Develop and implement a fair, equitable and transparent tax system that drives carbon emission reductions, while recognising different abilities to pay, and generates revenue to enable energy transition.

As set out in the updated Climate Change Plan, the Scottish Government is supportive of using tax policy, where possible and appropriate, to drive action. UK government action is critical to the delivery of Scotland’s targets given the number of key powers it holds. This includes fiscal and pricing elements of emissions trading, decisions on the gas grid, investment in electricity network infrastructure, regulation on energy networks, vehicle standards, motoring taxes and the regulation of renewable energy investment. The vast majority of tax and fiscal powers, including many of those that relate to recommendations made by Assembly members, are reserved. The Scottish Government is therefore very limited in what it can implement itself in this area.

However, we are committed to work with, and set out our specific requests to, the UK government to encourage the changes that are needed if we are to reach our net zero target. We will also consider how the powers we have can be used to incentivise change. The work to identify potential options is underway and, where possible, we will endeavour to consider the recommendations of the Assembly members as this work progresses.

Following analysis of the Assembly’s recommendations, the Scottish Government will take the following action:

  • We have committed to work with our agencies and stakeholders to design and implement a skills guarantee for workers in carbon-intense sectors.

Recommendation 73: Incentives for Green Jobs Training

Introduce tax incentives for training / retraining for green jobs, aimed at those industries which are set to grow rapidly, to support the replacement of existing high-carbon jobs in the transition to net zero.

 

Scottish Government Response

The Scottish Government supports the ambition to provide opportunities and incentives for the skills and training laid out in this recommendation. Whilst the vast majority of tax powers are reserved to the UK Parliament, we will utilise different methods to achieve this.

 

In September 2021, reflecting the recommendations from both Scotland’s Climate Assembly and the Just Transition Commission, the Scottish Government committed to work with our agencies and stakeholders to design and implement a skills guarantee for workers in carbon-intense sectors and deliver this as part of the Green Jobs Workforce Academy.

The Government also committed to pilot and evaluate new apprenticeship models in sectors central to the transition to net zero, to help address barriers faced by SMEs.

The Government plans to introduce a ‘toolkit’ to help small/micro enterprises develop the skills and knowledge they need to adapt to a net zero world. The learning from these commitments will inform the shape of future action and funding.

The Climate Emergency Skills Action Plan (CESAP), published at the end of 2020, set out an overarching approach for managing this skills transition, in addition to identifying a series of immediate actions. It outlines an ambitious, cohesive approach to green skills and green jobs.

The Government has also committed to refresh our internationally-recognised ‘Learning for Sustainability Action Plan’ in partnership with campaigners. This cross-curricular entitlement for all learners aims to ensure a whole school approach to the climate emergency.

The Government is committed to ensuring that the skills and education systems prepare people to contribute to the transition to net zero and ensure that everyone can benefit from new opportunities brought about by the transition.


Recommendation 74: High Tax Carbon Resources

Introduce a tax on producers that use high carbon resources in their manufacturing processes. Children’s Parliament: Make businesses pay for their waste and impact on the environment.

 

Scottish Government Response

It is beyond the current powers of the Scottish Parliament to introduce a new national devolved tax on carbon resource producers. However, carbon pricing mechanisms already exist that share similar aims.

 

The Scottish Government, along with the UK Government and the other Devolved Administrations, has joint responsibility for a significant non-tax carbon pricing lever – the UK-wide emissions trading scheme (UK ETS), that came in to operation in January 2021. The UK ETS creates a market-driven carbon price for the power and energy-intensive industry sectors. We have committed to tightening the UK ETS emissions cap by January 2023, or 2024 at the latest, to reflect the path to net zero. We have also committed to review other aspects of the Scheme such as free allocation (currently used to safeguard the competitiveness of the regulated industries and to avoid carbon leakage). The four nations have committed to consult on reforms to the UK ETS to ensure it supports our net zero commitments, and, subject to agreement of all Governments, we expect this to be published soon.

This builds on the Scottish Government’s record of using pricing policies successfully to reshape markets and deliver fairer and better outcomes, for example, through Minimum Unit Pricing for alcohol, the plastic bag charge, and Scottish Landfill Tax. Our approach to carbon pricing and supporting a more circular economy is no different and there are a number planned interventions, including the introduction of a Scottish Deposit Return Scheme, and through the Circular Economy Bill, exploring powers to introduce charges on single use plastic items such as single-use plastic coffee cups. These efforts are augmented by the new UK Plastics Packaging Tax, which will commence in 2022, and is intended to increase the supply of recycled plastic in circulation and reduce its costs relative to new and single-use plastics.

