Low Carbon Scotland - meeting our emissions reduction targets 2013-2027: second report

3. Understanding and achieving transformation

3.1 Five cross-cutting themes of transformation

3.1.1 We know that the transformation to a low carbon Scotland will be challenging - and it will involve more than just focussing on particular sectors. This section of the report outlines our strategic approach to five cross-cutting themes:

• A strategic assessment of external factors that are driving the pace of change;
• Embedding achievement of the targets in the transition to a low carbon economy;
• Ensuring we collectively have access to a range of funding and financing mechanisms;
• Understanding the role of behaviour and decision making in achieving the targets and influencing accordingly; and
• Recognising the long term role of our planning system.

3.2 Strategic assessment: understanding external drivers

3.2.1 There are a number of external drivers that are forcing the pace of change in energy and climate change issues. While there may be little we can do to directly influence them given current limitations of Scotland's powers and ability to speak within key fora, it is important that we understand them and build future uncertainties into our long term planning.

3.2.2 The energy world is set to undergo profound change over the next 20 years as economies large and small - developed and developing - seek to make the transition to a low carbon world. As an open export-dependent economy, Scotland is reliant on access to international markets and flows of trade and investment across the globe. We will not be immune to global change. A number of factors are driving the pace of that change.

1. Role of emerging economies in shaping future energy demand: In the period to 2030 industrialisation, urbanisation and rising living standards in China, India and the Middle East will increase global energy demand by over one-third. China's demand will rise by 60% while India's will more than double. By 2030, 60% of the world's population will live in cities, with China adding 276 million and India 218 million urban dwellers. ^[49]
2. Meantime, the number of people considered to be in the 'global middle class' is expected to grow as a percentage of overall population - further increasing pressure on per-capita consumption of resources.
3. A shifting global energy landscape: The next 20 years will witness significant shifts in the global energy map, with implications for energy markets and trade. By 2035, the United States of America may be virtually self-sufficient in energy due to increased unconventional hydrocarbons, increased bio-energy, and improved fuel efficiency in transport. As North American energy exports increase, 90% of Middle Eastern oil exports will go to Asia. ^[50] Changing patterns of energy production, balance of trade flows and import/export dependencies may redefine global economic and geopolitical balances.
4. Policy choices and priorities: Policy makers face critical choices in reconciling energy, environmental and economic objectives. Global fossil fuel subsidies are still growing to $523 billion in 2011, up 30% from 2010. By comparison, global renewable energy subsidies amounted to only $8 billion in 2011. Cumulative investment required in new energy supply is estimated to total $37 trillion over 2012-2035. In the face of growing global energy demands, public policy will increasingly seek to reduce energy demand where possible - but energy efficiency dividends currently remain largely untapped, mostly due to non-technical barriers. ^[51]

1. Forward Operating Environments: As we look further ahead, beyond 2025, the degree of uncertainty increases to the point where projections alone are not sufficient. Therefore, considering alternative futures can offer one way to assess potential forward operating environments for Scotland. Scotland's future energy and climate change prospects are especially interconnected with, and heavily influenced by:

• Economic growth -or- stagnation across the world which will significantly impact investor confidence, access to capital, opportunities for industrial and commercial collaboration, levels of energy demand and supply; and
• Weak -or- strong climate change mitigation policy implementation at home and overseas which will shape the competitive landscape for Scottish industry and exports, determine the fortunes of our energy technologies and energy services, and define the scope of our reductions in greenhouse gas emissions.

3.2.3 As part of the background work to this report, we explored a range of different futures, not as predictions, but rather in recognition of the potential for alternative and plausible operating environments ahead that we need to understand, including:

• A world where economic growth returns to pre-crisis levels and most governments invest in robust carbon reduction policies. However, behaviour change lags behind investment;
• A world of economic recovery, but where most debt-ridden governments prioritise growth near term to ensure security long term - all at the expense of investment in the low carbon transition;
• A world where indebted countries experience a decade of stagnation. But low carbon policies are not abandoned, but shifted towards low cost measures, especially to a focus on energy efficiency; and
• A world experiencing a decade of stagnation where the low carbon agenda is overshadowed by resource protectionism, minimising import dependencies, and prioritising a return of domestic growth.

3.2.4 The long term future requires our immediate attention. Policies over the next five years will shape the investments for the next ten years, which will largely define the global energy picture out to 2050. Strategic investments in infrastructure will commit us ahead for decades, battles for global standards may render otherwise promising emerging technologies redundant, and new energy solutions may create new resource dependencies.

3.2.5 Consequently, we are developing policies and proposals in an adaptive way, one which sets a clear direction and yet is sensitive to the fast changing operating context in which we compete. This RPP2 attempts to balance the need for a long term credible plan to meet our emission targets with the need to remain flexible to change.

3.2.6 Our policies and proposals should be able to flex in different futures. We expect our proposed transformational outcomes to remain largely steady, but our interventions, some technologies, our business models and our priorities may change as different 'futures' come to pass.

3.3 The transition to a low carbon economy

3.3.1 In our updated Government Economic Strategy published in 2011, we established a new strategic priority, the 'Transition to a Low Carbon Economy' emphasising the central importance of low carbon to Scotland's future economic success. The earlier Low Carbon Economic Strategy ^[52] for Scotland set out our approach in detail. It represents a bold vision for a fundamental restructuring in the domestic economy - moving it to a low carbon basis in advance of a similar restructuring across the global economy.

3.3.2 Over the coming decades, consumer behaviour, business models, products, services and technologies will all adapt to a reduced reliance on carbon - this is the basis of an unprecedented economic opportunity for Scotland. The transformational changes required in our domestic economy are an investment to drive long-term growth and provide sustainable export markets for Scottish products and services.

3.3.3 There is a sound economic basis for our actions. Scotland's abundant natural resources are the basis for a revolution in renewable energy, supported by the energy infrastructure and skills in our oil and gas industry. Our future success in developing innovative low carbon technologies is dependent on Scotland's industrial and engineering excellence - and the outstanding performance of Scotland's research institutions. And our successful services sector is the platform for an exportable services market in waste, resource efficiency and energy demand management.

