The Scottish Government Needs A Rethink To Meet Net Zero Ambitions

The conclusion of the Joint Budget Review on matters related to climate change between the Scottish Government and the Scottish Parliament was published just before Christmas.

We were commissioned by the Scottish Government, via ClimateXChange, to undertake research that intends to inform the Review and provide a set of recommendations. Our report was published alongside the Review and can be found here.

Parliamentary committees reflected on this work in their correspondence with Government. You can read the Net Zero, Energy and Transport Committee’s response here and the Finance and Public Administration Committee’s response here. The Government has since responded.

This post provides the lead author’s reflections on the Scottish Government’s response to the recommendations.

Key takeaways

What was the project?

• We were asked to explore how the Scottish Government can better assess the impact of its spending choices on emissions and improve its carbon assessment of the Budget to support parliamentary scrutiny.
• We spoke to many people across the Scottish Government, agencies, Parliament, other governments and the wider policy making community. We wish to thank the Scottish Government for its openness and transparency throughout.

What did we find?

• The points below are our own reflections.
• Implementing change at scale requires a clear understanding of existing processes and potential intervention points. Effective recommendations require suitable incentives and coherence with existing practices. We therefore first set out to understand how policy development is current applied across the Scottish Government.
• Our research found that there is a significant gap between the intentions of processes and how these processes are being applied. These processes include business cases (project planning), impact assessments (considering specific impacts, e.g. on equalities or island communities) and economic appraisal (identifying which project options provide the best set of social outcomes for the cost).
• This is hugely concerning given the importance of these processes to setting clear objectives, identifying value for money, supporting evidence-based policymaking, documenting information and ensuring policy matches the overarching strategic goals of Government. These processes are also responsible for collecting the data required to assess the emissions impact of policy.
• These processes appear to be regularly missing key components, insufficient in quality, performed too late to genuinely influence how decisions are made or missing entirely.
• In some areas, there appears to be very limited challenge, scrutiny or governance arrangements around many issues that are broader than simply balancing the books. Civil servants have been unable to point us towards who is responsible for questioning the existence or quality of business cases or the social and environmental impacts of policies.
• Without policy development processes that clearly lay out the objectives, inputs, and outputs of policy within Government, it is hugely challenging to produce an accurate carbon assessment of the Budget that can produce meaningful, non-spurious results.

What are our reflections on the Scottish Government’s response?

• We welcome the Scottish Government’s acceptance of our recommendations to introduce a Net Zero Assessment and dedicate a section of the Budget to the climate. Effective implementation of this Assessment would highlight Scotland as a clear global leader. It is not yet clear whether this Assessment will play an important role in day-to-day policy development within Government or will just be used to generate information for the Budget. We suspect both will apply – a significant step forward that the Scottish Government would deserve credit for – but want to highlight this concern until more is known.
• What is clear is that insufficient progress is likely to be made without rethinking how the Scottish Government currently operates internally. We have substantial concerns around existing governance, processes, oversight, challenge, culture, and the lack of clout for any individual area to influence internal processes in a way that can support statutory climate ambitions. Governance structures, in particular, appear to be driving several of these issues.
• No government has solved all of these issues and we appreciate that not all governments would have been as transparent throughout this project as the Scottish Government has been. We hope that the Scottish Government continues this transparency with a frank and open discussion around how it plans to develop its internal processes. Any consideration of tinkering around the edges would not be taking a hugely challenging set of net zero targets seriously.
• Decisions being made now are locking in emissions many years in the future and government-wide change is a slow process. In December, the CCC stated that “Scotland’s climate targets are in danger of becoming meaningless”. Our project has found that integration of climate targets into internal processes is severely lacking and so we echo this sentiment. Immediate action is required if the Government wishes for its climate targets to remain rooted in reality.

Project Objectives

In 2019, the Scottish Government declared that there is a global climate emergency and that to “turn things around … requires transformative change.” This was followed by a statutory target of 2045 for net zero emissions.

This ambition will require changing the food we eat, the way we travel, how we heat our homes, how businesses operate and – contributing to many of these changes – the choices that are made in Government and Parliament.

As part of the Joint Budget Review between the Scottish Government and Scottish Parliament, we were commissioned by the Scottish Government via ClimateXChange to undertake research.

