Climate change - Scottish National Adaptation Plan 2024-2029: business and regulatory impact assessment

Options

This BRIA is designed to explore the relative impacts of different policy options. As we are undertaking a partial BRIA, opportunities to inform options were constrained. However, the two options that have been considered are outlined below.

Option 1 – Business as Usual (do nothing)

This option would entail not updating the current Scottish Climate Change Adaptation Programme (SCCAP). Under this option, the policy programme outlined in the current SCCAP would not be updated and would be adopted again to meet the legal requirements of setting out an adaptation plan that responds to the latest UK wide ‘Climate Change Risk Assessment’ (CCRA). Although individual sector policies would continue to develop, there would not be a coordinated whole system approach to climate change adaptation, and the integration and implementation of a new Scottish National Adaptation Plan would not be achieved.

Option 2 – Implement the draft Scottish National Adaptation Plan

Under this option, the SCCAP would be updated, and a coordinated, whole system approach would be taken to implement a range of adaptation policy interventions in line with the actions outlined in the Scottish National Adaptation Plan. This implementation over the proposed lifespan on the new Adaptation Plan (2024 – 2029) will achieve the five main outcomes and 23 objectives that are set out in the proposed new Scottish National Adaptation Plan.

Sectors and groups affected

This section looks at the sectors and groups most affected and outlines some costs and benefits of the implementing the Adaptation Plan option against the baseline option in order to understand the effects of the updated plan on the main businesses and industries within Scotland. This section further informs the cost and benefits section of this BRIA.

Climate adaptation in Scotland, underpinned by the actions outlined in the Adaptation Plan, will have an impact on people and businesses across Scotland. Adapting to a changing climate will require significant investment, for example, in flood management and coastal erosion infrastructure, retrofitting and adapting homes and modifications to the way in which land is used. For businesses in Scotland, climate change is currently affecting operations through the increased incidence of flooding, transport disruption, water shortages, pests and diseases and international supply chain disruption. These issues are set to be exacerbated by predicted future climatic changes. The Adaptation Plan aims to address these issues, facilitating and supporting private sector adaptation through policies, regulation, and measures such as information sharing and raising awareness.

The sectors and groups affected outlined below cover goods and services addressing the full range of hazards exacerbated by climate change: sea level rise and coastal flooding and storm surges; food insecurity and the breakdown of food systems linked to warming, drought and precipitation variability; inland flooding and the threat to large urban populations; insufficient access to drinking and irrigation water in rural areas and reduced agricultural productivity; systemic risks affecting infrastructure electricity, water supply, health and emergency services; and health risks because of extreme heat, air pollution and disease (Bonaventura, 2018).

This section of the BRIA pulls together evidence and analysis from various sources to provide a high-level assessment of the costs and benefits of the Adaptation Plan and Scotland’s adaptation plans more broadly.

Transport and Distribution

Transport networks are key to driving economic activity and sustaining Scotland’s society, supporting the distribution of goods, foods and vital supplies and supporting international trade. Scotland’s transport network includes Scotland’s railway, roads, airports, canals, and ports and harbours.

In March 2023, the Scottish transport and distribution sector, made up of transportation and storage sectors, consisted of 15,310 businesses, employed about 101,910 people, and turned over £11,149 million (Scottish Government, 2023).

Furthermore, it is estimated that Scotland’s transport network supports over £80 billion of trade (Scottish Development International, n.d.). Most of that trade is transported by land and sea – with road freight exports largely to destinations in England and seaport exports internationally.

Scotland has a variety of hubs and terminals situated across Scotland. The urban central belt stretching from Glasgow to Edinburgh is where many businesses are headquartered, and therefore logistic hubs tend to also service this region. The Transporting Scotland’s Trade 2019 Edition outlines the key transport and logistics hubs in Scotland, along with information on the total volume of trade that passes through each (Transport Scotland, 2019).

