In the previous blog paper, dated August 2020, which presented the background to Net Zero, mention was made of the hurried nature at which Net Zero legislation was enacted together with the absence of any cost-benefit analysis before being passed by Parliament in July 2019. The paper did, however, go on to say HM Treasury planned to issue a retrospective report on the cost of Net Zero in Autumn 2020, and that has now happened.
However, when HM Treasury published their report[i] on the 17 December 2020 it turned out not to be the expected final report, but instead an interim report laying out the background and remit, and inviting stakeholder feedback during January 2021.
December 2020 also saw other Net Zero activity from a range of actors: the Committee on Climate Change (CCC) published the Sixth Climate Budget[ii] on the 9 December while Ofgem launched the Greener, Fairer, Energy Future strategy[iii] on the 15 December. Finally HM Government published the Energy white paper[iv]a day earlier – setting out their 10-point plan to achieve Net Zero.
There has been, therefore, a huge amount of strategy, in the form of paperwork, issued recently on the subject of Net Zero. Aspirational no doubt, but still paperwork at this stage – all driven by the CCC’s 2019 report[v] to parliament, with the exhortation that while government policy actions fell well short of meeting the fourth (2023-27) and fifth (2028-32) carbon budgets set under the previous Climate Change Act 2008 the time was now right to achieve Net Zero, and for the same cost. It is hoped the upcoming HM Treasury final review will therefore determine the accuracy of this claim and identify the parties on whom the costs will fall.
This discussion paper forms part of a stakeholder submission made to HM Treasury. In doing so it identifies the issue of vulnerability in certain societies in Scotland and potentially elsewhere in the UK. Concerns for how HM Treasury will arrive at an accurate cost figure are raised and the question of how various market failures[vi] may present to vulnerable communities as Net Zero progresses is discussed. Finally, conclusions are presented along with a set of recommendations, which it is hoped HM Treasury will take account of in their final report.
Within the last decade some areas of Scotland, especially rural areas, have experienced at first hand examples of market failure arising from negative externalities.[vii] Reference here is made to the construction of new overhead line transmission infrastructure to carry large quantities of green electricity from onshore wind generation from low densely populated rural areas to highly populated urban areas, many in England, where demand exists[viii] [ix].
This type of market failure, for those transmission infrastructure projects already built, has imposed a cost on these rural communities even though they were uninvolved with the initial transaction and which, in almost every case, they strongly opposed. These costs, many non-material[x], but which tend to affect human well-being, include, but are not limited to: the loss of ‘sense of place;’ the irreparable loss of historical and cultural history; impairment of visual amenity and a rise in net outward migration with a resultant increase in population age profile.
Using more conventional economic valuation frameworks that have tangible values and which neglect the social, cultural and political contexts of resources and their use, mentioned above, include: negative impact on tourism, reduced value of housing stock and additional demands for health care from a fall in well-being.
It is ironic, therefore, that onshore windfarm developers and those financing such schemes should financially benefit from public subsidy in such circumstances while monopolistic transmission operators who, by law, must provide network connections to such developers, also gain by increasing the net book value of their company from the addition of more and more transmission assets, which, while regulated by Ofgem, is paid for by the consumer.
It would be remiss not to mention that it is perhaps further ironic that within one rural area of Scotland, Dumfries & Galloway, there is a growing groundswell of public and private opinion that the area, boasting beautiful lowland scenery and which once had a vibrant agricultural sector, and several substantial manufacturing industries, would benefit from a transformation by the creation of a radical public good[xi], namely National Park designation: Scotland’s third National Park.
In parts of Scotland, therefore, and in Dumfries and Galloway in particular, there exists a fine balance between the preservation of a public good – in this case the natural assets of the region and the creation of a further public good by the creation of a National Park to preserve, enhance and exploit the value of these assets for the benefit of society, weighed against the negative externality, which seeks – not deliberately, but inevitably, to destroy, degrade, erode, or reduce the value of the natural assets, or public good.