We were asked to explore options which, if implemented, could:

• Objective 1: Improve the extent to which decision making within Scottish Government is supported by an understanding of the consequences of spending choices on emissions.
• Objective 2: Increase the transparency and value of the carbon assessment of the Budget to support scrutiny and informed discussion.

Our research was extensive and engaged with over ninety people across the Scottish Government, the Scottish Parliament, agencies, governments across the UK and internationally, and those in the wider policy making and climate change community.

We wish to thank these many organisations, and in particular the Scottish Government, for their transparency throughout this process.

Processes, Governance and Scrutiny Are Critical

One of the striking features of transformative change is that the key drivers are often hidden.

New wind turbines, energy efficiency grants and changes to the transport system are all likely to generate public awareness. And indeed these are hugely important parts of Scotland’s transition.

But these are often outcomes that are, in some way, driven by decisions made in Government or Parliament. The words ‘processes’, ‘governance’, and ‘scrutiny’ are unlikely to help you make friends and are often forgotten in the wider debate, but they are at the root of or at least an important contributor to almost all progress on climate change.

The policymaking environment is integral to Scotland’s net zero transition. Incentives must be well aligned, value for money sought, and trade offs between climate progress and other societal aims must be minimised where possible.

Ensuring these processes are in place and are undertaken as early as possible is critical. The later that climate change is considered in policy development, the less that emissions can be influenced.

Chart 1: Illustrative diagram showing the ability to influence carbon reduction across different work stages of infrastructure delivery

Source: PAS 2080:2016 – Carbon Management in Infrastructure

What Do Governments Need To Know?

An old management consultancy quote says “if you can’t measure it, you can’t improve it”. While not entirely correct, there is an element of truth to the importance of tracking progress and providing an objective that civil servants can optimise towards.

In the net zero transition, governments need to be able to answer the following questions:

1. How much do greenhouse gas emissions need to be reduced by?
2. What impact do existing and planned policies have on emissions?
3. What is the gap between planned policy and the required emission reductions?

In other words: What needs to be achieved? What are we already doing? Are we doing enough and are we doing it fast enough?

While the questions are simple, the answers are not. To answer these would require quantifying the emissions impact of many Government policies.

Quantification of emissions impacts is already expected as part of economic appraisal in Business Cases (although doing so in a comparable way across Government is an additional challenge). That is, projects going through development should have their estimated emissions impact quantified. However, based on what we have seen in our research, it appears that this quantification may not often be taking place.

Emissions estimates are not being ‘added up’ to determine if progress will be made quickly enough. And without these estimates, Government cannot identify which projects are likely to reduce emissions the most for a given cost. That is, they cannot adequately challenge their projects on a value for money basis.

We note that the CCC has also repeated its message of the need for Scottish Government Climate Change Plans to be quantified. Behind the scenes, the Scottish Government is making progress on this. Particularly in quantifying emissions reduction policies but we would highlight the importance of also quantifying policies that increase emissions.

Many Governments Are Struggling With Climate Change Governance

So why are we in a situation where it appears that large amounts of Scottish Government policy are not attempting to quantify their impact on emissions?

Firstly, it’s important to recognise that this is challenging. Many governments are struggling to build processes and governance that adequately assess policies in a way that aligns individual policy decisions at a micro level with emissions targets at a macro level.

The New Zealand Government are making progress through their Climate Implications of Policy Assessment but they appear to be very much the exception rather than the rule.

This challenge for governments is partly due to the traditional siloed approach to policymaking. Governments are split into different departments that each have different responsibilities. The challenge with climate change is that all areas of government are responsible for contributing towards progress (or a lack thereof). Siloed climate change departments will not be able to contribute to these cross-cutting changes without very different arrangements.

We should note that emissions are not the only cross-cutting issues. Governments would benefit from considering how they could learn from their most important cross-cutting issue. This issue does often manage to bring together enough alignment at the micro, policy development level with the overall target for that issue. This issue, of course, is money.

Most governments have a Treasury that work with all the departments. While treasuries are typically unpopular, it’s worth considering how important they are for balancing the books overall.

Is it time for governments to consider introducing a function that balances the books for emissions as well? Some governments seem to think so and have built teams to centralise this oversight.

