1.2 A Low Carbon Economic Strategy for Scotland
Market value, £bn
% Global Total
Figure 3: Market Value for Largest Green Economies 7
With as much as a 25% of Europe's offshore wind and tidal potential, an estimated 10% of its capacity for wave power and its largest offshore CO 2 storage potential, Scotland has the natural resources to become the green energy powerhouse of Europe. We have a world class knowledge base in our academic and research institutions and the action of a highly skilled population. It is essential that Scotland retains this talent base whilst continuing to attract further talent from abroad. The Scottish Government is undertaking ground breaking initiatives focusing innovation to help maintain Scotland's position as a leader in low carbon technologies. Scotland is in a position to not only adapt to and mitigate the effects of climate change but also to optimise the economic opportunities that arise from those actions. In doing so, we will both secure a domestic economy underpinned by sustainable low carbon activity, and take the lead in the emerging global low carbon environmental goods and services market, positioning Scotland as the destination of choice for low carbon investment.
The potential scale of the economic opportunities for Scotland are vast:
- Scotland's low carbon market was worth around £8.5 billion in 2007-08 (within a GDP of around £100 billion), and is forecast to rise to around £12 billion by 2015-16;
- Scotland can secure a position as the international destination of choice for low carbon investment, and for the development of the financial architecture for a global low carbon economy;
- Jobs in the low carbon sector in Scotland could grow by 4% a year to 2020, rising from 70,000 to 130,000, over 5% of the Scottish workforce;
- Scotland is alrlady an exporter of low carbon technologies, with £845m worth of low carbon technologies exported in 2009/10 mainly to China, Spain, Malaysia, India and Romania;
- Scotland can be the green energy capital of Europe, and offshore wind alone could bring an estimated £30 billion of inward investment, and up to 20,000 jobs;
- Scotland now generates 22% of its final electricity demand from renewables and is comfortably on course to meet targets of 31% by 2011 and 80% by 2020;
- Sales of offshore electricity could value £14 billion by 2050, the equivalent of £2,700 for each person in Scotland;
- Household energy efficiency could save a cumulative £8.5bn by 2050, and provide thousands of jobs;
- Motorists could save £300m a year in reduced fuel costs by 'eco-driving';
- Farmers could save up to £464m by 2022 in business efficiencies.
According to the Stern Review the cost of doing nothing to address climate change is far greater than the cost of acting. The Review estimates that 'if we don't act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more. In contrast, the costs of action - reducing greenhouse gas emissions to avoid the worst impacts of climate change - can be limited to around 1-2% of global GDP each year' 8, in other words we cannot afford not to take action. A more recent study by the Climate Change Committee identified that adapting businesses to climate change now may reduce the damage from future climate change by about 50%9 .
Figure 4: Low Carbon and Environmental Goods and Services ( LCEGS) Sectors
What does this mean for Scotland - the Opportunities?
There are strong growth opportunities for Scotland across existing businesses and industries as well as in the emerging low carbon environmental goods and service sector ( LCEGS). Low carbon employment in Scotland could increase by at least 60,000 by 2020, specifically:
- 26,000 jobs in Renewable energy, including wind, wave and tidal, biomass, geothermal, hydro and photovoltaic energy generation and the services that support them, including renewables consultancy;
- 26,000 jobs in Low carbon technologies, including alternative fuels for vehicles, carbon capture and storage, building technologies, energy management and carbon finance;
- 8,000 jobs in Environmental management, including energy, carbon and broader environmental consultancy, air pollution control, environmental monitoring, marine pollution control, waste management, recovery and recycling; as well as the service industries that support environmental management.
Globally, LCEGS markets, illustrated below, are forecast to increase in value from £3 trillion in 2008/09 to £4.3 trillion by 2014/15, making them three times the size of the aerospace sector and growing by 5.3% each year 10. Scotland has a GDP of around £100 billion with a LCEGS market of just around £8.8 billion which is predicted to grow to around £12 billion in 2015/16, 10% of the economy 11.
'We treat a new product, service or process as low-carbon if it leads to an absolute reduction in GHG emissions or improves the carbon intensity of an activity'. (The UK Climate Change Committee - in defining low Carbon).
