Climate Change Plan: third report on proposals and policies 2018-2032 (RPP3)

The Transition to a Low Carbon Economy

Renewable energy deployment

• Scotland's natural resources create investment opportunities for deployment of renewable energy technologies
• opportunities for innovation and leadership for Scottish businesses in wave and tidal technologies
• opportunities for oil & gas infrastructure to be repurposed for carbon storage as CCS is demonstrated and deployed
• by investing in low carbon products and services, business strengthen their competitive advantage by anticipating the increase in demand from environmentally conscious consumers

Development of new products

• climate action creates opportunities for businesses to develop new products that are geared towards sustainability
• UK and Scottish energy market interventions create range of incentives for investment in energy efficiency measures
• opportunities for businesses that can reorganise production timings to make use of energy when least-cost

Potential to reduce energy costs

• move to domestic renewables reduces exposure of energy costs to volatile global commodity prices

Our environment and economy are intrinsically linked, and Scotland's transition to a more prosperous, low carbon economy is already well underway. We have created jobs and backed innovative, new industries while winning international respect for our ambition and leadership on climate change.

The Paris Agreement will support a worldwide market for low carbon goods and services, as other countries have also committed to reducing their carbon footprint. Analysis by the International Finance Corporation indicates that the Paris Agreement will help open up $23 trillion worth of opportunities for climate-smart investments in emerging markets between 2016 and 2030. The Agreement will enhance the long term international competitiveness of low carbon business in Scotland by ensuring that more eco-friendly business practices are adopted elsewhere.

The Scottish Government aims to provide the leadership that will give businesses confidence to invest in new techniques and practices. However, there must be a collaborative approach to securing the opportunities offered by decarbonisation, from the SMEs at the heart of local economies, to the investors and multinationals that power the national economy to a significant degree, and the growing firms in between.

Our ambitions for a low carbon economy are embedded throughout the Scottish Government's strategies. The vision for Scotland set out in these documents, including our Economic Strategy and Digital Strategy, sets the blueprint for us to drive and deliver decarbonisation across the economy as a whole.

Our approach to decarbonisation is rooted in our Economic Strategy, which recognises that a more inclusive, sustainable economy improves the opportunities, life chances and wellbeing of Scotland's citizens. We will work to deliver an inclusive, socially just transition, based on equal opportunity, a fair and inclusive jobs market, regional cohesion and safe and secure communities.

The Programme for Government 2017‑2018 makes clear the economic benefits of Scottish Government's climate change ambitions, and states that "Scotland's ambition is to be the inventor and the producer, not just a consumer, of the innovations that will shape the lives of our children and grandchildren". It also notes that low carbon technologies will revolutionise the global economy and that we must act quickly and with purpose to grasp these opportunities or be left behind.

The Scottish Government offers specific support to accelerate low carbon infrastructure projects through our Low Carbon Infrastructure Transition Programme ( LCITP), which has already provided over £50 million to over 50 low carbon projects across Scotland. In January 2018, LCITP launched the Low Carbon Innovation Fund with a further £60 million available for low carbon heating solutions, integrated energy systems, and ultra-low emission vehicle charging infrastructure that will be operational by 2021.

Our ambition under the current Act is to reduce emissions of greenhouse gases by 80% from 1990 levels by 2050. This represents a fundamental transition of all sectors of the economy and a long-term strategy for economic growth: reducing the cost to the Scottish economy of climate change, while maximising opportunities to export our technology innovations and knowledge as other economies make their own low carbon transition.

Central to this transition is the effective and sustainable management of our natural resources and secondary materials. By improving resource efficiency we can reduce energy demand and overall greenhouse emissions. Resource-efficient homes are less likely to face fuel poverty; resource-efficient businesses are more productive. Our Circular Economy Strategy, 'Making Things Last' is a key aspect of our Economic Strategy.

A largely decarbonised economic system by 2050, which meets our climate change targets, can be achieved in a number of ways, and will be influenced by innovations and developments we cannot forecast. It will depend on global and regional markets, geopolitics, consumers' willingness and ability to adapt to new opportunities and behaviours, and on the underlying costs of primary energy sources and related infrastructure.