3.3.4 Our support for the low carbon economy is provided through six channels:

Long term legal and institutional certainty. Business certainty and investment are prerequisites for a successful transition. Scotland's world-leading statutory climate change targets and the accompanying actions in this report are the credible basis for long-term business certainty on Scotland's low carbon commitment.

Expanding renewable energy production. The supply of clean electricity from renewable sources will reduce the major sectoral contributor of greenhouse gases - power generation - and represents the major economic opportunity for Scotland to capitalise on its rich natural resources. Our commitment to supply 100% of energy demand from renewable sources by 2020 will ensure that the indirect emissions of other sectors of the economy are also addressed. Indeed, by making such a significant contribution to meeting our targets, renewable energy can relieve pressure on other areas of Scottish society.

Improvements in energy and resource efficiency in households and industry. The major opportunity outside renewable energy is in the emergence of new markets for services and products to improve the energy efficiency of the residential and industrial sectors, reducing fuel poverty in households and improving productivity and resource efficiency for business. The opportunities here are immense and span the construction, manufacturing and services industries.

Transition of transport to a lower carbonbasis. Transport is a significant source of Scottish greenhouse gas emissions. Scotland has key competitive strengths to exploit in new and emerging transport technologies, for example, hybrid buses and ferries, and fuel cells and batteries (in line with our clean electricity story).

Expansion of renewable sources of heat. We can support the provision of private and public infrastructure to supply heat from renewable sources. This is a growing market opportunity for Scottish energy suppliers and construction businesses and a platform for the provision of a range of innovative new technologies.

Sustainable land use. Sustainable land use is the bedrock of any credible plan for a low carbon transition. We recognise the centrality of responsible stewardship of our natural resources to the future growth of the economy and to protect Scotland's resource base to benefit future generations.

3.3.5 Our commitments in the Low Carbon Economic Strategy support this RPP2. Work is already underway to take forward these commitments to:

• ensure our policies support low carbon investment - focusing on the development of financial models and products that promote and de-risk low carbon technology investments. These include the Renewable Energy Investment Fund ( REIF) ^[53] , a multi-million pound fund to stimulate greater levels of private finance investment in green power and renewable district heating projects;
• press the UK Government and the EU on path-dependent policy areas such as the UK Electricity Market Reform ^[54] and the EU energy and climate change targets and scenarios, as well as ensuring that we maximise the economic and investment opportunities for Scotland from the UK Green Investment Bank ( GIB) ^[55] and the UK Government's 'Green Deal' package ^[56] for householders and businesses;
• further develop our international profile to secure investment and promote our low carbon exporters;
• assist organisations to be 'programme and project ready' as investors increasingly turn to Scotland looking for opportunities;
• work with a range of public, third sector organisations and investors to enable innovative funding models that reduce emissions and dependency on fossil fuel, and also provide revenues to communities, households and investors; and
• refresh the Climate Challenge Fund with a focus on reaching 'disadvantaged' and 'hard to reach' communities, to ensure that climate justice is delivered to those most vulnerable to the detrimental impacts of climate change, and deliver Manifesto commitments to allow revenue raising and engage young people in climate change action. ^[57]

Energy Efficiency Potential

The energy efficiency sector in the UK accounts for about 136,000 jobs and had sales of £17.6 billion in 2010-11. UK sales have grown by over 4% per year since 2007-08, and are projected to grow by around 5% per year between 2010-11 and 2014-15. However, we believe there is more potential in the market.

The UK Energy Efficiency Strategy ^[58] estimates that through socially cost-effective investment in energy efficiency we could be saving 196 TWh in 2020, equivalent to 22 power stations. Were all this potential to be realised, final energy consumption in 2020 could be 11% lower than the Business-as-Usual baseline. This potential can be found across the UK economy: realising this could have significant benefits for businesses and households in Scotland.

The promotion of energy efficiency is devolved and Scotland has established its own target to reduce final energy consumption by 12% in absolute terms against a baseline averaged over the years 2005 to 2007 by 2020.

3.4 Funding and financing the climate change targets

A range of funding routes exists and is being added to which will support the continuing development of policies and proposals.

3.4.1 This report covers a period which extends beyond the Budget for 2013-14 and which will encompass future sessions of the Scottish Parliament. Budget provisions for 2013-14 and plans for 2014-15 relevant to RPP1 and the delivery of the policies and proposals in this report have been provided to Scottish Parliament committees and the Scottish Parliamentary Information Centre. We have also published it on our website. ^[59]

3.4.2 A major consideration in meeting both medium and long term climate change targets across sectors is how interventions and activities might be funded and financed. This section considers this at a practical level - drawing closely on mechanisms outlined in our Infrastructure Investment Plan 2011. ^[60] Funding mechanisms which result in direct emissions abatement are detailed further in their respective sectoral chapters.

3.4.3 Taking action on climate change, specifically in reducing energy consumption, can result in direct cost savings. This is important not only for businesses tackling their bottom lines, but also for the public sector in reducing costs to release funding for other priorities and in making savings for tax payers. Key principles that underline our approach to funding and financing activities to support the climate change targets are:

• cost effectiveness;
• consideration of whole life cycle costs;
• preventative spend and 'spend to save';
• efficiency; and
• maximising wider economic benefits.

3.4.4 Governments will always have to prioritise limited funding and make tough decisions. However, when choosing to allocate funding to greenhouse gas abatement measures, there are choices. How these choices are made will depend on the type of policy or project under consideration.

3.4.5 Policies and projects require different types of funding, depending on their nature, timing and context. Capital funding is the most common method of financing public sector infrastructure projects. Many interventions involving behaviour change require revenue funding. And as the influencing behaviour section later in this chapter illustrates, supporting infrastructure may also be necessary, and so both capital and revenue funding are required in some cases.

Fuel Efficient Driving

Fuel efficient driving (sometimes known as eco-driving) advice and training is currently provided on our behalf by the Energy Saving Trust. Fuel efficient driving can significantly reduce fuel consumption and emissions. In the coming years, we will continue to promote driver training, to public sector organisations, businesses and individuals as well as promoting telematics applications to bed-in the new driving behaviours.

