Economy, Energy and Fair Work Committee

Meeting date: Tuesday, February 16, 2021

Official Report 660KB pdf

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Climate Change Plan

Item 2 is an evidence session on the climate change plan. Our witnesses are Paul Wheelhouse, the Minister for Energy, Connectivity and the Islands, and his Scottish Government officials Ragne Low, team leader in heat policy; Neal Rafferty, head of electricity policy and large-scale renewables; Sasha Maguire, senior economic adviser; Scott Bradley, head of oil and gas and industrial decarbonisation unit; and David Mallon, head of unit in the climate change division.

I invite the minister to make a brief opening statement.

Thank you, convener. Good morning, colleagues.

I welcome the opportunity to discuss the energy sector content of the climate change plan update. Although the targets in the plan are undoubtedly challenging, it is worth remembering that the policies that it contains set us on the right pathway towards achieving them. The CCPU will help to ensure that our transition to net zero is geared to being a just one that creates jobs and enables a green economic recovery from Covid-19.

Although we can achieve much through devolved policies, progress towards our ambitious net zero targets will be at risk without the right policy and regulatory action on the part of the United Kingdom Government in some key areas. That is why we have committed to continuing to push the UK Government on the many barriers that currently prevent Scotland from reaching our full potential. We have a positive working relationship at ministerial and official levels, but we have had to force the pace in some areas.

I will take each CCPU chapter in turn. The first is electricity generation, in which we have made excellent progress. In 2019, Scotland’s renewable electricity output was equivalent to 90 per cent of our gross electricity consumption. However, the growth that we have seen in recent years—with the exception of the first half of 2020, when Covid-19 disrupted projects—will need to continue and accelerate if electricity is to play its full part in decarbonising our energy-intensive industries, heat in buildings and, of course, transport.

All legislation on the regulation of electricity markets is a reserved policy area, which means that we need the UK Government to play its part and deliver the required radical policies and changes to regulation. Issues include support for new pumped storage hydro capacity, for which some key projects are already consented and waiting for a route to market; approaches to network charging and investment; and the right market incentives for renewable and zero carbon electricity.

Heat accounts for more than half of the electricity that Scotland consumes. As outlined in the CCPU, our vision for heat in buildings and energy efficiency is the transformation of more than 1 million homes and an estimated 50,000 non-domestic buildings to use of low or zero emissions heating systems by 2030. That level of investment is without precedent in modern times, and it presents a clear green recovery opportunity as well.

Our recently published draft heat and buildings strategy provides more detail on the near-term actions that the Scottish Government is taking to deliver the pathway for achieving that target. We estimate that we will require a whole-economy investment in the region of £17 billion over the next decade. Those actions and investments will support thousands of green jobs across the energy efficiency and heat sector and the wider supply chain, reflecting our ambition for a just transition to net zero.

Industry has a role to play in achieving our net zero ambitions. That issue is often overlooked, so I am pleased that the committee has taken time to look at it. To meet the pathway that is set out in the CCPU, by 2032, industrial emissions must decrease by more than 40 per cent compared with 2018 levels, while Scottish industry is kept globally competitive and sustainable.

We know that negative emission technologies—known as NETs—such as bioenergy with carbon capture and storage and direct air capture with carbon storage will be vital. The plan update sets out our ambitions to research and develop NETs while recognising the major challenges and the need for constant review.

There is a significant risk that decarbonising faster than the rest of the UK and Europe could lead to carbon leakage. Support for investment and a level regulatory playing field are both required. That is why a strategic, whole-system approach to decarbonising industry offers the opportunity for Scottish business to expand into global markets and to deliver long-term carbon growth.

I appreciate the opportunity to make those opening remarks. I am happy to take questions.

Thank you, minister.

The goal is net zero. Has the Scottish Government made a detailed assessment of renewable capacity and set a clear pathway towards 2045? The Climate Change Committee has said that that will be necessary.

That is a good point. I often say that we must, in effect, double the amount of renewable electricity that we generate in Scotland to achieve our wider decarbonisation goals. There will always be uncertainty about precisely how much renewable electricity will be required, and from which technologies we will require it. Much will depend on the choices that we make about the decarbonisation of heat, transport and industry, and on the degree to which there is technological innovation.

Our strong expectation is that Scotland will need significant and accelerated growth in renewable electricity capacity. That is also true for the UK as a whole. Our initial assessment, as set out in the climate change plan update, is that we will require between 11GW and 16GW of capacity by 2032. We currently have just under 12GW of renewable electricity capacity. We will carry out more detailed analysis in the coming year. If we are re-elected, we intend to refresh Scotland’s energy strategy later this year and develop an electricity generation policy statement.

We will also look at the range of sources of electricity. We estimate the quantum as being between 11GW and 16GW of new capacity over the lifetime of the net zero strategy.

What about the factors that could stand in the way of achieving those goals? Some people would say that planning procedures are too cumbersome and slow things down; others would be concerned that any consenting process that moved too quickly could lead to undesirable development that might have negative environmental impacts in other ways. What is the Government doing to assess those practical issues?

That is a fair comment. The consenting process has a key role to play in enabling the delivery of new onshore and offshore capacity and in the provision of overhead and underground electricity transmission cables and distribution networks. Those are all vital parts of the system that we are trying to create.

There has been steady progress in improving the speed of consideration of consenting decisions. The time that is taken has gone from more than 50 weeks some years ago to between 26 and 29 weeks now—I will come back to the committee with detailed figures. That is an important part of the process.

You are right to focus on the need for rigour. We are doing all that we can to improve the speed of the process, but we need help from developers. They are required to take many steps, and that can have a negative impact on the pace at which decisions are taken. There is a balance to strike, and we need developers to play their part. We should work together, as we have done in the past to meet option round deadlines for contracts for difference. We have worked back from deadlines with developers to let them know when we need key pieces of information to be in place, so that they can have consent—if we are able to give it—in time for participation in option rounds.

