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4. Outline of Benefits and Costs
4.1.1. This section contains a high level discussion of the illustrative costs and benefits of delivering the objective to reduce Scotland's emissions. Though there have been some economic analyses of the costs and benefits of reducing emissions at a global and UK level, which are mentioned throughout this initial RIA, there are currently limited data specific to Scotland. We are currently exploring the options for carrying out an analysis of the costs to the Scottish economy of meeting an 80% emissions reduction target, in order to develop a more detailed assessment for the final Regulatory Impact Assessment.
4.2. Benefits
4.2.1. The benefits of introducing a framework to reduce Scotland's contribution to global climate change are clear: to assist in the minimisation of the unavoidable effects of climate change, to provide further certainty for business and households, and to promote conditions for international cooperation. While a range of climate change mitigation policies have been introduced, "global GHG emissions will continue to grow over the next few decades" as "the scale of such measures… have not yet been large enough." 6
4.2.2. These benefits, if global action is taken, include reducing the risk of the most severe consequences of climate change: increase in drought-affected areas and flood risk, major changes to ecosystem structure and function, decreased crop productivity and food production, increased coastal erosion, and health implications. This also includes increased risks of more frequent winter floods, endangered ecosystems and increasing ground instability in Scotland. 7 The Stern Review on the Economics of Climate Change concluded that to do nothing is estimated to mean a 5-20% reduction in global GDP, now and forever.
4.2.3. There is the possibility that policies impacting on climate change could change with a change in administration. This Bill will help to remove uncertainties this might produce by ensuring that low emissions policies must be pursued by every administration, regardless of political persuasion. Enshrining targets in legislation in this way will therefore increase certainty for households and particularly firms investing in Scotland, when coupled with the implementation of credible policies which clearly demonstrate capacity to deliver these objectives. This clear signal may help Scottish firms to gain a first mover advantage, potentially becoming European and global market leaders in developing climate change solutions.
4.2.4. Scotland understands that action solely on its part will do very little to mitigate climate change, as Scotland's emissions are such a small proportion of global emissions, and will only lead to benefits if there is global effort. By placing domestic commitments in statute, the Scottish Government would be signalling its intention to build a low emissions economy and not to free ride on any commitments of other countries. This may help to influence overall global outcomes, particularly if the strategy is replicated by others, for example across the wider EU. This leadership must come from developed nations such as Scotland because they have been responsible for the majority of the historic rise in GHG concentrations and generally have higher per capita emissions. They also have the necessary income levels and technological capacity to lead the necessary investment.
4.2.5. The Stern Review states that tackling climate change is the pro-growth strategy for the longer term as the transition to a low carbon economy will bring business opportunities. For example, global markets for low carbon energy products are estimated to be worth at least $500 billion by 2050. A recent report published by the CBI Climate Change Task Force estimates that if government agrees to an international framework to limit carbon emissions, the global market for climate change solutions could be worth $1trn in the first five years 8. Scotland's economy may be well placed to build on its strengths in these areas, including the development of low carbon technologies.
4.3. Costs
4.3.1. It is important to note that a draft Bill will not provide either the precise trajectory or policy mix for achieving emissions reductions, but instead creates a framework for managing the transition towards a low carbon economy. As emissions budgets are set and policies developed, full impact assessments will need to be carried out in detail.
4.3.2 Pending the availability of Scotland-specific economic analysis, it is relevant to note that the UK Bill Impact Assessment, which draws upon both the Stern Review and the analysis conducted for the 2007 UK Energy White Paper, has analysed the macroeconomic costs for a 60% and 80% CO 2 reduction targets for the UK. The analysis indicates that the long run costs of achieving a 60% CO 2 target in the UK are around 0.7% of GDP by 2050, falling to 0.3% of GDP by 2050 depending on the fossil fuel price scenario, and rising to 1.5% of GDP if low carbon technologies are not available. The potential long run cost of an 80% CO 2 target is estimated to be between 1.1% and 2.6% of GDP by 2050 9. These results are comparable to those in the Stern Review, which estimated that the long run costs of global action to stabilise GHG concentrations at 550ppm CO 2e are likely to be around 1% of global GDP by 2050, within a range of +/-3%. 10
4.3.2. The costs of climate change mitigation policies are likely to be unevenly distributed across sectors and households. 11 These distributional impacts will be affected by the extent to which Scotland acts unilaterally and by the particular policy mechanisms used in each sector. Energy intensive sectors which are highly exposed to international competition are likely to experience the most adverse impacts on output and employment. This is also likely to be the case if UK policies are not well-aligned to Scottish policies as Scotland is a relatively open economy with the rest of the UK. This would likely result in some structural adjustments in the economy, with output and employment re-allocated from energy intensive to non-energy intensive sectors. 12 The effect of mitigation policies on less energy intensive areas of the economy is likely to be limited.
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