The business case for more efficient driving is considerable. Fuel savings of up to 10% means the costs of training and telematics are recoverable within a short period. By the end of the decade we would expect to see a mature commercial approach to training provision as is already the case for the freight transport sector.

3.4.6 Significant elements of this RPP2 are capital intensive. Many lower carbon goods, for example electric vehicles or new energy efficient buildings, often have higher up front capital costs but lower long term running costs than their higher carbon counterparts. In many cases this requires us to think differently about how we fund and finance low carbon infrastructure and services.

3.4.7 A critical requirement of making the transition to a low carbon economy and society, therefore, is for organisations and businesses to be able to draw on a range of funding, financing and investment mechanisms at local, national and international levels. The Scottish Government's role is to create, support and or draw attention to these mechanisms, as well as helping build capacity in other organisations to draw down on opportunities - for example with European funding.

3.4.8 As the Scottish Government is currently facing a severe fall in the level of traditional capital funding available, a 25.1% real-terms reduction between 2010-11 and 2014-15, alternative financing models, such as the Non Profit Distributing ( NPD), Regulatory Asset Base ( RAB), Tax Incremental Financing ( TIF) and the National Housing Trust ( NHT) are being taken forward to maximise our infrastructure investment programme.

The Scottish Low Carbon Investment Conference

The Scottish Low Carbon Investment Conference has taken place in Edinburgh each year since 2010. The conference is a leading international forum for emerging renewable energy and other low carbon innovation. Senior politicians, financiers and industry chiefs, as well as developers, practitioners, academics and policy makers from around the world, gather to debate and explore the global transition to low carbon economies and examine the role of the key sectors in scaling up investment.

Scotland, with its heritage of expertise in finance and technology and abundance of natural resources, is uniquely placed to make a significant contribution to the innovation needed in both fields to progress the global shift to low carbon. The role of government is recognised as key amongst the support architecture for green growth. The Scottish Government has committed to working with all stakeholders to ensure public sector intervention is targeted at the right areas to engender investor confidence and deliver a strong low carbon market. The conference is, therefore, an important forum for reaffirming that commitment and developing new and existing relationships.

A central theme of the conference objectives is that progress will be better achieved if the key sectors work together. The challenges are not isolated but common to the global economy. Energy security and climate change, the need to shift from finite resources to a sustainable footing for our energy needs, the technological hurdles that entails, and the need to find new investment instruments to support the low carbon sector, provide ample questions for the conference to consider.

3.4.9 We are thus increasingly turning to innovative ways of funding investments, using the Scottish Government's own funding to unlock other funding streams. The following non-exhaustive list illustrates the types of opportunities that may be available in the future for emission abating infrastructure, services, research and development, and business support.

3.4.10 The Green Investment Bank ( GIB) is headquartered in Edinburgh. ^[61] Over the Spending Review period to 2015, it will invest £3 billion focused on:

• offshore wind;
• commercial and industrial waste processing and recycling;
• energy from waste generation;
• non domestic energy efficiency; and
• supporting the Green Deal.

3.4.11 GIB has invested £635 million in eleven projects in its first five months of operation unlocking an additional £1.7 billion of private sector investment. The investments will save more than 2.5 MtCO ₂e per year, the equivalent of taking around one million cars off the road, and generate enough renewable electricity to power 2.3 million UK homes.

3.4.12 The Scottish Government in collaboration with Scottish Enterprise and Scottish Futures Trust has identified a portfolio of low carbon projects in excess of £4 billion that might be appropriate for investment by GIB or other funds such as Scotland's Renewable Energy Investment Fund. About £500 million of these projects are under active consideration by the GIB.

3.4.13 The GIB is now looking to secure involvement in a range of projects in Scotland and is keen to join forces in unlocking projects across its key sectors as well as those of a larger more strategic nature. The Scottish Government has agreed to work with the GIB, and other potential investors, to bring forward a national programme of LED street lighting and to explore opportunities across the public sector estate for similar energy efficiency interventions. Scottish Government will make available up to £2 million in 2013-14, to support local authorities to undertake street lighting condition surveys, in order to accelerate this investment.

3.4.14 The Green Deal is a new UK-wide finance mechanism funded by private capital. It will enable households and occupants of other buildings to have energy efficiency improvements installed at no upfront capital cost and to pay for them, over a period of years, through a charge on their electricity bill. More detail on the Green Deal can be found in section 5.4.

3.4.15 Traditional capital finance is the most common method of financing public sector infrastructure projects. Development and construction costs are paid from capital budgets at the time of building the asset. In general it ensures lowest cost of finance for a project. Examples of capital-funded infrastructure include cycling infrastructure, renewable projects, energy assistance within the housing sector, and estate maintenance.

3.4.16 The Scottish Government uses capital and revenue grants to good effect, often levering or matching significant funding from the private sector or other areas such as Lottery funding. Examples of grants include those used in our Green Bus Fund. ^[62]

3.4.17 The Scottish Government does not yet have flexibility to borrow under the current public finance framework. The limited capital borrowing powers enabled by the Scotland Act mean that for the purposes of capital investment, the Scottish Government will, from 2015-2016, be able to borrow up to 10% (approximately £250 million) of the capital budget each year with a cumulative limit of £2.2 billion. Capital borrowing will be one way of funding low carbon infrastructure.

3.4.18 Local authorities have powers to borrow under the prudential borrowing regime. In 2010-11, around £1.1 billion of capital spend was supported by LA borrowing. Local authorities are using this funding arrangement for activities that include emission abatement as well as saving money. Fife Council, for example, has a rolling programme to replace its inefficient street lighting with a more efficient system. The payback period is relatively short and Fife is not only reducing its emissions but also reducing its liabilities under the Carbon Reduction Commitment ( CRC) scheme.

3.4.19 The Regulatory Asset Base ( RAB) is a well-used methodd of funding infrastructure within the rail industry. Transport Scotland works directly with the Office of Rail Regulation and Network Rail to agree on major new investment. Projects are financed by borrowing undertaken by Network Rail. The Scottish Government then makes regular contractual repayments to Network Rail. Examples of rail infrastructure being financed in this way are the Edinburgh Glasgow Improvement Programme and Borders Railway.

