Securing a green recovery on a path to net zero: climate change plan 2018–2032 - update

Chapter 4 Industry - 3.4. Industry

Introduction

3.4.1 There is no doubt that Scottish industry has much to gain from being at the forefront of the transition to a net zero economy. Decarbonising our industrial sector in a just and fair way, that leaves no one behind, will help the sector to grow and compete in the economy of the future, capturing new export and investment opportunities and sustaining and creating jobs and wealth across Scotland.

3.4.2 There has been a considerable decline in Scotland’s industrial emissions since 1990, falling by over 45% (9.5 MtCO2e) between 1990 and 2018. This was driven by the closure of heavy emitting sites, particularly in the steel and paper sectors, but also by the deployment of innovative and more energy efficient technologies and processes. By 2032, emissions need to decrease by 43% on 2018 levels while Scottish industry remains globally sustainable and competitive.

3.4.3 Emissions from industry continue to constitute a large proportion, around 30%, of total Scottish emissions. These emissions are generated from a variety of activities across a diverse range of sectors, predominantly manufacturing, as well as mining and construction. Combined, these sectors are fundamental to the Scottish economy, contributing £26 billion annually and employing over 300,000 people. Recent Scottish Government commissioned research^[108] from Element Energy estimates that emissions from Scotland’s large industrial sites could feasibly reduce by 80% or more by 2045, while maintaining output. This, combined with additional efforts to tackle residual emissions, potentially through Negative Emissions Technologies (NETs, discussed later and in Chapter 8), as well as action taken in other sectors, could be consistent with a net zero pathway.

3.4.4 Within the Industry sector, because of the balance of reserved and devolved responsibilities, progress is often dependent on UK Government and/or international policy and markets. There remains a significant risk that decarbonising faster than the rest of the UK and Europe could lead to carbon leakage^[109]. Both support for investment and a level regulatory playing field is therefore needed. Nevertheless, the Scottish Government is ensuring that the industrial sector understands its role in decarbonisation, the opportunities this can bring, and the support being offered to manage their transition.

3.4.5 There are opportunities for the industrial sector; for example, the development of a carbon capture and storage (CCS) network is described by the Committee on Climate Change (CCC) as a “necessity, not an option” to achieve net zero emissions as it underpins action for industrial decarbonisation and negative emissions technologies, where Scotland is well positioned to capture economic benefits from any such major infrastructure investment. Globally there are more than 20 CCS facilities already in operation, including in Norway, USA and Japan, with nearly 40 more in construction and development. CCS is a proven technology that offers great opportunity if commercialised at scale in Scotland.

3.4.6 Another significant opportunity is the use of hydrogen to displace fossil fuels in industry, requiring development of regional hydrogen production facilities, and also servicing hydrogen demand for other sectors such as heat, transport and electricity. The Deep Decarbonisation Pathways for Scottish Industries report, cited above, reiterates the critical role of CCS and Hydrogen, as well as electrification and energy efficiency, in decarbonising industry in Scotland.

New context

3.4.7 The COVID-19 crisis has had, and continues to have, an unprecedented effect on Scotland’s industrial labour market. Workers have been furloughed or lost their jobs as businesses have temporarily or permanently closed, and the pandemic has highlighted how abrupt and unplanned shifts can exacerbate inequalities. Interrupted supply chains have highlighted domestic vulnerabilities and the need for local and national resilience. Now, more than ever, we need a just transition that supports sustainable economic growth and jobs, whilst ensuring no one is left behind.

3.4.8 The principal industrial decarbonisation challenges and impacts have been amplified as a result of the COVID-19 pandemic. A primary challenge is the ability and willingness of companies to finance industrial decarbonisation investments at this time of great global, national, financial and social uncertainty. In the current economic climate, financial resources are severely limited with many companies prioritising business-critical spending to maintain operations and jobs, rather than new discretionary capital expenditure for the long-term transition to net zero operations.

Green recovery and just transition

3.4.9 In supporting industry to recover and retain jobs, we will need to identify and capture green market opportunities, including support for domestic supply chains through smart procurement, and reskilling and retraining skilled workers to access green jobs in the near and long term.

3.4.10 A just transition will be an essential part of the green recovery of the industry sector. This means supporting industry to transition in a way that is fair and where no one is left behind, and positioning industry to capture the opportunities from net zero. A just transition must be delivered in partnership between government and industry as well as with places, regions and local communities. Such a partnership approach is being demonstrated, with initiatives such as the Grangemouth Future Industry Board, Scottish Industrial Decarbonisation Partnership, and North East CCUS (NECCUS), which will be described later in the chapter.

