Just Transition Commission: advice on a green recovery

Recommendations for a just green recovery

5.1 With the challenge of delivering a recovery that lays the foundations for a net-zero society and improves the wellbeing of our country in mind, we must first consider the context for government action in the year ahead. We recognise there are some constraints on what Scottish Government can do. These constraints arise from the division of devolved/reserved responsibilities, as well as funding challenges. The fiscal outlook in particular remains uncertain, and will depend in part on decisions made by the UK Government. While challenging, this cannot be used as an excuse for inaction or reverting to business as usual.

5.2 It is possible that future announcements from the UK Government may deliver some level of additional funding for the Scottish Budget. To date, Scottish Government policy has followed a similar path to the UK Government in terms of choosing how to spend additional monies. There is an opportunity to design a path tailored to Scotland’s specific needs and challenges as we move into the recovery phase. Prioritisation of existing budgets must also be looked at urgently. If current programmes or investments are not aligned to the Scottish Government objective of a just, green recovery they must be revised. While we recognise the political challenges of this, it seems to us to be an unavoidable choice government must face up to regarding the design of its recovery package. Opportunities to attract private money towards policy priorities must also be considered.

5.3 There is a long list of actions that we know we must implement if we are to end our contribution to climate change. None of these have gone away. In the context of designing a recovery package for our society with finite resources, certain things make more sense to prioritise. Other reports have recommended actions for a green recovery that combine climate action with an economic response.^[43] As stated above, we have sought to ensure that the questions of equity and justice are considered and have used the following criteria to assess individual measures:

1. Do they set Scotland on a pathway to net-zero?

2. Do they ensure the benefits of climate change action are shared widely, while the costs do not unfairly burden those least able to pay, or whose livelihoods are directly or indirectly at risk?

3. Will they contribute to a just and fair economic recovery for Scotland once the immediate emergency, created by COVID-19, has subsided?

5.4 As with all our work, we would also draw attention to two key questions to be considered in all proposed measures: a) who pays? and b) who really benefits? Scrutinising projects to understand these questions is of utmost importance in the recovery from COVID-19.

5.5 A strong evidence base is needed to justify investments, given the competing priorities faced by government.^[44] While some climate investments may deliver on all three criteria (emissions, just transition, economic recovery), they will do so to different degrees, and the distribution of benefits may not necessarily be equitable. This does not remove the need to implement these, rather it means there is less justification for prioritising at this moment in time. In the current context, we need to pull out the obvious measures that deliver against the criteria set out above and prioritise their delivery.

5.6 We have set out the evidence base for our recommendations where possible, relying on work carried out by other organisations and experts. We believe the steps outlined in this report can contribute towards a recovery that helps build a fairer, greener economy in Scotland. Our individual recommendations for government along with their rationale are set out below.

1. Boost investment in warmer homes

1.1 Scotland already has energy efficiency and fuel poverty programmes that could be scaled up as part of the recovery. There is strong evidence for the multiple benefits this would bring and many have highlighted this as a ‘quick win’ for government.^[45] Specifically, we recommend:

i. Doubling budgets for the Warmer Homes Scotland and Energy Efficient Scotland local authority area-based schemes.

ii. Launching a non-domestic boiler scrappage scheme to help drive removal of higher emitting oil and gas boilers and support manufacturing opportunities for zero-emission heat solutions.

iii. Incentivise those households that are able to contribute something now to installing energy-saving measures to do so, by expanding loan funding, ‘cash back’, equity release or similar schemes.

1.2 This scaling up should be combined with a rigorous assessment of the supply chain’s capacity to deliver in the coming year, to ensure any budget allocated is spent. Work carried out under Warmer Homes Scotland and area-based schemes must continue to be subject to robust quality control standards and great care will be needed to ensure that these standards are not compromised in the rush to scale up programmes.^[46]

Rationale

1.3 Net-zero: Buildings remain an important source of greenhouse gas emissions in Scotland, with the residential sector alone accounting for roughly 15% of total emissions in 2018. The net-zero scenarios developed by the Committee on Climate Change imply that a significant roll-out of energy efficiency measures across the housing stock will be required, combined with decarbonisation of heat. The previous Climate Change Plan had outlined the need to reduce emissions from residential buildings by 23% and from non-domestic buildings by 53% (by 2032). It is likely that this ambition will need to be increased in light of the targets contained in the new Climate Change Act. Recent analysis by the International Energy Agency found improving building efficiency to be one of the most cost effective ways to reduce emissions.^[47]