3.4.20 Tax Incremental Financing ( TIF) is used to fund public sector infrastructure needed to unlock regeneration in an area, and which might otherwise be unaffordable to local authorities. TIF allows local authorities to keep locally generated, incremental non-domestic rate revenue ( NDR) from economic activity that has arisen as a direct result of their investment in "unlocking" infrastructure. The captured revenue is then used to repay the local authority's debt raised to finance the infrastructure investment.

3.4.21 The Scottish Government uses loan funds to facilitate investment by others, where the market is failing to provide businesses and communities with access to finance. For example, the Energy Saving Trust has Scottish Government funding for a District Heating Loan Fund, helping communities to replace traditional heating with low carbon and renewable heat.

Tax Incremental Financing

One of the six TIF pilot projects under development is from Fife Council. The project involves a £17 million investment in infrastructure to improve vehicle and marine access to Energy Park Fife, remediate the site and enhance delivery of a Levenmouth Low Carbon Investment Park. An estimated 1000 new jobs will be created.

3.4.22 Access to finance is often cited as a barrier to energy efficiency or renewables uptake. The Energy Saving Scotland Small Business Loans Scheme provides loans of up to £100,000 through the Energy Saving Trust for the installation of technologies that reduce energy consumption and improve resource efficiency in SMEs (small and medium sized enterprises). The loans are interest free for energy efficiency measures.

3.4.23 Our Central Energy Efficiency Fund ( CEEF) provides funding for local government, NHS Scotland and Scottish Water to reduce energy consumption and carbon emissions. ^[63] Projects must pay back within seven years for energy efficiency or ten years for renewable measures. Savings are repaid into the fund up to the original loan amount. Further savings may be used for frontline services or more carbon reducing measures.

3.4.24 Our Salix Finance loans scheme provides a public sector revolving loans fund for publically funded autonomous institutions such as universities and colleges to implement energy efficiency measures. ^[64] This fund will be opened up to the wider public sector in 2013-14.>

3.4.25 The Scottish Futures Trust ( SFT), a company established by the Scottish Government, has responsibility to deliver value for money across all public infrastructure investment. ^[65] SFT works closely with public sector bodies to deliver infrastructure investment, including Scotland's Schools for the Future, the Non Profit Distributing programme, Asset Management and the Scotland-wide Hub programme.

3.4.26 SFT's indicative analysis shows that an investment of c.£300 million in low carbon measures across the Scottish Public Sector estate could lead to potential cost reductions in the region of c.£1.1 billion before financing costs and £900 million after financing costs.

3.4.27 The Trust has initiated a Low Carbon Workstream to develop commercial delivery structures to aggregate projects and establish national energy efficiency programmes. Through this, SFT aims to realise investment potential and attract private finance as well as reduce costs for all authorities and the wider public sector. This will be achieved, for example, through developing public sector approaches to energy performance contracting, especially those which may be capable of being funded from the Government's revenue budgets. This work will initially focus on pilots involving an NHS Health Services Scotland office building and Glasgow City Council's primary school estate.

Street lighting

SFT, supported by Scottish Government, COSLA, the Cities Alliance, the Society of Chief Officers of Transportation and Resource Efficient Scotland, is managing the development of a national street lighting programme. The Trust is helping local authorities to assess the potential financial and carbon savings that could be captured, while the financial and commercial options is being developed in conjunction with the GIB. The Scottish Government will make up to £2 million available in 2013-14 to accelerate this programme and encourage local authorities to undertake street lighting condition surveys.

3.4.28 Non Profit Distributing ( NPD) involves a partnership with a private sector provider, who finances, constructs and maintains an asset. The public sector then pays an annual charge over a 25-30 year period to the private sector from the revenue budget once the asset has been built.

3.4.29 The Scottish Government supports the use of NPD to deliver revenue-financed investment. NPD seeks to transfer risk and exert private sector discipline during the construction phase of a project and throughout its lifetime, but without the excessive profits associated with past Private Finance Initiative ( PFI) projects.

3.4.30 In 2010, the Scottish Government announced a pipeline of NPD projects with a value of £2.5 billion across public services in transport, education and health. This is one of the largest investment programmes of its kind in Europe. High-quality sustainable design is supported by SFT at all stages of procurement and through to delivery.

3.4.31 Hub ^[66] is a Scotland-wide initiative delivering new community infrastructure that is expected to be valued at more than £2 billion over the next ten years. It brings together community planning partners, including health boards, local authorities, police, and fire and rescue services, and private sector development partners, to deliver sustainable community infrastructure collaboratively.

City of Glasgow College

Environmental sustainability is a key feature of the City of Glasgow College's technical requirements for its New Campus Non Profit Distributing Project. The College is looking for a design that meets certain minimum sustainability targets, including in relation to BREEAM ^[67] and Energy Performance Certificate ratings, ^[68] carbon emissions and low or zero carbon technologies. The College will use a low carbon assessment tool to review and evaluate all aspects of bidders' sustainability proposals.

3.4.32 The Scottish Investment Bank ( SIB) ^[69] supports the development of Scotland's private sector SME funding market to ensure both early stage and established businesses with growth and export potential have adequate access to growth capital. SIB operates a suite of investment funds. The three equity funds adopt a co-investment and shared risk intervention model to encourage more private investors to invest in early stage Scottish companies with high growth potential. SIB is also the lead investor in the privately managed Scottish Loan Fund which operates on a fully commercial basis and is aimed at established companies.

Haddington Infant School and St Mary's Primary School ^[70]

The new, joint school building benefits from natural lighting and includes a 'breathing wall' construction for good indoor air quality, solar-thermal water preheating and photovoltaic panels, while smart lighting controls are used to enhance energy efficiency. The joint facility was designed to achieve an Energy Performance Certificate A rating and delivers lower energy bills against each set of guidance from the Chartered Institution of Building Services Engineers ^[71] and the Carbon Trust. ^[72]

The school grounds are a resource for ecology teaching and recycling as well as recreation.

3.4.33 Scottish Enterprisehas a range of innovation and research and development grants. These are available to businesses of all sizes for research and development, co-investment and technological innovations. Scottish Enterprise provides guidance ^[73] on the most appropriate grant for businesses and supports them throughout the application process.

