Net Zero Assessment: Pilot report

4. Methodology

Scope of the Pilot

19. The SG make many types of decisions which can impact emissions. These ranges from policy decisions, to investment or procurement decisions. The pilot was intended to cover a small subset of policies to test the approach and identify potential areas of improvement across the process.

Three-stage process

20. To ensure a level of proportionality over the assessment detail required for policies, the Scottish NZA is designed as a three-stage process:

a. Stage 1: an initial screening discussion between the lead policy team and the review panel to identify if the policy is likely to have an emissions impact above the de minimis threshold.

b. Stage 2: a light-touch assessment of emissions impact, which confirms if the policy is above or below the de minimis threshold, identifying policies requiring full in-depth analysis.

c. Stage 3: an in-depth full quantitative emissions assessment is required of policies above the de minimis threshold.

21. The results of the NZA then inform advice to Ministers on the policy.

International approaches to net zero tests

22. In designing the methodology for the NZA pilot, the SG reviewed a variety of similar assessment approaches from other countries which are summarised at Annex D.

De minimis screening threshold

23. The pilot initially operated a de minimis screening threshold for the emissions impact of policies set at 1% of the national target level in any given year (e.g. 0.4 MtCO2e in 2020 as 1% of the national 40 MtCO2e target). However, in practice almost no policy met this threshold and so this was moved to a lower threshold of 0.1 MtCO2e in any one year or a cumulative 1 MtCO2e impact over a 10-year period.

Full quantitative assessment: HM Treasury Green Book appraisal framework

24. Each policy that exceeds the de minimis thresholds identified required detailed quantitative assessment following the emissions guidance detailed as part of the UK Treasury’s Green Book economic assessment guidance and supplementary guidance.

25. This assessment approach is the same as underpins all government economic analysis and the well-established standard approaches for appraisal within the SG and across the public sector in the UK.

26. The HM Treasury Green Book approach is based on the following basic steps:

a. Establish the business as usual counterfactual;

b. Establish the change in energy or fuel use, or alternatively the change in land use or emitting activities, as a consequence of the proposed policy or expenditure; and

c. Calculate the greenhouse gas impact associated with the change in energy or fuel use, or alternatively the change in land use or emitting activities.

27. The NZA approach does not require the calculation of monetary carbon values as detailed in the Green Book as this would be an unnecessary step once the emissions quantum has been established.

28. This analytical approach is similar in form to that of New Zealand’s Climate Implications of Policy Assessment (CIPA). Other analytical standards were considered, such as PAS 2080, however, these other standards are often for specific purposes such as for businesses or construction or project assessment and are not necessarily aligned to Government assessment or national-level accounting of emissions. Where required, the Green Book approach can incorporate the same principals of life cycle analysis for individual policies as these alternative approaches.

29. While the Green Book defines the approach to appraisal the specific requirements of the Net Zero Assessment have been determined to align with the wider context of climate analysis within government. This includes specifying how embedded and generated carbon is treated, and the time range to be considered. To supplement the Green Book, specific guidance has been designed for the NZA that explains these details for both analysts and policy officials.

Proportionate approach

30. The NZA methodology is designed as a lighter-touch assessment, focussed on a single key measure – emissions reduction – that has a statutory importance.

31. In defining the analytical process one key consideration was to ensure that only policies which have some significant bearing on net zero were required to undertake an analytical process. This proportionality was embedded into the wider process of the assessment with an emphasis on triaging out non-relevant policies and business cases quickly while also ensuring sufficient scrutiny and resolving uncertain cases.

Alignment with other SG impact assessments

32. To avoid duplication of effort and ensure effective integration with existing structures, the NZA methodology aims to align and be compatible with existing SG impact assessments, such as statutory Strategic Environmental Assessment (SEA) and Business Regulatory Impact Assessment (BRIA). This ensures alignment with processes, analytical approaches and governance processes within the SG and Scottish public sector. Differing standards between processes would require additional work to ensure consistency of approach.

33. In particular, SEA is an established statutory process that assesses the likely significant effects of a plan, programme, or strategy on the environment, including the climate, and considers how negative impacts can be avoided or minimised and, where appropriate, identifies opportunities for positive effects to be enhanced. Given the broad similarity in aims, collaborative work is being taken forward with the SG SEA Team to ensure NZA is not duplicating effort and that the NZA is adding value and improving efficiency and understanding of climate impacts of decisions.

34. Furthermore, the NZA methodology can be integrated into other existing impact assessments (usually SEA or BRIA).