This is not an equitable exchange, and unlike England where planning law is balanced more in favour of the views of the community, Scotland, on the other hand, is at a different point on the Environmental Kuznets Curve[xii], and if this hypothesis holds true then Scotland, with its weaker economic position, is not yet in a position to enact the same level of environmental protection as the rest of the UK. Hence, market failure appears to be an inherent part of Scottish Government policy at this point in time.
Consequently, in Scotland, and particularly in rural areas, there already exists a tension between government and communities beyond that of the rest of the UK, and without careful thought the ultimate route governments choose towards reaching Net Zero could further increase this tension. It is hoped, therefore, that HM Treasury will not only take account of the impact of Net Zero on poor households, but also reflect specifically on the consequences of market failure on communities living in rural areas when considering where the costs of Net Zero might fall.
2 Difficulty of arriving at an accurate economic evaluation of Net Zero
When the UN International Panel on Climate Change produced their Special Report[xiii] of 2018 on limiting any global average temperature rise to less than 2 Celsius, and hopefully closer to 1.5 Celsius, it was possible, working with ratio variables and drawing upon data going back millions of years - using ice-core samples, to utilise finely honed computer models to predict, within statistical levels of confidence, likely outcomes or trajectories needed to meet this requirement. Thus, they were able to state with a high level of precision, based on probability theory, whether this target could be met and with the use of confidence intervals - the degree to which it could be met.
When Stern[xiv] produced his landmark report in 2008 on the economics of climate change he was not working with ratio variables, nor did he have the benefit of large amounts of historical data to draw upon. Furthermore, and as was aptly demonstrated during the global financial crash of 2007, dynamic stochastic economic equilibrium models available at that time failed to take account of all the necessary components to adequately assess the policy being tested. It has to be concluded, therefore, that Stern’s estimate of between 1% and 2% of global GDP needed each year to mitigate the impact of human induced climate change remains just that – an estimate. An estimate without any attached level of scientific precision.
In light of these comments it is surprising that the Committee on Climate Change (CCC), in their 2019 report to Government, still held to the 1% to 2% of GDP estimate even for the more challenging target of the UK achieving Net Zero by 2050. However, they based their optimistic assertion on advances in technology and economies of scale and while this may be the case for offshore wind, where costs have fallen significantly through scale, the same cannot be said for technology development. Carbon capture and storage, for example, while under discussion for several years, still remains at a research stage.
The CCC’s optimism rose even further in their 6th Climate Budget of December 2020 in which they claim the cost will now fall to 1%, or less, of GDP[xv] – a figure that aligns with Stern’s first estimate in 2006. The CCC go further in this case: they claim now that most of this cost will be met by the private sector, which, while welcome news for government means inevitably that the consumer will be left to pick up the cost.
So, set against all this background of optimism and the relatively low level of financial commitment the UK Government published their Energy White Paper in 2010 and HM Treasury was tasked with considering how the transition to Net Zero will be funded and assessing options for where costs will fall.
There is a danger that this analysis by HM Treasury, the first of its kind by any finance ministry, will come to be viewed and cited in the coming years as gospel, as the truth, as beyond question and doubt when, all the while, the foundations on which the analysis is laid is no more than an estimate: the best estimate the CCC can provide perhaps, but an estimate nevertheless. An estimate similar to that of National Grid’s Future Energy Scenario – based on word models, with the most likely being awarded that title by a range of stakeholders, some with a vested interest.
Where this type of estimation fails, unlike that from the IPCC, is in its ability to cater for uncertainty or to deal with unpredictable, or random events. In the latter case, and even with the best intelligence, the US Government failed to prevent the attack on the World Trade Centre in 2001, while in 2007 governments universally failed to predict the financial crash and in 2019 governments failed to predict the coronavirus pandemic, with many even failing to prepare for such an eventuality. It seems almost a given that events such as these, that appear to happen all too often, reinforce Taleb’s[xvi] assertion that ‘unassailable beliefs seem to be completely confirmed by empirical evidence.’
