Strategic Research Programme 2011-2016: economic impact

10 Environmental Benefits

Approximately 30% of the resources provided through the 2011-16 SRP were allocated under the "Environmental Change" programme. Although the principle aims of this research were environmental, the research will also have important economic effects. These effects arise when research leads to the:

• preservation of natural resources that are valuable in their own right or help to underpin the activities of important sectors of the Scottish economy;
• avoidance of environmental reinstatement costs and (potentially) fines associated with illegal damage to the environment; or
• realisation of the commercial value of previously unexploited or underexploited natural resources (such as oil or water for example).

In most cases these effects arise indirectly as a result of research being used to inform the development of public policy or industry practice and often the benefits of the research are intangible and difficult to quantify.

10.1.1 Economic Impact of 2011-16 SRP Environmental Research

The 2011-16 SRP has helped to deliver a wide range of environmental benefits. It is beyond the scope of this report to identify these benefits but interested readers are referred to the end of programme reports produced for each of the two main research themes and in the annual Spotlight and Highlight publications produced by the MRPs and the Scottish Government.

It is likely that many of the environmental benefits realised through the 2011-16 SRP will have benefited the Scottish economy in some way but the indirect nature of the benefits means that in most cases quantifiable evidence of this is not readily available. This report therefore focuses on just two areas where it is possible to identify tangible economic benefits:

• reductions in emissions; and
• avoiding the costs associated with species translocations.

Both of these examples are considered in the case studies below.

Case Study 10‑1 - Reducing greenhouse gas emissions

In 2009 the Climate Change (Scotland) Act established a legally binding target for the Scottish Government to reduce green house gas ( GHG) emissions by at least 80% (from 1990 levels) by 2050. Agriculture is currently the third largest source of GHG emissions in Scotland, accounting for nearly 23% of total Scottish emissions in 2014. To help achieve the targets set out in the Act, the Scottish Government has therefore set a specific target to reduce GHG emissions from agriculture by 10% by 2020. Funding provided under the 2011-16 SRP has enabled the MRPs to engage in various projects that have made - or have the potential to make - a significant contribution to achieving this target.

Scientists funded by the 2011-16 SRP have for example contributed directly to the development of the Scottish Government's Beef Efficiency Scheme. The Scheme uses data collected from farmers about the performance of their herds to develop new approaches to genetic selection and management practice that will help farmers to improve herd efficiency. Improving herd efficiency will not only improve overall profitability but will also reduce emissions from beef production. Although the full impact of the Scheme will not be realised for several years it has been estimated that the scheme could reduce GHG emissions by the equivalent of 270,000 tonnes of CO ₂ over a 10 year period.

Scientists funded through the 2011-16 SRP have also contributed directly to the development of a GHG budget for the agricultural sector. This research identified approximately 10 Mt CO ₂ equivalent that, under ideal conditions, could be mitigated from the agricultural sector by 2022. The research findings provided a basis for developing a voluntary target of around 3 Mt CO ₂ equivalent that was agreed between DEFRA and the agricultural sector. The potential value of this saving is significant. Using the UK Government's Department for Business Energy and Industrial Strategy benchmark carbon values, the scientists responsible for the research have estimated that it could be equivalent to £250 million worth of avoided climate damages.

Source: BiGGAR Economics

Case Study 10‑2 - Conservation translocations

MRP scientists have played a leading role in developing national and international guidelines for conservation translocations. Conservation translocations involve the deliberate movement and release of plants, animals or fungi into the wild for conservation purposes. They are particularly important given that human induced habitat loss and degradation have caused population size reductions and local extinction in many species. As well as this, climate change is leading to environmental conditions becoming unsuitable for many populations in their current locations and conservative translocations can serve to offset these losses.

However, moving species has a number of potential risks. Translocation can create problems for other species or habitats, for example through competition, disease transmission or genetic swamping. There can also be negative effects for humans if the translocated populations cause health problems or negative impacts on livelihoods and leisure. It is estimated that 20-30% of all introduced species worldwide cause a problem.

In particular, non-native species can have a direct cost to the economy, through control and eradication costs, structural damage to infrastructure or loss of production. For example, Scotland's natural environment supports the game and fishing industry, provides a unique destination for tourists and is the source of high-quality food and clean water supporting the food and drink sector. Any threat to Scotland's natural environment therefore has the potential to cause production losses across all of these sectors.

To promote best practice and to maximise the benefits while minimising the potential harm of conservation translocations, MRP scientists co-authored the 2013 International Union for the Conservation of Nature's ( IUCN) Guidelines for Reintroductions and Other Conservation Translocations. These guidelines have become the international standard and were used as the basis for the Council of Europe's Conservation Translocations under Changing Climatic Conditions recommendations. The MRP involved then led the authorship of The Scottish Code for Conservation Translocations, the first national implementation of the new IUCN guidelines. By developing best practice for conservation translocations, the MRP has created an international, and national, standard for translocations helping to minimise the potential risks and associated economic costs whilst maximising the potential benefits.