In addition to opportunities in renewable energy around 50% of LCEGS sales are expected to occur in 'emerging low carbon' sub-sectors including sustainable transport, sustainable buildings, energy management, carbon finance and carbon capture and storage. Furthermore there are opportunities right across the whole economy. The main ones likely to arise are:
- Resource efficiency - (energy, water, waste, materials) and sustainable business practices;
- Environmental and Clean Technologies - sustainable transport, building technologies, recovery and recycling, water and waste water treatment, environmental monitoring ;
- Food & Drink - waste management and re-use, local sourcing, reducing carbon in supply;
- Tourism - 'green' tourism products and services, promotion;
- Financial services - green financial products and carbon trading;
- Life sciences - sustainable health, telehealth and clean technologies;
- Chemical sciences - renewable fuels, bio-based feedstocks;
- Aerospace - lighter and more fuel-efficient materials/technologies;
- Textiles - functional textiles with higher tolerance/resistance to heat and water;
- Forest industries - wood fuel and biomass for renewable heat and power, locally-sourced timber for construction;
- ICT - data centres, energy management; and,
- Agriculture - grow wider range of crops, produce new plant/animal based products.
What are the Risks to the Economy of doing nothing?
Climate change brings with it high level risks that could impact across the Scottish economy including:
- Disruption to communications systems;
- Flooding leading to loss of, or damage to, premises, assets and stock;
- Disruption to energy sources, raw materials or other supplies;
- Inability to deliver services to customers as a result of extreme weather events and their aftermath, either through direct impacts or reduced transport links;
- Reduction or complete loss of water supply, either through drought or flooding of critical national infrastructure;
- Instability in the global financial markets as a result of climate change pressures;
- Increases in costs, or complete loss of supply, of principal imports as a result of climate change pressures elsewhere in the world.
Why is Action Necessary?
Global energy demand is expected to increase by more than 50% by 2030, with China and India alone accounting for 45 % of the increase. Global oil production may have already passed the point of maximum output ('peak oil' 12) and entered a long period of slow decline. It is likely that oil prices will rise significantly in the next decade. There will be greater competition for a whole range of minerals and primary resources that are needed as part of developing and industrialised economies.
The transition to a low carbon economy must mitigate against these risks as set out in our Climate Change Adaptation Framework 13. The transition must also include maintaining effective supply and affordability of energy and other key resources at the same time as migrating to low carbon fuels. The focus of central and local government, public and private sector, has to be on alignment of the regulatory framework setting clear ambition and focusing on interventions to incentivise low carbon investment and maximise competitive advantage. This will involve:
- leadership to drive the development of the low carbon economy;
- changing behaviours and adapting to climate change impacts;
- renewable electricity generation;
- developing clean and abated thermal base-load with carbon capture and storage;
- energy efficiency investments; electrification of transport infrastructure and greater use of sustainable bio-fuels;
- sustainable land use; sustainable cities/ neighbourhoods;
- extracting secondary resources from Scotland's waste steam to recycle into economic activity.
Climate change adaptation will come at a cost. But there is a bigger cost of not adapting. Ensuring that Scotland understands the risks and opportunities presented by a changing climate and is adapting sustainably will require the efficient and targeted use of existing and new sources of funding.
What is Government doing to Support the Transition to a Low Carbon Economy?
Scotland, the UK, EU and countries around the world are taking serious action on low carbon because they see the economic opportunities outlined above. The UK has an ambition to reduce emissions by 80% by 2050, and as part of the EU also has a commitment to reduce emissions by 34% by 2020. Scotland is going beyond the UK in the most challenging climate change targets in Europe, to reduce emissions by 42% from 1990 levels by 2020, and 80% by 2050.
These targets are enshrined in the Climate Change (Scotland) Act14, forming the sustainability target within the GES and driving the overarching purpose of growing a sustainable economy.
Roles in Maximising the Opportunities
Over the next 10 to 20 years we will witness both the wholesale decarbonisation of existing businesses, supply chains and industries as well as the emergence of new sectors and sustainable business models. By exploiting these commercial opportunities now, Scottish business and industry can maximise competitive advantage as the global economy moves to a low carbon basis.
The role of the private sector is to provide business and industry with the entrepreneurial mindset and foresight to invest in exploiting low carbon opportunities. Business is already leading the way in embracing a low carbon economy, for instance through the work of the 20:20 Climate Group 15. The private sector can not, however, deliver this transition alone. Central and local government leadership and the activities of the wider public sector and our academic institutions will act as a key enabler of the low carbon transition, tackling market barriers, ensuring an appropriate legislative framework is in place and key policies for investment, infrastructure, international engagement, innovation, leadership, skills and education are aligned with the low carbon ambition.