In the case of uncertainty, therefore, it seems reasonable to question the extent to which the CCC can be sure, working with categorical variables and little or no historical data, what the UK energy needs and outlook might look like – projecting forward some 30 years – in order to meet Net Zero. Government’s change, as does their policy. Net Zero, and the hoped-for universal uptake may not materialise at COP26 later this year – if it goes ahead due to Covid-19. Push-back by organisations connected to or associated with the fossil-fuel industry, or farming, may bring other pressures and interests to the fore and thus slow down implementation of low-carbon policies.
There is also the question of human behaviour: something all too familiar during the recent pandemic, where if behaviour was rational, and the rules followed, the rate of virus transmission would by now have fallen to close to zero. Behaviour is irrational[xvii], however! Does anyone know with confidence how the public will react? To what degree will they comply with or reject Net Zero, especially when they realise there is a price to pay and that it is not simply a public good, and they can no longer be a ‘free rider’[xviii]?
How will the public respond when low-cost airlines are forced to increase prices and annual holidays in Spain, for example, become unaffordable, or when meat becomes more expensive[xix]? How will motorists, especially those already driving electric vehicles (EV’s), react when, come 2030 onwards, the Chancellor seeks to recover the almost £40bn lost tax take in Fuel Duty and VAT on petrol/diesel[xx], and Vehicle Tax. The present claim that EV’s are cheaper to run than petrol/diesel cars may well evaporate if these lost taxes are replaced by a consumption (mileage) tax and/or by a premium on electricity[xxi] for charging EV’s?
HM Treasury needs to take a holistic approach with this analysis. While there are clear aspirations for moving to Net Zero, as set out in the Energy White Paper, at present these aspirations only encompass territorial[xxii]emissions and they ignore consumption emissions, or ‘leakage.’ The fact that so much leakage due to UK imports results in higher equivalent levels of carbon dioxide emissions from developing countries - such as India and China: considered a negative externality, but not accounted by HM Treasury’s analysis, will be seen as a major omission when viewed in the round, at some future time.
HM Treasury should not overlook either, that there are other unaccounted for negative externalities arising in developing economies from the ambitions of developed countries to achieve Net Zero. These take many forms, but prevalent amongst them is environmental pollution, social upheaval, child/slave labour and even civil unrest. Satisfying the future needs of transport users, in the form of electric vehicles, is high on this list of culprits: from the mining of rare-earth metals used for electric vehicle drive motors to extracting cobalt and lithium salts for Li-ion batteries, for example.
HM Treasury should carefully consider how uncertainty and the inevitability of random events occurring over these next three decades or so might impact on the funding needed for Net Zero. This form of dynamic market failure is also compounded by the complexity and heterogeneity of human behaviour, which will play a significant part in determining the effectiveness of any funding in achieving the overall objective, and, it should not be overlooked that it was human behaviour that first led to anthropogenic climate change following the Industrial Revolution.
It is also recommended that HM Treasury reflect on the fact that while Net Zero will come at a price, it should not simply be the price the UK pays – it should also recognise the internalised social and environmental negative externality costs paid by (usually) poorer nations to help the UK satisfy its aims.
3 Net Zero and the likely impact on Rural Communities
In supporting any transition to Net Zero it is hoped that government policy, supported by HM Treasury’s analysis, will target the various market failures that are identified below. As part of this process, and by means of this discussion paper several forms of potential market failure are identified as arising in rural communities in Scotland, and possibly elsewhere in the UK.
Indeed, from what has been said earlier in this paper, rural communities are already expected to internalise the cost of negative externalities arising from more and more onshore windfarm development and the consequent need for transmission/distribution infrastructure to convey this excess energy to areas of the UK where demand exists.
What follows, therefore, are examples of where further negative externalities are likely to arise in the rural and remote rural communities across Scotland, comprising roughly of a fifth of the population (approximately 1 million), due to a combination of the Scottish Government setting more demanding targets than the rest of the UK combined with the particular geography and demographics of the region.
