Securing the economic and environmental benefits from the transition to net zero

The Royal Society of Edinburgh (RSE) calls for an urgent reset and refocus of Scotland’s climate strategy.

Background

The RSE Economy and Enterprise Committee’s ongoing work plan is structured around a series of themed roundtables based on the 3 Es of equity, environment, and efficiency. Our work on the environment commenced in 2022 with a  roundtable including multiple stakeholders, which aimed to explore how Scotland can secure economic advantage from the net zero transition and who could fund it. Further, working group discussions have continued throughout 2023, looking at the impact of recent political and policy developments.

To this end, the evidence in this paper is based on our 2022 Environment Roundtable and further working group discussions throughout 2023. The project is led by Andrew Wilson FRSE, Professor Jeremy Peat FRSE, Chris Stark (Chief Executive, UK Climate Change Committee), Professor Mercedes Maroto-Valer FRSE (Director, UK Industrial Decarbonisation Research, and Innovation Centre), Peter Reekie FRSE (Chief Executive, Scottish Futures Trust), and Sepi Golzari-Munro (Independent Energy and Climate Analyst). Further stakeholders have included Fellows, YAS members and external stakeholders from various backgrounds, including experts in environmental science, economics, investment, and public policy.

Our approach

The roundtable event also reflected on the findings, which was the most critical report to date in Scotland, due to a stagnation of Scottish progress towards net zero. The expert panel met again in autumn 2023 and considered the potential implication of the UK Prime Minister’s public softening of climate commitments and the Scottish Government’s postponement of its draft climate change plan, and the continued exposure of Scottish and UK households to high gas prices and the consequent cost of living crisis.

Much has been written on deliverable pathways for key elements of the economy to achieve net zero – transport, industry, buildings, land use and agriculture. Our round table event covered each, and experts from the RSE can provide further input into policy development. However, at this critical juncture, we do not propose to add to that detailed literature and believe that it will be most helpful to summarise our key points and recommendations for urgent action to reset and refocus Scotland’s climate strategy.

The urgency and opportunity

The climate emergency is an emergency like no other. It’s not only a well-documented threat to human health and the natural world, but our economy’s dependence on the fossil fuels driving climate change has now left us exposed to unprecedented energy security and geopolitical risks while driving an ongoing cost of living crisis, as gas prices have become volatile following Russian’s war on in Ukraine. Meanwhile, the impacts of climate change itself are being felt here today. WWF research estimates losses of £161m in the Scottish agricultural industries due to the extreme weather events in 2017-18 alone.[1] 

The science is incontrovertible, and the current and future harms for people and economies in Scotland and worldwide are clear. 

It is also clear that Scotland cannot solve this global crisis alone. But we have the opportunity to achieve economic benefits if we are an early mover that is able to export our innovations and knowledge on the global stage. Leading corporates, including the eighty-eight members of the First Movers Coalition[2] formed at COP26 in Glasgow and with a market capitalisation of over $8 trillion, see the moral imperative and competitive opportunity of being an early mover, and the global competition is building with the Inflation Reduction Act in the USA and the European Green Deal. Scotland should aim to maintain its leadership position with decisive action today in both Holyrood and Westminster on devolved and reserved matters and working across political divides to deliver for the Scottish economy and people. Through this action, we can start to witness greater benefits of climate action for our economy, health, and the planet, rather than the focus on short-term costs, which is clouding the current political debate.

Our key observations and recommendations for this reset and refocus on a positive vision for urgent climate action are:

Key Points AND Recommendations

  • In another year of climate extremes, public concern over climate change remains high. Global progress on the energy transition is now underway, driven by energy security imperatives and the steady improvement in the economics of clean energy systems, even accounting for inflation and supply chain pressures affecting some parts of the industry. Scotland has played an important part in this story, embracing renewables early. Still, recent progress against Scotland’s legal climate targets has stalled as the decarbonisation challenge moves from energy supply to other parts of the economy.
  • The RSE calls for an ambitious reset and refocus of Scotland’s climate strategy and an approach to delivery. This should focus on a positive vision for urgent climate action to take the opportunities for Scotland’s economy and people to maintain global leadership to attract investment. The Scottish Government Climate Plan, therefore, has a deeper resonance. It should be a ‘reality check’ on progress to date and should contain transformative detailed plans to mainstream the economic benefits to the Scottish economy of warmer homes, cleaner transport, modern industries via clean energy production and associated end-uses.
  • Achieving net zero and by 2045 is critical for a host of reasons beyond the impact on the climate. That target is important and, whilst at risk, remains achievable. Systemic changes to decarbonise Scotland’s buildings and domestic industries can bring lasting gains, but these require new infrastructure, bolder policies, and emphatic commitments, some with real costs in the short term. The target to reach a 75% reduction in emissions by 2030 is now almost certain to be missed, and achieving long-term investment is more important than the political symbolism of setting ambitious goals that are not then hit.
  • The key commitment to reach net zero by 2045 should be reaffirmed, and the Scottish Government should urgently consider whether the 2030 interim target remains a helpful marker on that pathway.
  • Regardless of climate targets, environmental concerns or any new licenses, Scotland’s remaining oil and gas reserves are vastly depleted after decades of exploitation and are projected to decline. As such, net zero offers a lifeline to – rather than a break on – economic activity in Scotland’s energy sector, capable of channeling the unparalleled skills and expertise of Scotland’s oil and gas workers into economically productive activity. Regardless of Scotland’s legal emissions targets, there is an urgent need for both the Holyrood and Westminster Governments to shape the transition of the Scottish economy and Scottish employment away from a reliance on fossil fuels.
  • There is an opportunity to set out a green industrial strategy for Scotland, prioritising investment in the climate resilience of key economic assets and the supporting infrastructure and skills needed to build on the manufacturing, supply chain and services opportunities which the transition to net zero will bring.
  • There will be some short-term costs for asset owners (including homeowners), in particular whilst relative electricity and gas prices remain skewed. A transition to renewable electrical energy across heating and industry will reduce cost volatility and deliver savings as well as climate benefits in the longer term. A carefully considered blend of incentives for early transition for early adopters and financial support for those less able to shoulder this short-term cost should be considered in Government budgets.  In this context, it is worth noting that there are high costs to not taking action to align the economy with net zero. For example, the OBR has assessed that the UK Government’s support packages across 2022-23 and 2023-24 – to support high household and business energy bills resulting from the gas price spike – amounts to £78.2 billion.[3] While necessary to shield households, this is an unsustainable use of funds which could have been better directed at deploying net zero measure, which inherently brings down bills.
  • The RSE calls for recognition of the twin crises of the cost of living on household budgets and the financial shortfalls facing public sector budgets. The government should consider a pragmatic and cross-partisan approach with a clear public conversation to ensure that we reduce our exposure to volatile and insecure fossil fuel markets, that the costs and benefits of the transformation are borne fairly and that the longer-term financial benefits to households of their actions are made clear.
  • Achieving net zero requires genuine policy cooperation between Holyrood and Westminster and between the Scottish and Local Governments. The UK Government holds many regulatory levers, in particular over energy policy and pricing, which will drive investment in renewable generation, energy storage and grid strengthening. The Scottish Government has power over its transport, planning, agricultural and industrial policies. It also sets capital and skills budgets and building standards, which are critical to accelerating the transition and encouraging investment. Local Government has planning powers and can bring a critical place-based approach to delivery. These should be well coordinated to maximise pace and deliverability.
  •  The RSE recommends a renewed approach to collaborative policy development between the layers of Government on a sector-by-sector basis. Each should avoid cynically blaming the others and should make the maximum use of their own powers whilst collaborating for the long-term good of the economy, people, and planet.
  • Investment is the key to unlocking net zero. There is increasing global competition to attract international investment as other markets worldwide – from the US and the EU to the Asia Pacific Region – accelerate their net zero transitions. Renewable energy infrastructure is fundamentally capital intensive, with lower long-term operating costs. Up-front investment in skills, developing supply chains and enabling infrastructure ahead of need will accelerate the transition. To enhance its global position, Scotland should position itself as investor-friendly, gaining a clearer understanding of investor needs and creating the conditions for fair and efficient returns. Detailed policy and regulatory certainty will help in achieving this. In parallel, we should aim to build Scotland’s financial services sector into a world-leading centre for ethical and impact investing. Our fund managers can use Scotland’s brand and leadership to create a hub for financing the transition worldwide.
  •  The RSE contends that there should be a recognition of a new triple bottom line of investor friendliness, consumer protection, in particular of the most vulnerable groups, and meeting the net zero policy ambition. All policies should be developed with these three requirements in mind, and leaders should avoid badging them inappropriately as being in competition with each other in order to deliver a just transition at the required pace.  

Conclusion

Policy instability at both the Scottish and UK levels risks negative long-term consequences for the environment, economy, and society.   The substance of recent policy changes did little to change the trajectory of emissions reduction, but the political positioning and public impact on sentiment were concerning. The politics are important when considering the policy changes that are needed in the future. There has been a change in the context. The Prime Minister’s speech has narrowed the space to create new climate policy, particularly as net zero has been framed mainly as a cost to households and businesses. The message has also reached an international audience and risks–contributing to a feeling among corporates and world leaders that the UK has loosened its commitment to net zero and impacting international investor appetite to invest in our markets.  

There remains a major climate policy gap at the Scottish and UK government levels, which will require attention, especially if it contributes to a competitive disadvantage with other countries as they accelerate their own decarbonisation. The US, EU – and China – have all moved recently to accelerate the deployment of key clean technologies. The UK economy’s continuing reliance on price-volatile fossil fuels has left it badly exposed over the recent energy price shock. Political leaders should lean into the need to achieve decarbonisation as quickly as possible to build greater resilience to these economic shocks – and greater domestic energy security.

Leadership is required to restore the positive framing that we’ve seen in the last five years around net zero and traverse the significant policy challenges, to secure a broad consensus behind the choices and real trade-offs.

The Scottish Government has delayed publication of its draft Climate Plan, which was due for release this month. Whilst any delay in critical policy development is concerning, if the opportunity is taken to consider and incorporate the recommendations that we have made, this delay could be a net positive in Scotland’s journey to net zero.


[1] WWF (2019) The Economic Impact of Extreme Weather on Scottish Agriculture [online] Available at:  Microsoft Word – Impact of Extreme Weather Scottish Ag Final.docx (wwf.org.uk)

[3] Office for Budget Responsibility (2023)  An international comparison of the cost of energy support packages [online] Available at: https://obr.uk/box/an-international-comparison-of-the-cost-of-energy-support-packages/#:~:text=The%20cost%20of%20UK%20Government,medium%20term%20(Chart%20A).

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