1.4 Just Transition: there is evidence of health gains resulting from reductions to fuel poverty, and Scottish Government has recognised the importance ensuring everyone is able to keep their home warm as a matter of social justice.^[48] These are perhaps most likely to arise from targeted area-based programmes delivered by local authorities; lower income groups are more likely to be at risk of fuel poverty, and interventions to address this can therefore also help local areas reduce health inequalities.^[49] Skilled jobs are also created through the retrofitting activity. Where this work leads to lower bills for the consumer, there may be additional stimulus for the economy. Crucially, this work is not able to be offshored and is spread around the country, often among SMEs that have been hard hit by the crisis.

1.5 Boiler scrappage offers a way for non-domestic users in rural and remote areas, often more reliant on fossil fuels, a mechanism to secure lower-emission hot water and heating. While there is less published evidence in relation to investment in non-domestic heat, this would create opportunities in installation work and potentially manufacturing across Scotland, including in rural and remote areas.

1.6 Economic Recovery: this activity, particularly energy efficiency, can be introduced quickly. There is evidence that existing schemes have unmet demand and increased funding would allow work to be undertaken more rapidly than would otherwise be the case. Introduction of a non-domestic boiler scrappage scheme may take longer to implement, but would generate opportunities for the supply chain involved in the manufacture of zero-emission heat solutions that already exist in Scotland, as well as providing both the public and private sector with opportunities to update their heating equipment. Both of the recommendations align with our rural economy Hot Spot and could also target young people, should opportunities be created in the form of apprenticeships.

2. Back buses and support the supply chain

2.1 The public transport system in Scotland is struggling to manage the consequences of the pandemic. Maintaining vital services that are relied upon by thousands, including the key workers we have depended on during this crisis, should be a priority. We have outlined a range of measures we believe will support this:

i. rapidly roll-out spending of the £500 million previously committed to prioritise buses, including measures to reallocate motorway and other road space to high occupancy vehicles such as buses;^[50]

ii. establish a nationwide bus scrappage scheme to replace older diesel buses with low emission and zero-emission buses;^[51]

iii. develop an enhanced and accelerated national plan for charging infrastructure for both public and private transport in the context of an overall strategy to support the electrification of road transport;

iv. procure a fleet of new electric buses for use at COP26 to showcase Scotland’s low and zero emission bus manufacture and stimulate greater international demand.

2.2 Together these measures would support our public transport system, deliver backing for our manufacturing base, while contributing to the net-zero transition. These would have to adhere to procurement rules, but we would urge government to fully consider how to support this recommendation within these confines. We also note that public trust will have to be rebuilt if passenger numbers are to return, and government must work with transport providers and passenger groups to promote positive messages about public transport and introduce measures to rebuild passenger confidence.

2.3 The opportunity to re-prioritise any existing transport spend, currently earmarked for increasing road capacity, and redirect it toward investments in low-carbon transport initiatives should be actively pursued.

Rationale

2.4 Net-zero: transport is now the highest emitting sector in Scotland, responsible for roughly 36% of greenhouse gas emissions in 2018. Emissions are largely unchanged on 1990 levels. A large proportion of this is due to personal car use. Measures that help us shift to more active and sustainable modes of transport (such as low or zero emission buses) will be necessary if we are to reduce emissions and reach net-zero by 2045.

2.5 Just Transition: Any reduction in bus services will have a significant impact on access to employment, social inclusion, and ultimately our economic recovery. Support for buses in the form of priority infrastructure will make these services more attractive and help them to regain the passenger numbers lost as a result of the pandemic. The wider proposals to support the take-up of new low and zero-emission buses will also help with this, by delivering a cleaner more modern service. Furthermore, the electrification of both public and private transport will reduce emissions and improve air quality, bringing about health improvements, particularly in the places that suffer the poorest air quality.