There are things that we can do, but you are right that we must do them in a way that does not throw the baby out with the bath water—the process must have rigour and ensure the right of communities to be engaged.

The process has key steps. If a statutory consultee such as a local authority maintains an objection, a public local inquiry will be required, which can add significant time. Such things are mandatory and we cannot circumvent them; we must allow the time to be taken. However, we are working hard in the energy consents unit under Marine Scotland to do all that we can to work with the industry and speed up the process where we can.

I look to you to see whether you want to pick up on other key barriers later, convener. In relation to the transmission and distribution networks, procedures that involve the regulator—the Office of Gas and Electricity Markets—govern the needs case for interconnectors to our islands, for example, which can unlock the potential of island groups. Progress has been made in relation to Shetland, but we still await positive decisions for the Western Isles and Orkney.

We are increasingly concerned not so much about Ofgem’s policy position as about its capacity to deal with what is likely to be a large quantum of decisions on grid investment around the UK, including in Scotland, as we seek to connect offshore wind sites that we wish to develop. As you might know, we have a target of 11GW of offshore wind capacity by 2030, and significant investment will be required in the grid to enable such projects to connect to the grid and transmit their power to the Great Britain network.

A number of barriers are in place. Some are physical, such as the grid, and others involve the route to market, which affects pumped hydro storage and marine energy. Until recently, the lack of access to the CFD option process for onshore wind presented a challenge to that sector, but I am pleased that the UK Government has opened up pot 1 for onshore wind projects again.

I could talk for quite a while on the barriers that we face, but I will take your guidance, convener.

Perhaps we can all keep our questions focused and to the point; I ask the minister to do the same with his answers.

I will stick with planning. The committee has heard from people who say that the planning process is fairly cumbersome and takes a long time. They feel that, if we are to hit the targets, something needs to be done. I will come back to that.

A linked issue is community and local ownership. The Government did not hit the target that it was aiming for in 2020. Do you believe that there is a link? My experience is that many community organisations have seen the success of community ownership on land but find that developers do not necessarily want to engage with them and that accessing resources is difficult. Has the Government looked at that? Is community ownership a key part of your strategy?

That question is important. On your latter point, our aspirations absolutely are to increase the share of projects that have a community or local ownership component or are entirely community or locally owned, and to have more shared revenue options.

We have an aspiration for about half of all planning decisions to involve a shared revenue model or community or local ownership. That is important because it helps to regenerate communities and empowers them with their own revenue stream, which gives them the freedom to do what they wish locally. We have great examples from the Western Isles and other parts of Scotland—for example, Stòras Uibhist in South Uist, which Mr Rowley might be aware of, has a project to unlock £20 million-plus of net revenue for the community, which will allow it to invest in business facilities, upgraded harbour facilities, an access road and social housing.

Berwickshire Housing Association, in my area, has invested in three turbines—known as the fisherman three—and has generated more than £20 million through its feed-in tariff contract to invest in what is believed to be up to 500 affordable homes in the Berwickshire area of the Scottish Borders, which is about a third of the Borders social housing requirement. Those are all great opportunities.

09:45  

Obviously, it can be daunting when communities are faced with several applications in their area, and engaging with developers can be challenging. We give support to communities in those circumstances through the community and renewable energy scheme—CARES—fund, which is administered by Local Energy Scotland on our behalf. That can provide professional support to local communities to help them to negotiate with developers. It can be quite challenging to reach out to developers around community benefit decisions that might be taken at a local level by the developer, and it can be daunting for volunteers in that context to take on discussions with what can often be large companies, so the communities are helped to engage with that process.

We are aware of the need to help communities to cope with all that—hence CARES’ successful support for communities around Cumnock, for example, with a number of projects that they faced simultaneously. I stress that not all projects will necessarily go through planning, because decisions are made on a case-by-case basis. It is not presumed that all projects will go through, but communities have a bit of professional support to engage with developers. Through CARES, we can also help the community to develop its own community energy project and then provide support to it to obtain commercial finance to fund the project. I am happy to give more details to the committee, if that would be of interest, about the support that we have in place for communities.

Thank you. It is an important area, because community ownership of renewables also creates community buy-in. My experience is that there are barriers to that, so perhaps the minister can give me some information on it. I link that to planning, because if there is community buy-in, developments will move much faster.

Will the delay to the national planning framework 4 impact on the ability to tackle climate change and achieve net zero emissions? Will it make achieving net zero emissions a material consideration in the planning process? If so, what would that be?

It is important to identify NPF4. Mr Rowley is correct that it will be a key policy document that will be used extensively in planning. Our NPF4 position statement is explicit about the shift that is needed to achieve net zero and about the “significant choices” that must be made. It highlights the need to support renewable developments—including the repowering of existing sites when new technology allows sites to have more efficient technology—and the extension of existing developments, and the need for new and upgraded grid capacity and carbon capture and storage, which will provide a good opportunity for Scotland to achieve a just transition, too.

We continue to engage closely with stakeholders ahead of the fuller consultation in the autumn, following the election. The position statement was produced to try to set out the key principles that will be applied in NPF4. One that we have definitely set out is that we believe that a shift is needed to achieve net zero, and that will be reflected in NPF4, subject to the consultation, of course.

What work is the Scottish Government undertaking to ensure that the offshore grid connections are co-ordinated and are not just point to point?

Again, that is an extremely important question, for two reasons. First, the more complex the grids that are required for connecting offshore wind sites, the more challenges there are with other marine users, such as the fishing community, given their static gear and interactions with their fishing grounds. We are mindful of that and have had good engagement with the Scottish Fishermen’s Federation through Mr Ewing, Mairi Gougeon previously and now Mr Macpherson, and me.