There are measures that the Scottish Government is already taking to reduce emissions associated with manufacturing processes, and engaging with UK Government to create demand for low-emissions industrial products. As set out in Recommendations 1 and 56, we are also investing significantly in the support infrastructure for manufacturing in Scotland. The National Manufacturing Institute Scotland (NMIS) and Michelin Scotland Innovation Parc (MSIP) are two of the major projects, amongst others, designed to generate efficiencies in manufacturing processes and support R&D investment and the transition to new, low carbon markets.


Recommendation 75: Carbon Land Tax

Introduce a carbon land tax which taxes emissions created through land use and penalise land currently emitting more carbon than it captures.

 

Scottish Government Response

The Scottish Government recognises the ambition behind this recommendation but is unable to implement a new national devolved tax within current powers.

 

The ability to introduce a new national devolved tax in Scotland would require the devolution of new tax powers, with the consent of both the UK and Scottish Parliaments. As stated in responses to Goal 9, significant efforts are being made to reduce carbon emissions from land use and support more sustainable land management reforms, including carbon reduction measures, such as tree planting and peatland restoration, that will be essential in tackling the climate crisis.


Recommendation 76: Frequent Flyer Tax or Levy

Discourage air travel by introducing a frequent flyer tax or levy.

Children’s Parliament: Make prices for flying higher.

 

Scottish Government Response

The Scottish Government recognises the need to reduce the environmental impact of flying.

 

The Scottish Government recognises the contribution that aviation makes to Scotland’s greenhouse gas emissions, and the need for aviation emissions to reduce in order for our net zero ambitions to be realised. We want to achieve this in a way which still allows us to enjoy the social and economic benefits of air travel, and which recognises the role that aviation plays in connecting remote parts of Scotland, and the familial, cultural and economic benefits to Scotland of being connected globally.

We are supporting a range of ways to achieve the reductions required, including through technological improvements in the aviation sector and by providing viable alternatives to flying.

The use of Sustainable Aviation Fuels (SAF) has the potential to reduce emissions from international aviation by around 5-30%, depending on up-take and type of fuel used. The UK Government recently consulted on introducing a SAF mandate aimed at increasing the amount of SAF used in flights from the UK and as part of the work we are doing to develop a Scottish Government Aviation Strategy we are considering what else we can do to increase the use of SAF.

For shorter routes with smaller aircraft, there has been some really promising progress in developing hydrogen and electric powered aircraft. While these aircraft are still at the early stages, they could mean that in future flying has a significantly lower environmental impact. As outlined in our response to Recommendation 32 we are committed to supporting the research and development of technical solutions to reduce aviation emissions.

Air transport in Scotland is currently taxed through UK Air Passenger Duty (APD). This has the effect of charging tax for each flight purchased, and at higher rates for longer journeys and in higher classes of travel, but without the need for recording the number of flights an individual has taken.

The Scottish Government does not currently have control over APD. However, we have committed to reviewing APD rates and bands ahead of the introduction of the devolved Air Departure Tax (ADT), which will apply to the carriage of all eligible passengers from airports in Scotland, to ensure that any policy aligns with our climate change goals.

Separately, the Scottish Government is taking measures to encourage the uptake of lower emission travel options. As outlined in our response to Recommendations 27 and 28 we are fully committed to improving the availability of low emission public transport options which could offer lower cost, convenient alternatives to air travel for domestic journeys.


Recommendation 77: Food Carbon Tax and Subsidy

Introduce a carbon tax on food, based on the carbon intensity of food production, and use the revenue to subsidise sustainable foods.

Children’s Parliament: Make fresh, organic food cheaper. Make junk, processed and imported food more expensive.

Children’s Parliament: Make items that are not good for the environment a higher price.

 

Scottish Government Response

The Scottish Government recognises the principle behind this recommendation, but is unable to implement a new national devolved tax within current powers.

 

Powers related to taxation in this area are reserved. The ability to introduce a new national devolved tax in Scotland would require the devolution of new tax powers, with the consent of both the UK and Scottish Parliaments.

Through the United Kingdom’s membership of the World Trade Organisation (WTO) Scotland is bound by international trade rules that limit the ability to subsidise agriculture and food sectors.