To aid the discussion these potential market failure are identified by sector:
In large areas of rural Scotland public transport is woefully inadequate[xxiii]. Consequently, in order to participate in further education, gainful employment or simply for social and pleasure activity access to private transport is a necessity, and not a luxury. Furthermore, because of the terrain and the geographic location of these rural settings in relation to nearby towns the distance travelled is usually greater than for urban counterparts.
Educational attainment in rural areas, and here reference is made specifically to Dumfries & Galloway[xxiv], tends to be lower than for Scotland as a whole. Unemployment and low wages are reflected in these rural societies[xxv], as is the prevalence to rent homes, along with fuel poverty[xxvi].
Many of these communities are therefore considerably vulnerable and that introduces the opportunity for static non-price failures arising from information failure[xxvii]: the inability to understand, to appreciate and to make sensible, rational choices in relation to a transition to electric vehicle transport. This form of market failure, in these rural societies, applies equally to choices relating to heating and power.
The transition to EV’s, for new car sales from 2030 in Scotland, presents other market failure options. Range anxiety[xxviii] is one, resulting in multiple equilibria: due to limited battery life, the longer distances travelled and from the limited density, and frequency of charging points. For many motorists in rural Scotland this aspect will determine the point at which a switch to EV’s is made.
The high cost of EV’s, especially before economies of scale kick-in, will present liquidity constraints[xxix] for those low wage earners living in rural areas. For these, and many others living in these areas, inertia and bounded rationality[xxx] will play a significant part in the choice of private transport. The internal combustion engine is well understood and relatively easy and cheap to fix. By comparison, EV’s appear complex, sophisticated and expensive to fix – with a replacement battery pack costing many £’000. For a large percentage of those living in such areas it is likely that petrol and diesel engine cars will remain the vehicle of choice for years to come, and this will no doubt help stimulate the 2nd hand car market post 2030.
The as yet unknown policy for what will replace Fuel Duty and the associated VAT on petrol, and diesel vehicles, currently worth around £25bn annually to the Exchequer, adds to the informational market failure. For rural motorists, the alternative of a road pricing scheme, as reported in the press, and which may kick-in above a certain mileage, could further penalise rural motorists in relation to urban motorists, due to their higher average mileage. The present Fuel Duty, on the other hand, at least presents a level playing field.
Much of the housing stock in Scotland is old and built without heat energy conservation in mind[xxxi]. Indeed, those built from stone and lime mortar – which is typical of rural properties, are intended to ‘breathe’ as lime is a vapour permeable medium and if insulation is applied to walls, particularly to exterior walls, then dampness problems can ensue[xxxii]. Consequently these traditional built houses can require 2-3 times the heat energy of modern equivalents. These properties are also off the gas-grid and, therefore, heated from a variety of sources such as: coal, peat, oil, wood, LPG, electricity or biomass. A significant proportion are occupied by tenants[xxxiii].
In this context market failures are already an intrinsic part of rural life and arise from a combination of information failure, liquidity constraints, and uncertainty and risk taking[xxxiv] – with the latter due to the above forms of heating, with the exception of electricity, suffering from a lack of oversight and regulation of what is an oligopolistic market[xxxv].
As part of Net Zero, and for rural properties in Scotland, a move away from fossil fuel heating to electricity would eliminate this dynamic failure and provide a greater degree of certainty, but other forms of failure persist. Information failure, for example: would switching to electricity be cheaper than oil? Will air source heat pumps increase electricity bills, and to what extent? Will existing radiators need to be changed? These are just a small part of the unknown questions for most people in this situation.
Given the large proportion of rented properties in rural Scotland split incentives[xxxvi] pose another problem for Net zero. How will the landlord recover the capital outlay? Are tenants prepared to pay more rent for the privilege of eliminating fossil fuel? And, as far as home owners are concerned: liquidity constraints – what will it cost to change to green energy for heating? Where will the capital come from? What is the rate of interest on borrowing and how long will it take to pay back? Not forgetting, what else could the money be better spent on?