We are also aware of the cost grounds. Obviously, it makes a huge difference to the viability of projects if reductions can be made in the cost of the transmission infrastructure that is required to take the power from the offshore site to shore. If we can use that more efficiently, we will be able to save significant funding and make it more cost effective to develop new offshore wind sites.

In the years to come, as we look to develop our ability to produce green hydrogen offshore, that will also be helpful to the likes of the oil and gas sector and other—[Interruption.]

Bless you, convener.

Thank you.

That will be helpful in trying to develop the infrastructure that is required.

The current approach needs to be reformed. We had positive discussions with Kwasi Kwarteng before he was promoted to Secretary of State for Business, Energy and Industrial Strategy, and I am sure that he will maintain his interest in the area. We will now look to engage and work with Anne-Marie Trevelyan, who is the new UK Minister for Business, Energy and Clean Growth. Work was initially started at UK level, but the Scottish Government is now an important contributor to those discussions. We will also engage with Scottish stakeholders on what we can do to ensure that co-ordination is as good as possible.

This morning, I drove past the infrastructure works that are currently under way at Torness power station to connect the Neart na Gaoithe offshore wind site just off the coast of Fife. That is a sign that investment is already taking place. We need to ensure that those connections are timely, because there is a risk that, if we do not get that investment, the projects that are currently going through the ScotWind process might be delayed because of lack of access to grids in the early 2030s. That is a concern that we have to address.

We need to engage with local communities to get buy-in from them on the importance of the projects and do what we can to mitigate any concerns that they have. We think that there is a strong case to have much of the grid development and auctioneering take place in parallel with the leasing process, rather than subsequently, because it sometimes seems to be a bit of an afterthought. That is one of the key issues that we will look at in more detail.

You have just spoken about the need for grid connections and for renewables to have access to grids. Another aspect to consider is grid charging. In evidence, SSE told the committee that

“the Office of Gas and Electricity Markets uses a ... complicated methodology”

that is

“heavily skewed towards southern projects and away from Scottish projects, for which the cost in energy terms has a premium of about £3 per megawatt hour.”—[Official Report, Economy, Energy and Fair Work Committee, 19 January 2021; c 3.]

In your opening remarks, you mentioned that the UK Government has to change some policies and regulations. What needs to change in order that we can continue the investment in renewable generation?

That is a hugely important point. The Scottish Offshore Wind Energy Council, the energy networks strategic leadership group and the Scottish energy advisory board have regularly discussed not only the need for decisions around good investment but the fairness of the charging regime. Unfortunately, developers are charged a premium when they connect into the north of Scotland in particular, which is one of the most expensive parts of the network in that regard. Of course, that area of policy is reserved. We respect that but, nevertheless, we have for many years been pressing for a fairer system that works with, rather than against, Scotland’s huge renewables potential.

It is obviously in the interests of the UK Government—and, we believe, in the interests of customers in Great Britain—for wind energy to be produced in the most efficient locations. Scotland is a wonderful country but, as we all know to our cost, we have a very strong wind regime. That is positive, as it generates energy, and negative, in terms of the weather that we face as individuals. We have a good wind regime with strong average wind speeds, which means that we have in Scotland some of the most efficient wind energy sites anywhere in the world. For many years, we have been pressing for the transmission charging regime to reflect that.

You mentioned SSE. This week, Scottish and Southern Electricity Networks Transmission and Scottish Renewables published a new analysis that supports our concern that transmission charges in the north of Scotland

“are higher than the rest of GB”

and remain “volatile and unpredictable”, which does not help developers in securing finance. The consequences of that are perhaps a disincentive to invest in renewable generation at a time when the need for such investment could not be greater—we have talked about the net zero emissions target and the climate emergency. It will be vital not just for us in Scotland but for the UK Government.

In addition, there are clear concerns that the investment risks that are inherent in such a system could result in higher costs for consumers, rather than delivering benefits. We appear to have a charging system that acts against the renewables development that the Scottish Government and the UK Government want to see much more of.

If we are to develop hydrogen technology in Scotland, for example—taking advantage of the opportunities to generate green hydrogen, for which there is strong support across the Parliament—we need to consider the current system under which, as I understand it, a facility is charged full whack for connecting to the grid, regardless of how much power is used to produce green hydrogen at that site. It may be that most of the power for a site could theoretically be used to generate green hydrogen, but full transmission charges will apply if 100 per cent of the power goes through the transmission network. To my mind, that does not really stack up as fair, and we need to put in place a more dynamic and nuanced system.

We have had discussions with Jonathan Brearley of Ofgem, and Frances Warburton from Ofgem is on our energy networks strategic leadership group. It is helpful to have that dialogue with the regulator. We believe that that is a key step that the UK Government could take to help, giving direction to Ofgem to address that perceived and actual unfairness. I would be loth to use specific developers’ figures but we know that, in the most recent option round, some developers felt that transmission charging alone was sufficient to knock them out of the option.

There is also a risk that charges under the transmission network use of system—TNUOS—charging regime are distorting the market for offshore wind, and I do not imagine that UK ministers would be happy with that, either.

The Scottish Government has called for Ofgem’s function to change so that it has a statutory objective to support the delivery of net zero. What changes in governance would you like to help to deliver net zero?

You are absolutely right that we have called on UK ministers to formally change Ofgem’s remit. That is for a very practical reason. In a recent discussion on the RIIO-2 determination with Ofgem—under the revenue = incentives + innovation + outputs model—on the transmission infrastructure investment needs of the GB network in future, it was obvious that Ofgem is fulfilling its statutory remit and is closely examining the impact of costs on consumers.

