Scotland's draft Climate Change Plan 2026-2040: business and regulatory impact assessment

Section 3: Costs, impacts and benefits

Costs to businesses

The actions outlined within the draft Climate Change Plan will involve both costs and benefits for Scottish businesses. Exactly how these will manifest and be distributed is highly uncertain and will be worked through in greater detail as individual policies and actions are developed. The below sections provide a sector-by sector overview of the key potential costs and benefits.

Set against these are the impacts of doing nothing, in particular the costs of global inaction to address the climate threat. As is noted in the main Climate Change Plan documents, damage and disruption from flooding, failing crops and the impact of storms all pose increasing risks to the Scottish economy as the impacts of climate change grow. A 2025 report by the Office of Budget Responsibility^[17] estimates that climate damages could reach 8% of UK GDP by 2070 if the world warms by 3 degrees by the end of the century. Further, a ‘do-nothing’ approach risks forgoing the potential benefits to businesses across Scotland, as well as benefits to the wider Scottish economy and to public health. Further detail on the benefits of the policies and proposals contained in the draft Climate Change Plan are set out in the ‘Benefits to Business’ section of this document.

Agriculture

There are unknown costs and benefits to industry in terms of delivering the mitigation measures necessary to reduce emissions from agriculture and due to the scale of unknown costs and benefits at present there is not sufficient information to suggest there is a reasonable estimate of the overall financial impacts. These require further development for accurate quantification and this work will form part of the Agricultural Reform Programme.

The cost to business of the future support scheme is complex and challenging to estimate. At present the delivery mechanism for most of the mitigation measures is still being developed so it is not possible to determine a cost to business of these. However, evidence from the ‘Scenarios for emissions reduction targets in Scottish agriculture’ report carried out by Scotland’s Rural College (SRUC) and published on the ClimateXChange (CXC) website, shows that there are many measures that can save businesses money in the long run as well as those that will come at a cost.

This independent research was developed by drawing on recommendations from Farmer Led Groups and other key stakeholder and academic reports outlining the ways in which agriculture in Scotland could reduce its emissions and the primary role of the Agricultural Reform Programme is to develop delivery mechanisms for such mitigation measures.

Business and Industrial Process

Most of the costs associated with policies in this Climate Change Plan envelope are expected to fall on Scottish industry itself, which will be required to invest in decarbonisation technologies over the next two decades to reduce their carbon emissions. Switching away from fossil fuel technologies towards electricity-based technologies, or the adoption of hydrogen or carbon capture and storage (CCS) are the main pathways available for industry to decarbonise. CCS is expected to get considerable government support in Scotland, with both the UK Government and Scottish Government announcing support for the development of the Acorn Carbon Capture and Storage (CCS) Project^[18]. The additional Scottish Government policies and proposals to support industrial decarbonisation are the UK Emissions Trading Scheme (UK ETS), the Scottish Industrial Energy Transformation Fund (SIETF), a subsequent proposed industrial decarbonisation programme, and the Green Hydrogen Fund.

Non-domestic buildings

The most significant potential cost to businesses is likely to arise from replacing polluting heating systems with clean alternatives. It is important to note that around half of non-domestic buildings already use clean heat, suggesting that many businesses may not be directly affected.^[19]

Business may also experience an impact to their running costs as a result of moving from a polluting system to a clean alternative. Average non-domestic electricity prices are currently around 4.6 times higher than gas.^[20] While heat pumps are around three times more efficient than traditional gas boilers, this efficiency advantage is currently offset by the electricity-to-gas price ratio, making it unlikely that non-domestic buildings will experience reduced running costs from switching to heat pumps under current energy prices.^[21]

There is potential for reduced running costs in the future if electricity prices decline relative to gas. However, this potential benefit has not been quantified due to difficulties with predicting future energy prices which are influenced by a wide range of unpredictable factors, such as geopolitics, UK Government policy decisions and future energy demand.

Energy Supply

There are no specific costs for electricity sector policies as these are largely around a reserved area of policy and are anticipated to be industry led. One exception to this is the Scottish Government’s role as part of the UK ETS Authority, which is currently exploring expanding ETS to include energy from waste (EfW). It is anticipated that cost exposure would introduce stronger incentives for EfW facilities to adopt CCS. There is therefore a clear interaction between the ETS, EfW and the resulting energy envelope. Because the inclusion of EfW in ETS remains subject to discussion within the ETS Authority, it remains defined as a proposal and cost estimates are not provided here.

Land Use, Land Use Change and Forestry

Forestry

Scottish Forestry has worked with colleagues in the Scottish Government to prepare forestry’s contribution to the draft Climate Change Plan. The current policy (Policy 1) is to scale up to 18,000 hectares of new woodland a year by 2029, with a 10% “stretch” in CO2 removals due to the potential for improved location, species and management of trees. In 2040, this will result in an estimated total of 258,000 hectares of new woodland being planted. Scotland’s woodlands currently sequester 7.6MTCO2e annually.

The costs are anticipated to fall onto government and business. Government will be required to invest in woodland creation and management through the Forest Grant Scheme (FGS), allocated to and administered by Scottish Forestry. The grant provides a targeted incentive to address market failure, as woodlands produce positive spillover effects, such as carbon sequestration, clean air and biodiversity enhancements. This means that there is a greater external social benefit to woodland creation than a private one. If left to the market alone, new woodlands would be underproduced, with their environmental, social and economic value left unrealised.