However, as outlined in Recommendation 47 the Scottish Government is committed to ensuring that environmental impact, emissions and climate change implications are key considerations in the development of a replacement for the current agriculture support scheme that is permissible within WTO rules.


Recommendation 78: Carbon Tax and Dividend

Introduce a carbon tax and dividend scheme - based on the polluter pays principle - so that for every tonne of CO2 emitted you pay a tax.

Children’s Parliament: Make items that are not good for the environment a higher price.

 

Scottish Government Response

The Scottish Government is unable to implement a new national devolved tax within current powers.

 

As outlined in previous responses the Scottish Parliament does not have the power to introduce a national devolved tax in Scotland, in lieu of the requisite powers being devolved.

As set out in the response to Recommendation 74, the UK ETS, which is jointly operated by all four UK nations, sets a market-driven carbon price for around a fifth of all carbon emissions in Scotland. The four nations have committed to consult on reforms to the UK ETS to ensure it supports our net zero commitments, and subject to agreement of all Governments we expect this to be published soon.

Under the devolution settlement, revenues raised from UK ETS auctions currently revert to HM Treasury, not the Devolved Administrations. As part of the UK ETS governing authority, we will continue to press the UK Government to use the revenue from the UK ETS, as well as their significant fiscal capacity, to further support a just transition.


Recommendation 79: Tax High Carbon Aviation Fuels

Reduce the incentives to fly by introducing tax on high carbon aviation fuels and making it mandatory that this cost is passed on to the customer in their ticket price.

Children’s Parliament: Make prices for flying higher.

 

Scottish Government Response

The Scottish Government recognises the need to reduce the environmental impact of flying, however air transport is currently taxed through APD rather than a fuel duty. Members of the International Civil Aviation Organisation (including the United Kingdom) are prevented from taxing international aviation fuel under the Chicago Convention.

 

As set out in Recommendation 76, the Scottish Government recognises the impact of the aviation sector on our greenhouse gas emissions and the importance of reducing this.

The UK recently joined an International Aviation Climate Ambition Coalition which will work towards International Civil Aviation Organisation adopting an ambitious long-term goal for reducing aviation emissions. Other countries such as France, the USA and Japan have also joined this coalition. International collaboration is key to reducing global emissions from aviation.

If, in the future, international agreements were amended to permit the charging of duty on aviation fuel, any consideration of a duty would need to consider the risk of perverse incentives such as tankering on short-haul routes (i.e. carrying additional fuel for the return journey, increasing the weight carried and thus emissions), or displacement of demand to jurisdictions without such a duty, and the availability of alternative aviation fuels. International collaboration is also critical to avoiding these types of risks.

Flights within the UK and between the UK and the EEA are covered by the UK Emissions Trading Scheme. This creates a carbon price for aircraft operators, who must acquire and surrender a number of allowances equivalent to the carbon dioxide emissions of their flights. In addition, the three airlines that provide almost all of Scotland’s domestic connectivity offset emissions from all domestic flights.

Given the complex interplay between international agreements, and of making links between a duty on fuel and a tax on ticket prices, the Scottish Government would need to carefully consider any proposals in this area.


Recommendation 80: Increase Road Tax to Subsidise Public Transport

Phase in increased road taxes for private car use and use the revenue to subsidise public transport.

 

Scottish Government Response

The Scottish Government supports the ambition to reduce the emissions generated in the production and use of cars and to encourage active and public transport as alternatives.

 

Emissions from transport contribute nearly a fifth of all Scotland’s carbon emissions with cars accounting for almost 40% of transport emissions. Reducing our transport emissions will be vital if we are to meet our world leading carbon reduction targets and end Scotland’s contribution to climate change.

Technology solutions will be key in some areas such as the transition to zero carbon vehicles, including electric cars. However, it will not be possible to reach zero emissions through technological solutions alone and encouraging more people to take active and public transport options and to take fewer journeys by car will also be needed. This underpins the Scottish Government’s commitment to reducing car kilometres travelled in Scotland by 20% by 2030.

We are working to publish a route map that will set out the range of supporting measures the Scottish Government is taking to meet the 20% km reduction commitment. This builds on steps the Scottish Government has already taken to support increased use of public transport, including through the use of subsidies. These are outlined in the response to Recommendations 28 and 29.

The Scottish Government will continue to engage the UK Government on the need for reform of existing taxes related to motoring – to create a tax system that better incentivises the transition to zero-emission vehicles, and protects future revenues to fund policies that can support a shift to more active and public transport and that encourages all of us to be less reliant on our cars.