures on public spending in the next few years.

2.32 Despite this, there are also significant opportunities associated with the transition to a low carbon economy. These are set out in more detail in the Scottish Government's Low Carbon Economic Strategy ³¹ which highlights, amongst other things, the potential for low carbon activity to grow to 10% of the Scottish economy by 2015, and for renewable energy to provide 80% of our electricity.

2.33 More generally, Scotland's enviable natural resources, research expertise, and industrial base provide firm foundations to capitalise on the growth of renewable energy, carbon capture and storage and improvements in energy efficiency. Renewable energy, supported by wide-ranging activities in other parts of the low carbon goods and services sector will increasingly represent one of Scotland's most powerful areas of comparative advantage as we transit to a low-carbon world.

2.34 Scotland also has globally-competitive firms in the energy and power generation sectors and research excellence in areas such as fuel cells, battery technology and software engineering. The collaborative pooling in energy and climate change research, development and demonstration and early deployment through the Energy Technology Partnership ³² , the Scottish Centre for Carbon Storage ³³ and Scottish Alliance for Geoscience, Environment and Society ³⁴ will help to underpin the performance of our businesses.

Examples of benefits

2.35 Together with the Low Carbon Economic Strategy, this Report on Proposals and Policies sets out many of the potential benefits, both direct and indirect, of moving to a low-carbon economy. These include:

• The potential for low carbon employment in Scotland to increase from around 70,000 to around 130,000 by 2020, specifically:
• 26,000 jobs in renewable energy, including wind, wave and tidal, biomass, geothermal, hydro and photovoltaic energy generation and the services that support them, including renewables consultancy.
• 26,000 jobs in low carbon technologies, including alternative fuels, carbon capture and storage, building technologies, energy management and carbon finance.
• 8,000 jobs in environmental management, including energy, carbon and broader environmental consultancy, air pollution control, environmental monitoring, marine pollution control, waste management, recovery and recycling; as well as the service industries that support environmental management.
• Long-term savings from energy efficiency. Decarbonising the energy supply is important, but there are also economic benefits that can be achieved by reducing consumption through improving energy and resource efficiency. Conserve and Save, the Scottish Government's Energy Efficiency Action Plan ³⁵ details the Scottish Ministers' target to reduce total final energy consumption in Scotland over the period to 2020 by 12%. Depending on the measures implemented to achieve this target, the reduction in energy consumption anticipated in the domestic sector (in the form of reduced gas consumption) could result in annual fuel savings worth £325 million.

• Benefits from resource efficiency. Consuming less and better extends beyond energy use. For example, the savings from achieving greater efficiencies in the agriculture sector in Scotland are estimated as potentially being up to £470 million over the period 2010-2022.

Competitiveness impacts

2.36 There is some potential for competitiveness impacts and possible leakage of production as a result of climate change mitigation policy for sectors which are both energy-intensive and tradable or potentially tradable, and subject to a carbon price. However, the CCC's December 2008 report to the UK Government ³⁶ suggested that this would be relatively limited. Around 0.7% of Scottish GDP and less than 0.5% of employment is in industries that could potentially see cost increases of greater that 5%. Some sectors, such as aluminium and cement production, have been assessed to be exposed to risk of carbon leakage outside of Europe and are eligible under the EU ETS to receive free carbon allowances to mitigate this risk.

Small and medium-sized enterprises

2.37 Small and medium-sized enterprises ( SMEs) accounted for 99% of all firms and around 53% of employment in Scotland as at March 2009. The transition to a low carbon economy will therefore present significant opportunities but also short-term challenges for the sector.

2.38 While all small firms will be impacted through increased energy bills, there are opportunities for them to offset this by making savings in energy and resource efficiency. They could also potentially benefit from installing micro-renewables, enabling access to Feed in Tariffs or the Renewable Heat Incentive.

The domestic effort target

2.39 Section 8 of the Climate Change (Scotland) Act places a duty on the Scottish Ministers to ensure that reductions in net Scottish emissions of greenhouse gases account for at least 80% of the reduction in the net Scottish emissions account in any target year.

2.40 The domestic effort target limits the quantity of "carbon units" (i.e. tradable emissions allowances) that the Scottish Ministers may use to reduce the NSEA in any target year. The exception is carbon units surrendered by participants in the EU ETS (which are accounted for in line with international practice, as described above).

2.41 The Climate Change (Limit on Carbon Units) (Scotland) Order 2010 ³⁷ specifies that the net amount of carbon units that may be credited to the Net Scottish Emissions Account for the period 2010-2012 is zero. The Scottish Ministers must make orders in respect of the periods 2013-2017 and 2018-2022 by 31 December 2011 and 2016 respectively.

2.42 The Scottish Ministers have no proposals or policies to purchase carbon units to offset Scottish greenhouse gas emissions during the period 20102022. The focus of the Scottish Government is on measures that seek to reduce Scotland's emissions at source and for the long-term. It is the intention and expectation, therefore, that the measures put in place to reduce Scotland's emissions in the period covered by this Report will be consistent with meeting the domestic effort target in each target year.

Figure 4: Annual emissions targets and projected Scottish emissions from 2010 to 2022 under "business as usual", and after inclusion of policies and proposals

Figure 5: Abatement potential in the non-traded sector in 2020 from policies and proposals, by sector