Current grant rate is around £4,500 per hectare. Due to the effects of inflation over time, private sector costs now often outweigh this public support. There is a direct link between the Scottish Forestry budget and the level of woodland creation: under the FGS there has been over 55,000 hectares of new woodland approved since 2020.

The Climate Change Plan consultation offers an opportunity to gather data on these impacts and detail the cost environment.

Adequate resource funding for technical forestry and support staff determines its capacity to process grant applications, particularly as target levels increase. Current funding levels means that 10,000 can be achieved this year. It is likely there may be an increase in resource costs for scaling up to the 16,000 target and then 18,000 by 2029.

An analysis has not been included on grant rate sensitivities. The potential to meet Scottish Government Climate Change Plan woodland creation targets will require trees to be integrated into the agricultural landscape. Although the current targeted area grant rate is a strong incentive for afforestation, the impact differs depending on type of farmland and how willing landowners and farmers are to change land use i.e. from agriculture to forestry. The Climate Change Plan consultation offers an opportunity to gather data on this area directly.

Peatlands

Peatland restoration is a voluntary policy and as such there are no set costs on businesses for its delivery with most of the costs borne by government. There are many benefits of peatland restoration, including for businesses, which can be considered and are outlined in the relevant section of both the Plan and this BRIA.

The cost to society of degraded peatland is greater than markets recognise, with many of the benefits of healthy peatlands (such as flood mitigation, water quality and culture) not quantified. The adverse effects of emissions and other damage from degraded peat are ‘external’ to the market, which means there is usually only an ethical, rather than an economic, incentive for businesses and consumers to restore peatlands or switch to peat-free alternatives for horticultural uses. These externalities, as well as information asymmetry and incomplete markets have, in part, been drivers of the degradation of peatlands in the past. Recognising that if left to market forces, peatlands would continue to be degraded, and therefore emitting carbon and contributing significantly to the climate emergency and biodiversity loss, supports the need for government intervention to protect, manage and restore peatlands.

The costs of peatland restoration currently fall mostly onto government with modest contributions from private investment. Government will be required to invest in peatland restoration and management through the grant scheme administered by Peatland ACTION. The grant provides a targeted incentive to address the market failure discussed above and realise benefits for wider society and environment. In 2025 a pilot was launched to trial Scottish Government entering into individual carbon contracts to test blending public and private finance.

The cost of peatland restoration depends on a wide range of factors, one of them being that high-emitting peat can also be more expensive than other types to restore but is important to achieving emissions targets. The analysis of costs looked at the different costs for different peat types in line with the draft Climate Change Plan restoration pathway. To illustrate, the cost of restoring a hectare of peat might vary between around £2,000 and £5,000, presented in 2025 prices.

With regards to horticultural peat, the impacts on the professional growing media supply chain are anticipated to be higher than impacts on the amateur supply chain who have largely transitioned away from using peat.^[22] According to unpublished research on horticultural peat, growing media producers switching production to peat-free media will incur short-term costs for new machinery and processes at an estimated total cost of £7.5 million. Horticulture experts suggest that costs would increase from £40/m³ for peat to £75/m³ for alternatives to peat. Some consultation responses anticipated reduced plant production for horticultural businesses, which would in turn lead to reduced sales and for some a risk of business closure. Other costs anticipated include labour costs of increased watering, loss of profit from greater plant losses, lower quality, and reduced shelf life of container plants, loss of stored growing media due to reduced shelf life and costs incurred through new pests and diseases associated with a change to new growing media.

Residential and Public

A significant potential cost to businesses is likely to arise from heat network infrastructure, which requires significant investment. The other major cost likely to be faced by businesses is landlords and housing associations replacing polluting heating systems with clean alternatives.

These costs are estimated on the basis that of the 950,000 Private Rented Sector and Social Rented Sector dwellings in Scotland currently, around 146,000 (15%) already use clean heating systems. Costs to businesses are estimated based on weighted average costs of clean heating technologies including heat pumps and heat networks.

Transport

A significant financial cost to business will come by way of the capital investment needed to purchase electric cars, vans and trucks in order to replace those powered by petrol or diesel fuels. However, significant financial benefit is expected to arise through operating and maintenance cost savings associated with electric cars, vans and trucks, alongside tax benefits and access to low-emission zones. Transitioning away from jet fuel kerosene to the sustainable aviation fuels to power aircraft, and manufacturing of battery electric and hydrogen fuel cell aircraft to use on commercial flights will be a significant cost to industry. Costs will also be incurred by businesses in efforts to decarbonise ports alongside costs related to compliance with International Maritime Organisation regulation on carbon pricing.

A range of sources have been used to provide indicative financial estimates associated with decarbonising the transport sector, including the Climate Change Committee advice to Scotland, analyses published by Department for Transport, and other external reports. These are intended to provide an understanding of the scale of costs and benefits involved in the transition.

Encouraging modal shift from car to active and public transport

As the car use reduction target is a national level ambition, there is limited evidence as to the financial cost impact on business at this stage as it is not possible to do so without specific information as to the specific measures which will be undertaken. As per best practice for evidence-based policymaking, individual policies and any delivery plans for car use reduction will ensure that the impact and costs to business are considered as a part of their development. In terms of encouragement towards more sustainable forms of transport, including active and public transport, around £94 million leveraged by private sector for total project value of £136 million for bus decarbonisation (ScotZEB).