2.6 Crucially, these proposals would also help support our domestic manufacturing base which is under pressure as a result of the pandemic. The recent announcement of redundancies at Scotland’s world-class bus manufacturer underlines the vulnerability of this sector.^[52] For these measures to be effective, government will need to consider a procurement strategy to ensure the domestic supply chain is prioritised. Procuring zero-emission electric buses for COP26 could be a once in a lifetime opportunity to promote Scottish manufacturing, and afterwards they could be leased to operators and local authorities, benefiting all of the country.

2.7 Developing an enhanced plan to accelerate charging infrastructure will support the adoption of zero-emission buses, as well as private vehicles. Again, there is evidence of short-term economic gains from this spending, arising from increased activity in domestic electricity supply chains.^[53] Importantly, planning to accelerate the charging infrastructure would also help direct private investment toward government priorities in the recovery period.

2.8 Economic Recovery: these measures would provide support for our domestic supply chain. This supply chain will need to be preserved if we are to reduce emissions while maximising economic opportunities in the long-term. Many of these jobs are high-quality, skilled jobs. Bus scrappage schemes have in the past been found to deliver greater value than other possible measures, such as scrappage schemes for diesel cars.^[54] All of these proposals would help government address the Hot Spot we identified in relation to transport and set us on the pathway to a fairer, net-zero transport system.

3. Maintain and create new jobs for oil and gas workers

3.1 The workforce in the oil and gas sector is facing a precarious future, brought about by the declining oil price and changes in demand. There is a need to create jobs in the short-term that will allow us to retain this workforce and the associated supply chains, so that they can be redirected towards our net-zero transition.

3.2 To sustain jobs in the short-term, and preserve capacity across the supply chain, we recommend that:

i. A large scale decommissioning programme is created with capital support to drive critical activity in the North Sea, maintain essential skills and position the North Sea infrastructure for a new integrated future.

3.3 Focusing in particular on plugging and abandonment activity (where much of the value in decommissioning lies) would result in the creation of immediate jobs throughout the whole supply chain.

3.4 There is also an urgent requirement to build local supply chain capacity and capability for our energy transition. To exploit the whole-chain economic and employment opportunity from the energy transition rapid progress must be made in two clear areas: a) the acceleration and investment in critical development projects that pave the way for the net-zero energy system^[55] and, b) action now that will improve the competitiveness of Scotland’s energy supply chain and help us exploit the immediate opportunities in the offshore wind sector. A package of action must include:

i. the rapid delivery of the Floating Wind Centre of Excellence already committed to through ORE Catapult;

ii. the acceleration of Scotland’s industrial decarbonisation cluster, including Acorn;

iii. the speeding up of new initiatives such as the Shetland Energy Hub;

iv. public investment in facilitating infrastructure such as ports and harbours;

v. direct investment in manufacturing facilities to build competitiveness in specific off-shore wind components and net-zero enabling technology.

3.5 Devolved powers should be used, where possible, to maximise domestic manufactured content in energy projects. Clear political leadership and clarity of intent brought by the above measures will build confidence, support jobs and ensure that the supporting supply chain redirects people, resources and training into these emerging markets.

Rationale

3.6 Net-zero: reaching our climate change targets will require large sustained increases to our renewable generation capacity, with much of this likely to come from offshore wind. Other technologies such as CCUS and hydrogen generation feature prominently in Committee on Climate Change scenarios and are seen as necessities if we are to meet net-zero. Decommissioning has no impact on emissions but conserves capacity in the short-term and provides a skills bridge as we develop our capability and supply chain through the energy transition.

3.7 Just Transition: if we are to replace the jobs lost over time in oil and gas we will need to grow the manufacturing base for next generation energy technologies. Adoption of these technologies must be accompanied by high-value manufacturing in the supply chain. The opportunities for this do exist, and are significant, but bold and decisive action will be needed to ensure they are delivered. Decommissioning could act as a bridge for workers displaced in recent months who could play a key role in these emerging energy industries and new manufacturing opportunities. Decommissioning would be available to particularly hard hit groups such as offshore drillers.

