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Thank you, convener, and good morning.

The draft order under consideration is a minor amendment to the Renewables Obligation (Scotland) Order 2009. Before I move on to the amendment, it might be helpful to provide some background information on the scheme.

The renewables obligation scheme was introduced in 2002 to support renewable electricity generation projects. Equivalent schemes are in place in England and Wales and Northern Ireland, and are managed under separate legislation. All three United Kingdom schemes are administered by the Office of Gas and Electricity Markets. Throughout its existence, the Scottish obligations scheme has remained largely aligned with the England and Wales scheme.

The scheme closed to new generation capacity across the UK in 2017, but it will remain operational until 2037. Some 565 existing generators are accredited under it. That accounts for 8.8GW of renewables capacity in Scotland.

The obligation requires electricity suppliers to source a percentage of the electricity that they supply from renewable sources. Accredited renewable generators are awarded certificates according to their output per megawatt hour. They are then sold to suppliers. That incentivises renewable generation by providing projects with revenue in addition to the wholesale energy price.

Electricity suppliers fulfil their obligation by providing the required number of certificates to Ofgem in proportion to the amount of electricity that they have sold. Alternatively, they can make a fixed payment into a buy-out fund at a higher price than procuring certificates typically requires. That fund is then recycled back to suppliers that provided certificates to Ofgem. However, when some suppliers fail to meet their obligations, a shortfall in the fund is created, which reduces the value of any recycled payments. A mutualisation mechanism exists within the scheme to prevent excessive shortfalls. If the shortfall exceeds a certain threshold, existing suppliers are required to pay the unmet obligations of suppliers that did not meet their obligations. In each of the past five years, mutualisation has been triggered due to an increasing number of suppliers defaulting on their obligations.

The amendment order under consideration will alter how the mutualisation threshold is determined under article 48 of the Renewables Obligation (Scotland) Order 2009. The mutualisation threshold has failed to keep pace with the growth in the scheme and proportionality. It is now considerably smaller than it was when it was first introduced.

The aim of the amendment is to better protect customers by restoring the balance of risk between generators and suppliers. As the cost of the scheme to suppliers is passed on to consumers in their energy bills, any increased costs associated with mutualisation are also passed on.

The amendment will alter the mutualisation threshold for Scotland from a fixed value of £1.54 million to 0.1 per cent of the forecast costs of the scheme across the UK. It will also restore alignment with the scheme in England and Wales regarding mutualisation as the UK Government made a parallel amendment in 2021 to move to a variable level of scheme costs. Critically, the amendment will ensure that suppliers and, in turn, their customers are not more likely to face the costs of mutualisation in Scotland than they are in England and Wales.

Finally, a further provision is included in the proposed Scottish statutory instrument, allowing Ofgem to publish the mutualisation threshold for the 2023-24 obligation period as soon as reasonably practicable after 1 April. Ordinarily, Ofgem must publish the threshold before the new obligation period starts but, given that the SSI will not come into force until 31 March, it is allowed to publish the threshold later than that.

For the reasons that I have set out, I believe that the proposed amendment is necessary and proportionate, and I am more than happy to answer any questions before we move on to the debate.

The scheme was designed on that basis. However, the much more deep-rooted issue—the committee has covered it previously—is the way in which companies, particularly suppliers, have been able to enter into the market without the necessary financial protections in place, and how that led to all the problems that we have had with higher costs and energy prices during the past 18 months in particular.

Ofgem is working on how it can put further protections in place to reduce the risk of companies falling out of the market so quickly and on greater financial protections for them because, in the end, the consumer ends up picking up all the associated costs. The threshold will help to make sure that the mutualisation process operates more fairly, which means that those who meet their obligations are not unfairly penalised because of other operators who do not meet their obligations.

That makes a change.

Thank you, convener. I apologise for being delayed in arriving for the committee’s session.

The portfolio draws together many of the key strands that are required to deliver on the Government’s ambitious and world-leading plans around climate change, biodiversity and the transition to net zero, while continuing to support the most vulnerable in society and deliver a safe, accessible and affordable public transport system.

Our 2023-24 budget comes against a difficult financial backdrop, as we work collectively to tackle the acute cost crisis that faces the country while managing inflationary pressures across our budgets. That has required reprioritisation towards those programmes that most effectively deliver on our key outcomes.

In the 2023-24 budget, we will spend more than £3.5 billion on transport, including investment of more than £1.4 billion to maintain, improve and decarbonise Scotland’s rail network. That includes the provision of £15 million to allow the exploration of a pilot to look into the removal of peak-time rail fares as part of our fair fares review. We will invest £426 million to support bus services and their users, and will provide access to free bus travel for more than 2 million people, including all under-22s.

We will continue to increase our investment in walking, wheeling and cycling, to which we are allocating £190 million in 2023-24, as well as spending £440 million to support our lifeline ferry services, connecting our vital island communities and supporting priority harbour projects.

We are providing record investment to protect and restore nature, including our peatlands, and to tackle the causes of biodiversity loss. We will also continue to support our forestry bodies to deliver the woodland creation target, which will result in 16,500 hectares of new planting in 2023-24.

We recognise that substantial investment is needed to deliver on our waste and recycling targets. In this budget, we are investing more than £47 million to drive Scotland’s circular economy, which will reduce reliance on scarce resources and reduce waste.

We are committed to taking strong action to meet the climate challenge and are investing more than £81 million in climate action. That includes investment in the just transition fund, to accelerate the development of a transformed and decarbonised economy in the north-east and Moray.