The Highlands & Islands are reliant on ferry services and, in some cases, small aviation operators, to move goods and people intra-island and to and from the mainland. For example, Pentland Ferries daily service between St. Margaret’s Hope on Orkney and Gills Bay on the Scottish Mainland is presumed to carry around 80% of all livestock and dangerous goods cargo between the Orkney Islands and the Scottish Mainland (Transport Scotland, 2019). Scotland’s seaports also handle international cargo, warehousing and distribution, passenger ferries, and offshore oil and gas services. Scotland’s five main airports have international flights that connect passengers to destinations worldwide.

In summary, the transport and distribution network is integral to the functioning of the Scottish economy. Therefore, avoiding the disruptive effects of climate change through effective adaption is one of the key aims of the Adaptation Plan.

Risks

The transportation and distribution sector has been identified as an increasingly important area of climate risk and adaptation assessment. Climate adaptation for transport and distribution is important for the following reasons:

• There is an increased risk of transport and distribution delays because of more extreme weather events as well as the risk of damage and deterioration of transport and distribution infrastructure from extreme temperatures and extreme weather events.
• Transport infrastructure is at risk of indirect or cascading impacts associated with extreme climate events. Transport and logistic businesses are an essential part of modern society, and damage to this sector could lead to knock on effects on other sectors and part of society.

For instance, there were, on average, 12 earthwork (embankments and cuttings) failures a year across the rail network in Scotland between 2003 and 2013, a recorded landslip and derailment from severe rainfall resulting in fatalities in 2020, and the upland and mountainous areas (such as the A83 road at the Rest and Be Thankful) are more prone to natural slope failures and landslides. These landslides have been estimated to cause direct costs (such as emergency response and remedial works) between £400k and £1.7 million, with direct consequential costs (associated with loss of utility of infrastructure) between £180k and £1.4 million for single landslip events in Scotland (CCC, 2021).

Opportunities

An uptake in funding, investment and policy development into nature-based solutions can mitigate the risk of damage to transport infrastructure. There is limited data to compare the benefits to the transport and distribution sectors, however, available research in Italy suggests that nature-based solutions can mitigate the impacts of extreme weather, flooding and rising temperatures (Biasin et al., 2023).

Farming, fishing and forestry

Scotland’s agriculture, forestry, fishing, and aquaculture sectors are of central importance to many communities, and our economy. Combined, these industries contribute around £2.6 billion a year to the Scottish economy (Scottish Government, 2023). In 2023, Scotland’s agriculture, forestry and fishing sector comprised of 17,295 businesses, employed about 56,920 people, and turned over £7,278 million (Scottish Government, 2023).

Many of these jobs are located in rural areas, and act as a cornerstone to these rural communities. According to the Inter Departmental Business Register 2020, the ‘Agriculture, forestry and fishing’ sector employs the most people in rural Scotland, accounting for 15% of workers in remote rural areas compared to 12% in accessible rural areas and 0.5% in the rest of Scotland (Scottish Government, 2021).

Adaptation action by these industries is needed to maintain business productivity and viability, over the next five years.

Risks

As they rely on natural resources, these will be one of the sectors most directly impacted by changing climate conditions. The farming, fishing, and forestry sectors are potentially vulnerable to climate change because of water stress, soil health, impacts on biodiversity, temperature changes, and extreme weather events. The growing incidence of pests, diseases, and invasive species can also impact food and fuel productivity and carbon stores which have significant implications for the competitiveness and profitability of the farming, fishing, and forestry sectors, and associated sectors such as the food and drink industry. This has further implications for food security and the health and wellbeing of consumers.

Opportunities

The impacts of climate change can also impact the demand and supply for agricultural products through changes in availability and consumption patterns.

Scotland has the potential to become a global leader in sustainable and regenerative agriculture. This includes research in the following areas that could bring a range of new opportunities for the rural economy in Scotland:

• research on important Scottish crops, to produce varieties which are resilient to a combination of environmental stresses and use resources more efficiently. It will also develop novel crops and cropping systems for increased agricultural adaptability.
• livestock research to support the development of feeding and breeding strategies for climate adaptable and resilient livestock, along with data driven innovations for improved sustainability.
• partnering with innovators to explore further opportunities for the best use of aquaculture by-products, including processing waste, organic waste, mortalities and harvested cleaner fish.