3.8 Economic Recovery: there will be a significant pipeline of work in offshore wind now, with a new ScotWind leasing round recently launched and continued opportunities in operations and maintenance for existing developments. We have identified a number of projects that would not only build on areas in which Scotland may enjoy a competitive advantage, but which could be implemented at pace. Given the maturity of the basin, there is a large number of potential decommissioning projects in the North Sea. However, there is a risk that projects are delayed as operators direct investment elsewhere. A comprehensive clear programme combined with support in this area would ensure activity could be quickly ramped up. Both sets of recommendations will help address the Hot Spot we have identified in relation to oil and gas. The oil and gas sector deal promised by the UK Government within the next five years may represent the single biggest opportunity to secure a just transition in this sector on the longer-term.

4. Help the rural economy by helping Scotland’s nature

4.1 New employment opportunities in remote and rural areas may be subdued in the coming months, and we need to promote investments that can both protect and grow employment. This can be done through expanding climate-friendly habitats, and in particular:

i. Supporting increased, diversified tree planting;

ii. Confirming longer-term support for the Forestry Grant Scheme

iii. Maximising supply chain opportunities arising from tree planting and existing commitments on peatland restoration.

Rationale

4.2 Net-zero: Peatland restoration is essential in order to meet net-zero, as damaged peat is a significant source of emissions. Once restored, peat has significant capacity to remove carbon from the atmosphere and to contribute to climate mitigation. Tree planting is also a good means of locking up carbon, but there is growing evidence that native species are more effective in capturing carbon than non-native productive species at scale and in the long term, although the latter can secure quick wins over the short term. Other factors, such as soil type, will also have implications for the ability to capture carbon, with potential carbon loss from planting on carbon rich soils.

4.3 Just Transition: These proposals could specifically benefit rural and remote communities, identified as one of the Hot Spots in our report. Many of the jobs may be suitable for young people, as well as more experienced workers with backgrounds in engineering and heavy machinery operation (including those from industries impacted by the pandemic). Supporting community groups to access public funding and be actively involved in the decision-making process regarding land use will also help ensure the benefits of forestry/peatland restoration are shared as widely as possible. Evidence we have heard through the course of work has also pointed to the importance of community involvement and land tenure in managing land use changes, something we will continue to consider in advance of our final report.

4.4 Economic Recovery: Given that planting/restoration takes place outdoors physical distancing would present less of a challenge in the coming months. This is an opportunity to help secure existing jobs and stimulate new ones in rural and remote areas - and not just directly, but also in the supply chain and support services needed. These activities could be ramped up quickly once planting season begins later in the year, and would yield wider benefits by stimulating economic activity in rural areas.

4.5 Continued investment in forestry and peatland restoration can create supply chain opportunities across Scotland. As part of our recovery we must make sure we are maximising the domestic supply chain and support service opportunities. These opportunities exist in a range of areas including in forest management and timber processing, forestry civil engineering, haulage, agents, accommodation in hotels and B&Bs, machinery and servicing contracts, tree nurseries, and research and education.^[56]

5. Align skills development – for young and old – with the net-zero transition

5.1 A clear need for our recovery from the pandemic will be getting people back into work quickly, and we highlighted support for young people as a particular Hot Spot. A package worth £100 million was recently announced, which included a national retraining scheme, along with a jobs guarantee for young people.^[57] Where possible, these announcements should reflect government priorities on delivering a just transition to net-zero. We recommend:

i. Ensuring retraining initiatives direct sufficient resources towards opportunities in the net-zero economy by giving strong direction to delivery agencies such as Skills Development Scotland and Scottish Enterprise.

ii. Ensuring the young person’s jobs guarantee promotes opportunities such as apprenticeships that are aligned with the transition to net-zero.

5.2 These programmes are already announced by government and will have to prioritise getting people into good jobs as quickly as possible. Not all jobs will be in sectors key to emission reduction (such as renewable energy etc). While this is the reality of delivering employment support in the midst of a recession, government should look to ensure money spent is helping us on our transition to net-zero where possible.