Low Carbon Funding Landscape Navigator

The UK Government launched a low carbon funding landscape navigator in 2012 to help providers of and applicants for low carbon funding link up more easily. Available on the Low Carbon Funding Landscape Navigator website, ^[74] the navigator has been developed by the Energy Generation & Supply Knowledge Transfer Network with support from DECC. Users can search for funding opportunities and get help in finding partners to build collaborations for specific calls. Both public and private funders can add and manage their own funding opportunities.

The navigator is a resource for the entire low carbon energy R&D community. It will be particularly valuable to smaller technology companies who struggle to keep up to speed with the myriad of support mechanisms.

3.4.34 European Structural Funds. In the 2007-2013 programming period we have supported projects through targeted low carbon themed application calls. This has added valuable extra resources to individual projects. RPP2 related projects have included energy efficiency in social housing in Orkney. However, continuing this approach would mean that we miss an opportunity to combine Structural Funds with rural and fisheries funding streams in order to leverage additional resources from the private sector and centrally managed funds (e.g. Connecting Europe. Horizon 2020).

3.4.35 We want to identify low carbon as a priority from the outset of the new programme and to allocate a significant funding envelope. This strategic approach will help us to establish a combination of grant and financial engineering instruments that match our ambitions.

3.4.36 To support the delivery of regeneration projects in Scotland, we developed the £50 million Scottish Partnership for Regeneration in Urban Centres ( SPRUCE) ^[75] using money from the EU JESSICA investment loan fund. This includes up to £15 million for energy efficiency retrofit projects in eligible local authority areas. Schemes that pilot or demonstrate new or innovative approaches to energy efficiency retrofit measures, including the retrofit of existing social housing stock, are eligible to submit a bid for this element.

3.4.37 Launched in 1992, the LIFE programme is one of the spearheads of EU environmental funding. The European Commission has proposed to boost funding for environmental and climate projects through a new LIFE programme in the 2014-2020 period. ^[76] If this regulation is adopted by the Member States and the European Parliament, the overall budget would be raised to €3.2 billion, of which €800 million would be allocated to a new climate sub-programme which will focus on reducing greenhouse gas emissions; increasing resilience to climate change; and increasing awareness, communication, and exchange of information on climate actions.

3.4.38 Grants to finance projects will remain the main type of intervention of the LIFE programme. They will support public authorities, the private sector (including SMEs), NGOs and other non-profit organisations, in testing small-scale low carbon and adaptation technologies, with new approaches and methodologies. Specific local and regional climate mitigation or adaptation strategies or action plans will also be financed. The sub-programme will support capacity building as well as awareness-raising actions.

Tayeco Ltd

Based in South Queensferry, Tayeco Ltd has received more than £900,000 from SIB's Scottish Co-investment Fund. ^[77] The company has developed Ewgeco ^[78] - the world's first real-time energy monitor for homes and business. Ewgeco provides users with a better understanding of their energy consumption patterns and encourages behavioural changes through precise and instant information on electricity, water and gas at any point in time.

3.4.39 Finally, the Scottish delegation was given useful advice on securing international finance in meetings at UNFCCC Doha with the financial and business sector, including the European Investment Bank and Global Scots in Qatar. Many European cities have accessed European Investment Bank funding for green initiatives, particularly in transport. A wide range of green projects could be eligible for loan funding as long as they represent a bankable proposition in terms of returns; the Scottish Government and some large Scottish local authorities would be big enough to act as guarantors (or alternatively a pool of smaller local authorities).

3.5 Understanding and influencing behaviour

The Government recognises that behavioural factors are of critical importance in ensuring the success of most of the policies and proposals in this report. It published the Low Carbon Behaviours Framework in March 2013 which sets out our strategic approach to encourage low carbon lifestyles amongst Scotland's individuals and households.

3.5.1 This section of the document addresses the critical role that understanding and influencing behaviour has in the majority of the policies and proposals in this report and in meeting our climate change targets.

3.5.2 The Low Carbon Scotland: Behaviours Framework, ^[79] published in March 2013, sets out our strategic approach to encourage low carbon lifestyles amongst Scotland's individuals and households. The Framework draws on the latest behaviour change research and builds on the work achieved through our earlier Low Carbon Scotland: Public Engagement Strategy published in 2010. The Individual, Social and Material ( ISM) approach, combined with ten insights for effectively influencing behaviours, will help the government and others to build stronger policies and programmes to meet the challenge of changing the way we live, work and travel.

The Scottish context

3.5.3 The way we use electricity and heat our homes and other buildings, the ways we travel, the products we purchase and transport from home and abroad, and the way we run our businesses and organisations, have emissions consequences. These stem from the choices we make, the fuels and technologies that we use and the way in which we use them, i.e. our behaviours.

3.5.4 Reducing emissions is challenging, and as Scotland's population and number of households increases, this challenge becomes greater still. Scotland's population ^[80] has seen a continuous increase in recent years, partly because there have been more births than deaths, but mainly because more people have moved to Scotland than have left. In 2011, migration was largely responsible for an increase in our population of 0.6% over the previous year. At 5,295,000, the population is now the highest ever recorded and it is projected to further increase to 5,760,000 by 2035. ^[81]

3.5.5 The Scottish Government is working hard to increase sustainable economic growth by promoting Scotland as a positive place to live, work, learn and remain. Should the trend in population increase continue, Scotland will be on track to exceed the population growth target established in our Government Economic Strategy. We have a large established migrant community and welcome the contribution new Scots are making to our economy and to society. However, all things being equal, population increases will mean still greater energy demands, and higher emissions from transport and waste. This makes Scotland's climate change targets more ambitious to achieve and means that we need to engage everyone in Scotland in the transition to a low carbon lifestyle.

3.5.6 There is no magic bullet for changing the way we produce and use energy, or manage our land. But clearly, policy and engagement programmes have key roles to play in influencing how society organises itself and what choices we are able to make. New and carefully planned infrastructure, innovative services and technologies, effective communications, and community and business engagement can do more to help us live more sustainably as a society, particularly where these are joined up and consistent.