We know that Ofgem is sympathetic to the points that we are making on the need to target net zero, but decisions could have taken place in the July draft determination that would have had a significant impact in delaying Government investment and the Government’s achievement of targets in areas such as transport decarbonisation through an impact on specific projects. For example, at least one of the distribution network operators was concerned about the impact on rail electrification of a draft decision that Ofgem had put in place that would have prevented the operator from investing in a timely way to facilitate Mr Matheson’s objectives for rail decarbonisation. Some very practical things arose in discussion.

I suppose that some things are largely based on the slightly risk-averse approach that Ofgem has to take in protecting consumers against short-term increases in cost. We argue that doing that potentially locks in higher costs for consumers down the line by not allowing investment to happen in a timely way. We have tried to encourage Ofgem to take a view on allowing greater investment to take place in grid, ahead of investment in wind generation and other renewable generation sites. That is a key area.

We have had some encouragement, and I am pleased to note that the UK Government appears to be listening to that kind of logic. The UK energy white paper acknowledged that the governance of the system needs to change and to shift away from a model that perhaps reflects what would fairly have been the situation 30 years ago, say, rather than reflecting what it needs to reflect now to target the net zero goals and to achieve the targets that we have in place for 2045 and 2050 for Scotland and the UK respectively.

We need that to be recognised, and we need to support local energy markets and systems, which are a new feature of decarbonisation, ensuring that the bodies concerned are best placed to oversee those systems and that they are geared up to do that in the context of a climate emergency.

We are keen to see further detail on what the UK Government will propose, but we are supportive of the direction of travel, and we will continue to press for Scottish interests and ambitions to be fully taken into account. I should stress that that is no criticism of the personnel at Ofgem. Ofgem is doing what it is set up to do in statutory terms, but we want the statutory terms to change to formally reflect the need to tackle the climate emergency.

10:00  

SSE has proposed a net zero delivery plan to monitor progress with an update each year. What improvements could be made to the annual energy statement and climate change delivery plans to show clear progress in the relevant sectors?

We recognise those calls. There is an old saying that what gets measured gets done. The annual energy statement is important to enable us to monitor progress on our targets, particularly in areas where we have faced challenges, such as heat. We need to up our game on that as a society and our targets need to be chased hard. We intend to do that.

There is uncertainty because the Scottish Parliament elections are coming, and I do not want to take anything for granted but, if we are re-elected, we intend to refresh the energy strategy later this year. That would take on board the climate change plan update and the new pathways such as industrial decarbonisation, and would ensure that we are up to date on policy developments in areas such as hydrogen. There have been changing market conditions in the renewables sector and huge progress has been made in areas such as solar energy, which is much cheaper than it used to be.

We will need to carry out appropriate consultation with stakeholders, the Scottish energy advisory board and all the strategic leadership groups and other ministerial groups that sit under that so that we take as much advice from the professionals and stakeholders as we can. We will then develop a clear route map for the energy sector’s transition to net zero.

If changes are needed to the annual energy statement to provide a monitoring tool for that, we will make those changes to reflect the shape of the energy strategy as it then sits. We will also take guidance from the committee on areas that members would welcome being considered as part of the annual energy statement to add to what we already have.

What work has the Scottish Government undertaken to quantify and mitigate emissions from products that are consumed domestically, rather than just from their production?

That is an important area. I am sure that the committee is aware that we monitor our carbon footprint as well as our production emissions in Scotland. Most of the focus is, naturally, on Scotland’s production emissions—the greenhouse gas targets that we tend to refer to with the net zero target for 2045. However, it is clear that we also need to monitor our footprint, including internationally, because we consume many products from around the world.

A research study is under way to identify policy opportunities for the Scottish Government to influence domestic demand from consumers, businesses and the public sector for a range of manufactured goods that can demonstrate lower carbon intensity than their competitor products. It frustrates me that we often see imported products supplanting those that have been manufactured in Scotland, with the buyer not taking into account what may in some cases be hideously higher CO₂ emissions from producing those goods abroad than our domestic producers create at home.

We need to find a way to incentivise investment to decarbonise Scotland’s existing energy-intensive and manufacturing industries, to prevent carbon leakage so that they do not lose their competitive edge compared with others elsewhere and to support the development of new low-carbon products and industries. A net zero report from the Climate Change Committee in 2019 emphasised the need for the Government to implement an approach that incentivises domestic industries to reduce their emissions in ways that do not adversely affect their competitiveness.

We understand that driving end-user demand for lower-carbon products in Scottish public procurement and consumer decisions can help to create a level playing field for industries that invest in decarbonising their process. In effect, that will reward them for doing what we need to do to improve the climate change mitigation performance of the Scottish economy while helping to safeguard manufacturing jobs and skills in Scotland as a consequence. It is not easy to do that, but we are mindful that we need to do it.

We need to look at public procurement as well as behaviour change by individuals and businesses to make them more conscious of where they procure their products so that they consider that actively. Whether it is through labelling or other means, we want to help them to buy products that, in their manufacturing and operation, are lower carbon than products that they have bought previously. In those ways, we can help businesses in Scotland, the rest of the UK and Europe that are more progressive in that respect—compared with other markets where the issues are taken less seriously—to win the work.

Consumers tend to purchase goods based as much on price as anything else. If, as is implied here, costs are simply being passed on to consumers, what will be the implications for a just transition?

That is a hugely significant issue, because we are mindful of our strong push towards decarbonisation, but not everybody can afford that. Therefore, we have to put in place mechanisms that, as well as supporting consumers, support businesses to take on the task of investing in retooling for lower-carbon production methods.