Businesses may benefit from reduced congestion and more efficient road space allocation, leading to improved journey times and efficiency. Local economy benefits can be expected where improvements in walking, wheeling and cycling infrastructure make local businesses more easily accessible.

Reducing emissions from Heavy Duty Vehicles

The total additional cost in Scotland of replacing diesel powered HGVs with electric equivalents, and to deploy the necessary charging infrastructure, may be in the region of £5 billion to £9.5 billion. Cost estimates are indicative, based on assuming a 10% Scotland share (representative of an approximate Scotland population share of the UK) of an estimated £50 billion to £100 billion to transition to zero-emission HGVs in the UK, as per the Green Finance Institute. Total estimated costs are uncertain and therefore could be higher or lower than the range provided. It is expected that industry may incur a significant portion of those costs due to the purchasing of zero-emission trucks, which are expected to remain above the level of diesel equivalents across the period 2025-2040.

In terms of benefits flowing to businesses, cost savings are expected as operating and maintenance costs of zero-emission trucks are expected to be cheaper relative to diesel equivalents. Other direct benefits relate to tax (vehicle excise duty) and enabling access to low emission zones.

Encouraging uptake of Electric Vehicles (EVs) for cars and vans

Costs and benefits of the uptake of electric cars and vans are considerably uncertain due to uncertainty around future vehicle and energy prices. Businesses are likely to incur additional capital costs for the purchase of Electric Vehicles and provision of charging infrastructure, particularly in the near-term when the purchase price of new EVs is greater than equivalent petrol or diesel vehicles. However, significant financial benefits are expected to arise in the form of lower operating and maintenance costs of electric vehicles compared with conventional petrol and diesel vehicles, which businesses can realise through electrifying their fleet.

The costs of delivering the required uptake of EVs will be shared across Scottish Government (to deliver policies), local government (to deliver local schemes and replace vehicles in their fleets), industry (to meet the supply of EVs required and to purchase EVs for their fleets) and consumers (to purchase the EVs).

Reducing emissions from aviation

In their balanced pathway, the CCC estimate an additional £3.5 billion in capital and operating costs from 2025 to 2045 for the aviation sector. This accounts for manufacturing and deployment of Sustainable Aviation Fuels (SAF), developing new aviation technologies, and the development, testing and introduction zero-emission aircraft. The sector is expected to bear significant costs of the transition in response to UK and wider international policy to decarbonise aviation.

Potential benefits generated by the sector mainly arise in the form of carbon emission reductions, job creation and contributions to economic growth.

Rail freight

A corridor-by-corridor review of the rail network was undertaken to inform the rail freight growth target of 8.7% for the period 2024 to 2029. Network Rail has advised that this anticipated growth can be accommodated within the core budget it receives for the maintenance, operations and renewal of the rail network. As such, this growth comes at no additional financial cost to Government. Additional growth may be achieved through facilitating third party investment in rail freight facilities through freight grant funding and also through rail infrastructure enhancements with costs allocated to those specific budgets.

Other

We will enhance the digital travel data services that sit behind Traveline Scotland and other journey planner providers, and will develop the Open Data provisions in the Transport (Scotland) Act 2019: The Traveline Scotland call centre, which supports those without access to online services, is paid for by Operators across Scotland – this is separate from the digital platforms but relies on the data within.

Waste Management

Approach

Summarised information on costs to businesses from the impact of the waste package are outlined below, grouped by the four strategic outcomes in the draft Climate Change Plan chapter. It discusses the potential type and scale of costs and benefits for different groups that will be considered as interventions are developed, reflecting that many of the actions are at different stages of design and implementation. Some costs remain uncertain pending further policy development and co-design with stakeholders, and must be subject to change as policy development moves forward. While there are some limitations and uncertainties, the Scottish Government is committed to working in partnership with stakeholders to assess the full impact and costs of these measures, and would welcome reflections through this draft Climate Change Plan consultation to help shape assessments.

Summary of costs for businesses

Costs associated with the introduction of some measures in the draft Climate Change Plan package may include additional enforcement costs for public bodies, administrative costs for businesses and infrastructure and operational costs of amending services or ensuring compliance across public and private sectors. These are summarised below where feasible by the four strategic outcomes of the package. The 'polluter pays' principle runs through waste and circular economy policies and legislation, and is one of the guiding principles on the environment set out in the Continuity Act.^[23] It is the principle that those who cause pollution should bear the financial responsibility for any damage or remedial action required as a result. Implementing the polluter pays principle may mean that there are some upfront costs as well as long-term cost savings (e.g. additional enforcement costs for public bodies, and administrative costs for businesses). It means that some employers may see higher or lower costs, as costs are transferred to those that are responsible for the costs associated with pollution.

