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

5. Business and the Public Sector

5.1 This chapter covers emissions from non-traded industry, business and the public sector. In this sector emissions mostly result from combustion of fuel for heat, including industrial heat; however, they also include some non-CO ₂ gases that result from sources including industrial and commercial refrigeration.

5.2 Despite good progress in many businesses, there are still many opportunities for businesses and public bodies to improve the efficiency with which they use energy and other natural resources. These improvements make financial sense as many measures pay back their up-front costs quickly through savings in fuel costs.

5.3 UK-wide legislation such as CRC Energy Efficiency Scheme and Energy Performance Certificates help to establish as standard practice the type of measurement and monitoring needed to bring decisions on energy-efficiency improvements to board-room level. The Scottish Government, through the Climate Change (Scotland) Act, has enabling powers that could broaden the legislative framework to a wider range of organisations. This can be supported by advice and information to help organisations make the right decisions.

5.4 The Energy Efficiency Action Plan sets out the actions the Government will take to drive a step-change in energy efficiency across this sector, and this chapter summarises the impact these actions will have on Scotland's emissions.

Trends in business, industry and public sector emissions and energy consumption

• Direct (non-electricity) emissions from business, industry and the public sector in 2008 were
  8.7 MtCO ₂e, 5.0 MtCO ₂e lower than in 1990. This includes some emissions that are covered by the EU ETS, which did not exist in 1990.

Milestones in 2020

5.5 Both the business and public sector will contribute fairly towards reducing Scottish energy consumption by 12% by 2020, the target in the Energy Efficiency Action Plan. Specifically, in 2020:

• The public sector will have reduced its energy consumption by at least 12%;
• 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.

Energy Efficiency Action Plan

5.6 The Energy Efficiency Action Plan describes how the Scottish Government will support businesses to maximise their competitiveness through the improved energy efficiency of non-domestic buildings and business processes. The detail has not been reproduced here - this chapter summarises briefly the broad policies at UK and Scottish level.

UK policies

5.7 A suite of policies exist at the UK level for reducing emissions and energy use in non-domestic buildings. These are shown schematically in Figure 7 and described in more detail in the UK Low Carbon Transition Plan, published in June 2009 ⁷⁴ . Policies that overlap have been "packaged" together to allow their impact to be quantified unambiguously.

Smart Metering and Better Billing

5.8 The UK Government has announced its intention to accelerate the roll-out of "smart" meters to small and medium-sized businesses as well as homes ⁷⁵ , allowing real-time information on energy use to be gathered, thereby encouraging better energy management. Businesses will benefit from this policy as better energy management will reduce the amount they spend on energy.

Energy Performance of Buildings Directive

5.9 All large public buildings are currently required to have their energy performance assessed and publicly display their rating. Assessments are accompanied by advice on measures that could improve energy performance, which building owners can choose whether to implement.

Climate Change Levy

5.10 The Climate Change Levy ⁷⁶ is a tax on energy use in industry, commerce and the public sector, used to support energy efficiency/renewables and offset by reductions in employers' National Insurance contributions.

Climate Change Agreements

5.11 These are voluntary agreements that exempt energy-intensive industries from most of the Climate Change Levy if they meet targets for energy efficiency/reducing emissions.

Carbon Trust and Energy Saving Trust Programmes

5.12 These two Government-funded organisations run a range of programmes to encourage businesses and the public sector to reduce energy consumption (including loans to SMEs).

The Green Deal

5.13 The Green Deal initiative is being developed for proposed introduction in 2012 and will support fabric improvements in both domestic and non-domestic buildings. These will be paid for through savings in energy consumption. The Scottish Government will work with the UK government to ensure that the Green Deal financing initiative maximises opportunities for Scottish businesses.

Joint UK and Scottish policy

CRC Energy Efficiency Scheme

5.14 The CRC Energy Efficiency Scheme is a mandatory cap and trade scheme for emissions from large non-energy-intensive businesses and the public sector such as hospitals, hotels, offices and schools - generally those not covered by Climate Change Agreements. It is designed to incentivise the installation of cost-effective energy efficiency measures by those organisations. The scheme is run jointly by the UK Government and the devolved administrations, and all central government departments are required to participate, whether or not their energy use is above the qualifying threshold.