There are some targeted measures. Domestic heating is a good example. For those who face the most severe fuel poverty, we have area-based schemes to provide not loan funding but grant funding of up to £12,000 per premises to help people to decarbonise their heating systems. That reflects the fact that those people are challenged financially. They might want to do the right thing, but they cannot afford to do it, and we need to help them.

We are also putting in place a range of measures such as cashback payments for households with higher incomes who can afford to invest in loan finance from the Scottish Government, through Home Energy Scotland. To incentivise investment, we can provide them with cashback of up to 75 per cent of the amount that they are borrowing. It is an important area, and, if it would be of interest, we could provide more information to the committee on the range of schemes available to help different target groups.

The member is right that behaviour change is a huge part of achieving the targets in our draft climate change plan update. We need to engage consumers, whether they are businesses or individuals, to help us with that task. Not everybody can afford to make the changes, so one target is to incentivise those who can afford to do that, and providing financial support to those who cannot afford it is another.

Timescales are exceptionally tight for decarbonising the industrial sector. Given that the Chemical Industries Association and the Mineral Products Association have raised concerns about operating costs and the lack of a business case for decarbonisation, is it realistic to expect emissions to reduce by 43 per cent by 2032?

It is a huge challenge—you are absolutely right—and we certainly understand that. We recently published research on deep decarbonisation pathways for Scottish industries, which found, more positively, that it would be technically feasible to reduce industrial emissions in Scotland by more than 80 per cent compared with 2018 levels by 2045. However, that would require additional efforts to tackle residual emissions, potentially through negative emissions technologies as well as through action in other sectors consistent with a net zero pathway. As the committee might know, in its sixth carbon budget, the Climate Change Committee said that the industry could, in effect, be zero carbon by 2045, so it believes that we can go beyond the 80 per cent reduction.

It is clear that we need to go further and faster if we are to meet the interim targets by 2032. Policy intervention is required to address those key challenges, so I agree with stakeholders’ comments on operating costs and the lack of a business case for decarbonisation. However, as a starting point, our 2020-21 programme for government committed us to an additional £60 million to overcome the challenges for industrial manufacturing in Scotland in transitioning to a low-carbon economy.

I draw your attention to two specific funds within that figure of £60 million. First, there is £34 million for the Scottish industrial energy transformation fund, supporting the deployment of industrial energy efficiency technologies and feasibility studies on sub-sector deep decarbonisation. That fund is in parallel with the UK Government’s industrial energy transformation fund. We got an agreement from the UK minister to carve out funding for Scotland so that we could create our own fund, which gives us the freedom to operate at a faster pace, should we need to, to achieve our targets, which are earlier targets than the UK’s. We also set up the £26 million low-carbon manufacturing challenge fund, which will support innovation in low-carbon technology processes and infrastructure.

We have to reflect on the fact that there is a mix, or balance, of devolved powers and responsibilities. That means that there is a significant risk that decarbonising faster than the rest of the UK could lead to carbon leakage. We therefore need to work closely with the UK Government. We need to support investment on a level regulatory playing field for Scottish businesses.

We are trying to ensure that the industrial sector understands its role in decarbonisation, the opportunities that it can bring and the support that is being offered to manage the transition. It will not be easy, but we are engaging closely with industry on how best it can use the Scottish industrial energy transformation fund and the manufacturing fund to best effect.

Given the concerns that have been raised, what are the implications if the sector is slow to decarbonise?

If that were to happen, there would be a risk. For example, if energy-intensive industries were slow to decarbonise because the uptake of fuel-switching technologies was delayed by slower development timelines or by a lack of available infrastructure or economic incentives—which, in some cases, might need to be provided by the UK Government—the number of sites finding themselves locked in to fossil fuel technologies until after 2045 could become significant. If that were to happen, it would be very challenging to meet Scotland’s net zero target.

The industrial energy transformation fund and the low-carbon manufacturing challenge fund have been provided to help us get that ball rolling and to encourage, through the climate change plan update, the prompt development of the required technologies and deployment of the enabling infrastructure, to avoid that lock-in outcome. In addition, you might be aware that we have launched the £180 million emerging energy technologies fund, which will support development of Scottish hydrogen. About £100 million of that is allocated for hydrogen technologies and £80 million for other technologies, including carbon capture and storage.

That is all to be spent over the next five years. We are trying to pump prime the investment by business. We are working with individual businesses and through Neccus, which is the cluster for carbon capture in Scotland, to ensure that money is targeted in the most effective way to bring forward projects where we can do so.

This is my final question. Does the Scottish Government support the CCC’s proposal for carbon border tariffs and minimum carbon standards to enable decarbonisation while ensuring that jobs are not offshored?

It is an important point. We have a new framework in place with the devolved and UK Governments to discuss matters relating to net zero through a ministerial group, which met recently.

As a Parliament, we have implemented the UK emissions trading scheme with the UK Government and other devolved Administrations, which means that we introduced the statutory instruments to allow that to happen before Brexit took place. As I understand it, the aim of the scheme is to mirror the European Union ETS and to level out the playing field, as recommended by the Climate Change Committee in its carbon budget advice. In particular, the UK ETS would include protections for sectors that are at high risk of carbon leakage, to help them to maintain their competitiveness with companies outwith the UK that do not face equivalent carbon costs.

We support linking the UK ETS to other carbon markets internationally, to create a more effective global carbon market, and we have supported the move towards a level playing field internationally, in negotiations that have taken place under article 6 of the Paris agreement. We will work with the UK Government on the evolution of the UK ETS—it will be a standing item for the ministerial group that I referenced. Work will include reforms to ensure that there genuinely is a level playing field internationally and that our businesses are not disadvantaged.

We can also help to avoid carbon leakage through the funding interventions that I mentioned in answer to the previous question. Our approach is a mixture that includes getting carbon pricing correct as well as giving the right support to business to invest early in new technology.

