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A Low Carbon Economic Strategy for Scotland: Scotland - A Low Carbon Society

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Section 2 - Sectoral Focus

2.1 Transformation Across the Whole Economy

Demonstrating leadership, through behaviour change, adopting new practices and supporting innovation and new technologies, will give Scottish business and industry across the whole economy a significant role in shaping and delivering a low carbon future for Scotland. Building on natural advantages and academic strengths to focus innovation and development will offer the potential for new competitive advantage for Scottish firms and a means of increasing prosperity within environmental limits.

This section outlines the strategic objectives which relate specifically to the development of sustainable businesses and industries, and to supporting low carbon innovation across the whole Scottish economy. Wider issues relating to energy, transport, the built environment and Scotland's resources are dealt with in other parts of section 2. Immediate actions for government and the wider public sector are outlined in section 1.3 of the strategy.

The Low Carbon Transformation

Countries such as Denmark, Germany and Sweden occupy leading positions in global low carbon markets, principally since they adopted emissions reduction targets coupled with a strong public policy framework that aggressively promotes investment in 'green' products and services. The ambition of the Low Carbon Economic Strategy is similarly to help Scottish companies exploit 'first mover advantage'.

Figure 5: Global green technology strengths and job creation record, 200945

Rank

Country

LCEGS Strengths

1

Denmark

Wind, energy efficiency

2

Germany

Solar, green building, smart grid

3

Sweden

Energy efficiency

4

UK

Tidal/wave, vehicles, knowledge

5

Israel

Water, vehicles

6

Switzerland

Hydro, smart grid

7

US

Renewables, sustainable biofuels, green building, smart grid

8

UAE

Renewables, green building

9

China

Solar, wind, vehicles, green building

10

Canada

Hydro

Scotland is well-placed to benefit given the comparative advantages provided by its natural assets, research excellence and competitive strengths. 'Business as usual' is not a viable option in the future, given forecast global population growth and increasing consumption trends in addition to the impacts of climate change. Market leaders are reducing emissions in their products, services and supply chains and already seizing low carbon opportunities in response to a combination of drivers and barriers, outlined below, to better their competitors.

The potential scale of economic opportunity for Scotland is huge but it is not guaranteed, unless the market is competitive and ahead of developments elsewhere, particularly as it is reliant on international investment to ensure the long-term sustainability of existing business and to benefit fully from the new market growth, the pace of the low carbon transition needs to significantly accelerate.

Barriers

  • lack of awareness and understanding of business opportunities, benefits and financial returns;
  • perception of bureaucracy/over-regulation;
  • lack of knowledge around technologies, market intelligence and funding support;
  • perceived risk and cost of investment;
  • access to finance/investment;
  • constraints on skills and leadership capacity to address opportunities;
  • behaviour change (staff, customers, suppliers, leaders, shareholders); and
  • unwillingness to invest owing to perceived poor payback from investment in R&D, innovation and workforce skills.

Drivers

  • higher and more volatile energy prices;
  • reduction in business costs from resource efficiency;
  • depletion of fossil fuels, minerals and other resources;
  • environmental benefits from using resources more sustainably;
  • rapid growth of emerging markets;
  • supply chain pressures to lower carbon emissions;
  • growing customer demands;
  • Government regulation and incentives;
  • climate change impacts and international market opportunities; and
  • moral imperative.

Dealing with uncertainties

The transition to a low carbon economy heralds an exciting but challenging economic, social and environmental transformation. We know where we want to get to in terms of carbon reductions. We know that we want our businesses and communities to prosper and benefit on the way. However, there will be many uncertainties on this journey. Some technologies will prove less effective than expected, and other may be more so. Disruptive technologies may have unintended consequences.

Communities and businesses may not behave in a way expected; habits often drive attitudes and behaviours in ways that are hard to anticipate. In many sectors we will have to consider how best to run two or maybe three 'systems' at once as we move from high carbon to low carbon energy sources and behaviours. This may mean accepting, but seeking to minimise as far as is practicable, redundant expenditure as we transition through different stages of the transition to a low carbon Scotland. It will also require individuals and businesses to make investment choices without knowing for example, which technology will eventually prevail.