The role of enterprise agencies

The purpose of Scotland's enterprise agencies is to generate long-term, sustainable and inclusive growth for the economy. In order to implement national ambitions on investment, innovation, inclusive growth and internationalisation, the agencies focus their activities on helping build a competitive and low carbon economy. Scotland already has competitive advantages and important strategic assets that will form the basis for long-term growth by companies.

The agencies will work towards achieving the ambitious targets set out in the Energy Strategy and Climate Change Plan by continuing to work with companies to realise the significant opportunities in the low carbon economy, including opening up important new opportunities such as the circular economy and in water treatment in new, overseas markets. The Scottish Manufacturing Advisory Service has a key role here in helping to make industry more efficient. Similarly, sustainability specialists are focused on working with businesses to reduce their carbon impact whilst increasing their overall productivity. Highlands and Islands Enterprise will continue to support the Government's new programme of community energy empowerment.

The agencies are partners in the LCITP, leading on private sector led projects and area based projects. They collaborate with partners to accelerate the development and delivery of low carbon projects across Scotland which will in turn attract new investment into the sector.

Challenges and opportunities

In 2017, alongside the publication of the draft Climate Change Plan, the Scottish Government commissioned a study into the challenges and opportunities of the low carbon economy in Scotland. ^[34]

This report helped to identify Scotland's strengths in areas of growth, both domestically and overseas. As the market opportunities relating to low carbon continue to grow, this will provide a platform for innovation for Scottish companies in renewables, transport and energy and resource efficiency. Scotland is well placed to take advantage of opportunities in emerging industries including marine energy, offshore wind and carbon capture, utilisation and storage, and indeed, benefits are already being realised from some of these areas.

The Value of Renewables and Low Carbon Technologies to the Scottish Economy ^[35]

• 49,000 estimated number of jobs supported by Scotland's low carbon and renewable energy sector and supply chain in 2016
• £11 billion generated by the Scottish low carbon and renewable energy sector and supply chain in 2016, accounting for 14.2% of the total UK turnover in this sector
• £910 million invested in Scottish renewable generation assets in 2015
• £277.5 million exports generated from Scotland's low carbon and renewable energy sector in 2016

Along with the physical impacts arising from our changing climate, industry faces commercial challenges where the investment required to update existing assets, build new infrastructure, and develop and purchase new technologies, will be significant. Dealing with increasing amounts of intermittent generation could pose challenges to manufacturers, as power system operators develop smart grids where demand is altered to match generation, not the reverse as is the case today.

Scotland's energy intensive industries may face particular challenges in adapting to a low carbon economy, as the cost of energy continues to rise in response to worldwide market signals. We recognise the importance of investment in driving down energy costs (and therefore emissions) in these industries. Cost and availability of energy is a key factor in the competiveness of these businesses. We also recognise the importance of encouraging energy efficiency measures and working collaboratively on decarbonisation opportunities. To reduce the risk of carbon leakage, we will work with industry to ensure our approach enhances Scotland's industrial and manufacturing sectors, improves competitiveness, and fosters sustainable economic growth in Scotland.

The Scottish Government will continue to support Scotland's energy intensive industries. This Climate Change Plan is based on a clear and transparent long term decarbonisation pathway that has been developed in conjunction with stakeholders and puts economic growth at the centre of our long-term strategy. We want to deliver a stable, long-term investment environment that allows industry to maximise the opportunities arising from the low carbon transition.

While supporting our established industries, we will nurture our growing ones. There is still potential for further growth in offshore wind, marine, and hydro, and onshore wind opportunities remain. From the work that has been done by industry – supported by the Scottish Government and our agencies – on skills and employment, we have developed deep reserves of skills among the Scottish people; in 2016, 49,000 jobs were supported by the low carbon and renewable energy industry.