Thank you.

Minister, I do not wish to dampen your enthusiasm, but we have limited time. You are welcome, of course, to send further detail in writing on any of the matters that have been raised, for the committee’s benefit.

10:15  

With those words ringing in my ears, I will ask just one question. Minister, it is good to see you.

I will follow on from Colin Beattie’s questions. In its written evidence to the committee on the CCPU, Scottish Carbon Capture & Storage said that it had “significant concerns” that the infrastructure investment plan might not be

“fit for purpose”.

Its main contention was that the plan does not consider industrial decarbonisation. We have just talked about that. It said that the plan

“does not adequately consider infrastructure needs relating to CCS and hydrogen, and risks hampering their deployment.”

Scottish Carbon Capture & Storage went on to say:

“We urge the Scottish Parliament”—

not the Scottish Government; those were its words—

“to ensure that infrastructure investment in Scotland aligns fully with Scotland’s climate change targets.”

It said quite a bit more but, in the interests of time, I will not go into that. What is your response to those comments?

Thank you for your opening remarks: I am glad to be here, and I, too, hear the convener’s words ringing in my ears.

We can supply more detail, but clearly I recognise the challenge of achieving what is a really exciting opportunity for Scotland in carbon capture and storage. I have spoken to Professor Stuart Haszeldine and to others who have spoken to you very much on that issue. We need to get the infrastructure and the regulatory framework right. We are working as closely as we can with the UK Government on that, as we have a common interest and goal when it comes to developing the technology.

In Scotland, the Acorn project at the St Fergus gas terminal is a hugely exciting opportunity for us. We are very optimistic that that could be up and running by as early as 2024. If we are able to achieve and accelerate the deployment timescale for the project, which has the potential to store up to 10 megatonnes of CO₂ annually, that would be a huge contribution to decarbonising not only Scotland but potentially the rest of the UK and our European neighbours. It is really important to get that right. We are trying to encourage existing players in the oil and gas sector to invest in the area, which seems to be an opportunity that the industry is really embracing as important to it. It is an important opportunity in the context of the just transition.

I will happily write to the committee, convener, to give Mr Simpson some more detail on what steps we are taking, and about any awareness that we have that the UK Government is taking steps on the regulatory framework. That might best lend itself to being put in a letter, because of the detail that is involved.

I recognise the concern that Mr Simpson has raised. We have to get this right. It is too big an opportunity to miss, and it could do a heck of a lot of good in helping us to decarbonise the Scottish economy and help others to do likewise.

Thank you. That was nice and quick. We can move on, convener.

In that case, I call Richard Lyle.

I, too, will be quick. I will group my questions together. Good morning, minister.

Scotland has a significant advantage, in terms of engineering expertise and geological storage, when it comes to carbon capture and storage, but how can Scotland capture the economic and transition benefits? In addition, although the evidence is, broadly, that new jobs can be created, what do you consider to be a green job, and how will we ensure that workers are reskilled?

That is a hugely important point. I recognise the need to do more to define what a good green job is; I might come on to that.

When it comes to carbon capture, we believe that Scotland has a potential comparative advantage, not only in a huge and important just transition opportunity because we have a mature oil and gas industry, and not just in our skills base because we have hugely talented individuals in the industry, but because we also have the assets, such as completed reservoirs. I am thinking in particular of the Goldeneye reservoir, which is thought to be the best candidate, albeit not the only one, for the storage of CO₂. Carbon capture offers a great opportunity to sustain economic growth in Scotland, particularly as it would provide support to parts of the Scottish economy and Scottish communities that currently depend on oil and gas jobs.

Our climate emergency skills action plan is a key document. It seeks to support reskilling and retraining of skilled workers so that they can access the new, good-quality jobs that will become available. We have a talented oil and gas sector and a world-class supply chain that wins work around the world. We are aware of the challenges that we have in the offshore wind sector. However, our oil and gas sector supply chain ships substantial amounts of capital goods from Scotland to other markets, which provides us with a great foundation to harness the benefits of our energy transition. We want to ensure that projects such as Acorn are successful and that we can reuse legacy oil and gas pipeline infrastructure and assets to store CO₂ safely and permanently.

I replied to Mr Simpson’s earlier points about timescales and the potential scale of the impacts, so I will not repeat those answers. The centre for energy policy at the University of Strathclyde has suggested that, by 2030, anywhere between 7,000 and 45,000 UK jobs could be associated with Scotland’s securing just 40 per cent of the carbon storage element of a European CO₂ management market. We have reason to believe that that is achievable. By 2050, that figure could rise to between 22,000 and 105,000 jobs. I know that there is a lot of scepticism about job numbers. However, those are not the Scottish Government’s numbers; they have been produced by economists. They show the potential prize that exists. For the oil and gas sector in Scotland and its supply chain, that would amount to between 105,000 and 110,000 jobs. That should give the committee a sense of the scale of the potential to provide a just transition for people working in the industry—on top of the benefits of hydrogen, offshore wind and other technologies that generate good green jobs.

To answer Mr Lyle’s question further, I turn to the definition of what makes a good green job. The climate emergency skills action plan covers three categories of job, including new and emerging jobs that relate directly to the transition to net zero—for example, hydrogen cell technicians, carbon monitoring technicians and urban miners. Jobs affected by the transition to net zero that will need enhanced skills or competencies include architects and environmental consultants. Existing jobs that will be needed in greater numbers as a result of the transition include installers, energy assessors, designers and multiskilled on-site operatives. People with other skill sets, such as plumbers and electricians, will increasingly move into such areas. Even in the oil and gas sector, we are likely to see considerable change in the role profiles of individuals who might be working almost entirely in that sector now but who might work part-time or increasingly in other areas, such as offshore wind or electrification of offshore infrastructure, to reduce emissions there.

