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Professor Karen Turner 5 March 2018 |
Since the publication of the Scottish Government’s Climate Change Plan on Wednesday 28th February, the team at the Centre for Energy Policy at the University of Strathclyde have been poring over the detail of the Plan’s 208 pages (58 pages more than the draft!).
Welcome developments but much work still to do
The new Plan sets out how Scotland will reach its carbon targets out to 2032, with a suite of new Scottish Government policies designed to deliver credible emissions reductions. There is much to be welcomed in the Plan, but there is still a huge amount of work needed to turn the Plan’s vision into actual policy actions and real emissions savings on the ground. As the Plan now takes us way beyond a focus on decarbonising electricity (a very welcome and much needed move), we also need to better understand the knock-on effects across the economy of the full range of proposed climate change policies.
Do we really understand the economic impacts of the low carbon transition?
The Plan devotes significant attention to the economic impacts of the low carbon transition, including the entrepreneurship, employment and export opportunities it creates, and the need to deliver “an inclusive, socially just transition”. Low carbon innovation and growth have become hallmarks of the Scottish energy sector, which the Plan rightly celebrates. But the Plan has much less to say about the opportunities (and costs) for other sectors. It says even less about the business and commercial impacts – positive and negative – of the specific policies it sets out.
In terms of the total cost of the proposed policies, the Plan suggests cumulative GDP costs will be 1% out to 2050, compared to a ‘do nothing’ scenario. It is worth quoting in full the method used to arrive at the 1% figure:
“We have estimated the cost of meeting the Scottish Government climate change targets using TIMES. To do this, we have subtracted the system cost, out to 2050, of a TIMES model run with no targets from the cost (out to 2050) of the model run underpinning this Plan. This gives us the estimated cost of meeting our climate change targets over and above the cost of taking no action.”
This means that all the Scottish Government did was to compare the (albeit optimised) technology costs of the two pathways. Among other things, this takes no account of how suppliers and consumers may react to any resulting changes in relative prices, incomes etc.
What we really need to know are the net economic impacts
It is critical that we do more sophisticated modelling of the whole economy net impacts, including behavioural changes. Similarly in seeking to understand the co-benefits of policies, we need a more detailed and complete understanding of the economic and wider impacts of policy packages such as Scotland’s Energy Efficiency Programme or Low Emissions Zones. Some of these co-benefits may be significant, but they are likely to be varied for different parts of society and there could be unanticipated knock-on effects, both on energy use (rebound effects) and on the economic well-being of different Scottish households and businesses as prices and incomes change in response.
In terms of how we use energy, there is much to be welcomed in the Plan, including the recognition that it will be challenging to power the dramatic increase in ultra-low emissions vehicles whilst continuing to decarbonise the grid (by a further 28% up to 2032). It is not clear what amount of transport and heat electrification is assumed in the Scottish Government’s analysis - which suggests that as much as 140% of Scotland’s domestic electricity consumption could be met by renewables by 2030 (this is a lot and would seem to require changes in supply and use beyond Scotland’s borders). This just serves to underscore the size of the potential energy system changes we are about to see unfold.
New role for local communities and emissions reductions
The renewed emphasis on local energy systems is positive: “Scottish communities will be empowered by growing development of innovative and integrated local energy systems”. But it will be important not to treat this just as a technical challenge where we need to find novel ways of managing the energy system across a range of scales. Rather, it is also a profoundly social and economic challenge – to be ‘empowered’ by these new systems communities will need to actively participate in decision making and be offered opportunities to own assets, generate income and reap the economic benefits at a local level.
How can the research community help?
At the Centre for Energy Policy we are working to better understand the wider economic impacts of Scotland’s Energy Efficiency Programme (SEEP). This includes just how intended beneficiaries of programmes like Warmer Homes Scotland may be impacted not just over time, but also in the early years where they contribute (possibly with grant support) to making energy efficiency gains happen. It also includes considering how the wider economy may respond to any economic expansion triggered by people having more money to spend as they face lower energy bills – including, crucially, whether this may provide a wider ‘pay back’ to the Scottish people and public purse by supporting these programmes. We have previously blogged on how programmes to improve the energy efficiency of our housing stock may deliver sustained gains to the wider economy. Our new work will focus on specific actions under SEEP through the Warmer Homes Scotland scheme.
We believe our work is very timely. The Climate Change Plan places great emphasis on emissions reductions from energy savings in buildings. By 2032, heat demand from non-domestic and domestic buildings will have reduced by 20% and 15% respectively, and a full 70% of heating and cooling in non-domestic buildings will come from low carbon sources. Although that figure is significantly lower in this final Plan compared to the 2017 draft, the projected upscaling of low carbon heat solutions in the non-domestic sector in only 14 years still looks challenging. The range of these SEEP-related ambitions in the Plan suggests that our SEEP economic analysis will be extremely timely and useful. It will add to the evidence base being built up by the Scottish research community, through the Energy Technology Partnership and other collaborative initiatives. For example, colleagues at the University of Edinburgh have very recently published work that evaluates pilot programmes under the Local Heat and Energy Efficiency Strategy.
A note on ‘moving the measurement goalposts’
It is worth just noting that one of the biggest differences between the 2017 draft Plan and this final Plan is in the inventory itself – the way we count emissions and removals of greenhouse gases. These shifts in the way we count effectively ‘move the goalposts’ for Government, changing how much one sector might be emitting relative to others and how much emissions reduction might be required overall to hit a given target.
Trees doing more, reducing the “burden” on other sectors
Of course, there can be good reason for shifting the way we count things. Here the changes in how the inventory is measured take into account updates in our scientific understanding of how greenhouse gases behave in the atmosphere and the rates at which they are released or absorbed by natural systems such as forests and soils. Between the time that the draft Plan was published and this final Plan, we have learned that Scotland’s trees are in fact taking up much more carbon than we thought. This means that the land use sector (without agriculture) is netting carbon off the bottom of our account throughout the 2020s. In effect, this reduces the burden on other sectors to make quite such steep emissions reductions. And it is the key reason why carbon capture and storage technology was prominent in the draft Plan from the late 2020s but is now not ‘needed’ until after 2030 in the final Plan. Maybe all this really tells us is that it is fiendishly difficult to accurately estimate greenhouse gas emissions and removals across all sectors.
However, it also reinforces the need for continuous attention to the detail of the assumptions we use in our models – and in our policy making.
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