Beyond the present negative externality arising in rural communities from onshore wind, giving rise to: loss of place, the loss of historic and cultural heritage etc., previously mentioned, many rural communities in Scotland will question the ethics of further expansion of onshore wind to satisfy Net Zero because of information failures. For instance, developers continue to encourage residents and local authorities to support onshore wind by stating that it is the lowest marginal cost producer of electricity. It seems a reasonable question for rural communities to ask, having already internalised this negative externality, that with over 10GW of onshore wind presently operating in Scotland - displacing more expensive and environmentally unfriendly oil and coal-fired power stations, why do electricity prices continue to rise? And, if further expansion of onshore wind takes place will electricity prices rise still further. This question appears to avoid answers.
Some rural communities in Scotland experience additional forms of information failure that could restrict progress towards Net Zero. These include poor mobile reception that precludes the use of Smart Meters and thereby limits the availability information on when and how energy is being consumed within homes. In future it will also constrain the use of agile tariffs as energy distribution companies transition their role in facilitating Net Zero.
This same market failure can exacerbate fuel poverty, especially among older rural residents where, because of a number of factors, such as: lack of IT skills and computer literacy, or even the availability of a broadband connection, many of these older residents are unaware of the range of different tariff options and energy suppliers each year as their contract comes up for renewal.
The cost associated with achieving Net Zero will be felt by all consumers of energy, and in all sectors, to a greater of lesser extent. It is possible the cumulative cost may exceed the immediate benefit to society, but the alternative socio-economic cost associated with a lack of action – of failing to reach Net Zero, will likely be greater in the longer term.
If the costs attributed to delivering Net Zero fail to account for uncertainty as well as those additional costs arising with negative externalities from consumption emissions then there is a likelihood that any figure reached will be both inaccurate as well as a understatement of the true cost of Net Zero.
The rate of progress towards reaching the goal of Net Zero, almost independent of cost, will likely be influenced by the extent to which human behaviour aligns with government regulation and policy intervention.
This discussion paper seeks, in particular, to contextualise the concerns of rural residents of Scotland in moving towards Net Zero. It outlines their unique vulnerability – exacerbated by existing market failures, as well as those expected to arise with the implementation of Net Zero, and hence it attempts to capture the present challenges as well as the special needs of rural residents in helping meet this goal, going forward. In this regard rural communities are not equitable with their urban counterparts in so far as they have less resilience and hence greater vulnerability to the challenges and demands a move to Net Zero will bring.
5.1 The HM Treasury analysis will provide a landmark judgement for the rest of the world, not just the UK, on the cost of mitigation measures to achieve Net Zero. In some respects, and in pure economic terms, it hardly matters if the analysis finds the estimated cost figure of 1% or 2% of GDP if, as Stern suggests, the cost of inaction lies between 5% and 20% of global GDP each year. What is perhaps more important in this analysis, and where attention should focus, is where these costs will fall - and on whom.
5.2 History will decide the veracity of this assessment and how effective its conclusions are in bringing about change to meet Net Zero. To this end HM Treasury needs to qualify and quantify uncertainty and the potential impact of random events. The irrational effects of human behaviour also needs to be accounted for.
5.3 Net Zero comes at a cost to the UK. But, if no more than from an ethical perspective, this HM Treasury assessment should also seek to identify the overall internalised cost of negative externalities paid for by developing countries in assisting the UK meet Net Zero.
5.4 Rural communities in Scotland are a special case and should be considered alongside poorer households, and treated accordingly.
These concerns, if left unaddressed by HM Treasury in their final economic analysis, will severely disadvantage large numbers of people in Scotland, and potentially elsewhere in the UK. Expressed another way, HM Treasury should not fall into the trap of assuming that everyone lives in towns and cities, is connected to the gas grid and typically drives no more than 10-20 miles each day.