3.4.11 The CCC recognises the challenge of pacing and sequencing policy interventions and decarbonisation initiatives to align with the timing of industry’s strategic decisions and the capital intensive repurposing and upgrading of infrastructure. The Just Transition Commission’s report on green recovery (July 2020) states that leveraging private investment is an ‘absolute necessity’, and is a challenge in the current economic climate. That is why the Scottish Government recently announced the Scottish Industrial Energy Transformation Fund (SIETF) to match fund and leverage in private investment tailored to the particular characteristics of our industrial manufacturing sites, or clusters, and their supply chains.

3.4.12 A key element of securing a just transition is to create and protect employment as we decarbonise our industries. Looking ahead, emerging energy technologies such as Carbon Capture Utilisation and Storage (CCUS) and Hydrogen have the potential to safeguard employment and create value in hard to decarbonise industries, as well as gearing up the supply chain in terms of manufactured goods and services. In the 2020-2021 Programme for Government, we committed to expand our evidence base on CCUS and have commissioned an economic assessment of CCUS in Scotland which will consider the associated jobs within a broad range of scenarios for the development of CCUS.

3.4.13 It is estimated that by 2030 anywhere between 7,000 and 45,000 UK jobs could ultimately be associated with Scotland securing 40% of the carbon storage element of a European CO2 management market. By 2050 this could rise to between 22,000 and 105,000 jobs, and more as the industry extends to low carbon fuel supply^[110]. Our economic impact assessment currently underway will provide us with greater clarity and Scotland-specific job estimates over a broad range of development scenarios.

3.4.14 We have carried out economic impact analysis as part of the Hydrogen Assessment Project. The potential scale of the economic opportunity from the production of hydrogen has been calculated and the assessment scenarios attribute this in the main to future export demand from the UK and Europe. The gross impacts by 2045 across three scenarios modelled range from 70,000 to over 300,000 jobs protected or created and GVA impacts of between £5 billion and £25 billion. These figures are based on a range of current views and assumptions and we are treating these figures as illustrative, but nonetheless they depict a significant potential economic impact.

3.4.15 Scotland’s strategic energy intensive industrial (EII) sites and the skills therein, such as those present in the Grangemouth cluster, must be harnessed as assets in the energy transition. It is key that a trajectory is set to support business, give confidence for investment, and provide a policy environment which protects employment and allows for growth. Doing otherwise will undermine or restrict the ability of Scottish industry to compete in global markets, with the risk that businesses will relocate operations to other countries with less ambitious climate measures. Businesses considered by the EU to be at risk of relocating, predominantly in manufacturing, employ over 95,000 workers in Scotland, have an annual turnover of around £19 billion, and account for over 45% of all Scottish international exports.

3.4.16 Scotland’s Future Skills Action Plan will also ensure the continued advancement and development of skills across the industrial sector, necessary to support a low carbon transition and to safeguard jobs. The National Manufacturing Institute Scotland is included in this broader Action Plan, and will establish a Manufacturing Skills Academy to develop a catalogue of advanced manufacturing modules.

3.4.17 The Scottish Government is also a member of the Energy Skills Alliance, a newly created and cross energy collaborative group established to develop an integrated skills strategy for a vibrant, net zero energy industry. The work streams include: mapping future energy skills demand; taking a phased approach that looks towards the near-term of 2030, and ahead to 2050; development of the My Energy Career Programme; delivery of an integrated energy apprenticeship scheme by 2022; and longer-term development of a roadmap for aligning all energy training and standards.

Negative emissions technologies in industry

3.4.18 Negative Emissions Technologies (NETs) are technologies which remove greenhouse gases from the atmosphere on a permanent basis through the use of carbon capture and storage (CCS) systems and networks.

3.4.19 The Industry sector provides a key opportunity for deploying NETs. For example, biomass or waste gasification with CCS is a technology pathway which uses heat, steam and oxygen to convert biomass or waste to hydrogen for industrial use, and where carbon can then be sequestered. Utilising CCS, direct air capture (DAC) removes atmospheric CO2 and can be used to manage emissions from distributed sources. DAC is a complementary technology, and not an alternative, to traditional point source CCS.

3.4.20 Delivering NETs in Scotland as part of our pathway to net zero has the potential to deliver substantial benefits. Existing industries, which are currently some of Scotland’s largest carbon emitters, may be able to move to a sustainable business model, actively reducing Scotland’s emissions, and potentially coupling economic activity with this emissions reduction.

3.4.21 NETs in industry is, however, one of a number of potential applications. We describe these, our plans to better understand their potential, and our ambition for the delivery of negative emissions across our energy system in Chapter 8.

Case Study: Focus on St Fergus

St. Fergus is currently the location where 35% of the UK’s natural gas is brought to shore. In the next decade, projects planned at St Fergus could see it transform to a centre for Scotland’s industrial decarbonisation, demonstrating and scaling emerging new technologies, and generating opportunities for new markets. These activities could unlock and enable decarbonisation in other industrial centres across Scotland; creating an integrated network to support Scotland’s industrial sector in its transition to net zero.