There will be new pressures on hitherto underutilised resources. Low carbon materials such as rare minerals and metals may be controlled by countries in unstable parts of the world. Scotland takes seriously the protection of its precious natural biodiversity. Healthy biodiversity provides both essential eco-system services such as clean water for people and pollination for agriculture, as well as being an essential in limiting the impacts of climate change such as flooding, erosion and landslides. It will be necessary to continue to develop an understanding of the relationships between the natural world and use of its resources in the transition.

Long-term trends and unexpected external shocks will also impact on the transition. These include our aging population, demographic changes in both Scotland and globally, and the movement of both human, animal and plant diseases. Commodity prices, and droughts and floods in major food producing countries will have impacts on Scotland.

The indirect consequences of global impacts of climate change may have the greatest impact on Scottish businesses many of which rely heavily on extended global supply chains. Many of these supply chains extend into countries that may experience significantly more severe impacts of climate change than experienced in Scotland. Recent experience in the financial markets illustrate how globalisation has the capacity to rapidly transmit risk and threat across international borders and jurisdictions. Scotland's open economy and businesses large and small may be exposed to strategic risk from global climate change impacts disrupting global supply chains, eroding key markets or creating new scarcities of critical materials or components.

Dealing with uncertainty is challenging but it is not impossible. Scotland has expertise in a range of sectors that are already being drawn together to work through these issues and enhance our strategic preparedness. The Scottish Government will seek to raise awareness of the strategic challenges associated with the low carbon transition and work with key stakeholders to better understand the implications for energy, environment, health, food, transport, resilience, education, water-amongst others. Scotland has the capacity, skills and imagination to effectively take advantage of opportunities, mitigate threats and manage the consequences.

The emerging low carbon future requires our immediate attention, by building resilience into our systems, investments and objectives, using a 'no-regrets approach', we can capitalise the 'transition to a low carbon Scotland in a low carbon world.'

Economy-wide market opportunities

Opportunities exist across the whole Scottish economy for every business and industry to adapt to and exploit low carbon markets, and these should be reflected in strategic planning, business plans and industry-led strategies. The Scottish economy can benefit most by focusing its efforts on the highest priority opportunities, set out overleaf.

Business Opportunity

Action required by business

Information, awareness & knowledge sharing

Access information and advice on the business benefits of sustainable business practices. Share and adopt good practice to promote wider action.

Product design

Adopt a closed loop approach to reduce carbon and waste from the product lifecycle.

Resource efficiency

Embed resource efficiency into business culture to significantly reduce operating costs.

Sustainable procurement

Work with suppliers to encourage and adopt sustainable procurement practices.

Reputation and marketing

Reflect sustainability in business branding, marketing and customer/stakeholder relationships to help provide reputation advantages.

Sustainable business models

Undertake a strategic business review (including: R&D, design, lifecycle analysis, procurement, supply chains, brand identity, sales, risk management) to identify opportunities for business model innovation.

Adaptation to climate change impacts

Increase business resilience, seize opportunities and integrate climate change adaptation into existing business processes (eg strategic planning, business continuity and risk management).

Innovative behaviours

Adopt flexible, creative, adaptive approach embracing change and continuous improvement in sustainable business performance.

Figure 6

Reducing overall demand for energy, water and other materials should be the first priority for all businesses, followed by measures to use resources more efficiently. Using less energy has an immediate benefit in reducing business costs and boosting profitability and productivity. For example, it is estimated that a £1,000 saving in energy bills is the equivalent of generating an additional £20,000 to £30,000 in sales 46. Reducing water use also provides tangible savings since businesses pay for water usage as well as using energy to heat water as well as enhancing business resilience.