This research was published in 2013 so the benefits it is likely to generate are unlikely to have been fully realised yet. To illustrate the potential scale of research in this area it is however instructive to consider that it has been estimated that the total loss to the world economy as a result of invasive non-native species is around 5% of annual production (i.e. the total value of the goods and services produced) ^[27] . By contrast, the cost of invasive non-native species to the Scottish economy has been estimated at around 0.2% of total Scottish gross domestic product ( GDP).

Source: BiGGAR Economics

10.2 The Value of Scotland's Natural Environment

The two case studies in the previous section highlight two areas in which research funded through the 2011-16 SRP has made a direct contribution to protecting Scotland's natural capital and the ecosystem services it provides. Assessing the value of ecosystem services in monetary terms is inherently difficult because most are not traded on the open market. There is however a clear consensus that ecosystem services are vital for human development and play a key role in underpinning the economy.

Over the past 15 years there have been two major studies that have attempted to quantify the value of Scotland's natural environment and the ecosystem services it provides.

The first was undertaken in 2002 by SEPA and sought specifically to estimate the value of ecosystem services in Scotland. This research found that while it is impossible to put a monetary value on some ecosystem services, those that could be measured were worth around £17.2 billion/year. This work was updated in 2012 in order to produce a revised estimate of between £21.5 and £23 billion/year to the Scottish economy ^[28] .

The second major study was commissioned by Scottish Natural Heritage in 2008 ^[29] and attempted to quantify the value of Scotland's natural capital by considering the role that a high quality natural environment plays in supporting various sectors of the Scottish economy. This research showed that 11% of Scotland's total economic output depends on sustainable use of the environment, which was worth £17.2 billion a year to the Scottish economy (coincidentally the same value estimated by the earlier work published by SEPA in 2002). This study also estimated that the natural environment supported one in seven of all full time jobs in Scotland.

Although not directly comparable, the magnitude of the impacts described in the two studies serves to illustrate just how valuable Scotland's natural environment is to the country's economy. Given that Scotland's natural environment is such a valuable economic resource efforts to protect it must therefore also have an economic value.

Responsibility for designing, implementing and enforcing the policies that make up Scotland's system of environmental protection rests with the Scottish Government, which funds the various public agencies tasked with protecting Scotland's natural environment. The policies, regulations and procedures implemented by these agencies are in turn underpinned by research evidence, much of which is provided by the MRPs. The MRPs therefore play a key role in ensuring that appropriate measures are in place to protect Scotland's natural environment.

10.3 Assessing the Benefits of Environmental Research

Assessing the economic benefits of environmental research is challenging for a number of reasons, not least of which is that the benefits of environmental research are often indirect and may occur over a very long period of time. Much environmental research is also focused on delivering outcomes that simply cannot be quantified in monetary terms - such as greater biodiversity or improved environmental quality.

The challenges of measuring the economic returns to environmental research are widely recognised in the economics literature and there is no clear consensus about the best approach for doing this. In attempting to assess the benefits of environmental research supported by the 2011-16 SRP a number of alternative approaches were therefore considered.

10.3.1 An Insurance Based Approach

The first approach considered was an insurance-based approach.

In many ways Scotland's system of environmental protection can be regarded as a kind of insurance policy: by investing in this area the Scottish Government is in guarding against the costs of environmental damage that might otherwise be incurred. Economic theory suggests that the premiums paid for an insurance product should be equal to the expected value of the compensation that would be received in the event of the insured-against event. Put another way this implies that the amount that the Scottish Government is prepared to invest in environmental protection is a direct reflection of the cost of the environmental damage that it expects might otherwise occur.

Analysis of information on the Scottish Government's website suggests that in 2015/16 the Scottish Government spent £16.2 million procuring research designed to support environmental protection through the SRP. Following this logic to its natural conclusion would suggest that this therefore represents the economic value of this environmental research to the Scottish economy.

The insurance policy analogy does however have an important limitation in that the market for environmental protection is not competitive because the Scottish Government is the only customer. Unlike most insurance markets this means that the Scottish Government has a very high level of market power and can in effect determine the price of the "premium" it pays. This means that the amount invested in environmental research almost certainly underestimates the true value that this research generates for society. For this reason £16.2 million should be regarded as the minimum value that this area of research contributes to the Scottish economy.

As this method was likely to considerably underestimate the value of environmental research to the Scottish economy it was therefore rejected.