A key challenge for the Scottish Government is that it does not have a Treasury. Instead, it has an Exchequer. This may sound synonymous but the functions of an Exchequer are much narrower and focus primarily on balancing finances only.

The advantage of this is that the relationship between the Scottish Government’s Exchequer and its Directorates is significantly better than, say, the UK Government Treasury and its Departments. However, perhaps a degree of unpopularity should be expected when you are providing more oversight.

So who provides oversight and challenge in the Scottish Government for the existence of Business Cases, the quality of Business Cases where they exist, whether or not emissions have been assessed, and whether the positive or negative social impacts (including emissions) are justifiable?

Government guidance says that accountability sits with individual directorates.

We asked civil servants who was responsible for oversight and challenge and many were unsure. Some names were occasionally provided only for us to follow up and find that, no they were not responsible, but they can provide some further names who might be. They were not.

While a couple of areas did appear to be genuinely providing a challenge function, many other areas appeared to only be challenging the financial cost of the policy and no challenge was given on emissions impacts, social impacts or the quality (or even existence) of the Business Case.

Impact Assessments (e.g. Equalities, Child Rights and Wellbeing, Fairer Scotland etc) appear to often be left until late in policy development. At which time the policy direction is mostly set and the assessments are unlikely to fulfil their intended objectives.

Without collecting the required data for appraisal in a Business Case, it’s not feasible to estimate wider emissions and social impacts. Any missing or poorly undertaken Business Cases significantly increases the likelihood that measures have not been put in place to clearly identify project objectives, set out how these objectives will be measured, and evaluate the project.

Without this, the link between evaluating past policies and developing new policies is broken and progress on making sure that policy is evidence based grinds to a halt.

This does not appear to be a result of a lack of effort from civil servants. Civil servants do appear to generally be “maximising given the constraints”. But the current culture in the Scottish Government appears to often be to get money out the door as quickly as possible. These expectations lead to poor incentives for robust policymaking processes, particularly if the quality, existence or timing of these processes are not regularly being checked.

To summarise, there appears to be substantial gaps in oversight in the Scottish Government. These gaps exist not just for emissions but also for much broader social impacts, for establishing the evidence base around policies and for determining value for money.

The lack of a Treasury-like unit to centralise oversight and ensure a consistent quality of processes across all of Government means that lagging areas are likely to diverge even further from best practice in the future.

Lack Of Internal Government Data Limits Parliamentary Scrutiny

The data currently provided for the Scottish Parliament to scrutinise the carbon impact of each Budget include:

• The Carbon Assessment of the Budget – a methodology based on assessing emissions associated with Budget line spending on supply chains
• The Carbon Assessment of the Capital Budget – a taxonomy based approach that categorises Budget line spending into “low”, “neutral” and “high” carbon based on broad category.

Neither of these approaches are currently suitable for scrutiny (hence the existence of this project).

The underlying methodology of the Carbon Assessment of the Budget is analytically correct for what it is trying to calculate but it answers the wrong set of questions. It should not be used for answering questions such as “what progress has been made since last year?”, “what is the emissions impact of individual spending lines/government actions?” or “what is the future impact of these actions on emissions?”. Individual spending lines are grouped by broad industrial sector and their results can therefore be spurious when examined independently.

The taxonomy-based Carbon Assessment of the Capital Budget groups spending lines very broadly. All NHS spending counts as “neutral carbon”, regardless of whether the spending is going towards building more hospitals or decarbonising buildings. These groups do not reflect the underlying activities taking place and so are not always particularly meaningful.

Clearly any solution that provides reasonable scrutiny requires data that is neither spurious nor lacks meaning. An ability to focus on the impacts of individual Government actions is key.

Unfortunately, new projects have often not been fleshed out at the Budget stage and, without an understanding of their intended outcomes, little can be meaningfully said. And for existing projects, these have not always gone through the required policy development processes which would support the production of carbon estimates.

Quite simply, meaningful estimates of the carbon impact of the Budget cannot be produced without any idea of the inputs, outputs and outcomes of policies.

Better scrutiny will therefore require more robust internal Government policymaking processes and more upfront work before the Budget to plan out new projects at a high level.