Utilising existing offshore transport infrastructure, Acorn CCS will create Scotland’s first carbon capture plant, capturing and storing CO2 at the St Fergus gas plant. The project aims to be in operation from 2024 and could remove 340,000 tonnes of CO2 per year. Although initially a relatively small project, Acorn CCS will act as a major clean growth catalyst. By commercialising CCS, it will establish the technology and open up opportunities to access and capitalise on Scotland’s vast offshore storage capacity.

The Acorn Hydrogen project, developing in parallel to Acorn CCS, will reform North Sea natural gas into clean-burning hydrogen. It is expected to be operational in 2025, creating a low carbon fuel which presents various market opportunities. A high proportion of the CO2 emissions created from generating the hydrogen will be safely removed and stored using Acorn CCS infrastructure. The hydrogen produced can be used to blend with existing natural gas, initiating decarbonisation of heat and industry across Scotland, or to provide fuel for transport.

Aberdeen Vision is a project led by Scottish Gas Network (SGN) that would take the hydrogen produced at St Fergus, transported via a new 100% hydrogen pipeline, to the gas network in Aberdeen City, introducing an initial 20% hydrogen blend to support the city’s decarbonisation. Utilising complementary green hydrogen projects on Scotland’s North East Coast could see this contribution increase to 100%. The project could, thereby, provide a route for decarbonisation in the region, while supporting the oil and gas industry to transition to the production of blue and green hydrogen.

Hydrogen is also an exportable product, with potential markets across Europe. Infrastructure development at Peterhead Port with good transport routes to St Fergus could open up international shipping routes for the export of hydrogen and the complementary import of CO2 from Europe, which would be stored by Acorn CCS in the North Sea. The international trade in the gases would generate income in Scotland’s North East and anchor St Fergus as an internationally renowned centre for decarbonisation.

Establishing CCS infrastructure will provide opportunities for further negative emissions technologies to be developed, initially at St. Fergus, where there is potential for the UK’s first Direct Air Capture (DAC) plant, and then across Scotland, as CCS transport infrastructure projects develop.

The integrated approach to decarbonisation being taken at St. Fergus though the co-location of emerging technologies and infrastructure, will demonstrate what can be achieved in other industrial centres across Scotland to increase the options for industrial decarbonisation and maximise the economic opportunities these locations present for our net zero future.

Vision for 2032 and 2045

3.4.22 By the early 2030s, Scottish industrial sites will be global exemplars on a sustainable growth trajectory, having benefitted from early adoption of low carbon, energy efficient technologies, and a supportive public/private investment framework. The appropriate infrastructure will be in place that enables deep decarbonisation, including through deployment of CCS technologies, electrification or operational production and utilisation of green and low carbon blue hydrogen.

3.4.23 Our industries will be competitive in global markets for low carbon products produced in Scotland, following investment that supports low carbon industrial innovation and maximises export opportunities. Households and businesses will have access to low carbon products from, for example, the food and drink, cement, chemical and glass sectors. Manufacturing innovation will support the delivery of low carbon energy, transport and buildings to society, as well as the transition to a circular economy.

3.4.24 This transition will be managed to ensure that Scottish industry and businesses will maintain and grow their global competitiveness and will continue to be based in Scotland, retaining highly skilled jobs and ensuring that we maximise the employment opportunities that come with sustainable industrial innovation. We will have attracted new industries and investment to Scotland, on the basis of our competitive advantages in CCS storage capacity, renewable energy generation, highly skilled workforce and research and development expertise.

3.4.25 The extensive potential for renewable energy generation, the presence of major subsurface CO2 storage sites, and the availability of existing offshore pipeline infrastructure in the North Sea, combine to offer an unique opportunity to develop a Scottish economy where renewables, hydrogen and CCUS coexist and complement each other. The Acorn CCS Project is scalable and aims to develop into a much larger CO2 transportation and storage network, bringing with it significant economic potential, not least from the shipped import of CO2 via Peterhead Port by as early as 2025 from Scotland’s industrial central belt, other UK regions and European nations where CO2 transportation and storage is limited.

3.4.26 In 2045, the industrial sector in Scotland will be highly decarbonised and a recognised world leader at the forefront of innovation, skills, and fair, quality work in the net zero economy.

Route Map to 2032

2020

Energy Transition Fund launched.

Hydrogen Policy Statement is published.

Grangemouth Future Industry Board launched.

Scottish Industrial Energy Transformation Fund (SIETF) launched, including £34 million over 5 years (2021-2026) for projects at industrial sites for energy efficiency or deeper decarbonisation.