Strengthening Scotland’s Circular Economy

Quantified costs are not currently available for all measures in the package, and will be subject to the development of the specific policies and proposals. Previous impact assessments^[24] have highlighted where potential costs for measures under this strategic outcome might develop. While the introduction of a new circular economy strategy and targets is intended to benefit individuals, consumers and businesses, there is a possibility of costs to align with any new requirements, as well as the risk of unintended negative consequences.^[25] Indicative costs of producing the circular economy strategy were included in the Circular Economy (Scotland) Bill Financial Memorandum.^[26] The strategy itself is subject to its own impact assessment process as it develops.^[27]

It is too early to robustly assess impacts of the public procurement measure on businesses at this stage, and further work may be required to assess costs and benefits of any measures taken forward in this area. A separate BRIA was published outlining the costs and benefits of a mandatory electronic waste tracking service.^[28]

Reduce and Reuse

Measures under this strategic outcome cover a wide range of policy areas, from producer responsibility policies to tackle the environmental impact of products; actions to tackle food waste; and embed circular practices in the construction sector. These actions are at different stages of development, and estimate costs are outlined below where available. Total quantified costs to businesses from the package are currently unavailable. Further detail on costs is set out in the Route Map BRIA, and relevant assessments undertaken for individual measures to date. Key examples of where potential costs have been identified are outlined below.

Packaging: Implementation of our Deposit Return Scheme (DRS) for single-use drinks containers

Businesses will face costs to set up and operate the DRS in Scotland once operational. For a full cost breakdown please refer to the Business and Regulatory Impact Assessment (BRIA) for Scotland’s Deposit Return Scheme.

Packaging: Introducing extended producer responsibility for packaging, working with the other UK administrations.

Packaging EPR will generate costs to producers including waste management, familiarisation and reporting costs. The summary of the costs and benefits attributable to Scotland and its businesses is based on a population share of the rest of the UK at 8.06%. See specific impact assessment for more information: Extended producer responsibility for packaging Full Business and Regulatory Impact Assessment (BRIA).

Measures to reduce food waste. Key example – developing with stakeholders effective options to implement mandatory reporting for food waste and surplus by businesses

We are committed to ensuring that the design and implementation of any new requirements are developed with stakeholders, including the business community, in line with the principles of the New Deal for Business. Given this collaborative approach, a full assessment of costs and benefits will be undertaken to accompany the development of any regulations, once a preferred approach has been identified. The Route Map BRIA provided some sense of typical costs and benefits based on previous Defra assessment of mandatory reporting options.^{[29] [30]}

Modernise Recycling

There are likely to be costs associated with the package of recycling measures outlined in the draft CCP, as we seek to work with partners to modernise household and commercial recycling. Previous assessments have identified some areas where costs may occur for businesses (see Route Map BRIA). Costs for many measures will be subject to outcomes from co-design and actions to build better understanding of the current commercial recycling landscape. Examples include:

• Recyclable plastic film and flexible packaging to be collected – higher expected costs to producers of the collection, recycling and management paid to local authorities under the extended producer responsibility scheme for packaging. These costs are set out in the UK level impact assessment.^[31]
• Commercial recycling measures – costs may arise as commercial organisations become aware of their duties, or increase efforts to fully comply with existing requirements, following the review of commercial recycling compliance. These duties have been in law for more than a decade, and many of these costs will already be internalised by businesses.

Decarbonise disposal

This package consists of measures to reduce emissions at the point of disposal, with examples outlined below. Further detail on costs is set out in the Route Map BRIA, and relevant assessments undertaken for individual measures to date.

The forthcoming ban on BMW going to landfill may increase the costs of managing relevant wastes due to the cost of alternative processes and the need for additional testing, for example. However, given the ban was legislated for over a decade ago, it is anticipated that many businesses will have prepared and built in consideration of any additional costs.

Maximising landfill gas capture opportunities in Scotland: Specific costs for businesses and other stakeholders will be dependent on the type of activity and specific site conditions for any projects. However, over time reducing biodegradable waste will also reduce the landfill gas available for capturing and use, reducing a potential revenue stream for landfill operators.

Other sources

As set out in the draft Climate Change Plan chapter, it is our intention to broadly align with Energy Neutrality and Resource Recovery requirements in the EU's recast Urban Waste Water Treatment Directive (Article 11 and 20). This is likely to include energy audits, energy recovery and resource recovery. At this early stage it is not possible to quantify costs and benefits for different stakeholders for this policy. Further assessments will be developed alongside the proposals and relevant consultations or regulations.

Other impacts

This section details other positive and negative impacts of the policies and proposals contained within the draft Climate Change Plan, including positive impacts to the Scottish economy, job creation, public health, and benefits to a Just Transition.

Agricultural policies, while primarily targeting businesses, deliver indirect benefits to people and communities across Scotland, including improved public health through enhanced biodiversity and reduced climate risks such as flooding. Agriculture’s cultural significance and links to tourism and food production mean that a thriving sector supports wider societal benefits. Low carbon farming contributes to more sustainable food supply chains, helping individuals reduce their carbon footprint. Although overall job numbers in agriculture are not expected to change, the nature of work will evolve, with roles becoming more varied and emerging opportunities in areas like agri-tech. This transition is supported by initiatives such as Scotland’s Farm Advisory Service, Agricultural Knowledge and Innovation System (AKIS), and the Integrating Trees Network (ITN).

Farm businesses are central to Scotland’s net zero and economic goals. Policies aim to improve efficiency, productivity, and profitability while reducing emissions. Support is tailored to the diversity of farm types, including SMEs, tenant farmers, and livestock producers. Agriculture is also uniquely positioned to support climate adaptation through integrated land management, revised support schemes, and tailored guidance. Farmers and crofters play a vital role in protecting soil, increasing flood resilience, and supporting ecosystem health, contributing to climate adaptation goals aligned with the third Scottish National Adaptation Plan (SNAP3).