Our Recommendations

Our first set of recommendations aim to address the wider observations from the research on the cultural change required to fully achieve the recommendations specific to enhancing carbon assessment and policy making. We recommend that the Scottish Government:

1. Improves the clarity and transparency of Government decisions that impact on climate change, acknowledging that trade-offs will always exist between different objectives.
2. Pursues a cultural shift to ensure sufficient time and resource for robust decision-making processes, allowing business cases, carbon assessments and impact assessments to be undertaken, challenged and scrutinised.

Our second set of recommendations focus on improving policymaking processes and appraisal to support the success of our recommendations specific to enhancing carbon assessments. We recommend that the Scottish Government:

3. Enhances cross-governmental policymaking governance. This would provide oversight and challenge function on the existence and quality of processes and appraisal throughout the entire policymaking process. The governance process would require the capacity for an enhanced approach to pre-budget carbon assessments.
4. Urgently expands their internal capacity and skills, including recognising that civil servants cannot expect to undertake processes as intended without enough time, resourcing, and a significant increase in practical policymaking and appraisal guidance.
5. Considers periodic external auditing of climate change policymaking governance, processes and carbon assessments.

Improving policymaking processes may take some time to implement but time is in short supply until the next set of emissions reduction targets. Rather than waiting for these recommendations to be fully implemented, our third set of recommendations, which speak directly to the need to enhance carbon assessment methodology can be developed in parallel to the wider recommendations above.

Our third set of recommendations focus on the introduction of carbon assessment and related processes in Government to increase the likelihood of successful outcomes, particularly while policymaking processes are being improved. We recommend that the Scottish Government:

6. Introduces a Net Zero Test. This will act as a filtering process to ensure that all spending with major emissions implications undergoes a quantitative carbon assessment.
7. Creates a second cross-governmental governance team (see recommendation 3), responsible for assessing climate impacts, providing oversight and a challenge function. The team would ensure the Net Zero Test and carbon assessments are being undertaken and are of a suitable quality. This would in addition support work across Government to embed consideration of carbon throughout policymaking process. To be effective the team will require the ability to influence Government-wide change.
8. Recognises the power of Scottish Government procurement in driving economy-wide carbon reductions. We recommend the Government considers a swift roll out of quantitative carbon management procedures, building on the success of the Cross Tay Link Road case study and carbon management procedures in the City Region & Growth Deals team.

Our final set of recommendations relate to Parliamentary scrutiny of the impact of spending on emissions. We recommend that the Scottish Government:

9. Considers retiring the taxonomy-based Carbon Assessment of the Capital Budget and the high-level Carbon Assessment of the Budget. This will have implications for the Climate Change Act.
10. Considers the challenging environment for data collection under current budgetary processes, and that a longer lead in time will be required for better data.
11. Moves towards the use of individual-level carbon assessments and gap analysis to provide suitable data for fiscal and policy scrutiny. In time, further mechanisms for scrutiny should also be explored, such as a carbon equivalent to financial memos for any announcements that require legislative changes, and publication of carbon assessment results after decisions have been made.

While these recommendations are made for central government, many of the principles are shared with agencies and local government. Supporting alignment with these principles across the whole of government will be critical to developing an understanding of how Government spending choices impact on emissions.

 

The Scottish Government’s Response

You can find a letter listing the Scottish Government’s proposed actions as part of the Joint Budget Review here.

Three strands of work have been proposed:

“1. Starting in the upcoming 2023-24 budget cycle, a dedicated climate narrative section in the budget documentation to outline the relative impact of spend within the budget that supports progress towards statutory climate change commitments;

2. Starting in the 2024-25 budget cycle, an enhanced taxonomy approach to identify and categorise all spending lines across the Scottish Budget with regards to their climate impact;

3. And the development of a Scottish Government wide Net Zero Assessment to establish a dedicated carbon assessment process during early policy development stages that will provide increased depth and detail on the climate impact of individual policies and their associated budget allocations.”

Our View of the Response

We commend the Scottish Government for accepting some of our recommendations.

Including a dedicated climate narrative section in the main budget document is an important step forward in highlighting how the budget supports net zero ambitions. Timescales were limited for the latest budget and it mostly just included a list of policies the government was undertaking. We hope to see more coverage included in the next budget including quantifications of the contribution of these policies towards emissions reduction and a transparent analysis as to whether the set of policies are enough to meet short and medium term targets.

