This article first appeared in The Herald.
Following a buoyant start to the year, growth in the economy over the last couple of months has looked weak. The hope that the vaccine programme would end the need for restrictions on all forms of economic activity looks to be overly optimistic.
The economy is being buffeted by various challenges as we head towards Christmas. Prices rises are hitting the consumer in the pocket and denting confidence in the run up to the crucial period for many retailers. Businesses which have survived throughout the pandemic are likely to be less resilient, and will be concerned about further constraints on their ability to generate turnover.
However, early signs are showing that a major crisis of joblessness following the end of the furlough scheme is unlikely. Instead, the real constraint on growth at the moment are issues of supply – the supply of labour, the supply of goods and services and the price of inputs.
In the face of all these short-medium term worries, it will be important not to lose sight of the longer term challenges – and opportunities – posed by the need to decarbonise our economy. Following the attention on COP in November in Glasgow, all parts of the economy need to remain focussed on this overarching goal if it is to be achieved.
So what does the latest data tell us about the business response to the climate emergency?
In our most recent survey of business, which was published in November, we found that the majority of businesses had committed to achieving net zero. 3% of businesses had already achieved net zero; 21% of businesses had committed to achieving this by 2030; 3% were committed for later in the century; and 32% were committed but had not set a target date.
Conversely, this still means that 42% of responding businesses had not set any net-zero targets. This survey was carried out in October, in the run up to COP and we will be monitoring this to see how – and if – it moves as we go into 2022.
This varies significantly across sector. For example, only 23% of businesses in finance and insurance services had not set a net zero target, compared to 53% of those in transportation and storage. This of course to some extent reflects the difference in the ease for sectors to decarbonise. It is much more challenging for energy intensive industries to decarbonise their operations, and offsetting opportunities are much more limited.
The degree to which net zero targets can be achieved through offsetting is also likely to become more difficult over time, as more businesses look to adopt this practice.
Most businesses (78%) told us they were already at sustainable office practices such as recycling and reducing use of single use plastics. A movement to sustainable materials and educating senior management in sustainability were also being pursued by almost half of businesses.
Looking ahead, a sizeable minority of businesses were thinking about requiring suppliers to meet sustainable objectives. This is likely to be in the minds of many businesses who are involved in delivering publicly procured services, given the likelihood that it will become a requirement in the future.
Businesses do see a number of barriers to decarbonising: the main one of which is cost. Around a third also felt that a lack of information and government funding were causing issues.
Of course, the costs to decarbonising the economy and adaptation to climate change are considerable, recently estimated by the OBR (for the UK) at £1.3 trillion. This analysis also made it clear that the costs of “early adaptation” (prioritising significant carbon reduction before 2030) are much lower than “delayed adaptation” (waiting until 2030 to act).
So early action is critical here – waiting to spend will simply mean greater costs later. Government will have a key role when there are instances of market failure – e.g. to encourage the right kinds of investment in new technologies, and to invest in the infrastructure required to allow business opportunities to flourish.
Trade-offs undoubtedly exist between Scotland’s current economic structure and its net-zero ambitions. But the transition to net-zero should not be seen in isolation as a grim picture of difficult decisions.
Opportunities to minimise these trade-offs will not only mitigate potential damage to people’s livelihoods but, by reducing resistance to far-reaching change, can help Scotland combat climate change.
One such opportunity can be found in renewable technologies. Seizing Scotland’s full economic potential of renewable technologies can create new industries, bring growth to rural areas, and generate sustainable employment.
But change, innovation and adaptation will be needed across the economy.
Businesses in all sectors will be analysing at the risks and opportunities that come with decarbonising our economy, as they find their place in the green economy that Government – at all levels – wants to build.
What is clear is that a bold and ambitious approach by policy makers and business leaders working together – at a scale and pace not seen since the industrial revolution – will be required to make the step change we need to see to achieve our climate goals.
James is a Fellow at the Fraser of Allander Institute. He specialises in economic policy, modelling, trade and climate change. His work includes the production of economic statistics to improve our understanding of the economy, economic modelling and analysis to enhance the use of these statistics for policymaking, data visualisation to communicate results impactfully, and economic policy to understand how data can be used to drive decisions in Government.