Research by the Waste Resource Action Programme ( WRAP) in 2009 highlighted that 'quick wins' in resource efficiency could deliver 10% of the carbon reductions needed by 2020. It is estimated that businesses collectively lose 2% of annual profits through the inefficient use of energy, water and waste. Over 90% of the materials used in production do not find their way into the final product and companies might spend up to 5% of their annual turnover on waste, including unused materials, defects, energy and water. Embedding resource efficiency into business culture can provide significant opportunities to reduce operating costs, gain access to new markets for resource-efficient products and services and to reduce environmental impact. Overall, the UK is missing out on potential savings of £6.4 billion a year from resource efficiency business benefits from sustainable resource management. www.eef.org.uk47

Every business can look to change its procurement approach, focusing on sustainable products and services. A thorough risk management approach will help companies scan ahead for future risks and opportunities, spotting potential emerging market trends and being prepared for potential difficulties in global supply chains and resource scarcity. This will improve the resilience of Scottish businesses in the face of the uncertainty of future climate change trends and enable them to adapt more creatively to the opportunities. Ultimately, embracing the low carbon opportunity in every business across all sectors will enhance the reputation of Scottish companies amongst their customers and establish Scotland's reputation globally as a leading player in the low carbon economy, as many Scandinavian counterparts have achieved successfully in the last two decades.

Rabbie's Trail Burners Ltd is Scotland's leading small group Highland tour company. Sustainability is core to the ethos of the business and is central to its success. Rabbie's Trail Burners has developed Key Performance Indicators ( KPIs) for measuring environmental performance, including energy consumption, waste production and fuel usage. These are monitored on a monthly and annual basis and where possible steps are taken to adjust performance. Rabbie's also reports on their carbon footprint to the Scottish Business in the Community May Day Network. Overall, significant environmental and economic improvements have been achieved including:

  • 30% reduction in office carbon
  • 21% reduction in customers carbon footprint
  • 30% saving in electricity (£748) and virtually no waste sent to landfill
  • Increased customer numbers by 20%, leading to a 50% increase in profitability
  • Increased business to suppliers; an 18% increase in bednights in the Highlands and Islands region is estimated to be equivalent to 27 full time jobs of local residents.

Resource efficiency strategies also pose wider implications for businesses. Across the UK, for example, construction firms spend an estimated £1.5 billion on over-ordered materials. Eco-design, lean manufacturing, a 'closed-loop' approach and moving to service-based business models (including hire/lease markets) all represent ways in which materials consumption can be 'designed out' of business processes. The diagram below demonstrates how a closed-loop approach improves efficiency by minimising the extraction of virgin raw materials, reducing energy in product use and resulting in zero waste to landfill.

Figure 7: Closed loop approach

Figure 7: Closed loop approach

To deliver the low carbon economy, business and industry will require new and innovative technologies to help meet the Climate Change challenge, whilst maintaining and enhancing the quality of the environment. As mentioned previously, significant economic opportunities also lie within LCEGS, and specifically in the Environmental and Low Carbon technology sub-sectors. Scotland's particular strengths are in the areas of: sustainable building technologies; sustainable transport technologies; environmental monitoring and instrumentation; water supply and waste water recycling; and recycling and recovery and waste management sub sectors.

Working closely key stakeholders in particular with Local Authorities and Business Gateway, the Scottish Government, Enterprise Networks and SEPA, The Environmental Clean and Technology Partnership48, will provide targeted and co-ordinated support to those environmental and low carbon technologies where Scotland has international competitive advantage and that will help businesses: save money by adopting sustainable, resource efficient and environmentally compliant business practices; make money by exploiting opportunities in the development of new and innovative low carbon & environmental technology solutions; manage risk through the avoidance of future cost relating to non-compliance or failure to achieve future environmental standards; and establish Scotland as a leader in the global Low Carbon Environmental Goods and Services sector.

Digital technologies are also playing a transformational role in our economy, widely recognised as an enabler of business productivity, a driver of innovation and international trade, they will allow our creative industries to prosper and provide a means to minimising exclusion of geographically remote communities. Digital technology will also be an integral part of our transition to a low carbon economy. In many sectors, it will act as an enabler for carbon savings, for example, by facilitating the replacement of goods and services with virtual equivalents, by providing technology to enable energy efficiency, and by offering virtual technologies such as online shopping, teleworking and remote communication. The Scottish Government recently set out our ambition for Scotland's digital future and we will follow this up with a more detailed strategy and action plan before the end of 2010.