We could provide more detail if the committee would like us to do so, but I hope that that helps to give a sense of the different types of green job that we are referring to.

That is an excellent insight into what a green job is.

Welcome, minister. The committee took evidence from Professor Haszeldine, who said:

“in Scotland we do not have a clear industrial road map for the circularity of our heat or carbon”.—[Official Report, Economy, Energy and Fair Work Committee, 2 February 2021; c 23.]

How will the Scottish Government ensure that negative emissions technologies remove nearly 25 per cent of gross emissions from our 2032 total without such a plan?

That is an important point. I greatly respect Professor Haszeldine, whose expertise is well recognised not only domestically but internationally. As for the charges that he made—and your legitimate question—about how NETs will remove a quarter of gross emissions over that timescale, that is an important ask. We are confident that it will be technically possible to deliver NETs by the late 2020s, including pilot demonstration projects by 2029 and large-scale installations by 2030.

That is not to say that the process will not be challenging—not least because, in some cases, it will involve new technologies and the need to get significant projects through the planning system, potentially in the face of opposition—[Inaudible.]—anticipate that local communities will see this. In delivering all that, there will be a need to identify and make concrete proposals for NETs quickly and ensure that funding is available for feasibility work and early-stage design, so that we can get things moving quickly and not have barriers in that regard. In advance of the market being ready for such projects, we perhaps need to try to stimulate things early—I know that Mr Golden has a lot of experience in the area of migration.

Much of the responsibility is reserved to the UK Government. We are working with the UK Government on the areas on which it still holds responsibility—for example, policies that relate to the structure of the electricity market, including support mechanisms such as contracts for difference, which could be broadened to pick up some of the new technologies. I am sure that Kwasi Kwarteng, Secretary of State for Business, Energy and Industrial Strategy and Anne-Marie Trevelyan, Minister of State for Business, Energy and Clean Growth, will be considering those things.

Carbon capture and storage will be essential to reach net zero emissions and will be key to industrial decarbonisation. Although it is not a negative carbon emissions technology on its own, CCS enables NETs such as bioenergy, BECS—bioenergy with carbon storage—and direct air capture, which I mentioned earlier. We continue to support the Acorn CCS project at St Fergus, which we hope will be operational by 2024 and able to store more than 5 million tonnes per annum by 2030.

There are also UK funds; the UK Government has a £1 billion carbon capture and storage infrastructure fund. We will support the sector in Scotland to try to access that and we will encourage UK ministers to look kindly on projects in Scotland that could help to move things on. As I mentioned, the £180 million emerging energy technologies fund can support the development of hydrogen and CCS, which might also help.

I appreciate Professor Haszeldine’s concern, which you are voicing. We will seek to pull together much of the information in the updated energy strategy, later this year.

On a slightly separate but related topic, what are your thoughts on the conflict between the burning of wood for biomass and the use of wood by the wood panel sector? In the UK, that sector contributes almost £850 million in gross value added and supports 7,500 jobs. Three of the six sites are in Scotland, but 25 per cent of the UK’s annual basket of wood is used as fuel rather than in manufacturing.

That is an important point, Mr Golden. We have had to do quite a bit of work on that. The United Kingdom forest products industry and fibre panel board industry, along with the Confederation of Forest Industries, which is an interested body in the context of the supply of timber and wood fibre, have raised concerns about the competition between the bioenergy and construction sectors. Fergus Ewing, the Cabinet Secretary for Rural Economy and Tourism, who covers the interests of the timber sector, has engaged with me and we have put out consultations in that regard.

The use of other products, such as draff from distillers, is also a potential concern. If too much draff were used for bioenergy, that might disadvantage farmers who need it for livestock feed, for example—it is a highly nutritious, protein-rich product, which is used to supplement agricultural feed.

We are trying to get those things right and have been considering the development of a bioenergy action plan. That will probably take the form of a position statement, in due course, which will set out some of those concerns. You are right that as we come to develop BECS, for example, we will need to be sure of the feed stock that will be required and that we are planning for it. Otherwise, we will end up with supply shortages that will impact on more than one sector, which will be in nobody’s interest.

We are considering other bioenergy alternatives, including the use of animal byproducts such as slurry and other products that are used for anaerobic digestion—that is another way in which energy can be generated from what would otherwise have been a waste product.

If it would be helpful, we can provide more detail to the committee on the evidence that we have taken so far about those challenges and the steps that we are taking to develop our bioenergy policy. That will feed into the updated energy strategy later in the year.

Do you plan on making a statement on the bioenergy action plan before the end of the current session of the Parliament?

10:30  

I do not think that that is planned, given the constraints on parliamentary time, but we can look to engage with the committee if it would be helpful for us to set out where we are with the plan. It is not yet finalised, but I am conscious of the strong interest in it. We can certainly let the committee know where we are with the policy, and the rough timing of when it will be finalised. That will presumably be after the election—the incoming Government will be able to take on the work at that point. We will get the detail of that to you and to the committee.

Good morning. I have a few questions. A moment ago, you spoke about the industrial decarbonisation issue that we face. Can you say a few words on how we will balance the risks and rewards between Government, industry and consumers, so that everybody gets a slice of the action?

Of course—that is a hugely significant point. A just transition will be an essential core part of any green recovery for the industry sector, and that means supporting industry to transition in a way that is fair and ensures that no one is left behind. We also need to avoid carbon leakage, which can cost people their jobs. As an important part of a just transition, we need to support businesses to migrate across to lower carbon opportunities without losing jobs in the process. We need to position industry to capture what we hope will be growth opportunities from net zero—that could be a positive aspect.

