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Proposals for a Scottish Climate Change Bill: Partial Regulatory Impact Assessment

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2. Purpose and intended effect

2.1. Objective

2.1.1. As part of its contribution to the international effort required on climate change, the Scottish Government is committed to achieving an 80% reduction in Scotland's emissions by 2050 and to place this target in statute. The Scottish Government considers this to be an integral part of its overall purpose - to deliver sustainable economic growth. To achieve this will require action on the part of every citizen and will affect the daily lives of all the people of Scotland.

2.1.2. This RIA provides background information on some of the options which are being considered in developing the proposals, and the probable impact and cost of these options. The issues presented here are linked to the questions in the Bill consultation paper. We would welcome views on the issues and options considered in this RIA, which will be amended and published as a final RIA alongside a draft Scottish Climate Change Bill. The final RIA will contain more detailed information, particularly on the costs and benefits of each of the measures proposed.

2.2. Background

International and scientific context

2.2.1. There is an overwhelming body of scientific evidence which indicates that climate change is occurring and that its main cause is the emissions of greenhouse gases ( GHGs) through human activities. The debate over the science has now moved on from whether or not it is happening to what we need to do about it on an international and domestic level. 1

2.2.2. The international community has already begun a coordinated response to the challenge. The current international agreement to reduce GHG emissions is the Kyoto Protocol in which a number of industrialised countries aim to reduce their emissions of GHGs by, on average, 5.2% below 1990 levels by 2008-2012. However, the science on climate change is now clear that GHG emissions must be reduced much further to achieve atmospheric stabilisation at levels sufficient to avoid unacceptable levels of risk and an international agreement is needed to set commitments beyond 2012. The most recent research indicates that world GHG emissions need to be reduced to between 50 and 85% below 2000 levels in order to stabilise atmospheric concentrations of GHGs and most likely limit warming to between 2.0 and 2.4ûC. 2 Scotland is committed to providing international leadership by significantly reducing its emissions.

2.2.3. The 13 th Conference of the Parties to the United Nations Framework Convention on Climate Change took place in December 2007. The conference culminated in the adoption of the Bali roadmap, which charts the course for a new negotiating process to be concluded by 2009 that will ultimately lead to a post-2012 international agreement on climate change. Ground-breaking decisions were taken which form core elements of the roadmap. They include the launch of the Adaptation Fund as well as decisions on technology transfer and on reducing emissions from deforestation. These decisions represent various tracks that are essential to achieving a secure climate future.

2.2.4. Further developments have been taking place at a European level. At the Spring European Council on 8/9 March 2007, EU Heads of Government agreed an ambitious unilateral binding target to reduce Europe's greenhouse gas emissions by at least 20% by 2020 (compared to 1990 levels) and to increase this commitment to a 30% reduction if an international agreement is reached.

2.2.5. The Stern Review on the Economics of Climate Change, published in October 2006, is another key research document. It focuses on the impacts and risks arising from uncontrolled climate change, on the costs and opportunities associated with action to tackle it, and examines the national and international policy challenges of moving to a low-carbon global economy.

2.2.6. Mitigation must be viewed as an investment now to avoid the risk that future temperature increases bring about abrupt, large scale, irrevocable climate change. The economic analysis presented in the Review calculates that a general temperature increase of 2-3 ºC, and even higher beyond the end of the century, will reduce average global per capita consumption by between 5 and 20 per cent, now and forever. The cost of stabilising emissions levels to avoid such temperature rise is estimated to be 1 per cent of global GDP.

Current domestic situation and policies

2.2.7. The 5.2% reduction in GHG emissions agreed by "Annex I" signatories to the Kyoto Protocol was a collective target agreed to by the European Union. The UK share of the EU collective target was 12.5%. The key plank for achieving the EU target is the EU Emissions Trading Scheme ( EUETS) which began in January 2005 and is the largest emissions trading scheme in the world. The scheme is mandatory for large emitters, covers almost 50% of Scottish CO 2 emissions and helps deliver emissions reductions where it is most cost-effective.

2.2.8. As part of the UK Energy White Paper published in May 2007, a proposal for a UK-wide Carbon Reduction Commitment ( CRC) was announced. It will target emissions from energy use by large commercial and public sector organisations (including supermarkets, hotel chains, government departments and large local authorities) which have mandatory half-hourly meters whose annual electricity consumption is over 6,000 MWh, generally spending over £1/2 million per year on energy. The scheme is likely to be introduced in 2010. A second joint consultation was launched in June 2007 by the Department for Environment, Food and Rural Affairs ( DEFRA), the Scottish Government and the other devolved administrations on a range of options for achieving the required emissions savings (the consultation closes on 9 October 2007). Two Scottish stakeholder seminars were held (in January and August 2007) to discuss options and scheme implementation. Scottish Ministers will decide how the scheme will be implemented in Scotland following analysis of the consultation responses.