The Low Carbon Scotland Behaviours Framework

3.5.7 Our Low Carbon Behaviours Framework sets out the key behaviours we need to encourage to meet Scotland's climate change targets, our evidence-based approach, the actions we will take, and how we will measure progress. The Framework recognises that changing behaviours is more likely to be successful when we consider the multiple factors across individual, social and material ( ISM) contexts that influence them.

Ten key household behaviours

3.5.8 We need to be clear about which individual and household behaviours are key to tackling climate change. In 2010, Scottish Government research identified where household actions would make the biggest impact on reducing energy demand. Those ten key behaviours are intended to inform our analysis and understanding of what Government and others can do to enable, encourage and exemplify change. Furthermore, the key behaviour areas are relevant to many of the policies and proposals contained within this report. They are outlined in the table below. Further information can be found on the Influencing Behaviours website. ^[82]

Table 3.1. Ten Key Household Behaviours

Home Energy	Installing a more efficient energy system
	Keeping the heat in (draught proofing & insulation)
	Better heating management
	Saving electricity
Travel	Walking, cycling, using public transport and or car sharing instead of (solo) driving
	Using a low carbon vehicle, fuel efficient driving
	Using alternatives to flying where practical
Food	Avoiding food waste
	Eating a healthy diet high in fruit and vegetables, in season, where we live
Consumption	Reducing and reusing, in addition to the efforts we already make on recycling

3.5.9 There are strong links between the policies and proposals in this report and the ten key behaviours. For example, Chapter 5 outlines the policies and proposals that will help us to install more efficient energy systems and better manage heat. Chapter 7 describes how we propose to help people make more carbon-friendly travel choices, whilst the waste and resource efficiency chapter outlines steps that will help households reduce and reuse and expand on the existing recycling efforts of many households.

The ISM approach

3.5.10 Our approach to addressing the individual, social and material ( ISM) contexts for behaviours is outlined in the User Guide to the ISM tool published on 5 June 2013. ^[83]

3.5.11 The tool is based on theory and evidence which shows that three different contexts - the individual, social and material - influence people's behaviours.One of the key principles of the ISM approach is that developing a package of interventions that targets all the three contexts is more likely to be successful in bringing about significant and long lasting change, as the example on recycling in the box below shows. The ISM tool has been developed as a practical aid for thinking through how best to influence people's behaviours.

3.5.12 At individual level there is a need to influence a number of factors, including values and attitudes, which help drive our choices and behaviours. The social context in which we operate is also very important - how other people behave and what they consider to be appropriate and desirable behaviour strongly influences how each of us acts. Finally, the material context - infrastructure and technologies, legislative and policy frameworks - can either work to promote or constrain low carbon choices and behaviours. This is why they feature strongly in this report.

Recyclingand the ISM approach

Across the last 20 years, kerbside recycling has become an 'everyday' behaviour for many households across the country. What caused this change in behaviour across society to occur? ISM points to multiple actions by diverse actors covering a range of factors:

Individual: Lots of messaging working on people's attitudes and emotions was provided about the importance and benefits of recycling and 'doing your bit'. Recycling was made easier by the introduction of a wide range of collections infrastructure, including kerbside collections, and providing clear and simple 'how to' information, thereby highlighting the ease and lowering the 'costs' of participation.

Social: Kerbside collection boxes sent out strong visual signals about who was (and wasn't) recycling, thus working on the power of social norms. Recycling was also promoted within people's workplaces, schools and colleges - from where some people take their new behaviours home. Consistent branding e.g. 'Waste Aware Scotland' and 'Recycle for Scotland' was also used to create a sense of collective national action.

Material: The introduction of EU directives on waste management and associated regulation in the UK (e.g. landfill tax), incentivised local authorities to provide collections infrastructure for household recycling. More recently, changes in the scheduling of recycling kerbside collections relative to other household rubbish (e.g. weekly for recycling, fortnightly for residual waste) further incentivised people to take practical action to manage their different waste, and sent out further signals to householders about the need to recycle.

Future plans, such as expansion of 'Recycling on the Go' - which will provide additional recycling facilities for separating plastic, paper, and other materials on the streets of our towns and cities - will further reinforce recycling as a normal and every-day activity.

3.5.13 A programme of work to familiarise government officials and delivery partners with the ISM tool is commencing. Use of the tool will help strengthen the behavioural aspects of policies and proposals to deliver the greatest change. The work will include ISM workshops with Scottish Government policy teams to look at all of the factors which influence people's behaviours, as well as capacity building workshops with delivery organisations. Further workshops on using ISM will be offered to stakeholders and community groups within the low carbon behaviours field. An update report highlighting progress on these initial workshops will be published on the Scottish Government website later in 2013.

Ten insights for effective behaviour change

3.5.14 Whilst ISM offers a useful tool for thinking through all of the contexts that influence people's behaviours, research also offers other important insights on how to most effectively influence people's behaviours. This section sets out ten insights about influencing behaviours and decision making which should be regarded as underpinning principles for policy development that remain relevant over time. Again, these apply to the majority of policies and proposals in this report and so we do not necessarily reference them again in the sectoral chapters. While they are written in the context of policy development and implementation for the Scottish Government, they are important for all organisations and groups considering how to best influence behaviour. They are evidence based, drawn from the Scottish Government's Climate Change Behaviours Research Programme ( CCBRP).

3.5.15 Working with our partners, we will need to:

1. Show leadership
2. Be consistent
3. Build common cause
4. Make change as easy as possible
5. Ensure change is targeted and tailored
6. Use a packaged approach
7. Intervene at 'moments of change'
8. Think about 'use' when rolling out new products and technology
9. Build sustainability into everyday life
10. Robustly monitor and evaluate interventions

3.5.16 Insight 1: Show leadership. We know that the public expects the Scottish Government to show leadership on climate change. Evidence suggests that there is a public appetite for action, even if this means using legislation to drive change forward. ^[84] At the same time, public, private and third sector organisations have crucial roles to play in promoting positive values and influencing behaviours.

