Economics of a low-carbon future

This paper sets out some of the economic factors underpinning Scotland's move to a low-carbon economy. Economics matters, since it addresses the costs of reducing greenhouse gas emissions, the costs of climate change impacts, and the economic factors that motivate individuals' behaviour and the behaviour of businesses. All of these are important in understanding the barriers to meeting targets and to successful adaptation, and in thinking about how these barriers can be lifted. We discuss the relative merits of market mechanisms such as carbon taxes and cap-and-trade, the cost of including additional targets, and the issue of counting carbon embedded in imported goods. An efficient way of achieving carbon reductions is to widen the scope of carbon trading to include forestry, transport and agriculture. Energy efficiency in businesses and households and adaptation to climate change are a priority, because the benefits will be felt in the short term and at the local level.