5.15 The UK Government announced in the 2010 Comprehensive Spending Review that CRC revenue will not be recycled back to participants, in a change to previous policy. This means that £1 billion per year from the sale of allowances will go to support UK public finances by 2014-15.

5.16 The Scottish Government is discussing with the UK Government the implications of this announcement for Scotland. A further announcement will be made when those discussions have concluded.

Figure 7: Schematic diagram showing interactions between UK policies for businesses and the public sector

Renewable Heat Incentive

5.17 In addition to the large emissions reductions the business and public sector can make through improving energy efficiency, significant reductions in emissions are possible through the use of renewable heat sources. The Renewable Heat Incentive ⁷⁷ will offer payments to those installing equipment to generate renewable heat that are designed to provide a competitive return on the investment. Scottish organisations are therefore set to benefit financially from installing equipment to generate renewable heat. The UK Government will soon confirm details of the scheme.

Scottish policies

5.18 The Scottish Government is responsible for setting building standards for new non-domestic buildings. New energy standards applied from 1 October 2010 ⁷⁸ . The new standards deliver a 30% reduction in CO ₂ emissions from new nondomestic buildings when compared to 2007 standards and around 70% compared to the standards that existed in 1990. Revisions include:

• improvements in the performance of building fabric and the energy efficiency of fixed building services generally;
• improved cooling system efficiencies and controls; and
• increased provision for energy metering and sub-metering including the direct metering of Low Carbon Equipment.

5.19 As shown in Table 6, current UK and Scottish policies are expected to result in a total of 1.4 MtCO ₂e of abatement in 2020.

Scottish proposals

New-build non-domestic energy standards for 2013

5.20 New non-domestic building standards will be reviewed again in 2013, with the intention of improving them further, looking at the Sullivan report recommendation for up to a 75% reduction in emissions compared to 2007, and a further review of energy standards will be undertaken for 2016.

5.21 Improvements of this magnitude are likely to require significant changes to building practices and a more flexible approach to how carbon and energy targets are set. The Scottish Government is currently undertaking research into the costs and benefits of the Sullivan Report recommendations.

Heat networks and district heating

5.22 Although most of the cost-effective potential in this sector comes through energy efficiency measures, renewable heat and the efficient use of waste heat will be important in securing additional emissions reductions. These are both covered in the Energy Supply chapter.

Other proposals

5.23 It is extremely difficult to separate out the impacts of the large and overlapping policy levers held by the UK from those of Scottish policies that encourage and influence businesses and the public sector to improve their energy efficiency and reduce emissions. Because of this, when calculating the emissions abatement necessary to meet Scotland's emissions reduction targets we have not counted the effects of the policies and proposals described in the Energy Efficiency Action Plan, which sets the policy framework for this sector. The action proposed for business and the public sector is instead included under the "Supporting and enabling measures" section below.

5.24 Since it is not clear how much additional potential exists for abatement from this sector, the estimates given in Annex B can be regarded as conservative.

Overall abatement from policies and proposals for Business and the Public Sector

5.25 Table 6 and Table 7 show that an ambitious implementation of all the policies and proposals for this chapter could result in an abatement in 2020 of 1.5 MtCO ₂e.

5.26 Because the EU ETS began in 2005 it is not possible to compare projected emissions from the non-traded parts of this sector in 2020 with emissions in 1990. However, the combined emissions from the traded sector and non-traded business, industry and the public sector could be 51% lower in 2020 than in 1990.

Supporting and enabling measures

5.27 The Energy Efficiency Action Plan describes in some detail the action that the Government and its partners are taking to improve the energy efficiency of and reduce emissions from business and the public sector.

Energy efficiency for business

5.28 The Energy Efficiency Action Plan describes plans to promote energy efficiency advice to businesses in Scotland through the establishment of a single Energy and Resource Efficiency Service. The service would include the Carbon Trust, the Energy Saving Trust, the enterprise agencies, SEPA and other relevant bodies, focusing on the benefits to business of combining energy efficiency with efficient use of other resources such as water and raw materials.

