A new report published yesterday has analysed the implications for the Scottish public finances of meeting Scotland’s statutory emissions target to reach net zero by 2045, adapting to climate change and handling the damage it will cause.

Unmitigated climate change would have catastrophic impacts on individuals, businesses and the public finances. In line with the Paris Agreement, both the Scottish and UK Governments are committed to help limit global warming through their own emissions targets. These actions impose costs on the public sector, as will the need to adapt to and deal with damage from climate change.

Based on the balanced pathway scenario set out by the Climate Change Committee, the Scottish Fiscal Commission estimates that the Scottish Government would need to spend an average of £1.1 billion a year to meet net zero, around 18% of its capital budget. These figures do not include the spending required on adaptation and damage from climate change.

The challenge of achieving net zero is shared between the Scottish and UK Governments. The Scottish Government’s funding largely depends on UK Government policy decisions, including how the costs of the transition are split between the private and public sectors. However, the fiscal burden of reaching the UK’s net zero target may fall disproportionately on the Scottish Government because a greater share of the UK reduction in emissions relating to forestry and land use needs to take place in Scotland.

The Commission’s chair, Professor Graeme Roy, said: “What matters for the Scottish budget are the differences between Scotland and the UK. It is clear that one major difference is the greater contribution of forestry and land use in Scotland.

“To better assess the fiscal risks facing the Scottish Government, we need more information from both governments about their plans for tackling all aspects of the climate change challenge.

“Handling not just the achievement of net zero and the future adaptation challenges, but also their fiscal consequences is a shared endeavour that needs to be managed well by both Scottish and UK Governments.”

Net zero secretary Mairi McAllan said: “We are grateful to the SFC for this report. As it states, Scottish and UK net zero targets are intertwined. And in particular, UK targets rely on reforms to forestry and land use – a greater share of which has to take place in Scotland.

“Achieving net zero is an environmental imperative and our moral obligation, as 2023 is confirmed the hottest year on record and as the impacts of climate change are acutely felt around the world, and here at home in Scotland. However, done correctly, achieving net zero is also a significant economic opportunity for Scotland.

In 2024-25 alone we are committing £4.7 billion in capital and resource for activities that will have a positively impact on delivery of our climate change goals. However, delivering the infrastructure required to meet our net zero will also require responsible investment by the private sector and – crucially - the UK Government who needs to stop shirking their responsibility and invest. That’s why it is deeply concerning that we are expecting a real-terms cut to our UK capital funding of 8.7 per cent over five years, totalling around £1.3 billion.

“Our calls for the Spring Budget to address this went unanswered, with no additional capital funding in 2024-25. This comes on top of the UK Government reneging on its net zero commitments, and rolling back policies already announced and accounted for.

“We will continue to call on the UK Government to change course, and ensure future financial settlements provide us with the resources we need to secure a just and fair transition to net zero.”