Scottish Spending Review 2011 and Draft Budget 2012-13

Chapter 3 Transition to a Low Carbon Economy

INTRODUCTION

The low carbon economy offers an excellent opportunity to place Scotland in an advantageous position in the global economy, to secure new jobs and investment, and to ensure that these benefits are shared across the economy and our communities.

To reflect this opportunity, the Government Economic Strategy established a new Strategic Priority - Transition to a Low Carbon Economy - which will be central to maximising Scotland's sustainable economic growth rate, particularly in the long term. This builds on the Low Carbon Economic Strategy, which highlights the economic opportunities and the role of government in supporting this fundamental transformation of the Scottish economy.

Scotland has a massive competitive advantage, with the natural resources and academic and engineering expertise to become a world leader in low-carbon activities. It offers the opportunity to re-industrialise the nation and create thousands of new jobs across Scotland.

We are already witnessing significant investment across Scotland. However, in this chapter, we set out the further actions that we will take by prioritising spending on the low carbon industry.

As well as boosting the economy, helping to tackle climate change is an exemplar of preventative spend. Our starting point is that the transition to a low carbon economy is an investment - not simply a public cost - and that this investment will help drive growth in the Scottish economy and provide a more sustainable future. Reducing our reliance on fossil fuels and imported energy should also strengthen the Scottish economy's resilience by reducing our exposure to future volatility in world energy prices.

It will in turn also help us achieve our world-leading climate change targets, under the Climate Change (Scotland) Act 2009. In this way, we will continue to make significant progress in delivering on economic opportunities while tackling the environmental imperative of climate change.

PROGRESS SINCE 2007

The Scottish Government's vision is for a greener Scotland, which is low carbon and zero waste - where future prosperity rests not in depleting finite resources but in conserving and promoting the valuable assets that make Scotland an outstanding destination for visitors and investment, and in redeploying expertise and strengthening communities to develop economic opportunities based on our rich renewable resources and competitive advantages in the low carbon economy.

A key part of the transition to a low carbon economy is that we decouple trends in emissions levels from trends in economic growth. We are doing this through our shift towards renewable energy, our focus on energy and resource efficiency, and our commitment to the low carbon and environmental goods and services ( LCEGS) sector.

This is vital if we are to deliver our ambitious greenhouse gas emissions reduction targets, against which we are making progress. Latest figures show that Scotland is almost two thirds of the way to meeting our 2020 target of a 42 per cent reduction in greenhouse gas emissions. Over the last four years, we have worked hard to make progress, and we are on course to meet our annual targets. Investing in our climate change targets means investing in our economy, as well as tackling issues such as fuel poverty and reducing costs for hard-pressed businesses. Since 2007, our key achievements include:

• investing around £30 million to support householders and small businesses with a range of energy efficiency and micro-generation advice, grants and loans through the Energy Saving Trust ( EST). Over 1 million householders and SMEs have received advice and support from the EST's local advice network, helping bring down costs during difficult times;
• continuing to deliver the Climate Challenge Fund, empowering 345 communities across Scotland to take forward their own solutions to reduce their carbon footprint;
• delivering our Energy Assistance Package, which has helped nearly 200,000 people on low incomes reduce their energy bills and keep their homes warm, as well as reducing greenhouse gas emissions;
• installing almost 30,000 insulation measures under our Universal Home Insulation Scheme. In addition, around 6,800 households received funding to replace old boilers with the latest energy efficient models - helping bring down fuel bills and carbon emissions by tackling fuel poverty head on;
• introducing new energy standards in October 2010 which are expected to deliver a 30 per cent reduction in carbon dioxide emissions from new buildings when compared to 2007 standards;
• delivering our business resource efficiency programme Zero Waste, which helped more than 800 Scottish businesses to reduce their waste and resource consumption in 2010, helping business and making better use of scarce resources;
• working to unlock Scotland's significant clean green energy potential. Over the past four years, we have significantly increased Scotland's share of renewables and we will continue to build on that success; and
• supporting a range of measures to promote low carbon alternatives within our transport system, including the Green Bus Fund, the Low Carbon Vehicle Procurement Scheme and support for cycling.

DELIVERING ON OUR ENERGY TARGETS

Successfully exploiting Scotland's massive green energy potential will be a key part of our journey to a low carbon Scotland. Decarbonising our electricity generation will not only help to reduce Scotland's emissions over the long term, but it will also be an important element in ensuring our overall energy security.

We have set hugely ambitious energy targets, and we have backed these targets with sustained action. Our targets include:

• 100 per cent electricity demand equivalent from renewables by 2020 (up from 80 per cent);
• 11 per cent heat demand from renewables by 2020;
• reduction in Scottish final energy use by 12 per cent by 2020;
• a new target of at least 30 per cent of all energy demand from renewables by 2020; and
• a new target of 500 megawatt community and locally-owned renewable energy by 2020.

Achievement of our energy targets is being supported by the extra funding we are providing. There will be over £300 million investment in energy over the next 3 years, including over £200 million on supporting renewables. The enterprise agencies will maintain their commitment to supporting Scotland's economic opportunities in renewable energy, including support for infrastructure. A new £60 million capital budget will support the development of offshore wind and marine technologies, and our £70 million National Renewables Infrastructure Plan will unlock the investment needed to ensure that communities around Scotland are prepared for the opportunities presented by the increase in renewables generation.

We have committed to implementing the actions set out in our 2020 Routemap for Renewable Energy in Scotland. Significant progress has been made already, with consent for 44 large-scale renewable electricity schemes to generate over 2.5 gigawatts having been given since 2007 - double the rate of the previous four years - and much more in the planning system.