There is an overall positive indirect impact on agricultural businesses that will continue to receive financial support, potentially benefiting the wider community through economic stability, growth, and job retention or creation. Positive indirect impacts may also be seen in the wider community through reduced socio-economic disadvantage, increased training opportunities, and green skills development. This could attract more entrants to the sector, widen the workforce pool, and create new supporting business opportunities, potentially benefitting young or unemployed individuals in rural Scotland through improved earning capacity and career prospects, supporting both economic development and population retention. Farmers’ skills may improve through training and support in low carbon farming, enhancing business efficiency and personal development.

Climate Change Plan policies support the transition to a low-carbon industrial sector, helping protect jobs and avoid economy-wide deindustrialisation. The UK Emissions Trading Scheme (ETS) is expected to incentivise investment in decarbonisation technologies, while funding mechanisms such as the Scottish Industrial Energy Transformation Fund (SIETF), a proposed subsequent industrial decarbonisation programme, support for Carbon Capture and Storage (CCS) in Scotland, and the Green Hydrogen Fund will support this transition.

In 2023 approximately 33,500 FTE workers were directly employed in the low carbon and renewable energy economy in Scotland,^[32] while the renewable energy industry supported over 47,000 FTE employment across the Scottish economy in 2022 including spill-over effects (direct, indirect and induced).^[33] Peterhead Power Station currently directly supports 80 FTE employees and 30 term contractors. The proposed Peterhead Carbon Capture facility could support 1,000 new jobs during the construction phase and 240 new jobs once operational (including direct, indirect and induced effects).^[34]

In transport, the move to zero-emission heavy-duty vehicles (HDVs) presents challenges for SMEs, which dominate the haulage sector. Scotland has approximately 52,000 HDVs, many of which are operated by small businesses or other organisations with limited available capital to invest in the transition. To support a Just Transition, £1 million is being made available in 2025 to help SME hauliers access expert advice. The Scottish Government is convening forums and working with industry and the UK Government to ensure financial and legislative support for innovation and investment in greener transport technologies.

The Scottish Government will also work closely with industry to ensure Scotland is able to seize the opportunity to become a leader in greener technology, including Sustainable Aviation Fuel production and production of efficient, accessible vehicles.

In the waste and circular economy sector, an estimated 12,000 people are directly employed, with over 81,000 jobs attributable to circular economy activities. Delivering a circular economy could generate nearly 60,000 new jobs, particularly in labour-intensive sectors like repair, maintenance, and waste management. However, the transition will require re-skilling and may impact roles in residual waste management. Strategic planning, including the development of a residual waste plan to 2045, will help address these challenges. Reductions in waste and resource consumption will benefit businesses through savings, resilience, and more stable supply chains. Support for embedding circular economy behaviours and practices is identified as a priority in the draft strategy.

In relation to the Forestry sector, the woodland creation under the key policy and the implied multi-year funding would see the creation of a stable funding environment and shift financial behaviour. Given the high-cost and low or absent revenue from initial woodland establishment, the removal of financial uncertainty would allow business to de-risk investment, adopt longer planning horizons and incentivise the investment into higher quality inputs in order to maximise the value of their timber asset. In turn, this may lead to more productive and resilient forests.

The key policy may act to change business behaviour in participation in carbon markets, specifically through the Woodland Carbon Code (WCC). The WCC requires the long-term commitment to manage a forest to sequester carbon, in return for the issuance of carbon credits, which business can sell in carbon markets. The primary behavioural shift is that stable grant funding required for multi-year woodland creation, lowers the risk of the creation of the core asset and provides business with the confidence and security to commit to the long-term conditions of the WCC in order to obtain future revenue.

In relation to peatlands, the policy package in the Plan – and in particular the continued expansion of peatland restoration – will support a Just Transition by bringing benefits for people and communities, for the workforce and for employers across rural and island Scotland. The most immediate direct benefits are linked to the employment and business opportunities created and maintained by a combination of our own public funding blended with increased private investment in the sector which will help support strong local economies and rural livelihoods. In addition, a much broader group of benefits derives from the range of ecosystem services that healthy peatlands can provide more widely across Scotland including flood mitigation, enhanced biodiversity, water quality improvement and reduced severity of wildfires.

Our Peatland ACTION Five Year Partnership Plan will set out in more detail the specific actions we will take across the partnership to attract new entrants and support the workforce in developing the skills and expertise needed to support growth in the sector.

Our commitment to establishing a ban on the sale of peat for horticulture, however, may lead to some contraction or displacement of the workforce employed in the peat extraction, horticulture and growing media industries. However, it is not possible to accurately predict the scale of any such impacts until the scope and timing of any ban and any associated exemptions is established which will influence how these sectors of the industry respond.

The Heat in Buildings Strategy acknowledges the challenge of meeting climate and fuel poverty targets simultaneously. This is because clean heat could result in increased running costs for some – until the UK Government takes action using its reserved powers to reduce the cost of electricity. Until that action is taken, higher costs may be partly or fully offset by the higher efficiency of some clean heating systems, demand reduction through improved energy efficiency and targeted support where appropriate. Upfront costs for clean heating systems, potentially higher than polluting heating systems, may reduce as demand grows. The Scottish Government’s approach is to support a fair distribution of costs and benefits and attract private investment.