Ultimately, all Scottish businesses will assume innovative behaviours, responding creatively to the challenges and opportunities of the low carbon economy, requiring strong leadership across all parts of the organisation, taking a 'can do' attitude towards adopting low carbon technologies to ensure low carbon becomes an integral part of business culture. The 2020 Climate Group' 49 is driving forward such an innovative approach, and is made up of around 20 leading figures from all walks of Scottish life, with expertise and influence, who have a strong contribution to make to delivering action on the climate change agenda. It is working to accelerate development, investment and action, and create the conditions under which Scotland's ambitious targets for climate change and the low carbon economy can be most effectively delivered.

Chemical Sciences Scotland

The 2020 Group recently explored the implications of the low carbon transition with Scotland's chemicals sector, identifying potential opportunities and risks. A strategic view was taken, using scenario planning as a tool for managing the global uncertainties and to identify ways to help sustain the industry's competitiveness, investment and employment in Scotland.

Key implications include the need to simultaneously increase manufacturing process efficiency for current fossil fuel-based products as well as investing to increase Scotland's strategic assets and capabilities in relation to 'bio-based' products. Chemical Sciences Scotland, the industry-led leadership group, will identify the specific responses needed as part of its industry-wide strategy refresh in late 2010.

Sector-specific opportunities

Clearly, there are huge opportunities for sectors such as Energy, Built Environment, Transport, and land and natural resource-based industries (dealt with in the following sections). For the wider economy, there are also significant opportunities in all other sectors. The main opportunities likely to arise are illustrated in Figure 8 below:

Industry

Priority market opportunities

Environmental and Clean Technologies ( ECT)

Sustainable Transport, Building Technologies, Recovery and Recycling, Water and Waste Water Treatment, Environmental Monitoring and Instrumentation. Reprocessing of valuable resources as we move towards a zero waste society.

Food and Drink

Waste management & re-use (eg anaerobic digestion); sourcing for environmental benefit; reducing carbon in supply chains and logistics; promotion, branding and labelling; generating heat/electricity from distillery and manufacturing co-products, creating and matching consumer expectations for green products, reduced cost, increased competitiveness, marketing advantages.

Tourism

'Green' tourism products and services, tourism promotion.

Chemical Sciences

Renewable fuels and bio-based feedstock and clean technologies/processes.

Aerospace

Lighter and more fuel-efficient aircraft materials/technologies.

Textiles

Functional textiles with higher tolerance/resistance to heat and water; resource efficiency.

Forest Industries

Wood fuel and biomass for renewable heat and power; locally-sourced timber for construction; carbon sequestration.

ICT

Data centres, energy management, video conferencing, next generation broadband and adoption of Voice over Internet Protocol ( VOIP) technologies.

Financial Services

Green financial products, risk management services and carbon trading.

Life sciences

Sustainable health, telehealth and clean technologies.

Construction

Planning, design and construction of long-life infrastructure and the retrofit of existing infrastructure.

Agriculture

grow wider range of crops, ability to produce new plant/ animal based products leading to greater income generation.

Technical/advisory services

Consultancy advice across all of these sectors.

Figure 8

Opportunities in the domestic market

Meeting the growing demands of domestic markets will provide environmental benefits and promote greater economic and structural resilience, particularly in a period of sluggish economic recovery. Improving the energy efficiency of homes and commercial property, for example, also provides job-rich investment in the construction sector.

Climate change adaptation for the Food and Drink industry

SE, SEPA and SNH facilitated a workshop to explore how climate change might potentially shape the future of the Scottish Food and Drink industry and to help inform industry and business responses. While climate change is initially expected to bring mixed effects (including some benefits such as reduced demand for heating, increased crop yields and increased forest growth), its negative impacts (such as more frequent winter floods, endangered ecosystems and increasing ground instability) are likely to increase over time. Key themes explored:

  • the growing importance of food security;
  • an increase in the proportion of food grown and processed locally;
  • the likely increased intensification of agricultural production;
  • global competition and climate change combining to urge Scotland to focus on product areas where it has genuine comparative advantage;
  • pressures to reduce carbon emissions right across supply chains;
  • the increasing importance of innovation and technological developments to industry competitiveness.