Our commitment to green energy is positioning Scotland as a world leader in low carbon activities. There are already 70,000 people working in the low carbon economy across Scotland and, with the right incentives, we will add tens of thousands more. We are also already seeing significant investment from international companies such as Mitsubishi, Doosan Babcock and Gamesa as well as leading domestic firms - Scottish and Southern Energy and ScottishPower among others.

The investors creating these jobs need assurances that Scotland is the right place to do business, and we will provide those assurances: stable policy commitments which reflect and support our long-term statutory emissions targets; enabling supportive infrastructure; working with our partners to ensure that our policies are investment-friendly; further developing our international profile; and continuing to press the UK and EU in critical policy areas.

DELIVERING ON OUR CLIMATE CHANGE TARGETS

We will continue to make progress in delivery of the policy framework set out in Low Carbon Scotland: Meeting the Emissions Reductions Targets 2010 - 2022, our first Report on Proposals and Policies ( RPP) under the Climate Change (Scotland) Act 2009. We will ensure that the annual targets agreed by Parliament will be met.

Our targets are ambitious, but achievable. Everyone - government, public sector, private sector and individuals - will need to play their part. As we deliver on the policy framework in the RPP, we will increase the focus on individual behaviour through our Public Engagement Strategy so that everyone in Scotland is prepared and understands how they can make their contribution to meeting this challenge while helping bring down costs to households and businesses.

Helping to tackle climate change is an exemplar of preventative spend. The transition to a low carbon economy is an investment in the future. It will cost far less to take action now to limit the degree to which global temperature may rise than it will to respond to its effects. Scotland is determined to make an appropriate contribution to global efforts to tackle this problem. Not taking the opportunity now also risks lost growth opportunities for our businesses and industries, especially given Scotland's built-in competitive advantage, as other countries embrace low carbon opportunities.

Prioritising low carbon spend

In this Spending Review, building on the progress which has already been made, we have made a firm commitment across all portfolios to funding the policies set out in the RPP. Over the next three years, we will:

• enhance our commitment to energy efficiency - helping people use less energy will help to save them money and will be vital in tackling fuel poverty. We will invest almost £200 million through our Fuel Poverty and Domestic Energy Efficiency programmes over the next three years. These funds will also aim to maximise leverage of additional funding from energy companies and other sources;
• invest in transport with £69 million to reduce congestion and support better public transport, active travel, low carbon vehicles and freight modal shift;
• use the Scottish Futures Fund to provide additional support for emissions reduction measures, with £100 million for Warmer Homes and Future Transport over the course of this Parliament;
• expand Scotland's woodland - building to a planting rate of 10,000 hectares per year, supporting Forestry Commission Scotland with a budget of over £48 million for this purpose, supplemented by European funding;
• enhance our commitment to district heating - we will back innovative district heating projects as part of a new £5 million Loan Fund. Our expert commission on the delivery of district heating will advise on the steps needed to ensure a major move to district heating in Scotland;
• transform the scale of community ownership of renewable energy developments, by enhancing our Community Renewable Energy Scheme to aim to reach a target of 500 megawatts of community and locally-owned renewable energy by 2020;
• improve the energy efficiency of the public estate and help further reduce costs - for example the Scottish Prison Service ( SPS) currently accounts for 61 per cent of all carbon emissions generated by the Scottish Government. The new HMP Grampian will reduce the total carbon emissions by 3 per cent per annum, and enable reductions in the Scottish Government's overall emissions by almost 2 per cent per annum;
• continue to enhance building standards, with a review for 2013 looking at the potential to cut building emissions by up to 60% (domestic) and up to 75% (non-domestic) compared to 2007 standards;
• deliver energy savings in school estate - in an innovative pilot project supported by the Scottish Futures Trust, Eastwood High School and Lasswade High School will be replaced with high quality, sustainable designs which exceed the current Building Insulation Standards by 30 per cent and the air tightness specifications by 60 per cent. Construction will commence in early October 2011, and both schools will open by August 2013;
• improve the efficiency of existing infrastructure - for example, Scottish Water has identified the potential to save around 10,000 tonnes of CO2 per year as a consequence of its continued programme to reduce leakage. Scottish Water is also working to increase significantly the amount of energy it generates by installing small-scale hydro generation turbines within existing water assets;
• reduce waste and using materials more efficiently - we will work towards a 70 per cent target for recycled waste and a maximum of 5 per cent to be sent to be landfill by 2025. We will support businesses to use resources more efficiently, waste less and, as a result, reduce their costs and emissions while boosting profitability and productivity; and
• help families and individuals to reduce their waste - for example, by cutting avoidable food waste, and save each household on average £430 every year. We are investing £70.8 million in our Zero Waste Scotland programme to help Scotland unlock these savings and reduce its emissions by cutting its waste.

We will also remain flexible and ensure that we develop the most appropriate and cost-effective measures at the right time to reduce emissions. We will refine the policies set out in the RPP and continue to develop the proposals in that document or alternatives with equivalent effect. Where we can, we will deliver more, and we will continue to seek additional innovative ways in which we can maximise the impact of the investments we make as we continue Scotland's low carbon journey throughout this Parliamentary term.

We will continue to benefit from the advice and commitment of the 2020 Group on Climate Change as well as the close, collaborative working with COSLA and local government through the Public Sector Climate Action Group.

In parallel, we will prepare the next RPP which will cover the targets from 2023 to 2027, and work closely with delivery agents and stakeholders to make sure that we continue to have the right package in place.