Government and the wider public sector play a crucial role in:
- setting the long-term strategic direction;
- legal and regulatory framework;
- helping to reduce business risk and uncertainty;
- encouraging long-term investment;
- leading by example, seeking, where possible, to reduce the carbon impact of activities, and using low carbon technologies;
- helping to provide 'first mover advantage' to Scottish business and research and innovation communities in accessing new and expanding international markets in addition to commercial and reputational benefits.
The Scottish Government has also made a commitment to assess the carbon impact of its spending review from 2010/2011. As the country recovers from a harsh economic period and looks to the future, this sends a strong signal to business and industry, and consolidates the direction of travel to a Low Carbon Economy.
The Climate Change (Scotland) Act 2009 has set the legislative framework to establish a favourable environment to support long-term investments to develop a low carbon economy and this will be underpinned with measures that will give businesses and consumers strong incentives and the confidence to invest in the technologies skills and behaviours that a transition to a low carbon economy requires. Under the Act, Scotland is
obliged to develop a Climate Change Adaptation Framework 16 which will both develop adaptive actions to the impacts of climate change and support the actions of the low carbon economy, in response to the UK Climate Change Risk Assessment ( UKCCRA) 17 which reports in early 2011.
Scottish Government has a significant role to play to influence those fiscal, legal and regulatory decisions taken at UK level and the regulatory regime imposed by the EU which impact significantly on Scotland. Building on the most challenging climate change targets, the Scottish Government is playing a pivotal role in evidencing and complementing the action of the UK Government as a leading proponent advocating the move from a 20% to a 30% reduction target in the EU.
The scale of funding required for developing low carbon technologies and investing in new infrastructure represents a significant challenge. Engaging directly with key financial institutions and regulators, the Scottish Government can influence the development of a new financial architecture to fund low carbon investment to ensure that new infrastructure, and the components that use it, are not prevented from developing. The Scottish Government has long argued the case to have the accumulated Fossil Fuel Levy surplus (standing at £191m in October 2010) to be released immediately to provide an urgent and much needed boost to key renewables industry developments in Scotland, and will continue to pursue this with the UK Government.
In addition the Scottish Government is supporting specific activity to develop innovative finance products, attract international financiers and position Scotland as a destination for low carbon investment, such as the Low Carbon Investment Project; a unique forum for Government, international finance, utilities and developers of low carbon projects to engage directly on investment opportunities, culminating this year in an international conference focused on energy generation and particularly renewable energy. Such was the success that a commitment has been made to hold the conference annually, with next year's focus on finance for investment improving energy consumption and resource efficiency 18.
Central and local Government and the wider public sector are taking a proactive role in incentivising the development of and reducing uncertainty about new low carbon products, and in proving the reliability of new technology, thus underpinning confidence in markets. Encouraging the uptake of the Sustainable Procurement Action Plan across the public sector will be key tool in this process.
A critical role of the Scottish Government is to ensure that the necessary infrastructure is in place in Scotland to secure the transition to a low carbon economy and to support Scottish business and overseas investors to benefit fully from that transition in a way which is appropriate for the future climate.
Through the National Planning Framework 2, the Government has set out a clear vision for developments of national significance necessary in energy, transport, built environment and land use sectors, to realise our ambition while protecting our environment 19. This is implemented through the local planning system in the form of Strategic Development Plans.
In relation to the sea, the Scottish Government is developing a National Marine Plan for Scotland which will provide the framework for marine development in Scottish waters, taking into account the needs of various marine users. This will include measures to deliver climate change objectives, such as possible locations for potential energy-related development.
The Scottish Government is making significant progress in delivering onshore and offshore reinforcements to Scotland's grid network - addressing barriers and pushing for change in energy regulation. For example, Ofgem is now listening to Scotland's calls for changes to the locational charging approach. At present this approach results in renewable generators, in the geographical areas of best renewable energy resource, paying the highest charges for use of the GB grid system.
Through international engagement, the Scottish Government and Scottish Development International ( SDI) can enhance Scotland's reputation and attract further direct foreign inward investment, by developing compelling tailored propositions which build on the natural assets, infrastructure, skills, research strengths and historic oil & gas capabilities of Scotland and ensure these propositions are targeted to where Scotland has the best opportunities to win the investment.