We expect growth in other aspects of the low carbon economy over the lifetime of this Plan, including Carbon Capture and Storage – which offers huge possibilities for Scottish industry, with the potential of North Sea networks to store CO ₂ in the future – and in renewable heat, which we expect to create economic and social benefit as surplus industrial heat is redirected to communities to heat homes, healthcare facilities and schools.

The Scottish Government is supporting these opportunities through funding to develop Carbon Capture and Storage facilities at the existing gas processing plant at St. Fergus and connect them to existing North Sea infrastructure and by working with the UK Government to deliver off-gas grid renewable heating through the Renewable Heating Incentive.

Scotland's Energy Efficiency Programme will help to create a substantial Scottish market and supply chain for energy efficiency services and technologies. With SEEP, we will help to realise economies of scale, thereby helping to drive down the cost of energy efficiency measures. There will be opportunities for SMEs and third sector organisations to deliver, and support the delivery, of energy efficiency measures.

Working with and support for businesses

We will continue the work that we have been doing with businesses in Scotland to support the low carbon economy – helping businesses use their experience, adaptability and willingness to diversify in order to become more competitive.

In our Programme for Government 2017‑2018, the Scottish Government announced the establishment of a Scottish National Investment Bank. The First Minister appointed an industry expert to lead work to develop an Implementation Plan who has convened a small advisory group to support him in the development of this plan. This work will define the bank's purpose and role and the Implementation Plan will be published in early 2018.

In the Scottish Budget 2018‑2019 the Scottish Government has committed to providing the bank with initial capitalisation of £340 million over 2019‑2021. This commitment will ensure the bank can make an immediate impact once operational. The Bank will be a key partner for government and business, supporting our economic ambitions including transformational investment to address climate change.

The Bank will provide and catalyse investment – creating opportunities for Scotland, increasing innovation and accelerating the transformation to a low carbon, high-tech, connected, globally competitive and inclusive economy.

The Scottish Government, and its enterprise agencies, will continue to deepen engagement with Scotland's business community to better understand the opportunities and to build a supportive regulatory and business development environment within which Scottish businesses can thrive.

With the publication of this Climate Change Plan and the Energy Strategy – alongside our commitment to establish a Just Transition Commission – now is the right time to review how we engage with all sectors on this issue.

Scotland's role as a global citizen

Over the timescale covered by this Plan, Scotland will continue to be a vibrant, diverse country that faces outwards and is a confident and responsible global citizen. Consistent with our internationalisation agenda (as set out in 'Scotland's International Framework' ^[36] ) we will continue to implement progressive social policies and environmental measures, playing our part in making the world a safer, fairer and more sustainable place.

By adopting an outward-looking and participative approach to engaging with our global partners, we will expand our diplomatic reach and strengthen our global ties. There is clear scope to use Scotland's expertise and international reputation as a vehicle for furthering coordinated, global interaction on climate change. This is of particular relevance when looking at Scotland's ambitious climate targets and the steps we are taking to ensure a greener future.

While our scope for action is constrained by the current constitutional framework, there is much that the Scottish Government can continue to do to achieve our ambitions on climate change:

• we will continue to engage with the UK Government, pushing for close and meaningful dialogue and the opportunity to share best practice and research with government and business
• we will seek to deepen our relationships with current EU Member States to help steer policy decisions and find shared interest in our global climate goals
• on the international stage, we will continue to exchange knowledge and experience with countries and regions whose challenges are similar to our own and whose solutions can help to inform our own approach

The Scottish Government supports the Paris Agreement, which provides the framework for global climate action. Scotland is a member of the Under 2 Coalition led by California and Baden Wurttemberg and representing over 200 jurisdictions covering over 1 billion people and around 40% of global GDP. We are also supporting the UNFCCC's Gender Action Plan to strengthen the role of women in the international climate negotiations.

Global climate justice

Scotland champions climate justice, and the Scottish Government hopes the Paris Agreement will drive global action to avoid the worst impacts of climate change falling on the poorest and most vulnerable people across the world.

