Scottish fiscal watchdog warns net-zero measures could cost £700m a year and strain budget

The Scottish Fiscal Commission has warned that measures to meet Scotland’s net‑zero targets are likely to require an average additional public investment of about £700 million a year from 2026 to 2050, and that the cost profile could pose a significant fiscal risk to the Scottish Government.

In a report published this week, the independent forecaster said total public “mitigation investment” in Scotland is expected to reach roughly £21 billion over the next 25 years in 2024 prices, with devolved spending accounting for about 81% of that sum. On a per‑person basis, spending in Scotland is projected to be around 26% higher than in the rest of the United Kingdom, a difference the commission said would have consequences for the Scottish Budget if the Scottish Government absorbs the additional costs.

The SFC identified residential buildings as the largest single area of additional public investment, driven by measures such as heat pump installations, the development of heat networks and enhanced energy efficiency work. The report noted that Scotland’s colder climate and a larger share of social housing than elsewhere in the UK mean residential retrofit costs per person are likely to be higher and more of the bill may fall to public funds.

Transport is expected to be the second‑largest spending area. Although Scotland currently has about 7% more public electric vehicle charge points per person than the UK average, the commission said longer average journey lengths and more remote locations will require further investment in charging infrastructure and related measures.

Professor Graeme Roy, chair of the Scottish Fiscal Commission, said the long‑term consequences of climate damages will be costly to individuals, the economy and public finances, and that reducing those damages will require substantial mitigation spending. "What matters for the Scottish Budget are the differences between Scotland and the rest of the UK," he said, noting that if Scotland picks up a greater share of the costs this will have fiscal consequences.

The report projects that the additional average annual investment of about £700 million will be incurred from 2026 through to 2050, and cautioned that UK Government funding alone is unlikely to cover the higher per‑capita costs in Scotland. The commission said funding would have to be found from other sources if Scotland were to meet the projected investment profile.

Opposition parties seized on the findings as a warning about potential pressures on households and public services. Scottish Conservative finance spokesman Craig Hoy said the figures demonstrated a damaging impact on Scotland’s finances and warned against policies he characterised as hostile to certain energy sources, arguing for an affordable transition that does not raise household bills.

The Scottish Government said the SFC’s cost projections reflect a particular set of emissions‑reduction pathways and do not necessarily match the routes the government will take. Climate Action Secretary Gillian Martin said ministers have followed the Climate Change Committee in setting carbon budgets but that the CCC’s recommendations on how to achieve those limits are non‑prescriptive. She added that the costs in the SFC report are based on different pathways from those that will be used in the government’s forthcoming draft Climate Change Plan.

Martin also stressed the economic and social costs of failing to reduce emissions and prepare for climate impacts, saying those damages would be far higher than the mitigation costs identified by the SFC.

The commission’s analysis makes clear that the timing, scale and composition of mitigation spending will depend on policy choices set out in the Climate Change Plan and subsequent implementation. Until those choices are finalised, the SFC said, major investment will be required and the Scottish Government faces decisions about how much of the additional burden it will carry and where funding will be found.