Scottish City Region and Growth Deals: carbon management guidance for projects and programmes

4. Green Book Carbon Requirements

Funding for City Region and Growth Deal projects is determined through the development of business cases that must follow HM Treasury Green Book guidance. A review of the Green Book was published by HM Treasury in November 2020 that included updated guidance on the appraisal of projects, programmes and policies based on their alignment with net zero carbon emissions targets. Sections 3.6 to 3.7 of the updated guidance include the requirement to include the carbon emissions impact from all projects in the economic case:

"3.6 Furthermore, even where progressing the net zero target is not the primary objective of a proposal, appraisers should consider whether it acts as a relevant constraint. Any environmental or carbon emissions impacts should also be captured in the economic case.

3.7 Carbon emissions should be assessed using the approach set out in BEIS Carbon Values. These values are calculated as the cost of removing an additional tonne of emissions from the atmosphere calibrated to a path of emissions consistent with meeting the UK's legal targets."

HM Treasury Green Book Review 2020

The Green Book update in March 2022 incorporated recent associated HM Treasury guidance on valuing carbon, including the following clarification:

"Greenhouse gas (GHG) emissions occur as a result of many decisions to create assets or provide public services, particularly where direct energy consumption is required. They may also result from the energy required to produce basic input materials used in construction. The creation of GHGs has a social cost based on its contribution to climate change.

To estimate the social cost of an intervention it is necessary to include the costs of emitting GHGs. Energy efficiency has a direct social value, in addition to the value of a reduction in GHGs, as the energy saved itself has a direct benefit to society (similarly, activities that create extra demand for energy have a direct energy cost)."

HM Treasury Green Book, Section 6.6 - Specific Approaches to Valuation

The following important points are drawn from these Green Book requirements:

1. The whole life carbon emissions impact from all proposed programmes, policies and projects should be assessed and quantified, e.g. in tonnes of carbon dioxide equivalent. The level of detail will increase from Strategic to Full Business Case, however carbon estimation is expected at all stages (whenever cost can be estimated, so can carbon to a similar degree of accuracy);

2. The carbon emissions impact should be converted to an economic value using the approach set out using the BEIS Carbon Values. This calculated value, herein referred to as the "Carbon Emissions Impact Cost", represents the cost of removing the carbon emissions predicted to result from the project from the atmosphere, also known as the 'abatement' cost;

3. The carbon emissions impact cost for all options appraised within the business case should be included in the Economic Case; and,

4. Where a project, or an option within a project, can be qualitatively demonstrated to have a negligible carbon emissions impact, no quantification will be necessary and there will be no requirement to include an associated carbon emissions impact cost. This is only likely to apply to revenue projects that will demonstrably have no measurable influence on carbon emissions.

The above requirements should be followed for all new project or programme business cases within the Deals, regardless of financial value. Although programme business cases may not be able to estimate carbon emissions until projects are confirmed, the minimisation of carbon should still form a demonstrable part of the decision making process.

The carbon emissions impact of project and programme business cases will be reviewed at every stage (Strategic, Outline and Full). The carbon emissions impact of existing projects with approved Full Business Cases may also be subject to review.

A 'carbon checklist' for project owners and business case reviewers is included as Appendix A.

4.1 BEIS Carbon Values

The carbon values published by the UK Government's Department for Business, Energy and Industrial Strategy (BEIS) in September 2021 represent the monetary value that society places on one tonne of carbon dioxide equivalent (£/tCO2e). The values are used to estimate a monetary value of the greenhouse gas impact of policies, projects and programmes and are included as Appendix B.

The values were published by BEIS with details of their origin and how they should be applied, including the following overview:

"Incorporating a value of carbon into the appraisal of projects and policies ensures proper account of greenhouse gas emissions across government. By comprehensively and systematically using carbon valuation across appraisal in a consistent manner, it is intended that government should seek out cost-effective opportunities for reducing emissions across policies and projects – not only in areas such as energy and transport policies where emissions reductions are of primary or secondary importance, but also where this is not the case. Having consistent values across government also provides transparency and consistency for business.

A policy or project that increases or decreases GHG emissions domestically or internationally relative to a "business as usual" scenario is required to quantify the change in emissions, and then apply the carbon values. This calculation feeds into the overall cost benefit analysis to be considered alongside other quantitative and qualitative evidence in the overall policy appraisal."

UK Government Department for Business, Energy and Industrial Strategy, Valuation of Greenhouse Gas Emissions in Policy Appraisal