2021

Hydrogen Action Plan is published.

Low Carbon Manufacturing Challenge Fund launched.

Scottish Industrial Decarbonisation Partnership launched.

On the basis that a UK ETS is implemented, a further joint UK Government & devolved administration consultation on changes to the UK ETS for consistency with Net Zero.

First tranche of funding available from the £180 million Emerging Energy Technologies Fund.

Net Zero Transition Managers Programme launched.

2022

Scottish Net Zero Roadmap (SNZR) published.

Carbon Capture and Utilisation Challenge Fund.

Jan 2023 or Jan 2024 UK ETS cap on emissions is changed following consultation, for consistency with Net Zero.

Acorn Project Development: 2024 – CCS Demonstration and commercialisation at St Fergus Gas Plant; 2025 – Acorn Hydrogen, hydrogen production with CCS; 2026 – Shipped imports of CO2 for storage in the Acorn store; 2026 – Direct Air Capture and Storage operating from St Fergus.

2026

Mid-phase of UK ETS – this is when any changes as a result of system wide reviews could be implemented at the earliest: change to free allocation, offsetting, scope etc.

The actions we are taking

3.4.27 Policies to deliver industrial decarbonisation must reach beyond the need to improve process efficiencies, given the vital social and economic co-dependencies between industry and the communities where they are located. A properly sequenced and strategic approach to decarbonising Scotland’s industrial sector offers the chance to position Scottish industries and supply chains to expand exports into global markets.

Emissions Trading Scheme (ETS)^[111]

3.4.28 The key mechanism to decarbonise the Industrial Sector has been the EU Emissions Trading System (ETS), accounting for 28% of greenhouse gas emissions in Scotland. After leaving the EU, the Scottish Government’s preference is to establish a UK ETS jointly with the three other UK administrations, which is linked the EU ETS and maintains a carbon price that incentivises industrial decarbonisation after leaving the EU.

3.4.29 As announced by the four governments in June 2020, the design of the UK ETS mirrors the EU ETS to enable a smooth transition for industry^[112]. The UK ETS will have an interim emissions cap 5% lower than the current EU ETS cap, and this will be reviewed for consistency with net zero following the CCC’s advice on the Sixth Carbon Budget, and amended by January 2024 at the latest.

3.4.30 The Scottish Government’s preference is to link the UK ETS to the EU ETS, to continue to provide a level playing field for Scottish industry and protection against carbon leakage, as emissions caps reduce (both in the UK ETS and the anticipated tightening of the EU ETS cap following an EU commitment to net zero).

3.4.31 We will also continue to work with the UK Government on future evolution of the UK ETS, which could include expanding the scope in future phases, and urge the UK Government to remain aligned to future EU developments in carbon pricing.

Support for commercialisation of Carbon Capture Utilisation and Storage (CCUS)

3.4.32 CCUS is essential to reach net zero emissions, as identified by the CCC, and is a key to industrial decarbonisation. It is expected to be the most cost effective decarbonisation technology for key sectors of Scottish industry.

3.4.33 The commercialisation of CCS is also necessary for NETs, which are needed to reduce emissions at the rate necessary to meet our climate change targets. We will take action to better understand the potential of each of these technologies in industrial decarbonisation by commissioning detailed research. However, action from the UK Government will be key to the development of CCS to enable NETs. We therefore call on UK Government to urgently ensure that the market and regulatory systems are in place to support business plans for NETs.

3.4.34 Scotland’s vast potential for offshore CO2 storage, and legacy oil and gas infrastructure and skills, provide internationally significant advantages in CCUS that will enable us to remain internationally economically competitive. We continue to support the Acorn CCS Project located in the North East of Scotland at the St. Fergus Gas terminal. This project is uniquely placed to be the least-cost opportunity to deploy a full chain CCS project in the UK and also provide carbon management solutions for Europe.

3.4.35 Acorn CCS is anticipated to be operational by 2024 and is well placed to attract support from the UK Government’s £1 billion CCUS Infrastructure Fund. Once the CCS infrastructure has been established, the Acorn Project will enable an economic opportunity for the deep water Peterhead Port and become a catalyst for clean growth, with major low carbon blue hydrogen production aligned with CCS at St Fergus.

3.4.36 Further support and investment in CCUS was a key recommendation of a number of stakeholders and advisory bodies, including the CCC, Climate Emergency Response Group and the Advisory Group on Economic Recovery, amongst others.

Emerging Energy Technologies Fund

3.4.37 We are announcing a new Emerging Energy Technologies Fund of £180 million that will support the development of hydrogen and CCS, and which will add new impetus to the development of NETs in Scotland. We will make £100 million available to support hydrogen projects in line with our Hydrogen Policy Statement, and a further £80 million of this funding will be directed to projects supporting the development of a CCS transport and storage network that will further enable NETs projects to develop in Scotland. This funding will help to deliver emissions reductions, and sits alongside our ambitious innovation and energy transition programme including within the marine environment.