The industry is now addressing this issue through its refreshed strategy - Fresh Thinking - by promoting stronger sectoral collaboration, stimulating greater innovation and business adaptation to climate change impacts, reducing carbon impacts in logistics and distribution networks and prioritising resource efficiency and skills development in the short-term.

Opportunities in global markets

While every business will need to adapt to the low carbon economy, however, it is the sheer scale of global markets that are likely to yield the greatest economic returns to Scotland. As a small, open economy, Scotland's low carbon economic strategy must also focus on export-oriented markets that exist for each sector that will drive long-term sustainable growth. Scotland's whisky, green tourism and environmental consultancy sectors, for example, offer great potential for future growth.

Strategic objectives for government and the wider public sector

Section 2.1 sets out the four strategic objectives, previously outlined in section 1.3, for government, and the wider public sector. These are aimed at supporting businesses and directing the focus towards investing in innovative new technologies and behaviours. Immediate actions for government and the wider public sector are outlined in Section 1.3.

Objective 1: Sustainable and resource-efficient businesses. Helping all businesses in Scotland become more competitive by using resources more efficiently, making proactive adaptations to climate change impacts and generally adopting sustainable business practices.

Sustainable, low carbon thinking goes beyond resource efficiency and requires business leaders to consider every aspect of their operations including transport, buildings, supply chains and purchasing.

Increasingly procurement of products and services are demanding sustainable solutions, in the private sector large organisations are demanding 'green credentials' from their supply chains and financiers are looking for 'green investment opportunities'. In Scotland public sector procurement will become more and more driven by a focus on sustainability. The Climate Change (Scotland) Act 2009 allows Ministers, by order, to require public bodies to prepare reports on their compliance with the Public Sector Duties introduced by the Act. This will include information relating to how their procurement policies and procurement activity has contributed to compliance with climate change duties. The Scottish Sustainable Procurement Action Plan50 provides a 10 step methodology for making sustainability part of everyday procurement 51 underpinning the focus on sustainability.

It is clear that proactive companies that position themselves to meet the public sector and broader, demand arising from a direction of travel to a low carbon economy are increasingly likely to become more competitive, particularly where they embrace sustainable, low carbon approaches. These companies are also inherently more resilient to the impacts of a changing climate. To accelerate the low carbon transition, sustainable business practices need to become the norm, regardless of size or sector.

Objective 2: Sustainable and competitive industries.Supporting Scotland's industries to exploit low carbon business opportunities to accelerate industry growth, build low carbon supply chains, diversify into new markets and technologies and promote long-term ambition and resilience.

The scale of funding required for new infrastructure and technology development is very significant and in a period of economic austerity, the public sector share the risks with private investors to increase access to finance for long-term return.

Large-scale, emerging global opportunities provide real potential to drive long-term sustainable economic development. To benefit, Scotland is positioning itself as a low carbon leader, attracting global investment and talent by pursuing a strong, stable policy and regulatory approach. This will enable a growth in exports of Scottish knowledge, expertise, products and technologies from companies and the research base e.g. in the fields of waste, recycling, waste water treatment and recycling, and energy management and environmental monitoring, sustainable transport and sustainable buildings technologies and consultancy.

Not only is competitive advantage being gained by individual firms in exploiting emerging low carbon opportunities but Industry Advisory Groups, supported by other industry bodies, are providing leadership and direction to enable their supply chains to diversify and adapt.

The transition to a low carbon economy will also require a shift in emphasis in skills development across a whole range of skill sets, not least that of creativity, management and leadership in Scottish Businesses. Employment opportunities will be created at all levels. For instance the Government's Energy Efficiency Action Plan commits to assessing the skills needs required to make the necessary improvements in energy efficiency to the built environment that will help to meet our climate change targets, and to keep Scotland's workforce competitive in the low carbon economy.