10.3.2 Comparisons with Other Countries

The second approach involved considering the economic costs of environmental damage incurred by other countries that do not have as well developed systems of environmental protection as Scotland. Specifically this approach involved developing a counterfactual scenario based on the Chinese experience and the proportion of Chinese GDP that is currently devoted to efforts to remedy damage made possible by a lack of environmental regulation. The logic for this approach was based on the assumption that if Scotland did not have its current system of environmental protection in place then it too would need to spend a similar proportion of its GDP on environmental restoration.

Using this approach it was estimated that the environmental benefits of research supported directly and indirectly through the 2011-16 SRP were worth £96.7 million GVA/year to the Scottish economy.

There are however important and significant differences between the Scottish and Chinese economies, which make this approach problematic so it too was rejected.

10.3.3 Potential Scale of Return on Investment

An alternative approach to estimating the economic value of environmental research is to consider the return on investment that has been realised by environmental research undertaken elsewhere. Evidence on the economic returns to environmental research is limited but two helpful sources include:

• research published by the European Commission ^[30] , which considered the economic benefits of environmental policy across the EU; and
• a study published by the Natural Environment Research Council ( NERC) that considered the economic benefits of natural science ^[31] .

The first of these studies considered various ways in which environmental policy in the EU has generated tangible economic benefits. One of the areas considered that is particularly relevant to the present analysis was the role of environmental policy in helping to strengthen the natural capital base. The specific policy area considered in relation to the stock of natural capital was the EU wide network of Natura 2000 sites, which exist to protect the most seriously threatened habitats and species across Europe. The study considered the economic and social value of the natural capital base (e.g. providing food, cultural and leisure resources, distinctiveness and sense of place) and how Natura 2000 sites policy had helped to safeguard that natural capital base.

The research suggests that the total cost implementing this policy area is around €6.1 billion/year and that this investment is expected to generate (direct and indirect) quantifiable benefits of around €5.2 billion/year for the EU economy and support around 207,400 jobs. This equates to a benefit/cost ratio of 0.9 and a cost/job of around £26,300.

Understanding and protecting Scotland's natural capital and biodiversity is an important focus of much of the environmental research supported by the SRP, which provides some justification for using the findings of this section of the report in the present analysis.

It would not be good practice to be overly reliant on a single piece of evidence (albeit one published by the European Commission) so a further search was undertaken to identify further research that might provide further justification for this approach. This search identified the second of the studies highlighted above, which considered the economic benefits associated with a variety of different areas of research supported by the NERC.

One of the areas considered was the economic benefits of the Global Nitrogen Enrichment programme, which focused on how nitrogen from fertilisers, livestock farming and fossil fuels moves through the environment. Understanding and identifying ways of tackling issues relating to nitrogen use and pollution from agriculture is another important focus for research funded by the 2011-16 SRP, which provides some justification for using the findings of the report to inform the present analysis.

The report suggests that NERC's investment of around £6 million in this area of work has generated economic benefits of between £7 million and £48 million for the UK economy. This implies that the benefit cost ratio of this type of research could be between 1.2 and 1:8.

So as to avoid relying exclusively on just one source of evidence the two return to investment ratios described were then combined to produce an average ratio. This ratio implied that the economic return to environmental research might - on average - be of the order of 4.43. That is to say, each £1 invested in environmental research might be expected to generate around £4.43 of economic benefits.

As discussed above, the Scottish invested around £16.2 million in environmental research through the 2011-16 SRP in 2015/16. Applying the ratio above to this expenditure suggests that this research could have generated an annual economic benefit of around £72 million for the Scottish economy. Applying the cost/job estimate described above suggests that this research could also have supported around 620 Scottish jobs.

It is however important to use caution when interpreting this result. The methodological challenges associated with estimating the impact of environmental research mean that it very difficult - if not impossible - to provide a definitive assessment of the true economic contribution of this area of research. This estimate should therefore be regarded as illustrative of the potential order of magnitude of this benefit rather than a definitive value.

That said, there is some justification for suggesting that the estimate provided above could be conservative. This is because, as discussed in section 13.2, MRP scientists have been very successful at using the funding provided through the 2011-16 SRP to leverage additional research funding. Undoubtedly a proportion of the additional funding leveraged will have related to environmental research. This means that the true value of environmental research supported by the SRP, and by extension the economic benefits associated with this research, could well be higher than estimated above.

It is also important that this substantial benefit is understood in the context of the overall value of the natural environment to Scotland's economy. The information presented above helps provide this. As discussed above, ecosystem services in Scotland are have been estimated to be worth between £21.5 and £23 billion/year. The figures presented in this chapter suggest that the research supported by the 2011-16 SRP might account for less than half of 1% of this value. Understood in this context the impact presented in this chapter appears conservative.

The impact described in this section is summarised in the table below.

Table 10‑1: Impact of research to protect the natural environment

Assumption	£m	Jobs
Impact of environmental research	71.7	617

Source: BiGGAR Economics