Industrial Cluster Representation and Roadmap

3.4.38 The Scottish Government has offered grant funding of up to £300,000 to NECCUS, an industry-led alliance drawn from industry, academia, membership organisations and private sector bodies established to promote CCUS and support industrial decarbonisation in Scotland. NECCUS represent the Scottish industrial cluster with an aim to attract funding for CCUS and low carbon blue hydrogen development, and to secure the first UK CCUS project in Scotland.

3.4.39 NECCUS has used its position as a Scottish industries representative to lead the development of Scotland’s Net Zero Roadmap (SNZR), attracting over £800,000 of funding from the UK Industrial Decarbonisation Challenge Fund to complete this work.

Carbon Capture and Utilisation Fund

3.4.40 We will work with our agencies to develop a £5 million Carbon Capture and Utilisation Challenge Fund^[113] to boost early stage work and explore technologies and innovations that can capture and create value in CO2, reduce emissions and develop new income streams for Scottish businesses in this emerging market. Priming a utilisation market supports the acceleration of carbon capture in the industrial sector by supporting innovation and cost reduction as well as providing markets to sell into. The Carbon Capture and Utilisation Challenge Fund will require industry match funding which will leverage private investment into cost reduction.

Opportunities for Hydrogen in Industry

3.4.41 Scotland has the opportunity and capability to produce large volumes of blue and green hydrogen. We are committed to supporting the development of the emerging hydrogen sector in Scotland^[114] and to maximise the ‘new industry’ benefits that the production of hydrogen itself may bring to Scotland.

3.4.42 We will work with the major point emitters in Scotland to assess applicable decarbonisation solutions, including opportunities for fuel switching to hydrogen and the opportunities that large scale hydrogen production can offer industry, particularly in the cross-sector nature of hydrogen systems.

3.4.43 The Hydrogen Assessment Project is now complete; results will be published alongside our Hydrogen Policy Statement, helping to confirm that Scotland has an abundance of the natural resources needed to produce both blue and green hydrogen at scale and enough hydrogen production potential to serve our own needs and service an export market as well.

3.4.44 Recognising Scotland’s natural resources and competitive advantages, including our existing oil and gas skills, capabilities and competence and Scotland’s large onshore or offshore wind resource, we will consider the consenting process and produce guidance for the construction of large-scale offshore wind to hydrogen (commonly referred to as power-to-gas) development.

Case Study: H100 Fife 100% Hydrogen Project

Scottish Government have provided £6.9 million funded support towards the cost of this ground breaking £27.7 million project. Other funders partnering in this project include Ofgem (Office of Gas and Electricity Markets), SGN, Cadent, Northern Gas Networks (NGN), Wales and West Utilities (WWU). The H100 Fife Project is recognised as a key building block in the strategic ‘Gas Quality Decarbonisation Pathway’ set out by UK gas distribution network operators and adopted by the Energy Networks Association (ENA).

Scottish Gas Networks (SGN) will partner with other UK gas operators in this project to ensure the delivery of a world-first demonstration of an end-to-end 100% hydrogen energy system, to evidence the role that hydrogen can play in decarbonising heat, using the gas network. The project will construct and operate a hydrogen heat network system in Fife able to service around 300 houses and will be of UK-wide significance, offering an important validation of the evidence base carried out by the UK Government in their Hy4Heat Programme.

The project will connect with the existing ORE Catapult 7MW offshore wind turbine, situated off the coast of Leven in Fife, to directly supply power to the electrolyser for hydrogen production, evaluating the opportunity for grid integration systems between renewables and hydrogen production, and demonstrating the business case opportunities that offshore wind can offer for production of hydrogen at scale.

The H100 Fife project is part of a larger phased programme proposed by SGN:

Phase 1 - H100 Fife (the project described above) will enable the decarbonisation of 300 homes saving 662 tonnes of CO2/annum. Only phase 1 is funded at present.

Phase 2 will offer opportunities to expand H100 Fife to 1000 properties providing annual emissions savings totalling 2,208 tonnes of CO2/annum.

Phases 3, 4 and 5 progressively grow the hydrogen production capability to convert wider domestic, industrial and commercial gas demand of up to 5GWh in the region to eventually reduce emissions by 860,000 tonnes of CO2/annum.

Green Jobs Fund

3.4.45 We are investing £100 million to help businesses create new, green jobs via the Green Jobs Fund^[115]. Our enterprise agencies will provide £50 million to businesses which provide sustainable or low carbon products and services to help them develop, grow and create jobs. A further £50 million will help to ensure that businesses and supply chains across Scotland can capitalise on our investment in low carbon infrastructure such as the decarbonisation of heating and green transport.

