By Kate Forbes MSP MSP for Skye, Lochaber and Badenoch, and Cabinet Secretary for Finance.
This essay originally appeared in the Social Market Foundation and Chartered Banker Institute’s “Pathway to COP26” essay collection.
Introduction
The COVID-19 crisis will continue to define public policy making around the world for the foreseeable future. Globally, governments of all types are contending with the challenges of safeguarding public health while rebuilding our economies and way of life. The depth of this crisis has clarified that for a resilient and sustainable recovery for our health, our people, our economy and our climate, reverting to business as usual is not an option. That is why we will use our recovery from this crisis to build a greener, fairer, and more equal society and economy, with a laser focus on creating new, high-quality, green jobs. Sustainable finance is a critical tool for the public and private sector in this vital rebuilding work.
Scotland as a world leader
In Scotland, our landmark Climate Change Act has put us at the forefront of the global fight against climate change, setting a world-leading target of reaching net zero carbon emissions by 2045 and achieving a 75% reduction from 1990 levels by the end of this decade. These targets are incredibly ambitious – ending Scotland’s contribution to climate change within what, for some industries, is just a single investment cycle – but achievable.
The reason for setting this level of ambition is twofold. We want to demonstrate the viability of an ambitious decarbonisation plan to our global partners, encouraging them that the goals set under the Paris agreement are achievable. But we also want to lead because we believe it is the best way to maximise the economic benefits for Scotland of the global transition to net zero. We recognise that decarbonising Scotland is both a moral obligation and a significant economic and social opportunity.
By delivering the solutions to the climate crisis here in Scotland, we are developing expertise, products and solutions that can be exported around the world. Our renewables expertise is already being used in 72 countries, with Scottish businesses employing staff in 22 of those, while setting us on the path to abundant, low-cost and carbon-free electricity at home. Our support to the industrial and manufacturing sectors’ transition to net zero will create new, high-quality jobs and new opportunities for investment. Decarbonisation and wellbeing are inextricably linked and these investments will help produce an environment and a nation that people want to live in, work in and conserve.
A just transition
The net zero transition will undoubtedly bring huge benefits and opportunities. But we must also face up to the challenges. Reducing emissions at the scale and pace required by our targets implies far-reaching structural change across many sections of our society. Our transition to net zero simply must be handled differently to the unmanaged deindustrialisation many of our communities suffered in the 1970s and 80s.
That means we must use the financial tools and policy levers at our disposal to ensure the benefits of climate action are shared widely, while the costs do not unfairly burden those whose livelihoods are at risk as the economy shifts and changes. Ultimately, the transition needs to not only leave nobody behind, but also take everyone together towards a fairer, greener society.
In Scotland our approach on just transition has been developing for some time. Our climate change legislation embeds just transition principles and our independent Just Transition Commission is advising us on how we transition to net zero in a way which is socially inclusive.
The Commission’s interim report earlier this year strongly highlighted the need to build social consensus with all those affected by the net zero transition, including business, trade unions, consumers and communities.
It also highlighted the need to develop a planned approach to reach net zero in a way that fully anticipates and manages the inevitable socio-economic impacts.
We will be continuing to reflect on these important messages as we update our Climate Change Plan later in the year, and look forward to the Commission’s final report in early 2021, and will continue to place a just transition at the heart of our approach to ending Scotland’s contribution to climate change.
Financing the net zero transition
Transforming our economy and society to net zero by 2045 will require a truly national endeavour, with the public, private, and third sectors all being prepared to do their part, including mobilising the substantial levels of investment across every part of our economy that will be needed. The Committee on Climate Change estimates an additional 1-2% of GDP per year will be need to be invested by the public- and private-sectors across the whole of the UK economy to reach net zero, with a disproportional amount of that required in Scotland.
Public financing and investment, clearly has a significant role to play in supporting the transition.
The Scottish Government’s annual Programme for Government, announced in September, included significant low-carbon infrastructure investment over the next five years, including an additional £1.6 billion in decarbonising our homes and buildings, £500 million for large scale transformational active travel infrastructure projects, £60 million of decarbonisation support to the industrial and manufacturing sectors, and an additional £150 million to meet our ambitious woodland creation targets. We are also committed to supporting our cities and regions to invest in their own net zero transitions, and are in the process of developing innovative mechanisms such as the Green Growth Accelerator model to unlock additional investment by local authorities.
Our Infrastructure Investment Plan, published in draft last month, invites views on the strategic priorities for the next 5 years, including the importance of infrastructure enabling our net zero emissions economy and environmental sustainability. We will introduce a sustainable investment hierarchy that enhances and maintains our existing assets ahead of building new, and encourage digital innovation, nature based solutions and circular economy practices where possible.
Under our Investment Plan, we will fund a number of initiatives, addressing both emissions reduction and climate resilience, including greening public sector fleet, active travel, net zero emissions homes, flood risk management, woodland creation and peatland restoration.
While these represent a significant contribution towards the required public spending to get us to net zero, the Scottish Government does not have access to the full range of fiscal powers required to reach the scale required, and so in June we set out our proposal for a new approach to the UK Government’s fiscal path, including for an £80bn fiscal stimulus that should rapidly shift focus to delivering the transition to net zero while reducing inequality and improving wellbeing.
However, it will be from the private sector that much of the investment will need to come. We want to work with businesses and the financial sector to develop effective transition plan frameworks, mobilise investment and showcase investment opportunities in Scotland. In September we launched the first phase of our Green Investment Portfolio which brings together a suite of investment ready propositions from the public and private sector that are seeking private investment. These projects will help us to decarbonise, whilst also bringing in private capital investment and jobs to Scotland.
Most ambitiously of all, later this year we are launching the Scottish National Investment Bank, and have committed to providing £2bn of public capital over the next decade. The Bank will give commercial funding to activities with the purpose of promoting or sustaining economic development in Scotland, and with the just transition to net zero as its primary mission. The Bank will support the new technologies, projects and infrastructure that will put Scotland at the very forefront of the transition to net zero. I would encourage investors looking to combine awareness of climate risk with social impact to engage with the Bank as it begins its work later this year.
The road to COP26
Scotland is already a global leader in tackling climate change and we are excited to share our experience and opportunities for a just transition to net zero economy with the world. We look forward to welcoming you at the end of 2021 for COP26, to plan a green recovery for the global economy and drive global ambition to address the Climate Emergency together.
We hope that you will leave COP26 in Glasgow that having seen first-hand what our climate ambitions are doing for the low-carbon economy, and that many of you will join us in investing in the thriving, net zero future that Scotland is creating.
This essay originally appeared in the Social Market Foundation and Chartered Banker Institute’s “Pathway to COP26” essay collection.
