LAST month, at the Scottish Fiscal Commission, we published our latest report into the long-term sustainability of the Scottish Government’s finances. This time, we examined the implications of climate change – and the drive to net zero – for public spending and government funding.

The timing of the report was particularly significant with the highly-respected UK Climate Change Committee noting that it “no longer believes that the Scottish Government will meets its statutory 2030 goal to reduce emissions by 75%”.

There are three ways that current and future Scottish governments will see their finances impacted by climate change.

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Firstly, there is the likely increase in spending to repair damage from the consequences of climate change, including an increased prevalence and severity of storms, floods, and droughts. Secondly, there is the investment needed to adapt to a warmer and wetter climate, including investment in flood defences and retrofitting homes, public buildings, and workplaces.

Finally, there is the action needed to reach net zero and contribute to the global effort to limit further warming in the Earth’s climate.

The scale of investment required is significant. Just on the last of these, the investments required to reach net zero, we project that Scottish governments will need to spend an additional £1.1 billion on average each year between 2020 and 2050. To give an idea of scale, that’s equivalent to nearly 20% of the entire 2024/25 Scottish Government capital budget.

A key observation in our report is that Scotland’s ability to tackle climate change, and respond to its effects, is a shared endeavour not just between the Scottish and UK governments but between the public and private sectors too. Unlike many other areas of devolved policy responsibility, such as health or education, there is no neat dividing line between the powers that rest in Holyrood and those in Westminster.

Net-zero targets are set on a territorial basis. Therefore, it is the level of emissions occurring within Scotland that matter. These will be affected by policy areas that are devolved, such as decarbonising Scottish and local government buildings, and investing in green public transport.

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But policy areas that are reserved, such as our national electricity infrastructure, aviation, and the taxation regime for petrol and diesel vehicles, will all impact on levels of emissions in Scotland too.

There are subtle but equally important interactions between devolved and reserved policies.

For example, under the fiscal framework, the amount of funding that the Scottish Government has to spend on priorities, including climate change and the transition to net zero, still depends, in part, on the Barnett formula. Therefore, decisions future UK governments take for England on investment in climate change policies, the timing of such investments, and the balance between public and private investment will all have an effect on the funds available to the Scottish Government.

All this brings fiscal risk. Some risks follow from the scale and urgency of the climate crisis meaning the Scottish Government will need to make choices on whether to prioritise investment in climate change and net zero over other areas of public policy, such as health and education.

Others stem from where there may be asymmetric risks between Scotland and the rest of the UK. One illustration of such a risk concerns forestry and land use. Scotland accounts for 32% of the UK’s land mass, roughly half of the trees, and 70% of the peatlands. Investing in forestry and land use is a devolved area of responsibility. This means the fiscal burden of supporting UK-wide ambitions in this area, needed to reach net zero, may fall on the Scottish Government.

This highlights that not only does the Scottish Government need co-operation and investment from the UK Government to achieve its ambitions in net zero, but the UK Government needs Scottish Government co-operation and investment too. This is why tackling climate change and achieving net zero is a shared endeavour between both governments. It will require trust, investment, and a shared commitment to co-operation and collaboration.

Intergovernmental relations have not been at their greatest in recent years. But with our efforts to meet net zero currently off track, according to the Climate Change Committee, an urgent reset of those relationships in the context of net zero will be essential.

Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School and chairs the Scottish Fiscal Commission