Investing with the industrial manufacturing sector

3.4.46 We will continue to support innovation throughout the industry sector, developing solutions that can be scaled up and contribute to a pipeline of projects and leading to wider benefits for jobs, place and the environment.

3.4.47 The Scottish Industrial Energy Transformation Fund (SIETF) commits £34 million for projects at industrial sites for energy efficiency or deeper decarbonisation. For the next five years, via match-funding, SIETF will leverage asset-based private capital into this vital productive part of our economy and support the readiness of business cases for investment.

3.4.48 The £26 million Low Carbon Manufacturing Challenge Fund will build on the success of the Advancing Manufacturing Challenge Fund to support innovation in low carbon technology, processes and infrastructure. This fund will help drive up project standards, the need for collaboration to create efficient and sustainable manufacturing practices, and better enable firms to enter low carbon markets and/or their existing supply chains^[116].

A partnership with Scottish industrial stakeholders

3.4.49 A Scottish Industrial Decarbonisation Partnership (SIDP) will strengthen existing engagement with energy-intensive industrial (EII) manufacturers. Linked to the First Minister chaired Scottish Energy Advisory Board, this partnership will foster mutual expectations to decarbonise in line with our economic recovery implementation plan, bringing together strategic initiatives.

3.4.50 SIDP will facilitate dissemination of industrial decarbonisation best practice and advise on the practical sequencing of policies or projects, informed by evidence, including sub-sectors’ own ambitions of how to reach net zero. It will feed into programme reviews and into capital infrastructure budget planning that supports industry to set strategic and ambitious net zero transition plans.

Net Zero Transition Managers Programme

3.4.51 We will facilitate a number of non-revenue generating roles to incentivise Energy Intensive Industry (EII) to compete in low-margin markets. The Managers will be embedded in their organisations and tasked with identifying, quantifying and recommending decarbonisation opportunities for the business. They will collaborate as a cohort to ensure consistent knowledge capture and dissemination.

Creating market benefit for Scottish industries that invest to decarbonise

3.4.52 A key part of successful industrial decarbonisation is improving the market benefits for low carbon industrial production and incentivising forward-look investment. The CCC’s Net Zero Report (2019) called for a policy approach to decarbonising industry that includes a suite of measures covering procurement, consumer behaviour and product standards to drive change. A study has been started that will contribute to policy development on options to influence market conditions for Scottish manufacturers who produce relatively lower carbon products than their competitors and contribute to the circular economy.

Seizing the Economic Opportunity

3.4.53 A key aspect of decarbonising the economy is to help industry identify and engage with the measures both it and its customers require in order to decarbonise. We will work across government, enterprise agencies and the innovation system to identify strengths that can be built on as part of the decarbonisation journey, for example:

• The Clyde Mission provides an opportunity to bring together a range of low carbon investments and circular economy thinking, for example around transport, heating and housing, in a coherent and systematic way to deliver sustainable and inclusive growth at scale, £250-£500 million, in a single place.
• The Scottish Government will continue to support Michelin Scotland Innovation Parc (MSIP). The Parc is focused on meeting public sector procurement challenges in low carbon energy and sustainable mobility. The incubator will bring manufacturing prototyping capabilities to integrate procurement with manufacturing capabilities and supply chains.

Making Scotland’s Future

3.4.54 We have already ensured that the transition to the future low carbon economy is at the heart of our existing commitments around advanced manufacturing, which includes substantial investments in the National Manufacturing Institute Scotland and the Advancing Manufacturing Challenge Fund. In the short-term we will champion a green recovery as a part of a broader manufacturing recovery plan. This will utilise the framework of our longer-term ‘Making Scotland’s Future’ Programme for manufacturing, which will support the delivery of net zero emissions by 2045 by:

• establishing a supply chain strategy aligned to low carbon markets;
• encouraging the development of low carbon technologies for minimal environmental impact;
• creating service offerings to enable companies to maximise low carbon market opportunities;
• identifying and leveraging low carbon expertise and networks in Scotland and beyond; and
• embedding circular economy skills and thinking in the future workforce.

3.4.55 ‘Making Scotland’s Future’ will drive the development of low carbon manufacturing techniques and work with partners to ensure the successful delivery of the £60 million Scottish Government investment in a Scottish Industrial Energy Transformation Fund (£34 million) and a Low Carbon Manufacturing Challenge Fund (£26 million).