2.2.9. The UK Government published its consultation on a draft UK Climate Change Bill in March 2007. Key elements of the Bill, introduced into the UK Parliament in November 2007, include setting targets in statute and carbon budgeting, establishing an independent committee, creating enabling powers and reporting requirement. The UK Bill was the subject of a Legislative Consent Motion in the Scottish Parliament during the current session.

2.2.10. Scotland's emissions have fallen: the latest data show that GHG emissions in Scotland fell by around 15.4% between 1990 and 2005, and at the same time our economy grew by 36%. The previous Scottish administration set out its policies to tackle climate change in Changing Our Ways: Scotland's Climate Change Programme3, published in March 2006. This, and the 1st annual report published in March 2007, 4 set out the devolved policies in place to reduce emissions and adapt to climate change.

2.2.11. However, the new Scottish Government recognises that this is not enough. Scotland emits 0.2% of GHGs, but its population is only 0.1% of the world population, illustrating the disproportionately large amount of GHGs which Scotland emits. Although the size of Scotland's emissions is very small in global terms, as a developed nation, Scotland (alongside other industrialised nations) has a moral imperative to take lead to reduce its emissions.

2.2.12. The Scottish Government sees the proposed Bill as the key driver for the achievement of greater emissions reductions. Although the Bill will not set out a programme of policies to reduce emissions, it builds a credible long-term framework of targets to ensure sustained progress.

Growing the economy

2.2.13. Tackling climate change can bring clear benefits to Scotland: new jobs, cost savings, improved local environments and sustainable economic growth. However, in order to avoid dangerous climate change in the future, Scotland - and the world - needs to achieve far more ambitious emissions reductions. This is why the costs and benefits of our target will be analysed in this document, alongside other options, and a more detailed assessment will be included in the final RIA. A Climate Change Analysts Group has been established to improve the Government's capacity to analyse the carbon impact of new policies. Stern shows that the costs of inaction are far greater than the costs of action so tackling climate change is consistent with our commitment to grow the Scottish economy. Certain policies to reduce emissions will have direct benefits to the economy such as increased efficiency, creating markets for carbon or developing new products. Further details on the costs and benefits are contained in this document, predominantly looking at global and UK-wide macroeconomic costs. More detailed evidence which will look at the costs and benefits to Scotland specifically will be contained in the final RIA as further research is carried out.

2.3. Rationale for government intervention

2.3.1. Climate Change is a real global threat. The Stern Review makes clear that if the world fails to stabilise emissions in a relatively short space of time, it "could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century... Climate change is the greatest example of market failure we have ever seen 5."

2.3.2. Climate is a public good and the market does not automatically provide the correct amount of a public good. Much economic activity results in the emission of GHGs and as GHGs accumulate temperatures around the globe increase and the climatic change that results impose costs (and some benefits) on society. However the full costs take time to emerge and, as they are not borne by the emitter, the polluter has little or no economic incentive to reduce emissions or compensate those who lose out through climate change.

2.3.3. There is a need for government intervention because the market price does not reflect the harm that GHGs cause, resulting in far more emissions than would be optimal. The targets which the Scottish Climate Change Bill will set give a clear signal to both the private and public sectors about the direction of long-term government policy to give them better certainty on which to base investment decisions. The Bill could also include measures to reduce emissions, through new regulations, new duties, new charges or new trading schemes. However this work is at an early stage and there are not yet any firm proposals. Any such measures would be consulted on separately.

2.3.4. Scotland has already achieved a significant reduction in emissions - a 16% reduction in GHG emissions below 1990 levels. However a sustained reduction is needed over the long term. There is a need for a framework for climate change action which goes far beyond the four year Parliamentary cycle. This Bill, with mandatory targets to 2050, is designed to do that. It should provide greater clarity for business and industry in Scotland to effectively plan and invest in the technology needed in order to move towards a low carbon economy.

2.3.5. The lack of an already agreed framework for international cooperation post-2012 does not mean that Scotland must wait for an international agreement on how to achieve a stabilisation in GHG concentrations. The UK Government has introduced a Bill that includes a statutory 60% target for the reduction in CO 2 emissions by 2050, but there is already pressure to increase that target. Having a separate Scottish Bill allows a framework to be designed to suit Scottish-specific circumstances, and provides the means for the Scottish Government to demonstrate greater ambition and moral leadership to the international community.

2.3.6. The Scottish Government realises that legislation alone is not enough to reduce our impact on climate change and must be combined with a comprehensive programme of policies to induce change. But much work will also need to be done outside government, whether by businesses or by the citizen, and will need to be the result of a fundamental shift in attitudes and behaviour - a shift which is already beginning to be visible today in Scotland.