Cost of net zero could ‘put pressure’ on Scottish budget, report warns

Reaching net zero could cost the Scottish Government an average of £700 million a year until 2050, a new report has revealed – with experts warning the higher level of public spending needed north of the border “could put pressure on the Scottish budget”.

New research from the Scottish Fiscal Commission (SFC) looked at the fiscal implications of acting to try to tackle climate change in the period up to 2050.

Chair Professor Graeme Roy was clear that the cost of reducing emissions will have “significant effects on public finances”.

He spoke out as the SFC report found that public spending on mitigation in Scotland “is expected to total £21 billion over the next 25 years”.

With the bulk of that spending expected to come from the Scottish Government, the report said that the “devolved additional public investment required could average £0.7 billion a year, in 2024 prices, from 2026 to 2050”.

Looking at the period from next year through to 2050 – when the UK is due to reach net zero emissions – the report said the additional public investment required per person is “higher in Scotland than the rest of the UK” throughout.

The SFC warned: “This higher additional spending could put pressure on the Scottish budget.”

The report stated: “Public spending required in devolved areas is expected to be 26% more per person in Scotland than in the rest of the UK between 2026 and 2050.

“The funding received from the UK Government would not be sufficient to cover the total costs of mitigation and additional funding would have to be found from elsewhere in the budget.”

Prof Roy was clear that “the long-term consequences of damages from climate change are going to be costly to individuals, the economy and public finances”.

The SFC chair added: “To reduce the damages from climate change, all countries will need to reduce their emissions. The cost of reducing emissions will also have significant effects on public finances.”

He added there would be “crucial decisions” for the Scottish Government in its upcoming climate change plan – due to be produced before the end of this Holyrood term.

That plan is expected to lay out how the government will meet the new targets for cutting emissions, set out in its carbon budget – with the proposals also required to show the costs and benefits of the policy measures put forward.

Prof Roy added: “While the level and timing of investment will depend upon the government’s plans, our report today shows that major investment is required.

“What matters for the Scottish Budget are the differences between Scotland and the rest of the UK.

“It’s clear that more investment is needed in Scotland per person, and if these costs are picked up by the Scottish Government that will have fiscal consequences.”

The SFC research comes after experts at the Climate Change Committee (CCC) said in May that reaching Scotland’s target of achieving net zero by 2045 could cost “around £750 million per year”.

According to the SFC report, the largest area of additional public investment is required to tackle emissions from buildings – with costs such as heat pump installation, the development of heat networks, and improved energy efficiency measures.

Spending on residential buildings is expected to be greater per person in Scotland than than the rest of the UK, the report said, noting that as Scotland is colder than the rest of UK its “residential buildings may require greater investment”.

The SFC also noted that Scotland also has a greater share of social housing than the rest of the UK, with the assumption therefore that that more of the costs for such properties will be publicly funded.

In transport – which the report said was expected to be the second largest area of expenditure for the Scottish Government – the report noted that Scotland currently has 7% more public electric vehicle (EV) charge points per person.

But it added: “The average journey length is longer in Scotland and locations are more remote meaning more investment is needed than in the rest of the UK to achieve public provision of EV charging and low-carbon public transport.”

Scottish Conservative finance spokesperson Craig Hoy said: “These alarming figures highlight the devastating impact on Scotland’s finances of the SNP’s drive to net zero.”

The Tory insisted: “Nationalist ministers need to get real. They can’t expect already over-taxed Scots to pick up the huge and disproportionately high tab involved in meeting their fanciful targets.”

But Jamie Livingstone, head of Oxfam Scotland, said: “While significant investment will be needed to deliver Scotland’s climate ambitions, this report highlights deep uncertainties over the price tag and who’ll pay it.

“What’s very clear is that we can’t afford to keep delaying climate action, as the cost of doing so will be far higher, from the lives and livelihoods lost due to extreme weather to rising fuel bills hitting those on low incomes hardest.”

Climate Action Secretary Gillian Martin said: “We are grateful to the Scottish Fiscal Commission for this report – which bases its findings on the Climate Change Committee’s (CCC) advice to the Scottish Government in May in its role as an advisory body rather than policy maker.

“While we have followed the CCC’s recommendations on setting carbon budget levels, the CCC were clear that their recommendations on how we stay within these limits are non-prescriptive and we have already made clear that we will not necessarily adopt all of their recommendations.

“This means the costs presented in the SFC report are based on a different set of emissions reduction pathways to those that will be costed in our draft Climate Change Plan.

“Ultimately however, if we do not take action on climate change, by cutting our emissions to net zero and preparing for the impacts of a warming climate, we know the costs to Scotland’s economy, to people’s health and wellbeing and to our natural environment will be far higher than what is costed by the SFC.”