5.29 To drive energy efficient practice in the industrial sector the Scottish Government has supported the Carbon Trust's Industrial Energy Efficiency Accelerator ( IEAA), aimed at improving the efficiency of processes that are specific to certain sectors. The Government has also encouraged innovative energy efficiency practices by developing an award specifically for energy efficiency as part of the Vision in Business for the Environment of Scotland ( VIBES) awards.

The public sector

5.30 Leadership in the public sector is crucial to the integrity of the Government's ambitions for a low carbon economy. The public sector, including the Scottish Government itself, must become a leader in the adoption of low carbon, energy efficient technology and practice. For example, the Government is committed to reducing emissions from energy use in its buildings by 12.6% by March 2011 and by 30% by 2020 compared to 1999-2000. Government employees flew half a million miles less in 2008-09 than the previous year, and are encouraged to use video-conferencing as an alternative to travel wherever possible.

5.31 Section 44 of the Climate Change (Scotland) Act places duties on Scottish public bodies in relation to climate change. A public body must, in exercising its functions, act:

• in the way best calculated to contribute to the delivery of the Act's emission reduction targets;
• in the way best calculated to help deliver any statutory programme for adapting to the impacts of climate change; and

• in a way that it considers most sustainable.

5.32 These duties came in to force on 1 January 2011. The Act also requires that the Scottish Ministers publish guidance for public bodies on fulfilling these duties, and consult on this guidance before doing so. A public consultation on a draft of guidance ran from 20 September to 26 November 2010 ⁷⁹ . Responses received informed preparation of the guidance, which was published on 4 February 2011. More information about the public bodies climate change duties is available, along with the guidance, on the Scottish Government's website ⁸⁰ .

5.33 Being able to accurately measure and monitor the energy consumption and emissions from their estate is a vital first step for many organisations in reducing both. The Energy Efficiency Action Plan commits to ensuring that public bodies commit to undertake the Carbon Trust's Carbon Management Programme if they have not already done so. The Scottish Government will continue to implement its own Carbon Management Plan, which targets projects with the potential to deliver 20% emissions reduction by 2014 compared to the 2007-08 baseline. The Government is also committed to publishing details of its weekly energy consumption by spring 2011.

5.34 To ensure that the efficiency of the public sector estate continues to improve as the estate itself changes, the Government is working with the Carbon Trust to produce guidance on the procurement of energy efficient, low carbon buildings. As part of this, work will be done to ensure that all public bodies report on the indicative total energy consumption and emissions for any building which they procure.

5.35 In addition, the Energy Efficiency Action Plan sets out the Government's intention to maximise financial support for public sector energy efficiency projects. Subject to future spending reviews and Parliamentary approval, the Government will seek to establish a new public sector energy efficiency fund, of sufficient scale to encourage ambitious projects.

Sustainable procurement

5.36 As well as direct emissions from their buildings and activities, public bodies can also affect emissions through their procurement decisions. The Scottish Government published the Scottish Sustainable Procurement Action Plan ⁸¹ in October 2009. The Action Plan provides generic guidance for public bodies in Scotland on sustainable procurement. Sustainable procurement is defined in the Plan as "a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis and generates benefits not only to the organisation, but also to society, the economy and the environment".

5.37 The Action Plan was issued across the Scottish public sector and recommends that full and appropriate consideration should be given to the environmental impact of public sector procurement. It makes clear that the greatest benefits are to be gained by considering sustainability at the outset of the procurement process - when requirements are being identified, specified and advertised. It provides advice on how to specify requirements in a way that will maximise social, economic and environmental benefits.

5.38 Building in sustainable outcomes to procurement activity at the beginning of the process ensures that all tenderers are bidding to a set minimum standard. Provided that the specifications are defined in such a way that effective competition can be secured (not, for example, defined so that only one or two suppliers can comply), this helps to ensure that tender evaluations and contract awards meet the obligations of equal treatment and transparency that European legislation requires as part of public sector procurement.