Grangemouth Future Industry Board

3.4.56 The Grangemouth Future Industry Board^[117] will provide a forum that brings together key decision makers across the Scottish Government, Scottish Enterprise and Falkirk Council, with a focus on Scotland’s key manufacturing cluster. It will strengthen alignment and co-ordinate activity to ensure the significant opportunities for low carbon economic growth are maximised at Grangemouth.

3.4.57 The board will focus on specific and agreed workstreams that will shape efforts to unlock potential investment and identify policy levers that can support sustainable growth, and advance the circular economy, at Grangemouth. Decarbonisation, longevity, competitiveness and just transition will be at the heart of the board’s efforts.

Scotland’s Climate Emergency Skills Action Plan and Manufacturing Skills Academy

3.4.58 The Climate Emergency Skills Action Plan (CESAP) remains central to our ambition to create a future workforce that can support our transition to a net zero economy. The National Manufacturing Institute Scotland is included in this broader skills action plan, through the Upskilling and Retraining theme, as it will establish a Manufacturing Skills Academy to develop a catalogue of advanced manufacturing modules. This will support skills development, and help drive efficiency and productivity across the manufacturing and industrial sectors.

Energy Transition Fund

3.4.59 The £62 million pound Energy Transition Fund (ETF) is a package of investment for the North East that will support our energy sector and help us make significant progress on energy transition as we move toward net zero by 2045^[118]. The projects that will be considered under the ETF are:

• a Global Underwater Hub;
• an Energy Transition Zone based in Aberdeen;
• hydrogen projects including Aberdeen Hydrogen Hub and ACORN Hydrogen; and
• OGTC transition technology projects.

3.4.60 We want to protect existing jobs and create new jobs in the North East, and across Scotland, by opening up opportunities through energy transition and harnessing private sector funding as companies move from oil and gas to low carbon and renewable investments.

Our call to others

The UK Government

3.4.61 The CCC analysis of the balance of reserved and devolved responsibilities lists industry as one of the areas where progress is most dependent on UK Government and/or international policy^[119]. Vital powers in regulation of the energy market and fuels (namely oil, gas, coal, electricity), are reserved to the UK Government. Crucially for the decarbonisation of industry, hydrogen and aspects of CCUS are also reserved, limiting the Scottish Government’s power to enact change where we want and need to.

3.4.62 As noted above, there remains a significant risk carbon leakage if Scotland decarbonises faster than the rest of the UK and Europe, and therefore support for both investment and a level regulatory playing field is required.

3.4.63 The Scottish Government calls on the UK Government to:

• Implement a UK ETS rather than a reserved carbon emission tax to replace the EU ETS from January 2021, and to ensure that a link to the EU ETS is agreed in UK-EU negotiations. Furthermore, in ongoing development of the UK ETS policy between the four administrations, in particular on changes to the cap for net zero, we urge the UK Government to take into account the different statutory climate targets in Scotland, and our particular industrial landscape.
• Support and enable CCUS and low carbon blue hydrogen. Scottish Ministers have impressed upon the UK Government that the full scale deployment of CCUS in Scotland is dependent on progress in development of the commercial, policy and regulatory frameworks required to support CCUS at scale in the UK. Whilst BEIS have published their response to their consultation on CCUS business models, further clarity on this is needed to bring forward the investment decisions for critical decarbonisation infrastructure. This must include the creation of a stable policy framework, including business model and financial frameworks for blue hydrogen and for CCUS, in order to build confidence and enable the development of the first CCUS facilities in the UK to be commissioned from the mid-2020s.
• Include Scotland’s net zero ambitions within the UK’s Industrial Decarbonisation Strategy. Scotland will input into the development of a coherent long-term vision to create a credible trajectory for getting industry to net zero emissions. This strategy should reflect devolved priorities, policies and programmes and allow our participation in disseminating the conclusions of this strategy which will inform investment decisions across the UK.
• Support and Enable large scale Green Hydrogen Production and integration into wider energy systems, including the creation of stable policy frameworks including the business models and financial instruments necessary to drive investment.

Scottish public sector organisations

3.4.64 Our Enterprise Agencies are supporting key investments by business in the low carbon transition. Scottish Enterprise have begun to map key industry supply chains to better understand where Scotland has a comparative advantage and where targeted investment may be required.

3.4.65 The Infrastructure Commission have highlighted the interdependence between infrastructure and the move to low carbon. Close engagement with this work will be important as we seek to maximise the economic benefits of the transition.

3.4.66 Working with agency partners, including SEPA, we will develop methods of benchmarking the efficiencies of some key energy intensive industrial processes then explore how to drive improvements. We encourage industry to discuss with SEPA entry into Sustainable Growth Agreements (SGAs), voluntary agreements that focus on practical action to deliver environmentally positive outcomes such as driving reductions in water, energy and materials use and all forms of waste. SEPA’s sector plans, specifically those relevant to manufacturing, will also support decarbonisation through their regulatory role and by taking opportunities to work with companies to go beyond compliance.