Finally, we will continue to provide significant budget for energy to make our homes and buildings warmer, greener and more energy efficient, and we will increase funding to support the fuel poor through our heat transition. In the short term, we will continue our fuel insecurity fund next year, which we will provide with some £20 million of investment.

The portfolio budget delivers on an ambitious agenda, but it is not without risk, such as the on-going impact of Covid on public transport patronage and revenue, and inflationary pressures across the portfolio that impact significantly on areas such as pay, infrastructure projects and contracts.

I can, however, reassure the committee that I will continue to reprioritise within my budget, not only to meet our legal, statutory and contractual commitments, but to achieve value for money against a challenging financial position.

I am happy to respond to any questions that the committee has.

I think that just over £60 million is being provided to help to support bus services. That includes an element for the community bus fund. Provision of £5 million of capital funding and £1 million of resource funding is accessible to local authorities to look at developing initiatives that are aligned with the powers in the Transport (Scotland) Act 2019. They could look at the franchising model or at running their own bus services.

The bus funding that we are providing in the next financial year includes provision specifically to support local authorities to develop proposals and to work through some of the details of how they might want to use the powers in the 2019 act to do that.

We have to be quite careful and take our time in ensuring that we run the right pilot. There is a danger that £15 million could be spent on running a pilot, at the end of which we say that patronage levels have increased. However, would those people be people who were always going to return to using rail anyway or the same people who were already using it? Is the approach making it more accessible to those on lower incomes? We need to be careful to ensure that the pilot is meaningful.

That is why the work that is being taken forward by officials in Transport Scotland and with ScotRail will have to demonstrate how we can ensure that the pilot will provide us with the level of data and understanding that we are looking for. I want us to take our time to ensure that we make the right choices and that we have the right processes in place to be able to evaluate the pilot effectively; otherwise, we will lose that opportunity.

That was a good piece of work, although it has taken some time. It was led by the Fraser of Allander Institute and it is a joint piece of work between Government and Parliament. I am keen to make sure that, across Government, there is much greater transparency around spend on meeting our climate change targets. In this year’s strand 1 work, if you take the carbon taxonomy that has been used, you can see that the proportion of spend on low carbon has increased while the proportion of spend on high carbon factors has declined. We are starting to get greater transparency around that.

That is the challenge for the high-level strand 1 work that we have this year. That provides a bit more detail, in overview, of how we are spending our resources in tackling climate change. Strands 2 and 3 will give us much more detail and will also make it more bespoke to individual portfolios.

I am conscious that a lot of the burden falls on this committee when it comes to climate change. However, I would have thought that the Economy and Fair Work Committee would have a particular interest in what is happening in the economy portfolio on investing in tackling climate change—likewise, other portfolios. It is important that we get strands 2 and 3 delivering that level of detail, so that individual committees beyond this one will be able to see more clearly exactly what an individual portfolio is doing to deliver on our climate change targets, and how it is investing in funding to support that.

That is what strands 2 and 3 should help to deliver. I think that strand 1 has been helpful in being applied to this budget, but there is clearly more that we need to do. That will be done over the course of the year.

Just to be clear, we are providing £62.5 million to support bus services. Within that there is £1 million in resources and £5 million in capital to support councils to explore providing bus services in their areas.

I would like to have seen faster and greater progress. Bus is the most flexible form of mass public transport. It is a very flexible resource and real priority for us, as reflected in our policy programme. However, it is important that we allow local authorities to consider what is the most appropriate model for their area. Something that works in a big urban area might not be effective in a more rural area.

There are several different options available to local authorities. One model that some local authorities are interested in is franchising: having a franchise service in the local authority area would allow the authority to set out the services that it wants, their frequency and the fare rates. It would give local authorities much more control and remove the need for them to own and run buses, although they would control the service. That takes away a lot of the capital cost that is associated with running a service. We need to allow local authorities the space to identify what would be the best way to go about that. The funding that we are providing is to support the development of some of that work.

It is fair to say that the bus industry is going through a really difficult time because of Covid, and that patronage levels have not fully returned to their previous levels, which is causing financial challenges. It is in all of our interests to find a more sustainable approach. If you were to ask me whether the current model is working in our interests, I would say that it is not. That is why the provisions were put in the Transport (Scotland) Act 2019 in order to give us options. I would like to see some of those options being developed and becoming active models that are being used. I hope that we will start to see that happen over the next couple of years.

We have more than 3,000 public charging points in Scotland, which does not include the number of private charging points. There will be several thousand private charging points, including those that have been put in at workplaces and so on, which are not part of the public sector network. There is a distinction. The 3,000-plus figure relates to public sector charging points. I do not know what the figure is for private sector charging points, but several thousand on top of that will be available. That is a growing network as well.

We have committed to doubling the public sector charging network from the 3,000-plus units that we have at the moment to more than 6,000 units over the next couple of years. We have allocated £30 million to support that and we are working with the private sector to lever in an additional £30 million to deliver that expansion of the network. A combination of further private sector investment, which will continue to grow, alongside the public sector investment in the public charging network will give us sufficient coverage for the charging network overall.

I have heard a number of times the figure of 30,000 charging places that the CCC believes is necessary. I am not entirely sure how that figure was arrived at. However, we believe that a combination of public and private investment will provide us with sufficient coverage, alongside encouraging people to make greater use of public transport.

It is part of a programme of work that we have taken—