Transforming our buildings presents a sizeable economic opportunity for Scottish businesses. However, the positive net impact on jobs may be limited by displacement, and while certain sectors are likely to benefit from the transition (energy efficiency, and clean heat technologies), others may see a reduction in their market (polluting fuels and technologies). The Scottish Government’s approach will support existing firms to adapt.

We are committed to building local supply chains, maximising local job creation, and ensuring a just transition. We will work with Scottish businesses so that they can play a significant part in the transformation of Scotland’s homes and buildings, and work with industry bodies to enable existing gas and oil boiler installers to adapt.

Meeting clean heating targets will require energy network upgrades, with costs likely passed onto consumers. Ofgem’s July 2025 draft determination approved over £15 billion for gas network operators and £10.2 billion for electricity grid expansion by transmission network operators (TNOs), plus a further £1.3 billion “use‑it‑or‑lose‑it” fund. Together, this forms the first part of an £80 billion investment programme to boost network capacity and shield households from gas market volatility.

The draft Climate Change Plan policies and proposals are expected to deliver wide-ranging positive impacts across Scotland’s economy and society. They support a Just Transition by helping sectors adapt to low-carbon practices while protecting jobs and creating new opportunities. Agriculture, industry, transport, and waste management all benefit from tailored support mechanisms, strategic planning, and investment in innovation. These policies not only contribute to emissions reductions and climate resilience but also promote economic stability and opportunity, workforce development, while also enhancing broader community wellbeing.

Benefits to business

Businesses may benefit from the totality of the policies and proposals in the draft Climate Change Plan through cost savings, new market opportunities, improved resilience, and long-term growth. These benefits may be both financial and contributory to wider societal and environmental goals, reinforcing the value of a coordinated and ambitious transition to a low carbon economy.

Many mitigation measures in agriculture improve production efficiency, reducing GHG emissions and input costs, such as artificial fertiliser. These actions also positively impact soil, water, air, flora, fauna, and landscape, though the extent depends on uptake by farmers and crofters.

In Business and Industrial Processes, policies primarily drive emissions reductions while improving energy and resource efficiency. For example, SIETF supports energy-intensive sites in Scotland to cut energy costs and emissions, with benefits continuing beyond the policy’s lifespan.

Renewable and low carbon energy will underpin Scotland’s future energy system, offering economic growth and job opportunities. With appropriate market reforms, increased renewable energy can lower energy bills. Wind, CCUS, and Hydrogen are key opportunities, supported by targeted actions like the Just Transition Fund, which has invested £9.8 million in 44 supply chain companies, leveraging £6.2 million in private funding. Retrofitting existing EfW plants with CCS from 2032, using models like the UK Government’s Waste ICC Business Model, will reduce CapEx and future costs under the UK Emissions Trading Scheme.

Scotland produces 60% of the UK’s timber harvest, with 72% of softwood removals from private woodlands occurring in Scotland in 2022. Rising global demand and the UK’s reliance on imports highlight the importance of increasing domestic timber production, which is forecast to grow by over a third in the next decade. Current targets and funding send a long-term signal to the market, encouraging capital investment in domestic timber processing and supporting a stable local market for growers. These benefits will be further evidenced through consultation.

Private finance has significantly boosted woodland creation via the Woodland Carbon Code, expanding the carbon market five-fold since 2020. As of June 2025, validated projects are expected to remove 11.2 MtCO₂e over their lifetimes. Stable grant funding has incentivised long-term investment, offering financial benefits to businesses and strengthening the carbon credit market. The consultation process will help quantify the extent of these impacts.

Woodland creation supports employment and skills development, particularly in rural areas with limited alternatives. Creating 50 hectares of woodland can support around 5 FTEs, and current targets are expected to generate an annual average of 1,700 FTE jobs. Expansion will drive private sector growth in forest management, timber production, transport, and recreation, contributing to rural economic diversification and population retention, though these impacts remain unquantified.

A growing forestry sector increases demand for human capital and specialised skills. Targets and funding help de-risk investment in workforce development, stimulating apprenticeships, higher education, and training in land management. This strengthens Scotland’s national skill base and supports long-term sector resilience.

Peatlands provide significant benefits to Scotland’s society and economy by supporting local, primarily rural economies and strengthening climate resilience. Restoration enhances biodiversity, reduces flooding and wildfires, improves water quality, and preserves cultural heritage—while supporting key Scottish industries like tourism, food and drink, and whisky through improved ecosystem services.^[35]

Landowners can also earn income via carbon credits through the Peatland Code, with credits valued at £25 in 2024. Projects must meet additionality criteria, requiring 15% funding from carbon finance, typically covered by maintenance costs, not upfront capital. This mechanism therefore stimulates responsible private investment into nature restoration.

Peatland policies support Just Transition in Scotland by creating rural jobs, developing a skilled workforce, and enabling private investment in restoration, management, and protection. Every £1 invested can generate £4.62 in economic and social value, mainly through carbon sequestration and tourism.^[36] Businesses benefit directly from government funding, job creation, and rural development. Employment supported per year could range from 383 to 1,258 FTE depending on annual hectares restored.^[37]

The transport transition presents economic opportunities in HDV manufacturing, Sustainable Aviation Fuel (SAF) production, sustainable transport design and construction, and infrastructure servicing. SAF is crucial in the short to medium term, and Scotland’s strengths in skills, renewables, and infrastructure provide a competitive edge.