[i] HM Government (2020). HM Treasury Review - Net Zero Review publishes initial analysis of green transition. [Online] https://www.gov.uk/government/news/net-zero-review-publishes-initial-analysis-of-green-transition
[ii] Committee on Climate Change (2020) Sixth Carbon Budget. [Online] https://www.theccc.org.uk/publication/sixth-carbon-budget/
[iii] Ofgem (2020) Ofgem’s strategy to deliver a greener, fairer future. [Online] https://www.ofgem.gov.uk/news-blog/our-blog/ofgem-s-strategy-deliver-greener-fairer-future
[iv] UK Government (2020) Energy white paper: powering our net zero future. [Online] https://www.gov.uk/government/publications/energy-white-paper-powering-our-net-zero-future
[v] CCC (2019) Reducing UK emissions – 2019 Progress Report to Parliament. [Online] https://www.theccc.org.uk/publication/reducing-uk-emissions-2019-progress-report-to-parliament/
[vi] Market failure is an economic situation defined by an inefficient distribution of goods and services in the free market. Deciding the right degree of government intervention is key to trying to mitigate a market failure, of which there are many causes – detailed in the various footnotes that follow. For more information on the theory of market failures and social efficiency (where the marginal benefit to society of producing any given good or service exceeds the marginal cost to society then it is said to be socially efficient to produce more, and vice versa). For more information see – Sloman, J., Hinde, K. amd Garratt, D. (2010) Economics for Business. 5th Ed. Pearson Educational Ltd. Harlow.
[vii] A negative externality arises when the production or consumption of a good or service imposes a cost on a third party that is uninvolved with the initial transaction, imposing a larger cost on society as a whole than on the private actors.
[viii] Scottish Government (2020) Energy Statistics for Scotland Q1 2020 Figures: June 2020. [Online] https://www.gov.scot/binaries/content/documents/govscot/publications/statistics/2018/10/quarterly-energy-statistics-bulletins/documents/energy-statistics-summary-june-2020/energy-statistics-summary-june-2020/govscot%3Adocument/Scotland%2BEnergy%2BStats%2BQ1%2B2020.pdf
These statistics show that in 2019 Scotland achieved, on average, 90.1% of electricity consumption from renewable sources – producing approximately 30.5TWh of electrical energy from renewables against a demand of almost 34.0TWh. In 2018 the figure was 76.7% of demand from renewables. In 2020, as a result of Covid and home working demand fell by 16% while renewable generation increased by 28% in Q1 2020, with 11.6TWh generated in this period due to increases in rainfall and wind speed.
[ix] WWF (2019) Scotland’s wind could power every home across Scotland and the North of England. [Online] https://www.wwf.org.uk/updates/scotlands-wind-could-power-every-home-across-scotland-and-north-england
This report, compiled from data from WeatherEnergy (http://www.weatherenergy.co.uk) illustrates that
[x] Thondhlana, G. and Murata, C. (2020) Non-material costs of wildlife conservation to local people and their implications for conservation interventions. Biological Conservation. Vol.246, June 2020, 108578.
[xi] A public good exists when good or service is non-excludable and has no rival in consumption. One provided, no one can be stopped from consuming it and its consumption by one person does not reduce the amount available to another person.
[xii] Dinda, S. (2004) Environmental Kuznets Curve Hypothesis: A Survey, Ecological Economics. Vol.49, pp.431-455. [Online] https://mimoza.marmara.edu.tr/~mtekce/Dinda_2004.pdf
[xiii] IPCC (2018) Special Report: Global Warming of 1.5 ºC[Online] https://www.ipcc.ch/sr15/
[xiv] Stern, N. (2008) The Economics of Climate Change. The American Economic Review. Vol.98.(2)pp.1-37. [Online] https://personal.lse.ac.uk/sternn/108NHS.pdf
[xv] During a CCC webinar on the 27 January 2021 discussing financing for Net Zero Baroness Brown of Cambridge, Vice Chair of the CCC stated that their latest estimate suggested the cost had fallen to around 0.5% of GDP.
[xvi] Taleb, N.N. (2008) The Black Swan. Penguin Books Ltd. London.
[xvii] Ariely, D. (2009) The End of Rational Economics. Harvard Business Review. July-August 2009. [Online] https://hbr.org/2009/07/the-end-of-rational-economics
[xviii] The term, ‘free rider’ applies to those accessing a service they do not have to pay for.