5.39 The Action Plan includes a series of specifications (the "Buy Sustainable - Quick Wins", now known as the "Government Buying Standards") for commonly-bought goods. The specifications set minimum and enhanced levels of sustainability factors such as energy efficiency and emissions, can be easily adopted into public sector contract requirements and are designed with the need for effective competition in mind.

5.40 The Action Plan recommends the development of organisation-specific delivery plans, and the Scottish Government's own Delivery Plan can be accessed on the Government's website ⁸² .

The Scottish planning system

5.41 Scotland's national planning policy is currently set out through the following documents:

• National Planning Framework
• Scottish Planning Policy
• Designing Places
• Designing Streets - A Policy Statement for Scotland

• Planning Circulars

5.42 More information about the planning system in Scotland, including these documents, is available on the Scottish Government's website ⁸³ .

5.43 The National Planning Framework ( NPF) sets out a strategy for long-term spatial development and was developed with the objectives of contributing to sustainable development and facilitating the transition to a low carbon economy. The NPF must be taken into account when development plans are prepared. Scottish Planning Policy ( SPP) sets out how climate change should be addressed in the planning of new developments. Paragraph 42 of the SPP states that:

"the need to mitigate the causes of climate change and the need to adapt to its short and long term impacts should be taken into account in all decisions throughout the planning system."

5.44 In addition, the Scottish Government's Land Use Strategy will provide a broad context for planning authorities on Government policies relevant to all land use. We therefore expect planning authorities to have regard to the Strategy in preparing their development plans.

5.45 The Scottish Government works with planning authorities to ensure that climate change is given due weight in plan-making and decisions on planning applications. In addition, SEPA has produced a publicly-available list of the guidance and resources that are available to assist local authorities in taking climate change considerations into account in their decision making ⁸⁴ .

Strategic Environmental Assessment

5.46 The Environmental Assessment (Scotland) Act 2005 ⁸⁵ sets out the statutory requirements for the preparation and publication of Strategic Environmental Assessments ( SEA) by public bodies. The purpose of SEA is to ensure that the likely significant environmental effects of Scottish plans, programmes and strategies are assessed and taken into account during their preparation.

5.47 Schedule 3 to the 2005 Act lists the environmental issues that should be considered as part of the SEA process, this includes "climatic factors". The Scottish Government, in conjunction with SEPA, one of the statutory SEA Consultation Authorities, has developed guidance for practitioners to help stimulate best practice by encouraging consideration of climate change as part of the assessment of climatic factors ⁸⁶ .

5.48 Scottish public bodies can use SEA as a means to help ensure that potential impacts from plans, programmes and strategies that they are preparing are consistent with their climate change duties under section 44 of the Climate Change (Scotland) Act.

5.49 The measures detailed in this Report on Proposals and Policies have undergone Strategic Environmental Assessment as appropriate. More details about how SEA has been applied to this Report are provided in Chapter 9.

Scottish Water

5.50 Treating and transporting drinking water and waste water uses energy and resource. The Climate Change (Scotland) Act therefore placed a duty on Scottish Ministers to give Scottish Water directions requiring it to promote water conservation and water-use efficiency. Accordingly Ministers have directed Scottish Water to prepare a plan by 2011-12 detailing how it intends to promote water conservation and water-use efficiency. Scottish Water is also required to plan and prepare for a trial of domestic metering in Scotland as well as to take steps to mitigate its carbon emissions by seeking opportunities to reduce energy demand, investing in energy efficiency and increasing, where it is cost effective to do so, its renewable generation capacity. These obligations are in addition to the ongoing work requiring Scottish Water to reduce leakage from their network to the economic long run level of leakage by 2014. Together this basket of measures will help Scottish Water to address its energy use and emissions.