Waste management actions reduce emissions and resource consumption, benefiting businesses and society. Preventative measures and efficient waste processes support material reuse, market access, and environmental improvements. Circular economy initiatives can generate nearly 60,000 new jobs, particularly in repair and waste sectors.^[38] Without action, costs and environmental harm will persist. Businesses benefit from savings, greater resilience (e.g. supply chains), and investment opportunities, such as domestic reprocessing. For example: Packaging EPR could yield £3.7 million in material sales and £15.5 million in landfill tax savings (NPV 2025–34)^[39]. Hosting Deposit Return Scheme return points can attract customers and spending.^[40] Mandatory food waste reporting can support efficient business models and cost reduction.^[41] Recycling more helps businesses avoid high landfill tax costs. Policies also support infrastructure planning, innovation and potential new markets, for example creating economic opportunities through reuse and domestic reprocessing of key materials.^[42] Previous investments in landfill gas capture have yielded £12–£39 million in economic welfare (NPV 2015–2047),^[43] highlighting potential further economic benefit subject to the scope and nature of future work.

Investment in the deployment of energy efficiency and clean heat could significantly benefit the Scottish economy through employment opportunities. The Scottish clean heat sector generated an estimated £1.66 billion of turnover annually in the last financial year, contributing £0.69 billion of gross value added per annum to the Scottish economy.^[44] A study in 2024 estimated that the sector has around 8,300 direct employees and has experienced significant growth over the past three years with employment increasing by 68%.^[45] While the CCC’s pathway in the UK Government’s Sixth Carbon Budget highlights the decline of polluting heating jobs as part of the shift to low carbon heat across the UK, the Building skills net zero Scotland research carried out in 2021 estimates that Scotland will need an additional 22,500 workers by 2028 to meet the CCC's balanced pathway, particularly focused in retrofitting and heating.

The target sends a strong signal to building owners on the need to prepare for change and instil market confidence to develop new products, including financing solutions, and to invest in e.g., heat networks infrastructure.

The direction of travel provided by the target will help to unlock these opportunities and support the investment and training required. Developing heat network infrastructure presents a significant investment opportunity for the private sector, with estimated capital requirements of around £14.5 billion by 2045. This scale of investment offers long-term returns through stable, regulated revenue streams, while contributing to Scotland’s net zero transition and unlocking wider economic benefits across the energy and construction sectors.

Other sources

As above, at this early stage it is not possible to quantify costs and benefits for different stakeholders for waste water proposals concerning the Energy Neutrality and Resource Recovery requirements in the EU's recast Urban Waste Water Treatment Directive (Article 11 and 20). This is likely to include energy audits, energy recovery and resource recovery. Further assessments will be developed alongside the proposals and relevant consultations or regulations.

Scottish firms’ international competitiveness

The policies and proposals for Scottish agriculture will not put Scottish farmers, crofters, land managers, etc. at a disadvantage compared to their counterparts in the rest of the UK, and Europe. They will neither directly or indirectly limit the number or range of suppliers, limit the ability of suppliers to compete, nor will it reduce suppliers' incentives to compete vigorously.

Unpublished research carried out to understand the impacts of banning the sale of peat identified some potential concerns around the ability to export plants in growing media other than peat and around reduced quality of plants and subsequent competitive disadvantage with others in Europe using peat-based composts. Potato mini-tuber growers said that growing in media other than peat could compromise their disease-free status which is paramount as a legal requirement under the Seed Potatoes Scotland Act (2020), and this could impact on their ability to sell mini-tubers, and progeny, abroad.

Small business impacts

Agriculture

Many agricultural businesses in Scotland are small businesses, and the Scottish Government is considering how to mitigate any particular impacts on small agricultural businesses. For example, the Scottish Government recently announced that small herd producers would be removed from new calving interval conditions in the Scottish Suckler Beef Support Scheme.

Business and Industrial Process

It is not expected that significantly different impacts will occur for small businesses. Engagement for Scottish Government match-funding programmes has included a diverse range of manufacturing businesses and sub-sectors, and they have been accessed by many SME.

There may be a number of different impacts on small businesses from the heat transition in non-domestic buildings, and these are set out below.

Energy Supply

Renewable and low carbon energy will underpin Scotland’s future energy system, offering investment and job opportunities, including economic opportunities for small businesses.

Small businesses may be able to benefit from community energy projects in Scotland by partnering to provide land, logistics, or storage or benefitting from cheaper energy or visibility in green networks.

Land Use Land Use Change and Forestry

Forestry

The majority of woodland creation projects, an estimated 80% of projects, are under 20 hectares and offer small-scale opportunities.

Peatlands

The peatland restoration sector supports the rural economy by creating rural jobs, skilled workforce, and opportunities for private investment, as well as opportunities for crofting communities in line with fair and just transition principles. Peatland restoration can offer small businesses, in particular in rural areas, with opportunities for delivering restoration works on the ground, conducting ecological or site condition surveys, validating restoration, or working as land agents.

Residential and Public

Research by Nesta^[46] referenced earlier, suggested that an increase in demand for heat pumps could lead to increased economic activity among SMEs. SMEs may also, however, be disproportionately impacted, as they are often less able to absorb higher one-off costs due to a greater proportionate impact on their cashflow, and may also face less choice in the range of financing products they can access than would be the case for larger businesses.

