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I will not comment any more on Jim Ratcliffe’s comments—he has a particular view and he has made that clear to the UK Government and in the press.

The ETS was set up with a provision for those high-emitting sectors to have free allocations. There was an acknowledgement that they should have free allocations, because there will always be some sectors that find it harder to decarbonise than others do. The ETS is there to ensure that there is not carbon leakage. That is all I really have to say on that. If we did not have systems like that in place and there were no free allocations, we would offshore our emissions.

The purpose of the instrument is to ensure that companies do not profit from the ETS when they are not operating.

We have not carried out a full impact assessment, because there is no regulatory provision for that to be done. The impact of changes to permanent cessation rules on businesses was published in November 2024 in an analytical annex to the initial authority response to the free allocation review consultation. You will be able to find the detail of the analysis in that document.

The main purpose of the instrument is to ensure that plants and operations that cease production do not have a valuable free allocation once the plant is no longer operational. There has been a lot of criticism of the potential for that situation to occur, as it would mean that operators that cease operations could profit from the free allocation. There has been a lot of criticism of that loophole in wider society and, indeed, in the media.

I am basing that on the Cabinet Secretary for Finance and Local Government’s projections. The cabinet secretary has said that we are working to fully reduce the £160 million by the end of this financial year.

As far as ScotWind funding is concerned, that is a discussion that we had ahead of the budget. None of us wanted to use it for anything other than investing in legacy infrastructure, improving the lives of people in Scotland, investing in long-term projects, reducing our emissions and ensuring just transition—all the things that I have mentioned. The assumed usage of £424 million has reduced to £160 million, and we are working to reduce it fully by the end of this financial year—

It says “the financial year” in my notes. Does that mean this financial year?

I think that you are referring to the global climate emergency programme board.

Thank you, convener, and good morning to everyone. Today, I am providing evidence on the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2025, which is an instrument to amend the Greenhouse Gas Emissions Trading Scheme Order 2020.

As you are aware, emissions trading scheme participants must purchase an allowance for each tonne of CO₂ emitted. However, some allowances are given for free to sectors that are at risk of carbon leakage, which is when emissions are offshored. Those free allowances are currently the main policy tool to mitigate that risk.

The Scottish Government, as part of the emissions trading scheme authority, is reviewing the free allocations policy. Between December 2023 and March 2024, we jointly consulted other UK nations on proposals to adjust the free allocations policy to better support sectors at risk of carbon leakage. Among the proposals were changes to free allocation rules when operators permanently cease activities of a sub-installation, which are the amendments contained in today’s instrument.

I will present the changes that we propose to make. Currently, sub-installations that permanently cease activities can retain their free allowances for the final year of operation. However, that can result in overallocation of allowances, unintentionally allowing businesses to profit from the emissions trading scheme. Therefore, the instrument introduces new rules to ensure that businesses do not receive more free allowances than they are entitled to after permanently ceasing activities; that operators investing in decarbonisation are not penalised; and that gaps in the definition of permanent cessations are addressed to prevent inconsistencies in its application.

In practice, the changes to the rules would mean that operators that are permanently ceasing activities will report emissions for the final year, allowing regulators to align free allocations with actual emissions and reclaim overallocated allowances.

To support decarbonisation efforts, an exemption will apply to operators whose sub-installations permanently cease activities as part of changes that materially reduce the carbon intensity of production, such as electrification of plants, thereby ensuring that the free allocations policy effectively supports decarbonisation efforts.

The instrument also updates the definition of permanent cessations, particularly addressing situations in which temporary cessations become permanent, to ensure clarity and consistency in the allocation process.

It is important to note that, once the instrument comes into force, changes will apply to all operators. The new rules are designed to ensure fairness and accuracy in free allocation distribution, ensuring that support is targeted to those sectors that are at risk of carbon leakage. I am happy to answer any questions.

If your sums are correct, yes. The numbers that I have given you that are in front of me are the £75 million that has been spent already and this year’s allocation of £15.9 million.

Bonnymuir. Thank you.

Yes, so that money has not been taken from the just transition fund, which is a separate fund that is focused on the north-east and Moray.

Here is my answer: yes.

We are at a critical moment for various parts of the energy sector when it comes to the supply chain. Supply chain order books show that the energy supply chain is still mostly servicing oil and gas. However, as we know, there has been a steady decrease in oil and gas operations, while renewables operations, particularly in offshore and onshore wind, are ramping up.

For the offshore wind supply chain, we know that, as a result of the licensing round for ScotWind, there will be an enormous boost in activity as the innovation and targeted oil and gas—INTOG—projects take shape and get their consents and the ScotWind licences take hold. We have to make sure that the offshore wind supply chain—I would actually say the energy supply chain—is able to ramp up its activities and prepare for the orders that it will have, and that it does so in such a way that it can perhaps pivot some of its activities to what is required for offshore wind. Quite a lot of supply chain companies will probably be servicing contracts for oil and gas, as well as for renewables, for decades to come. We are trying to make sure that they have the support to be able to pivot. Some companies might have to increase their capacity, because they will be serving oil and gas as well as opening up opportunities for offshore wind.

We are tripling the capital funding for offshore wind to £150 million, which will stimulate private investment as well. I will give an example of how that works in terms of the supply chain. We and our overseas agencies did a lot of work in attracting Sumitomo to build its high-voltage direct current—or HDVC—cable in the Cromarty Firth. That is the result of work that was done to put in the right conditions but also of having the right initial funding to attract a big company to Scotland. We are very pleased that that has been done.

We have also committed to a £500 million strategic investment to leverage additional private investment of £1.5 billion to the offshore wind supply chain. The Government’s commitment to that sector is already prompting private companies to come together to, in effect, pledge money for additional infrastructure. As a result of the work that we have been doing through the Scottish offshore wind energy council and the strategic investment model, billions of pounds have been pledged, because companies are seeing that the Government is committing money. That money is not just a Government investment in the supply chain, but a prompting of additional investment from private resources.