While we have stated clearly in our report that we do not see the current taxonomy as a long term solution, we recognise that a taxonomy may play a role as an intermediate step provided that the next step towards individual level assessments is made as soon as feasible. We are, however, concerned that spending lines are classified by broad category (e.g. NHS = neutral) rather than their true expected emissions impact. And we are concerned also that the taxonomy could become a distraction while using up limited Government resources, without providing much genuinely useful information. This certainly appears to be the result of the existing taxonomy and carbon assessment of the Budget.

The third strand of work represents the largest change of the three.

Net Zero Assessments can represent a significant step forward for the Scottish Government.

it’s critical that the Assessments are undertaken early in the policymaking processes, are an iterative process as more information becomes known (see the earlier chart), are properly scrutinised, and have adequate governance arrangements to encourage incentives that are aligned with net zero ambitions.

If implemented fully, these changes would highlight the Scottish Government as one of the clear global leaders on climate action. However, as the Government’s correspondence revolved around the Budget only, it is not clear whether these Assessments are planned to inform all internal policy development within the Government or if they will only be used to produce data for the Budget.

Ignoring their potential use within policy development would be a missed opportunity.

What was missing?

The Government’s response was silent on some of our key recommendations. Important because they influence how all decisions are made in government, including the success of any new Net Zero Assessment.

From what we have seen, it appears that many areas in Government are not performing existing processes as they are intended. Business Cases appear to be circumvented or inadequate, appraisals of economic, social and climate impacts appear to be missing, and impact assessments are performed so late in policy development that they mostly serve to add bureaucratic overhead.

The Scottish Government does not always have the best reputation for monitoring and evaluating which of its policies are working or for setting clear policy objectives. Plans for these are expected to be laid out in Business Cases and so perhaps this reputation is unsurprising if Business Cases appear to be missing or inadequate.

We welcome the Scottish Government’s introduction of a Net Zero Assessment. If it is implemented within internal government processes it will provide a point of intervention and coherence in policymaking processes for matters related to climate change. Information collected at the individual policy level will need to be tied to whole-of-government targets in a relatively comprehensive and consistent manner for meaningful progress.

But if current policymaking processes are already not being performed as intended then adding further processes are unlikely to significantly help without addressing these concerns.

We identified a number of core issues driving patchy processes: a lack of clarity within the civil service on which objectives the Government are prioritising that can lead to inertia; a cultural drive to get money out the door within the financial year rather than a focus on policy development; a gap in responsibilities for challenging the existence, quality and results of business cases and appraisal; a lack of centralised oversight to ensure areas with weaker policy development are identified and supported up to standard; a lack of willingness for areas that have the clout to introduce government-wide changes that support emissions reductions and a lack of clout for areas that have the willingness.

If evidence for these processes are not always being sought, we should not be surprised that they are not always occurring.

Our recommendations included measures to address these core issues. In particular, the creation of cross-governmental teams that support, challenge and enhance consistency in policymaking processes as well as act as the arbiter over whether policies should undertake a full emissions assessment. We do not take a stance on which directorates should be responsible for oversight of general policy development or carbon assessments. We only make the point that now is the time for this step and that parts of Scottish Government are willing and ready to take up these roles – if the Scottish Government is willing to be bold enough to provide them with the required clout to make government-wide change.

Conclusion

Climate change is a pervasive policy challenge. Every part of government has a major role to play in emissions reduction. Traditional, siloed approaches to policymaking have shown themselves to be ineffective at delivering system-wide change.

Fundamental to our recommendations is a focus on the processes, governance, and policymaking environment that will not just support short-term improvements, but also provide the necessary foundations to support government progress to the 2045 climate change targets and beyond.

Some of these recommendations will be challenging to implement – Government-wide change is never simple. But nor are these recommendations untested on an international stage.

The Scottish Government declared that there is a Global Climate Emergency in 2019. Public bodies in Scotland have had statutory climate change duties since 2011. Yet there are no clear signs of this emergency affecting internal Government processes in any serious way.

The Scottish Government will need ambition, it will need the courage to embrace change, and it will need to treat a declared global climate emergency as just that – an emergency.