The Scottish Government plans to invest over £4 billion this financial year on infrastructure like homes, roads and rail. This capital spending will rise even further in future years, according to the government’s plans in its Programme for Government 2018-19.
This blogpost explores what we know about the effect of capital infrastructure spending on Scotland’s greenhouse gas emissions. It summarises a SPICe paper commissioned by the Environment, Climate Change and Land Reform (ECCLR) Committee during pre-budget scrutiny.
What is capital spend?
- Under UK fiscal rules, capital budgets may only be used to support long-term investment or maintenance that will extend the life of existing assets such as bridges or hospitals, and cannot be used to fund additional “day-to-day” revenue spend.
- The block grant from the UK Government is the main source of capital funds.
- Capital spend represents around 14% of this year’s Scottish budget.
- The capital budget is 10.3% greater this year compared with last year (in real terms), and budgets are expected to rise again in 2019-20.
- Local authorities were allocated almost 20% of this year’s capital budget.
Why are capital budgets important in tackling climate change?
“infrastructure that countries and cities construct today will lock in economic and climate benefits – or costs – for decades to come“
The quote above is from a 2017 paper prepared by London School of Economics and PwC for an international partnership of research institutes called the New Climate Economy project.
Capital budgets are important in tackling climate change, because investment choices made today will influence people’s behaviours across many years, and thereby lock-in a pattern of future emissions.
What is the climate impact of current infrastructure plans?
We don’t really know.
The current carbon assessment of the budget, produced by the Scottish Government, provides a “snapshot” of the greenhouse gases embedded into the goods and services (e.g. concrete, steel, transport) that will be bought by the capital budgets being spent that year. The current assessment does not make any attempt to work out the longer-term effect – for example, will this investment lock in higher or lower carbon behaviour. Doing such a calculation with accuracy and precision would be impossible, but efforts to provide a broad estimate are on-going.
New approaches: high to low
At the start of 2018, the Scottish Government published a novel analysis broadly categorising infrastructure spend in 2017-18 and planned infrastructure spend in 2018-19 as either low, neutral or high carbon.
Source: Scottish Government letter to Finance and Constitution Committee, 19 January 2018
Associated with this analysis, was a commitment stated at the Stage 1 budget debate by the Cabinet Secretary for Finance that the Scottish Government would “continue to increase, year on year, the proportion of our capital budget that is spent on low-carbon projects beyond this year’s budget.” This was repeated and clarified by the Cabinet Secretary to the ECCLR Committee during pre-budget scrutiny.
Exploring longer-term trends
Capital budgets move around substantially from year to year and total figures can be strongly influenced by one or two major phases of expenditure. Therefore, to understand the carbon impact of infrastructure plans, it is useful to take a longer-term view.
SPICe took the Scottish Government’s methodology and applied it to three sets of high-level financial information available for infrastructure projects where the Scottish Government has a lead role in procurement or funding:
- Projects completed since May 2007.
- Projects currently in construction (as at March 2018)
- Project in the pipeline (according to the Project Pipeline Update, March 2018)
The analysis categorises the expected climate impact of past, present and future infrastructure projects at a very high level as broadly positive, negative or neutral. It takes no account of any detailed carbon impact assessments.
Source: Infrastructure Investment Plan 2015 Project Pipeline Update (March 2018); SPICe analysis.
With the available data it is difficult to identify a consistent timeline. However, superficially, the above analysis would appear to suggest:
- 15% of operational (i.e. completed) public infrastructure investments since 2007 (where the Scottish Government has a lead role in procurement or funding) has been on projects broadly classified as low carbon. However, with 43% of those projects that are “in construction” being low carbon, the total proportion of low carbon projects would look set to increase.
- The proportion of spend on low carbon projects in future capital plans looks to be around 20%, meaning that (on the basis of these figures) there will be a small long-term shift towards low carbon projects, but that the overall proportion will be less than the low carbon proportion in construction today.
- The future trend for investment in high carbon projects looks set to be an increase. The proportion of projects in future capital plans categorised as high carbon looks to be 39%. This figure is based in the March 2018 Pipeline Update and does not account for announcements made in the Programme for Government as no further detailed information is available at present. The next Pipeline Update is expected in the Autumn.
Exploring local authority data
Local authorities fund their infrastructure investment though a variety of means including capital grants from the Scottish Government and borrowing. Local authorities were allocated almost 20% of this year’s Scottish Government capital budget.
SPICe looked at local authority capital plans for 2018-19 and applied the same methodology – categorising investments as broadly positive, negative or neutral.
Source: local authority capital plans, SPICe analysis
- The Shetland and Orkney island authorities’ plans include the highest proportion of investment categorised as low carbon. The vast majority of that low carbon investment is in harbour and ferry infrastructure.
- Scottish Borders Council is third, with significant investments in the waste and home energy efficiency categories.
- Stirling is the highest ranked city authority as a result of investment in LED lighting as well as energy efficiency and rail.
- Falkirk, North Lanarkshire, Glasgow and Perth & Kinross have the highest proportions of investment categorised as high carbon. In all cases this is a result of proportionately high levels of investment categorised as road or airport investment.
How might this issue develop?
This approach to assessing the carbon impact of capital investment is experimental and at very high level. It is unlikely to be appropriate for carbon management at an individual project level, but a refined version may be appropriate for broad “direction of travel” assessments at a national or portfolio level.
ECCLR Committee made a number of recommendations in its pre-budget letter related to climate change and investment decisions, and a response is expected from the Scottish Government later in the budget process.