Significant export opportunities exist for all sectors of the low carbon economy and Government and SDI help businesses to take full advantage of these by providing a range of support including: developing international strategies, providing detailed market intelligence, organising overseas missions and exhibitions, and providing an on the ground presence in the main overseas markets. The Scottish European Green Energy Centre 20 and Scotland Europa 21 play a key role in fostering demonstration and deployment of energy technologies through collaboration between Scotland and other parts of the EU.
Successful research and innovation will drive the transition towards the low carbon economy. If Scottish companies are to secure sustainable growth in existing markets and a significant share of new global markets in the Low Carbon and Environmental Goods and Services sector, then they need to be at the forefront of innovative technologies, and their research, development, demonstration and deployment ( RDD&D). This will require not only maintaining existing collaborations but developing new ones with universities and leading researchers. It will also require the wider adoption of new behaviours and leadership styles across the economy in both the public and private sectors.
Leadership, Skills and Behaviours
There is a continuing role for central, local government and the public sector to lead by example through leadership and innovative behaviour change, for instance the Public Sector Climate Action Group22 and councils through the Scottish Climate Change Declaration23. Government will build on this, working jointly across all sectors to establish a wider dialogue, resulting in an effective ongoing public engagement strategy 24
Business and industry leaders will need new skills and training to support the sustainable development and growth of their business, reducing resource use and implementing energy efficiency measures, adopting innovative technologies, embracing new sustainable practices and processes, and identifying new market opportunities. This starts with positioning sustainable business opportunities and practices as a key leadership issue, ensuring that business leaders are suitably equipped with the knowledge and capabilities to effect strategic, long-term business change. Innovative behaviours will require new ways of thinking, flexibility, adaptability and creativity to make decarbonisation everybody's business. Our colleges and universities have a key role in providing people with the leadership, behaviours and attitudes that are required in moving to a low carbon economy.
Scotland has a highly qualified population with expertise and skills in a range of industries and areas. We need to build on these established skills and make effective use of the existing work force. It is likely that many of the skills needs of the emerging economy will be addressed by using short flexible training modules that add to the experience and qualifications individuals already possess. This will allow workers to enhance their existing profile with new sets of low carbon skills whilst continuing in their existing jobs, for example the range of skilled individuals with experience in the north sea oil and gas sector can and will be able to turn their experience to good use in low carbon energy sectors, such as offshore renewables.
Education has a major role to play in influencing attitudes and behaviour as well as developing the skills, knowledge and understanding to help Scotland make the most of the opportunities provided by a low carbon economy.
Curriculum for Excellence25 is now shaping practice across education, supporting the inspiring, relevant and deeper learning needed to prepare our children and young people for the challenges of life in the 21st century and raise standards for all. Sustainable development and enterprise education are embedded across the curriculum, with particularly strong links to Sciences, Technologies and Social Studies, and resources have been provided to support learning and teaching. Partnership working is key, and the Determined to Succeed strategy has been instrumental in enabling employers to input more directly to the curriculum
The Scottish Government and local authorities are working, as part of Learning for Change: Scotland's Action Plan for the Second Half of the UN Decade of Education for Sustainable Development, with Skills Development Scotland, Scottish Renewables and others to create interest in low carbon industries and support young people to develop skills for jobs in renewables and sustainability.
The transition to low carbon economy is the biggest opportunity Scotland has had for decades. Scotland has the natural resources, legislative framework, the policies, the knowledge base, the skills and the people. Scotland has the ambition.
The Scottish Government will play its full role in investment partnerships to ensure necessary infrastructure and frameworks are in place to identify the opportunities and attract international investment. However the challenge is beyond what government can achieve alone, the bulk of the investment required will inevitably come from the private sector.
Nothing less than a full commitment by all players across both the public and private sector will be necessary to ensure that the maximum benefits of a transition to a low carbon economy are realised. In doing so we can position Scotland as the destination of choice for low carbon investment and ensure that Scottish business and industry takes the lead in growing global low carbon markets.
Strategic objectives and immediate actions for government and the wider public sector to are summarised below. The following sections look more closely at the market opportunities in specific parts of the Scottish economy and specify what actions government and wider public sector are taking to support business to take advantage of the opportunities available and drive the development of a low carbon economy for Scotland.