Regulation

5.51 Regulation is an important tool for consolidating and releasing the potential from softer, advice-based measures by requiring certain improvements to be made. For example, primary legislation already exists (section 63 of the Climate Change (Scotland) Act) that requires Scottish Ministers to make regulations for the Assessment of Energy and Carbon Performance ( ACEP) of non-domestic buildings. These assessments would give recommendations for improving the building's energy efficiency/emissions performance. The regulations for ACEP could be tightened to require building owners to take steps to improve the energy performance of buildings and reduce emissions.

5.52 The Scottish Government has set up a working group, which includes representatives from the property and building industries, with the intention of developing and introducing regulations.

5.53 The supporting and enabling measures described above are summarised in Table 8.

Costs and benefits

5.54 The cost of roll-out of smart metering across businesses and the public sector is estimated to be just over £34 million from 2011 to 2022. This cost will be met by businesses and other organisations through their energy bills. Smart metering will also bring considerable cost savings in the long term by enabling and encouraging better energy management. The 2010 energy standards for new non-domestic buildings will cost around £700 million between 2011 and 2022, with the price being met by the buyers. New building standards in 2013 are likely to increase this cost further. However, both sets of energy standards will make a positive contribution to reducing energy bills.

5.55 It has not been possible to cost all of the policies in this sector, particularly current UK policies and joint UK/Scottish policies. In part this is because of changes to the policies announced in the 2010 UK Comprehensive Spending Review, including a decision by the UK Government to keep the revenues from the CRC rather than recycling them back to participants, and lack of detail on the Green Deal. However, previous analysis by the UK Government, which is due to be updated, estimated that the net present value benefit in terms of savings on energy bills as a result of measures installed in the first 15 years of the CRC would be around £1.8 - £2.1 billion ⁸⁷ .

5.56 All of these policies should have the wider impact of increasing the competitiveness of Scottish businesses by making the efficient use of energy and other resource use a board-room issue, saving the money previously wasted by inefficient practices, and increasing productivity.

Table 6: Policies for reducing emissions from Business and the Public Sector

Policy package and description	EU, UK or Scottish policy?	Expected abatement (ktCO 2e) in 2020	Further information available from
Smart Metering and Better Billing Roll-out of "smart" meters to small and medium-size businesses to encourage better energy management.	UK	57	Department of Energy and Climate Change website: http://www.decc.gov.uk/en/ content/cms/what_we_do/ consumers/smart_meters/
Energy Intensive Business		162
Energy Performance of Buildings Directive Large public buildings must display their energy performance. Also requires giving of advice on cost-effective energy efficiency measures and inspections of air conditioning systems.	EU/ Scottish		Scottish Government website: http://www.scotland.gov.uk/ Topics/Built-Environment/ Building/Building-standards/ profinfo/epcintro
Climate Change Levy Tax on energy use in industry, commerce and the public sector, used to support energy efficiency/renewables.	UK		Department of Energy and Climate Change website: http://www.decc.gov.uk/en/ content/cms/what_we_do/ change_energy/tackling_clima/ ccas/cc_levy/cc_levy.aspx
Climate Change Agreements Exempts energy-intensive industries from most of the Climate Change Levy if they meet targets for energy efficiency/reducing emissions.	UK		Department of Energy and Climate Change website: http://www.decc.gov.uk/en/ content/cms/what_we_do/ change_energy/tackling_clima/ ccas/ccas.aspx
Carbon Trust and Energy Saving Trust Programmes Programmes to encourage businesses and the public sector to reduce energy consumption (including loans to SMEs).	UK/ Scottish		Carbon Trust website: http://www.carbontrust.co.uk/ Pages/Default.aspx Energy Saving Trust Scotland website: http://www.energysavingtrust.org.uk/ scotland/Scotland-Welcome-page/ Business-and-Public-Sector-in-Scotland
CRC Energy Efficiency Scheme Cap and trade scheme for emissions from large non-energy-intensive businesses and the public sector	UK/ Scottish	150	Department of Energy and Climate Change website: http://www.decc.gov.uk/en/ content/cms/what_we_do/lc_uk/crc/crc.aspx
New-build non-domestic energy standards for 2007 and for 2010 Non-domestic buildings built to 2007 standards have emissions 23-28% lower than those built to 2002 standards. Non-domestic buildings built to 2010 standards will have emissions 30% lower than those built to 2007 standards.	Scottish	45	Scottish Government Website: http://www.scotland.gov.uk/ Topics/Built-Environment /Building/Building-standards
Renewable Heat		988
Renewable Heat Incentive New UK policy offering payments to those who install and obtain heat from renewable sources	UK		Department of Energy and Climate Change website: http://www.decc.gov.uk/en/ content/cms/what_we_do/ uk_supply/energy_mix/renewable/ policy/renewable_heat/incentive/incentive.aspx
Scottish Biomass Heat Scheme Grants for installation of biomass heating systems in small and medium-sized enterprises ( SMEs) - now in final year, as superseded by RHI	Scottish		Scottish Government website: http://www.scotland.gov.uk/ Topics/Business-Industry/Energy/ Energy-sources/19185/20805/ BioSupport/BioSupportHome
TOTAL ABATEMENT FROM BUSINESS AND PUBLIC SECTOR POLICIES		1,402