Scottish businesses and industry

3.4.67 The Scottish Government encourages businesses and industrial sites to:

• review their energy intensive processes, pursuing all energy efficiency options available to them, working with the Scottish Government;
• further explore innovative and cutting edge solutions to remove carbon from their operations (including CCUS);
• investigate embedding carbon costs into their procurement processes, to acknowledge the potential higher cost associated with low carbon production; and
• work in partnership to support low carbon suppliers and producers to define new business relationships and models that will decrease the commercial risk in production of low carbon goods.

Individuals/households

3.4.68 The majority of the UK’s greenhouse gas emissions arise from our production and consumption of energy, whether that’s driving cars, manufacturing goods or simply boiling a kettle. Decarbonising and diversifying Scottish Industry will benefit individuals by offering low carbon energy and goods from Scottish manufacturing. Consumers can support this transition through driving demand for low carbon goods and services, for example by switching to low carbon fuels. A just transition within the industry section will help to ensure that any costs are not passed unfairly to the consumer.

3.4.69 Our research into improving market benefits for Scottish manufacturers who produce relatively low carbon goods will investigate consumer behaviour and preferences. It will identify opportunities for green labelling to inform purchasing decisions for a range of energy intensive products produced in Scotland, including food and drink.

3.4.70 Following the passage of the Consumer Scotland Act 2020, we are in the process of establishing ‘Consumer Scotland’, a non-Ministerial body that will advocate the views of Scottish consumers and that will be able to address consumer issues and opportunities in this area. It will build on the work of the Energy Consumer Commission and will also work closely with other stakeholders within the consumer landscape to ensure that consumers are able to make informed choices and issues of detriment are identified for relevant challenge.

International engagement

3.4.71 The Scottish Government, as European Co-Chair of the Under2 Coalition, is participating in the Industry Transition Platform (ITP) alongside several regions of Europe and North America. This peer-learning forum explores policy solutions that are relevant for decarbonising energy intensive industry across the regions taking part, and focuses on developing regional hydrogen-based strategies for industry. It already benchmarks our existing decarbonisation activities, as well as influencing our potential to work in close partnership with industry to implement a policy framework. ITP provides a channel for ongoing international engagement, maintaining Scotland’s valued international relationships post-EU Exit. It will conclude in Brussels in June 2021, where members will share project results.

International Engagement Plans for Hydrogen and CCUS

3.4.72 Hydrogen and CCUS are key areas for international engagement as we prioritise activity and collaborations that: increase our attractiveness to international partners and lead to longer term investment and export opportunities; build upon Scotland’s reputation; and promote learning and policy exchange.

3.4.73 International activity on hydrogen is growing at pace in Europe and further afield. We have acted promptly to ensure Scotland is engaged in the developing hydrogen economy. A coordinated plan of international engagement activity has been developed to help advance our ambitions for international collaboration in this area.

3.4.74 Our international engagement on hydrogen is already underway, including Ministerial and official-level engagement, and working with partners at various levels. The engagement plan will highlight Scotland’s strengths in offshore wind and hydrogen, the potential for green hydrogen export, and possible areas for collaborative development and future cooperation.

3.4.75 This includes extensive engagement at strategic, sectoral and company level, participation in webinars and seminars to promote Scotland’s potential, and ensuring Scottish companies are aware of international opportunities in the hydrogen supply chain where these arise.

3.4.76 Further details of the Hydrogen International Engagement Plan can be found in the Hydrogen Policy Statement.

3.4.77 In a similar fashion there are international opportunities for CCUS supporting decarbonisation efforts in Europe and in the export of knowledge derived from our ambition to be an early mover in CCUS. We are currently engaging with key industry partners and will be developing a strategy to steer our engagement in this area in early 2021.

3.4.78 Scotland’s vast storage potential provides an opportunity for the import of CO2 via ship from European carbon capture projects, opening up the potential for a CO2 transportation economy. An international revenue stream via shipping of CO2 to projects such as Acorn CCS will support our own industrial decarbonisation efforts by anchoring storage projects and delivering confidence to emitters in Grangemouth of a long term solution for their industrial emissions.

3.4.79 CCUS presents a significant economic opportunity for Scotland; for this to be realised and maximised, it needs to be supported by a strong international promotion.

3.4.80 Scotland is the best placed country in Europe to realise CCUS on a commercial scale, and we want to ensure our potential and experience is increasingly recognised internationally. Our international engagement on CCUS will focus around Scotland’s significant storage potential, our practical expertise, and our ambitious plans to develop the sector. A priority for this activity, in the European context, will also be to raise the profile of Scottish activity and ensure visibility post-Brexit.