3.5.17 It is important that the Scottish Government both leads the way, and is seen to lead the way, from the setting of clear, stable and long term policy frameworks that drive ambitious emissions reductions, through to transformational management of its own activities and estate. A formal example of this leadership is our new Public Sector Leaders Forum, chaired by the Minister for Environment and Climate Change (see section 10.2 for details). Of course, transformation will not be achieved by the Scottish Government alone and, in many cases, it will be more appropriate for others to take the lead.

3.5.18 Insight 2: Consistency of message and of action is key. Evidence suggests that the Scottish Government and its partners need to be seen to be consistently low carbon if the public are to take action themselves. Policies that appear to contradict key messages undermine public belief in the seriousness of the Scottish Government's resolve, and the fairness of the measures introduced. In order to address this issue in the short to medium term, the Minister for Environment and Climate Change will hold a series of local discussions with different stakeholder groups to discuss issues around low carbon behaviours.

3.5.19 Insight 3: Any engagement work must approach tackling climate change as a genuinely joint endeavour, with a strong values-based approach. Engagement work needs to avoid telling people what they should do: instead, the focus needs to be on building common cause - acting together, moving towards the same goal. This will be important in winning hearts and minds, particularly as many of the choices leading up to 2027 could be, or appear to be, difficult. Genuine engagement with individuals, families, communities, businesses, and interest groups will be essential in both generating options and later buy-in to major policy decisions and implementation plans.

3.5.20 Insight 4: Change needs to be as easy as possible. Even change that should be straightforward - having an energy efficiency measure installed, for example - can be challenging and difficult for some people. This can deter people from making simple changes in the first place or from following up on changes they have already made. Making sure that any lower carbon action or choice is as hassle-free as possible, throughout the process, should be key to any intervention planning.

Cool Biz, Japan

Cool Biz was a Japanese Ministry of Environment initiative that began in 2005 to reduce energy use in government buildings. Air conditioning settings were changed throughout the summer months, so that buildings would not be cooled below 28°C. To make this more comfortable for workers, a new dress code was implemented, which Government Ministers also followed, moving away from traditional business suits towards lighter clothing. The programme was a success, with the Ministry estimating a reduction of 1.14 MtCO ₂e in 2006. With further energy reductions needed following the 2011 earthquake and tsunami, Super Cool Biz has now been launched with an even more flexible dress code and other measures to conserve energy in government offices. Simple interventions like this demonstrate leading by example and consistency of message or action, and also have the potential to reduce energy costs and carbon emissions significantly. ^[85]

3.5.21 Insight 5: Personalised information and individualised feedback can be key drivers. Giving people personalised information about their energy use, what their travel options are, or how efficiently they are driving is a good way to enable them to take action themselves. ^[86] For example, most people are unaware of how much energy they use, what tariff they are on, and how they can reduce their personal carbon footprint. Making actual energy usage more visible (feedback) improves customer understanding and helps individuals take action as a result.

3.5.22 For maximum impact, information needs to be personalised, continuous and visually appealing. In the same way, finding out how our energy use compares with others in our neighbourhoods provides real-life feedback that can be an important driver of energy reductions.

3.5.23 Insight 6: Make change packaged. A packaged approach is often the most efficient way of delivering significant change. This is very much in line with ISM, i.e. by creating a package of interventions to address the three different contexts which influence people's behaviours, substantive change is more likely to be achieved.

3.5.24 Personalised approaches are even more successful when they are offered as part of a package of interventions. This might mean targeting one behavioural issue with multiple approaches. Or it might mean tackling a range of issues at once. A concrete example of the latter is the 'whole house approach' to home energy auditing that identifies multiple energy efficiency issues in one visit and 'sorts' them with a follow-up package. Studies suggest this can lead to significant energy reductions compared to baseline levels and control groups, with effects seen over a number of years.

Durham, Canada

The Durham region in Canada introduced a social marketing campaign to reduce residential water use, particularly from watering gardens and lawns. Two approaches were used. One group received a "passive" information campaign that aimed to raise awareness of the problem, while the other received a community-based package of interventions to affect behaviour change. The latter included face-to-face visits, external reminder signs, pledges to water in specific circumstances only, and provision of water gauges to test when lawns actually needed water. The results were revealing. The first approach resulted in increased lawn watering while the second led to a 54% reduction in water consumption. The initiative cost Durham $80,000 to deliver but saved it $945,000 by not having to invest in a new water processing plant. ^[87]

3.5.25 Insight 7: Intervene at moments of change. Major life or work events offer opportunities to deliver significant shifts in lifestyles or work culture. For individuals and households, these 'moments' might be buying a new property, moving to a new area, getting a new job, or having a first child. Or there could be other 'trigger points', such as getting a new kitchen or bathroom, that provide opportunities to do other improvement work to the home.

3.5.26 For businesses or other organisations, the change might be an office relocation or reorganisation, or bringing in a major new technology or product. These moments of change offer, essentially, a new context in which to reflect on life or work arrangements. Targeting moments of change is at present an underused strategy in terms of interventions, particularly with households, but one that offers genuine potential. Travel planning is one area where some work has been done on this. And retailers are particularly sharp on maximising these kinds of opportunities.

3.5.27 Insight 8: Technological advances will be key to living more sustainably in future, but how people respond to and use new products and services must be carefully considered. This is a key factor within the ISM approach. Any technological innovation must take behavioural implications into account if it is to maximise the potential benefit. For example, by 2019 every household in Scotland should have a smart meter. However, smart meters can deliver variable savings depending on how they are used, so to maximise these savings, the quality of the information and support given at the point of installation and the opportunity to obtain subsequent advice is crucial. Service providers will need the appropriate skills to be able to advise households appropriately. Energy-saving light bulbs are a good example of a new technology that has not yet led to significant energy savings, because of how they are used (see box on page 88).

EAE

EAE is a leaflet distribution company based outside Edinburgh with other locations north of Aberdeen and ten 'home bases' in rural and remote areas of Scotland. The company aims to be carbon neutral by 2015. ^[88] For EAE, relocating to new premises provided an opportunity for the leaflet distribution company to review its activities. Investments included the installation of showers to encourage people to cycle to work and the construction of the company's own wind turbine - a very visual symbol of the company's commitment to sustainability. Since its relocation, the company continues to identify new areas in which it can reduce its carbon emissions.