Table 7: Proposals for reducing emissions from Business and the Public Sector

	Maximum abatement potential (ktCO 2e) in 2020	Total financial cost (2011-22, cash terms)	Cost-effective-ness (£/tCO 2e abated)	Earliest start date	Options for implementation
New-build non-domestic energy standards for 2013 Non-domestic building standards will be reviewed again for 2013, with the intention of improving them further to achieve a 75% reduction in emissions compared to 2007.	45	Not yet quantified	Not yet evaluated	2013	Policy would be implemented through the existing system of building regulations. Likely to result in increased development cost for new buildings.

Table 8: Supporting and enabling measures for reducing emissions from Business and the Public Sector

Policy package and description	EU, UK or Scottish policy?	Policy or proposal?	Further information available from
EU Procurement Legislation
EU Energy Service Directive 2006/32/ EC, Article 5 Member states must facilitate the factoring of emissions into procurement decisions - Scotland included guidance in the Sustainable Procurement Action Plan (Scotland).	EU	Policy
EU Energy Service Directive 2006/32/ EC, Article 6 Member states must prevent energy companies from hindering energy efficiency measures - UK has voluntary agreement.	EU	Policy
Non-Domestic Buildings: assessment of energy performance and emissions
Assessment of energy and carbon performance ( ACEP) Regulations to implement section 63 of the Climate Change (Scotland) Act for the assessment of the energy performance of existing non-domestic buildings and emissions from such buildings.	Scottish	Proposal	First consulted on in 2008. Paper available from Scottish Government website: http://www.scotland.gov.uk/ Publications/2008/08/15155233/0
Mandatory improvement to non-domestic buildings. Option to widen scope of above regulations to mandate the implementation of ACEP recommendations.	Scottish	Proposal	Implementation is subject to further consultation in 2011, which will be published on the Scottish Government's website: http://www.scotland.gov.uk/ Topics/Built-Environment/ Building/Building-standards
Widen coverage of ACEP with mandatory improvements. Option to widen scope of above regulations for mandatory improvements (assuming the policy above has been implemented).	Scottish	Proposal
Energy Efficiency for Business As part of the Energy Efficiency Action Plan, develop a single resource and energy efficiency service for Scottish businesses that will focus on SMEs.	Scottish	Policy	Energy Efficiency Action Plan: http://www.scotland.gov.uk/ Topics/Business-Industry/ Energy/Action/energy-efficiency-policy/ActionPlan
Public Sector Energy Efficiency Fund Fund providing support for public sector energy efficiency projects.	Scottish	Proposal	Energy Efficiency Action Plan: http://www.scotland.gov.uk/ Topics/Business-Industry/ Energy/Action/energy-efficiency-policy/ActionPlan
Scottish Government's Carbon Management Plan Plan detailing how the Government will meet its aim of reducing emissions from its estate by 20% by 2014 compared to 2007/08.	Scottish	Policy	Scottish Government website: http://www.scotland.gov.uk/ Publications/2009/05/26125414/0