Investment in leadership and skills development, together with broader education and awareness-raising, is required to encourage a step-change in behaviour among business leaders, employees and individuals.

The Scottish Government's refreshed Skills Strategy, developed with COSLA, has a strong focus on the opportunities for Scottish business to develop new markets and grow existing ones, whether in key sectors such as energy or other areas with high levels of employment such as construction.

Low Carbon Skills Fund has been established to provide access to sector specific training to help improve business performance, efficiency, and the adoption of improvement processes around low carbon. In the first instance the fund will be restricted to employers with 250 employees or less, who are implementing processes around low carbon. In order to structure this pilot phase of skills funding, SDS is drawing on the Renewables Action Plan, and the Energy Efficiency Action Plan in order to prioritise skills and training interventions. The initial focus will therefore be on Energy Efficiency and Built Environment skill needs.

The type of training/qualifications that are eligible for support include:

  • Construction and eco-materials, in relation to energy and water efficient buildings and infrastructure, renovations and retrofits, and the installation and maintenance of efficient appliances and machinery, including insulation and building treatments;
  • Microgeneration, including Solar Water and Heating, Ground Source Heat Pumps, and energy saving technologies and management;
  • Materials to improve product performance;
  • Environmental and Technology Services;
  • Offshore/onshore wind technician training;
  • Business Improvement Techniques in waste stream reduction/treatment/management;
  • Effective use of sustainable raw material.

Delivering learning in a workplace setting will also become increasingly important as much of the skills requirement will be met by adaptation of the existing workforce, requiring private sector skills investment. In response, the Scottish Government will continue to direct public funds, to incentivise, encourage and pump prime training in key areas.

Local Authorities, SDS and the SFC, along with colleges and universities and schools make sure that learning which is offered is consistent with current and future employer needs.

The strategy outlines that a renewed focus on improving Scotland's leadership and management skills is a priority to increase productivity and growth in Scotland. Progressive and innovative leadership and management and employee trust and motivation are the key factors that enable the introduction of meaningful and sustainable workplace practices that enable people to perform at their best. Scottish Enterprise is developing with key agencies and stakeholders a framework for action for leadership, management and ambition to provide a clear strategic direction and a coherent approach across Scotland, which will recognise the leadership challenge Scotland's faces in its transition to a low carbon economy.

Objective 3: Supporting the right innovative low carbon technologies.Ensuring Scotland capitalises on its natural advantages, the natural environment and the expertise of leading researchers, future support for low carbon innovation should be focused on areas where Scotland can secure maximum competitive advantage.

Research, development, demonstration, and delivery ( RDD&D) and innovation are essential in developing lower-carbon products and technologies and Scotland's research and innovation support needs to reflect our ambition.

The overall objective of low carbon innovation must be to maximise the long-term benefit to Scotland by securing competitive advantage in the technologies where Scotland can be global leaders, as well as leading to an absolute reduction in greenhouse gas emissions from, or improving the carbon intensity of, an activity. It is about identifying the right innovative low carbon technologies, and ensuring that public sector support is aligned to realise the potential.

The Committee on Climate Change ( CCC) 52 recently reviewed the UK's current innovation arrangements for low carbon technologies and concluded that support needs to be focused on those technologies where the UK can genuinely lead globally across the whole RDD&D chain:

Offshore Wind; Marine; Carbon Capture and Storage ( CCS) on power generation; Smart Meters/Smart Grids; Electric Vehicles; Aviation Technologies.

These are the technologies which are necessary to ensure that Scotland and the UK meets the 2050 climate change targets, and have to be developed during the next decade to be ready for deployment post-2020.

Scotland has particular research strengths and is already a leader in Offshore Wind, CCS, Marine and Smart Grids across universities. CCS, Wind and Smart Grids are already technologies which are at the heart of the EU's Strategic Energy Technology Plan 53 for demonstration via European Industrial Initiatives 54. The Scottish Government and UK Government are also lobbying, with support from the Scottish European Green Energy Centre, for an additional European Industrial Initiative for the Marine sector. Scotland also has essential underpinning science and our engineering excellence needs to drive continued innovation.