3.5.28 Insight 9: Build sustainability into everyday life. The more that sustainable behaviours are built into the fabric of everyday life, the more likely it is that people will behave sustainably. People don't 'behave' in isolation: we develop preferences, habits and lifestyles over time, and in wider contexts. So, while a series of sensible interventions targeting individuals might bring about some limited change, 'individual-based action' won't on its own bring about a low carbon society. Broader, longer-lasting, societal change requires a more ambitious approach.

3.5.29 This means influencing individuals where possible, but also focusing on building social norms - in other words, what's seen as normal and everyday behaviour - and providing infrastructure that is easy to use and services that offer genuine help and support. Recycling is a good example of a sustainable behaviour that is built into everyday life. Ideally, every intervention would involve consideration of how it can work on individual, social, and material (i.e. infrastructure) levels.

Climate Challenge Fund

The Climate Challenge Fund empowers communities to come up with their own projects for reducing emissions. Since its launch in 2008, the Scottish Government has awarded over £46.9 million to Scottish communities through the Fund with 563 individual awards made to 408 different communities across Scotland to encourage local communities to reduce their carbon footprints. By 2015 we will have made available a total resource of £68.6 million since the Fund was established in 2008.

A refresh exercise, announced in November 2012, introduced changes to help attract applications from a wider variety of community groups from disadvantaged areas, and young people, including the introduction of development grants. Other changes will facilitate improved peer support and encourage innovation including the ability for groups to bring forward project proposals which include revenue raising.

3.5.30 Insight 10: Monitor and evaluate interventions. Without robust monitoring and evaluation, it is difficult to know whether interventions have been successful, or how they could be improved. Even hard measures, like insulation programmes, can benefit from evaluation: of course, simply installing insulation will, for most, reduce their overall energy consumption. But households may react to lower bills by being less concerned to monitor their energy use. Or they may not make the energy savings they could have made, just because they haven't had tailored advice. Or they may simply feel dissatisfied because of the service they received, which could put them off future programmes. Every programme taken forward with carbon implications would benefit from robust monitoring and evaluation to maximise savings and to learn lessons for the future.

3.5.31 In summary, our successful long term strategy to influence behaviours around climate change will work beyond the individual, to look at broader social and material contexts, and about how new products are actually used in practice. It will be based on leadership and values-based engagement, especially about the difficult choices ahead. We will work to make change as easy as it can be, and personalise and tailor interventions where it makes sense to do so.

Light-bulbs

A reduction in sales of standard bulbs and the promotion of new energy efficient alternatives has led to total energy consumption from lighting beginning to decline (see top line in the chart below). However, the total savings are less than expected bearing in mind the energy savings made from fewer standard bulbs (compare the top two lines in the chart). These savings have been partly offset by increasing energy consumption from other types of bulb.

In the case of lighting, while purchasing behaviours may have been changed (success), environmental impacts have not been significantly reduced (failure). Emerging tastes for ambient low-lighting have resulted in many more light bulbs per room in European countries than in the past. So, for example, one standard bulb may be replaced by multiple bulbs, which may individually be more energy efficient but the total amount of energy consumed for lighting may not ultimately be very different.

In short, behavioural outcomes may not be achieved simply by introducing sustainable substitute products. How these products are used by people in real life contexts needs to be carefully considered and influenced. ^[89]

3.5.32 We will monitor and evaluate our programmes and learn lessons from the wider evidence base, including the work of others. In this way, we can be clear about the impact of the programmes and where and how improvements might be made. And, finally, we will continue to recognise that the people of Scotland are at the heart of our climate change ambitions. While the transformation to a low carbon economy will involve significant technological change, our success will depend on the decisions and behaviours of each of us.

3.6 The role of the planning system

3.6.1 The planning system is used to make decisions about the future development and use of land in our towns, cities and countryside. It considers where development should happen, where it should not and how development affects its surroundings. The system balances competing demands to make sure that land is used and developed in the long-term public interest.

3.6.2 The planning system has an important role in promoting sustainable development and can help us adapt to climate change and mitigate its effects. Planning will support emissions reduction in sectors such as energy, transport, heat, and waste and is often a critical enabling measure.

3.6.3 The National Planning Framework, Scottish Planning Policy, planning advice, and strategic and local development plans all play their parts in supporting the transition to a low carbon future. Planning authorities review their development plans on a five year cycle. Development plans prepared after the publication of this second Report on Policies and Proposals are expected to include policies which will support the transformational change required to meet our climate change targets. In the context of public bodies duty obligations, avoiding further levels of assessment will help to maintain planning performance. Activities within the planning system include:

• The transition to a low carbon economy has been identified as a key theme for the third National Planning Framework ( NPF3);
• The Spatial Planning Assessment for Climate Emissions ( SPACE) tool will ensure that the implications for greenhouse gas emissions of alternative spatial planning options are factored into decision-making;
• The expansion of renewable energy generating capacity is strongly supported by national planning policy;
• Sustainable and active travel are promoted by Scottish Planning Policy and the National Planning Framework;
• We are supporting planning authority work on heat mapping to inform future strategic and local policy on the development of heat networks; and
• Scottish Planning Policy provides clear guidance on development and flood risk, and a replacement Planning Advice Note on Flooding, Water and Drainage will be published in 2013.

3.6.4 We will consider how national planning policy can further assist in delivering emissions reduction in support of our annual targets. The reduction of emissions will continue to be a major consideration in the planning system's promotion of sustainable places. Public consultations on National Planning Framework 3 and Scottish Planning Policy will help to inform those key planning policies.

The role of the Scottish Government

The Scottish Government can help to foster low carbon initiatives in areas as diverse as the development of carbon capture and storage and the expansion of renewables, renewable heat and district heating by maintaining a supportive planning system. The current Second National Planning Framework ( NPF2) sets out a spatial strategy for Scotland's development to 2030 taking forward the spatial aspects of the Scottish Government's policy commitments on climate change, sustainable economic growth and renewable energy. The Scottish Government is presently consulting on the third National Planning Framework ^[90] and a revised Scottish Planning Policy.