Accommodation and Food and Drink services

The accommodation and food services sector is a major contributor to Scotland’s economy, generating a turnover of around £7,782 million in 2023. The sector is made up of about 19,450 businesses, which employ around 205,140 people, many in remote and rural and island communities (Scottish Government, 2023).

Furthermore, the food and drink industry is a major contributor to Scotland’s economy, employing about 44,000 people, about 1,295 food and drink manufacturing businesses, and an annual turnover of around £10.7 billion, accounting for 29% of total manufacturing turnover (The Food & Drink Federation, 2024). The industry is reliant on agriculture which is particularly exposed to disruption from extreme climate-related events and long distribution networks

Risks

Impacts such as temperature changes, the increased risk of pests and diseases, and extreme weather events, can impact the availability and quality of food and drink resources from impacts to productivity. Warmer temperatures have implications for longer crop growth and livestock to be outdoors, presenting possible opportunities for Scotland’s agricultural sector. However, the growing season is likely to be disrupted by heat stress and reduced summer precipitation. Climate change internationally could also have an impact on food supply, prices and quality.

For businesses and consumers in the UK, impacts to food and drink productivity can cause price volatility as prices could rise 20% by 2050 on average, alongside food insecurity, and reputational damage (CCC, 2021) The impacts of extreme weather events on transportation and distribution networks can also cause supply chain disruptions resulting in knock on effects for the food and drinks industries.

With regards to accommodation, extreme weather events have the potential to damage property and infrastructure resulting in potential insurance costs as well as costs of retrofits. There are particular risks to coastal communities with 19% of Scotland’s coastline at risk of erosion by 2050 (CCC, 2021). For instance, the four most severe coastal flooding events affected Scotland between 1928 and 2013 (SurgeWatch, 2021). Under a 2°C by 2100 warming scenario annual damages from flooding for non-residential properties across the UK is expected to increase by 27% by 2050 and 40% by 2080, at 4°C this increases to 44% and 75% respectively (CCC, 2021).

Additionally, the risk of excessive moisture from temperature changes and structural damage from extreme events is cause for concern along with the risk of increases in cooling demand in summer months.

Opportunities

However, opportunities exist from decreases in heating demand during winter which can be beneficial to businesses and people. There is also a potential opportunity for increases in the demand for climate resilience infrastructure.

Financial and insurance services

According to Scottish Financial Enterprise (SFE), the financial industry in Scotland contributes the following to the Scottish economy (SFE, n.d.):

• The sector is the biggest sectoral contributor to Scotland’s economy, representing £13.6 billion or 9.2% of GVA
• Scotland’s financial and related professional services sector is a significant employer, employing 160,000 people – around 9% national employment
• There are around £690 billion of assets under management in Scotland, investing in the economy and helping people to save for retirement.

The financial services sector has an important role in supporting the transition to a climate resilient, net-zero economy – by effectively assessing climate-related risks and by helping individuals and communities adapt to the effects of climate change through how they invest, lend and insure businesses.

Risks

The climate risks that the finance and insurance services face mainly include the increased degree of risk within their lending portfolio. Financial lenders face the risk of defaults because of the impact of extreme weather events on businesses and personal customers. Insurers face the risk of higher claims for similar reasons.

There is no publicly available data on insurance coverage and premiums for businesses relating to climate risks. This means it is not possible to assess the extent to which climate hazards are impacting businesses’ ability to access insurance in Scotland.

Opportunities

The financial industry in Scotland can play a huge role in providing funding and support for sustainable infrastructure, renewable energy and other climate adaptation initiatives. Financial institutions in Scotland have the opportunity to access new markets and channel financial flows into adaptative measures.

Furthermore, investment in nature requires innovation in market-based approaches, to unlock the scale and size of investment needed. As outlined in the National Strategy for Economic Transformation, the Scottish Government is establishing a values-led, high-integrity market for responsible private investment in natural capital building on the existing Woodland Carbon Code and Peatland Code (Scottish Government, 2022).