[xix] Comment made during CCC webinar on the 9 December 2020 during which the panel members discussed the implications of Net Zero, saying that agriculture and people had a part to play in achieving Net Zero. Meat production would need to fall as would meat consumption. Less meat, but better quality meat was discussed.
[xx] Elliot, L. (2019) Electric cars: calls for tax on road usage to cover lost fuel revenues. The Guardian, Friday 4 October 2019. [Online] https://www.theguardian.com/environment/2019/oct/04/electric-cars-call-for-tax-on-road-usage-to-cover-lost-fuel-revenue
[xxi] Strathclyde University (undated) Electric Vehicle Paradigm Shift: EV electricity charging prices. [Online] http://www.esru.strath.ac.uk/EandE/Web_sites/17-18/paradigmev/ev-electricity-charging-price.html
[xxii] Territorial and consumption based emissions are defined in the August blog on Net Zero.
[xxiii] Poverty and Inequality Commission (2019) Transport and Poverty in Scotland. June 2019. [Online] https://povertyinequality.scot/wp-content/uploads/2019/06/Transport-and-Poverty-in-Scotland-Report-of-the-Poverty-and-Inequality-Commission.pdf
[xxiv] SRUC (2014) Rural Scotland in Focus. SRUC Rural Policy Centre. [Online] https://www.sruc.ac.uk/info/120428/rural_scotland_in_focus/1265/2014_rural_scotland_in_focus_report
[xxv] Hill, C. and Clelland, D. (2019) Deprivation, policy and rurality: The limitations and applications of area-based deprivation indices in Scotland. Sage Journals. [Online] https://journals.sagepub.com/doi/10.1177/0269094219827893
[xxvi] Scottish Government (2016) Delivering affordable warmth in rural Scotland: action plan [Online] https://www.gov.scot/publications/action-plan-deliver-affordable-warmth-rural-scotland-proposed-scottish-rural/ In this report highlights that over half Scotland’s rural households are living in fuel poverty and this rises to 63% for those in remote rural areas, with 23% classed as extreme fuel poverty (over 20% of disposable income spent on total domestic energy usage).
[xxvii] In this case, the lack of information and knowledge about the benefits of making energy efficiency improvements to transport choices for commercial or personal consumption may hold back decarbonisation decisions when there is a will to do so.
[xxviii] A market failure emanating from a dynamic failure known as multiple equilibria where there is a lack of communication between different actors in the market or an inability to coordinate actions across time that can lead to an outcome that leaves everyone worse off. An example here is the concern for the lack of charging points in rural areas while firms will only instal more when they feel the demand exists. If these actors were able to coordinate and communicate the supply and demand the market would produce a better outcome.
[xxix] Liquidity constraints occur where people are willing to make an investment that is cost saving but do not have access to capital to pay for it, and nor do they have the means to borrow money to fund the investment.
[xxx] This form of market failure, inertia or bounded rationality, occurs where people are satisfied with sub-optimal. Incentives and information is available but do not translate into action because of bias towards the status quo.
[xxxi] Scottish Government (2018) Scottish house condition survey-2017. [Online] https://www.gov.scot/publications/scottish-house-condition-survey-2017-key-findings/pages/4/
This survey shows that 75% of dwellings in Scotland were built before 1982 and hence lack minimum standards for energy efficiency and airtightness.
[xxxiii] Scottish Government (2018) Housing Statistics: Stock by Tenure. [Online] https://www.gov.scot/publications/housing-statistics-stock-by-tenure/
Shows 34% of dwellings in Dumfries & Galloway are rented, either privately or from housing associations while for Scotland as a whole the rental figure is 37.1% - including those rented from local authorities.
[xxxiv] This form of market failure arises due to the uncertainty about future risks.
[xxxv] An oligopolistic market consists of a small number of firms, usually two or more, in which none can keep the others from having a significant influence. Thus a few firms can dominate the market.
[xxxvi] When one party bears the cost of purchasing a good while another party benefits.