These technologies will be crucial for achieving our commitment to decarbonise the power generation sector by 2030, and we need to focus on demonstration and deployment of these technologies during the 2010s, to realise their potential for deployment in the 2020s. The Energy Technology Partnership and the Scottish European Green Energy Centre are already focussing support in these areas.

The Scottish Carbon Capture & Storage Centre ( SCCS) is the largest CCS research grouping in the UK and is an example of an effective academic-industry-government partnership, funded by the University of Edinburgh, Herriot Watt University, the British Geological Survey, the Scottish Funding Council, Research Councils UK, the Scottish Government, SEPA and Scottish Power.

SCCS is a world-class centre of expertise in CO 2 storage evaluation and injection, using petroleum and hydrocarbon geoscience, and augmented by industrial scale chemical engineering, next-generation carbon capture and innovative CO 2 use, combined with rare expertise in power plant design and operation. The centre has the capacity for a full evaluation of business concepts and technology innovation appraisal.

SCCS comprises experimental and analytical facilities; expertise in field studies and modelling; key academic and research personnel, to stimulate the development of innovative solutions to carbon capture and subsurface storage. It also undertakes strategic fundamental research, and are also available for tactical consultancy. In addition, it performs a key role in providing impartial advice to help industry, the public sector and policy makers.

The CCC innovation review 55 argues that by supporting their research and development now, the UK has the potential to take a leading role in development of '3rd generation technologies'. These are technologies that are further from the market and where no country has yet taken the market advantage, including: 3rd generation Solar Technologies, new Electricity Storage Technologies (e.g. advanced batteries, super-capacitors, superconducting magnetic energy storage), Hydrogen Fuel Cell Vehicles, Advanced Sustainable Bio-energy, Agricultural Technologies and Industrial and Building Technologies (low carbon cements, biogas, anaerobic digestion, marine bio-energy). The public sector will work with UK and EU funding programmes and industry to bring world-leading university research in areas such as hydrogen fuel cells to demonstration and deployment.

We must identify, develop and nurture the areas where Scotland shows emerging strength and ensure innovation, research and development support is appropriately targeted.

Objective 4: Funding technological innovation. Developing the key technologies for demonstration by refocusing and reprioritising innovation support going forward. Given the difficult funding context for the public sector over the next decade, it is essential that Scotland maximises competitive advantage by focusing support on those technologies where there is greatest chance of success.

This means finding new ways to assess the low carbon impact of projects across the whole economy that receive innovation support via the Enterprise networks, and the research activities that are supported by the Scottish Funding Council. It is also requires maximum leverage of external funding from the UK (the Technology Strategy Board and Energy Technology Institute) and the EU (Framework Programmes, European Industrial Initiatives & New Entrants Reserve).

The CCC review of innovation support concluded that there remains a key role for public funding for low carbon innovation, given the market failure to incentivise the development of low carbon technologies. It argued that greater support should be given for low carbon innovation through reprioritisation, with current levels of support maintained as an absolute minimum.

By focusing on the areas where Scotland has particular strengths, we will ensure we have the greatest potential to secure long-term advantage in global markets.

Figure 9

Figure 9

The Scottish Government wants to underpin this activity through the establishment of industry-academic-government hubs for the key energy technologies, coordinated by the Energy Technology Partnership ( ETP) 56. The ETP already provides the research pooling in Energy across Scotland's universities, giving the critical mass to Scotland's researchers necessary to engage in industry and international collaboration and to compete effectively on an international stage.

The Scottish Government is supporting the ETP in its bid to secure support from the Lowlands & Uplands Scotland European Structural Funds Programme to establish these new hubs, which will focus on knowledge exchange, commercialisation, business support and SME engagement across the supply chain. They will help position Scotland's companies and universities to work more effectively together to realise the benefits of collaboration and secure additional investment from European Framework programmes and UK funders such as the Technology Strategy Board and the Energy Technologies Institute. The ETP will also work with the Energy Research Affiliate Forum to maximise interdisciplinary opportunities with other Scottish Research Pools.