The Scottish Government has pledged to implement the UN Global Goals both at home in Scotland and contribute to their achievement in our partner countries. To meet that commitment, climate action is important for Scotland itself and, as a part of our international development 'Beyond Aid' agenda, to mitigate the Global North's impact on the poorest and most vulnerable people in developing countries in the Global South – a "do no harm" approach.

We are continuing to deliver the First Minister's pledge to the Paris climate conference to provide £3 million each year through our Climate Justice Fund programmes. These include our Climate Challenge Programme Malawi and our Climate Justice Innovation Fund, which announced its first six projects in Malawi, Zambia and Rwanda in September 2017.

Scotland's innovative Climate Justice Fund has already supported 11 projects worth £6 million in some of Africa's most vulnerable communities. The First Minister has pledged a further £15 million over five years to support developing countries, with an initial £2 million announced for clean water for vulnerable communities in Malawi and £1 million to help developing countries engage with the Paris Agreement.

Scotland and the European Union

The challenges posed by the EU referendum result are unprecedented. Climate policy has domestic, regional and global implications and connections and the EU's legislative reach, market influence and climate diplomacy are extensive. Through the UK's membership, Scotland has benefited from being a direct part of the EU's considerable diplomatic clout in the climate negotiations, projecting our domestic climate leadership internationally through collective effort with our EU partners.

The Scottish Government has been clear that the referendum result on EU membership does not affect our desire or ability to maintain, enhance and protect our environment. The forthcoming negotiations to determine the UK and Scotland's future relationship with Europe will therefore need to consider this important area of policy in detail with a view to safeguarding Scotland's key interests and maintaining our place as a progressive leader on climate action.

In January 2018 the Scottish Government published Scotland's Place in Europe: People, Jobs and Investment ^[37] , a set of proposals designed to mitigate the risks for Scotland of being taken out of the EU. The Scottish Government believes Scotland's future is best served by continued EU membership, in line with the wishes of 62% of Scotland's voters as expressed in the referendum in 2016. However, if Brexit proves to be inevitable, our interests are best protected by the UK remaining inside the European Single Market and Customs Union.

A 'hard' Brexit would have significant consequences for a range of policy objectives and aspirations we share with our EU partners including EU environmental policy, social policy, research and innovation policies and policies in the area of workers' rights, consumer protection and consumer safety. Brexit will risk a divergence in these standards and lessen the effectiveness of policy collaboration on these key issues as well as lessening the standards and protections that we are accustomed to. This approach will also jeopardise the tangible gains we enjoy through continued collaborations with our EU partners, including in justice and home affairs issues, research, social policy, and security.

As the UK Government embarks on what will be the most crucial set of international negotiations of recent years, it is essential that it is the economic and social interests of the country that shape our future relationship with the EU and not narrow and transient political considerations. Also essential is that the UK negotiating position fully reflects the interests of all parts of the UK. There are very few certainties with regards to Brexit, but Scotland's climate change ambitions are clear and are a priority of the Scottish Government.

Continued Scottish participation in the EU ETS

The Paris Agreement includes provisions to facilitate increasing interconnection of existing carbon markets ( e.g. the RGGI and WCI in North America, the South Korea ETS, New Zealand ETS, the Swiss ETS, the EU ETS and the Chinese ETS due to launch in 2018) ^[38] .

At the time of publication, the UK Government had not yet indicated its preferred position on future participation in the EU ETS after the UK is scheduled to exit the EU on 29 March 2019. The Scottish Government considers that access to international carbon markets enable Scottish industries to determine the most cost effective way to decarbonisation and provide access to a level playing field with international competitors.

We believe that it is vital for Scottish industry to be able to access these expanding international markets as they link up in future. We support continued participation in the EU ETS, which provides protection against deindustrialisation through carbon leakage, demonstrates continued global leadership on climate and our commitment to the Paris Agreement, and provides the best opportunity for future Scottish participation in emerging global carbon markets. We will continue to press the UK Government to provide clarity to industry on its plans for emissions trading as it prepares to leave the EU.