We, as a Government, want to deliver the transition in partnership with industry, as well as with individual places—taking a place-based approach—including regions and, at the micro level, communities. Such a partnership approach has been demonstrated through initiatives such as the Grangemouth future industry board, the Scottish industrial decarbonisation partnership and the Neccus initiative, which are all set out as examples in the current climate change plan update.

Without putting in place substantial economic incentives via the appropriate policies, we cannot expect significant investment in deep decarbonisation. All the industries in scope can expect to incur additional costs of approximately £0.8 billion to £1 billion per year by 2045. We are trying to help businesses to avoid those costs in the future, or at least to manage them earlier.

We can look at what has happened in Scotland so far, and what we have managed to do. The committee might recall Lord Stern’s report, which talked about keeping the costs of decarbonisation to between 1 and 2 per cent of gross domestic product by acting early. That is what we are trying to do as a Parliament and as a society, and we have had some degree of success so far. Nevertheless, we need to try to get early adoption and, over a longer period of time, to bring things in rather than have a project crash and save everything until the last minute.

Where we are criticised for going too slowly, it is—with most of our policies—because we need to allow the supply chain to respond in order to secure jobs locally in Scotland, so that products do not have to be imported from elsewhere, and to allow a planned pipeline of projects to develop so that the industry can respond and build up. Where we have had problems, in areas such as offshore wind, it is because the market has been very lumpy, which has not allowed the industry to respond. That is an example of the just transition not working well and where we need to do better; that is what the Scottish Offshore Wind Energy Council is trying to do for the offshore wind sector.

Just transition principles are important, and I am glad that you raised that point. We have to get the balance right between the prices that the consumer pays for electricity and gas, and the cost to consumers, in terms of their jobs. We need to think about how we protect those jobs—it is no comfort to people if we manage to keep the price of electricity down but they lose their jobs. We have to try to get the balance right across all the different groups: consumers, households, industry and business.

On the back of that answer, I make my usual shameless plug for Ayrshire. How do we ensure that various communities and parts of Scotland benefit from the development of these new industries? I would hate to think that Ayrshire, because it has not traditionally been part of them in the past, will not be part of the new industries of the future. How will the Government ensure that the benefits of the development of new industries will be shared reasonably fairly across Scotland?

It is a huge issue. We have some major investment programmes under way. Very publicly, as members will know, we have committed £1.6 billion to domestic energy efficiency and heating in the next session of Parliament. That is a significant sum but, as I said earlier, it is a subset of the total spend that will be required just for heating and energy efficiency; up to £17 billion might be needed over the next decade to achieve our decarbonisation goals. That means everybody—owner-occupiers, social landlords, Government and public sector bodies—investing in energy-efficient heating. We cannot predict what the funding will be after 2025, but we have committed £1.6 billion of Scottish Government funds so far.

That is one example. That investment should create local jobs. One of the best sectors for creating local jobs is construction and particularly, in this context, construction in the form of retrofitting properties and putting in renewable heating systems. That can generate local jobs; it is also important, in doing so, to build up the supply chain.

As a society, we have let down coal-mining communities such as Ayrshire, Lanarkshire and the Lothians. Such communities were pretty much abandoned by all forms of government during the de-coaling period. Our last coal-fired power station, Longannet, disappeared from the Scottish landscape literally in the past couple of weeks. We need to do better as we transition other sectors into a net zero future.

There are some exciting opportunities, though. If wind farms are going to develop in Scotland, let us ensure that local communities benefit from such developments, for example through developers working with them on shared revenue opportunities. Let us ensure that communities that have aspirations for local energy projects of their own are supported to do that. There are some challenges with the loss of the feed-in tariffs regime, which was important to such projects. Through Local Energy Scotland and other routes, we are trying to find alternative ways to lower the costs for projects to make them viable, perhaps through low-cost finance for the capital expenditure to offset the loss of the revenue support mechanisms. This is all very important. Our local energy policy statement set out some of the issues. These are all aspects of helping communities to win in the green recovery and ensuring that they get the jobs that will come from that. As I said in my previous answer, we want to protect jobs that are already there and allow existing businesses to survive and thrive in a new low-carbon world.

I think that, in response to a question from Colin Beattie, you mentioned a £26 million innovation challenge fund. It is among a number of funds that exist. Could you say a few words about that? I have a company in my constituency that finds it difficult to bring its idea forward to the Government because it is concerned about the loss of intellectual property. Can you see any way to make that process a bit smoother? Might that fund help emerging new companies to get a slice of the action?

That is a good point. I have met one or two companies that have tried to engage with our work on wave energy and have been deterred because they have been unable to guarantee that their intellectual property would be protected. It is not intentional, but there can sometimes be barriers like that that deter companies from engaging with the financial support that we have made available to develop green technology. That is an issue that I could pick up with Ms Hyslop and Mr Ewing, as the cabinet secretaries that cover all three enterprise networks, to see what we can do on research and development funding and other routes to support technology development and small and medium-sized enterprises. If there is a bright potential product for a company in somewhere such as East Ayrshire or North Ayrshire, where we know that we need to stimulate the local economy, it is important that we do everything that we can to support it, within whatever state aid or subsidy control mechanisms now prevail.

The strategic innovation challenge fund is not the fund that I referred to earlier, which is a new fund that is aimed at manufacturing. The proposal for the SICF did not proceed; it was dropped because we developed a number of other funds that we think achieve the same policy objectives, such as the emerging energy technologies fund and the low-carbon manufacturing challenge fund. As I said, I can set out the detail of the funds if that would be helpful.

Thank you.

I thank the minister and his team. The officials were not called on to speak on this occasion, but thank you for being there.

10:40 Meeting suspended.  

10:46 On resuming—