5.3 Attention should also be paid to specific groups of workers displaced by the current crisis, such as in the oil and gas and hospitality sectors. Opportunities for retraining, building on the legacy of successful initiatives like the Transition Training Fund, should be identified. PACE, led by Skills Development Scotland, will play a vital role in responding to redundancies and resourcing of this service will need to also be considered. This may also involve working with employers and trade unions to promote retraining opportunities among workers who have recently lost their jobs. The young person’s job guarantee should provide meaningful work that gives valuable experience while paying the real Living Wage. This scheme could build on existing apprenticeship and training schemes in areas such as in construction, renewable energy and electric vehicles in order to contribute to the transition.

Rationale

5.4 Net-zero: reaching our climate change targets will require fundamental shifts in many sectors of our economy. The skills system needs to deliver an appropriately skilled workforce to ensure that actions needed to reduce emissions can be undertaken, and that Scotland can capture the economic opportunities on offer. To take just one example, a recent study estimated that reaching net-zero in the energy sector would require around 50,000 additional trained workers in Scotland between 2020 and 2050.^[58]

5.5 Just Transition: retraining initiatives can allow workers made recently unemployed to contribute to Scotland’s net-zero transition by opening up skilled employment opportunities in new and emerging sectors. As highlighted, opportunities exist for workers in sectors such as oil and gas to gain new qualifications that will allow them to move into new opportunities that support our transition. Depending on design, the young person’s job guarantee could give young people the chance to contribute to Scotland’s net-zero transition while earning a real Living Wage.

5.6 Economic Recovery: retraining and supporting young people are absolute necessities in our recovery. Ensuring they are aligned as much as possible with our ambition on a just transition to net-zero can build on existing programmes in place (such as apprenticeships), and can be progressed quickly. Similarly, experience in agencies such as Skills Development Scotland in administering the Transition Training Fund can be a valuable resource to draw on and will support the implementation of this recommendation. Support for young people is crucial to prevent long-term ‘scarring’ effects from developing in the form of lower earnings and unemployment.

6. Give a clear sense of direction and attach conditions to funding

6.1 Rebuilding from the harm caused by the pandemic is a monumental challenge and will require all sections of our society pulling in the same direction if we are to deliver a just and green recovery. Public funding cannot do this alone, and there is a need to steer private money in the direction of government priorities for the recovery. To do this, we recommend:

i. The Scottish Government should make clear declarations of policy intent with respect to each of the recommendations in this report, providing confidence to those investing in, developing, and implementing the actions.

ii. Where public funds are used in support the recovery (either directly or to leverage private finance) the Scottish Government should ensure that the action will align with a just transition to net-zero.

6.2 Both of these points are closely related to the discussion in our interim report on the importance of planning. In particular, any state aid provided to companies in the recovery should be made conditional on the company having a credible, robust transition plan that supports emission reductions and continued economic prosperity. In an evidence session with the finance sector earlier in the year, we also heard of the importance of stable, long-term policy commitment from government to leverage private finance.^[59]

6.3 It is essential that recovery measures are developed with the goals of net-zero and just transition in mind. This will include in key documents such as the Infrastructure Investment Programme and updated Climate Change Plan. We need to develop industries vital to net-zero for the long-term, avoiding boom-and-bust cycles that will impede career development and damage confidence.

Rationale

6.4 Net-zero: the Committee on Climate Change have been clear that support for carbon-intensive sectors in the recovery from the pandemic should be contingent on them taking real and lasting action on climate change.^[60] Not doing so risks ‘locking-in’ emissions and jeopardises delivery of our targets on emission reduction. In 2019, the Committee on Climate Change estimated the annual cost of the transition to net-zero would be 1-2% of GDP up to 2050 for the UK as a whole. The public sector cannot meet this on its own, and leveraging private investment is an absolute necessity.

6.5 Just Transition: both points here strongly resonate with our interim report. Conditionality, in particular, could help advance the adoption of transition planning. In turn this would secure jobs and emission reductions over time, while helping rebuild our economy from the pandemic.

6.6 Economic Recovery: In making decisions about state aid in the coming months, government may have to balance the need to protect people’s livelihoods now against the need to reduce emissions. Developing a robust set of principles for conditionality, underpinned by credible transition planning, can help balance these priorities. Creating a strong sense of direction and policy certainty for the private sector can be done quickly and would help ensure Scotland’s public and private sectors pull in the same direction as we recover from the pandemic.