Transport

The move from a publicly funded EV charging model for cars and vans to a more commercial model was identified as necessary to ensure that EV infrastructure grows at the pace and scale necessary to support expected increases in future demand. This shift offers drivers greater charging choice to suit their needs and charge point business operators the flexibility to service demand with the right type of charger in the correct location, based upon their own business strategies and operating models.

The majority of vehicle fleet-owning businesses in Scotland are small and medium-sized enterprises, often operating on small margins. They are generally less able to absorb the higher up-front capital costs of purchasing new vehicles, adapting depots and making other changes required to adopt zero emission technologies. However, the total operating cost of zero emission vehicles may be cheaper in the long term than using petrol and diesel vehicles in many circumstances. As the market for zero emission vehicles matures, the network for charging infrastructure develops and new financial products emerge, the costs and challenges to SMEs of making the transition will fall and the benefits increase in most cases.

Waste Management

There are no specific impacts relative to small businesses in the Waste Management sector.

Investment

The draft Climate Change Plan sets out a long term direction of travel for Scotland that focuses on identifying existing trends or technological opportunities. It is likely that strong indication of Government preferences is likely to increase investor confidence in areas where there is existing uncertainty.

Workforce and Fair Work

The draft Climate Change Plan does not have workforce or fair work impacts relative to the counterfactual.

Climate Change/Circular Economy

The Climate Change (Scotland) Act 2009,^[47] amended by the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019 and the Climate Change (Emissions Reduction Targets) (Scotland) Act 2024 places Scottish Ministers under a legal duty to meet the emissions reduction targets and to specify the actions to meet those targets in the Climate Change Plans. The update to the Climate Change Plan (2020) sets out the Scottish Government's pathway to our previous emissions reduction targets set in 2019. The Scottish Government’s latest Climate Change Plan (CCP) 2026-2040, to be published in 2026, will reflect the new carbon budget targets,^[48] in line with the changes made to our target framework by the Climate Change (Emissions Reduction Targets) (Scotland) Act 2024.

Tackling the climate emergency is one of the Scottish Government’s four key priorities,^[49] and the draft Climate Change Plan is one of the Scottish Government’s foremost strategies towards mitigating the effects of climate change, as part of its wider intent to address the twin crises of climate change and nature loss.

The policy collection for draft Climate Change Plan waste management sector supports progress towards meeting those targets, as does Scottish Government’s Circular Economy and Waste Route Map to 2030. More broadly, around four-fifths of our carbon footprint in Scotland comes from products and services we manufacture, use and throw away. Scotland’s shift away from our linear ‘take, make, waste’ economy to a circular economy is key to improving our global environmental impact and tackling carbon emissions. For example, consideration of a sector’s carbon impacts was included in the selection of priority sectors within the draft Circular Economy Strategy for Scotland. The Circular Economy (Scotland) Act 2024 also recognises the importance of reducing the whole life-cycle carbon emissions of goods, products and materials as a desirable element of the economy.

Competition Assessment

The preferred option has been considered against the five Competition and Markets Authority (CMA) competition assessment questions. No impacts on competition relative to the counterfactual were identified.

Consumer Duty

Agriculture

There are no specific impacts identified in relation to the Consumer Duty in the Agriculture sector.

Business and Industrial Process

There are no specific impacts identified in relation to the Consumer Duty in the Business and Industrial Process sector.

Energy Supply

There are no specific impacts identified in relation to the Consumer Duty in the Energy Supply sector.

Land Use, Land Use Change and Forestry

There are no specific impacts identified in relation to the Consumer Duty across LULUCF, including in the Peatlands and Forestry sectors.

Residential and Public

Our approach, centred on a target to decarbonise buildings, recognises that the burden does not fall on individuals or businesses, who retain the flexibility to convert when it suits their circumstances.

A significantly increased installation rate for insulation, clean heating systems and heat networks, however, increases the risk that customers will have poor experiences. Work will be undertaken to develop and encourage the adoption of standards that ensure good quality advice exists to help consumers make informed decisions, ensure that installers meet required standards and that there are adequate redress procedures within the limits of Scottish Government’s devolved powers and assistance in place for when things go wrong.

Transport

There are no specific impacts identified in relation to the Consumer Duty in the Transport sector.

Waste Management

At a strategic level, the shift to a circular economy and sustainable resource use driven by the measures in the waste chapter will benefit consumers overall, and reduce the harm inflicted by the current “take, make and dispose” model. Key examples include:

• Strengthening communities by providing local employment opportunities, lower-cost options to access the goods Scottish consumers need.
• Modernised recycling, reuse and waste services will be co-designed with communities to ensure consumers (e.g. households and businesses) are at the heart of how services are designed and operate, and that communication with service users is carefully considered.
• Specific reuse actions touch upon the information available to consumers, and the routes available for consumers to seek advice.

It will be important in the development and implementation of actions in the policy package to consider further assessment and monitoring to ensure any negative impacts on consumers are identified and mitigated. For example, in undertaking the co-design of the statutory Code of Practice for household waste services, alongside a review of waste and recycling service charging, to consider the impacts of any outcomes of this work on consumers. For waste water proposals, further assessments will be developed alongside the proposals to consider the potential costs and benefits on consumers of water and wastewater services.