Climate change adaptation investment need across five sectors in Scotland 

Scotland’s businesses, infrastructure, communities and natural environment face increasingly severe climate change impacts. Yet, the actions required to adapt to those changes – how they will evolve over time, what they will cost, and who should pay – remain poorly understood.  

This report provides the first estimate of Scotland’s climate adaptation investment needs through to 2040 across five sectors:  

• agriculture;  
• communities (focused on flooding);  
• the natural environment (focusing on woodland creation, peatland, nature restoration); 
• transport (focusing on trunk roads, motorways, railways); and  
• water (focusing on public water and wastewater services).  

This work is intended to support the Scottish Government in building an evidence base ahead of the fourth Scottish National Adaptation Plan (SNAP4). 

Estimating future adaptation cost is inherently challenging. It requires assumptions about future warming, the level of climate risk that society are willing to tolerate, and the associated scale of adaptation and residual damages. Deep uncertainty in climate projections, socioeconomic change, asset vulnerability, and political priorities make precise modelling both challenging and resource intensive.  

As a result, the findings in this report should be treated as pragmatic, evidence-based approximations that indicate the order of magnitude of investment needs—not definitive targets. 

Estimated climate adaptation investment need  

Adaptation investment needs across the sectors and subsectors assessed in this study are estimated at £7.8–£14.2 billion between 2026 and 2040, or £566–£1,027 million per year.  

Previous estimates from the Climate Emergency Response Group, Paul Watkiss Associates, and the Office for Budget Responsibility suggested Scotland’s total adaptation costs would range from £196 million to £1,340 million per year from 2030 onwards. These are based on UK wide analyses and international benchmarks. Sector specific estimates in this study fall within that range. However, because this analysis covers fewer sectors than the Scottish National Adaptation Plan, the findings suggest that Scotland’s full adaptation investment needs may be higher than previously anticipated. 

The results in this report carry low confidence and should be viewed as indicative, not precise.  The sector-specific figures represent order of magnitude estimates designed to inform policy discussion and future research, rather than definitive costings. 

The macroeconomic effects of investing in climate adaptation  

This research also looks at macroeconomic modelling to estimate the wider economic effects of similar levels of adaptation spending.  

A full assessment of the macroeconomic costs and benefits of adaptation were beyond the scope of the study. However, the study did model the direct economic effects of adaptation spending across sectors. It also explored how different approaches to cost recovery affect economic activity, employment, and household incomes. 

The modelling consistently shows that adaptation spending generates a positive economic stimulus during the investment period, supporting jobs and output particularly in construction, engineering, and land-based supply chains. However, the way costs are recovered – whether through income-tax, charges or through public spending cuts – matters considerably. 

How will costs be borne by households, businesses, and the public sector? 

The researchers made additional analysis of how adaptation costs might be shared between the public and private sectors. 

The study investigated how adaptation is currently funded in each of the sectors. Climate adaptation in Scotland is currently funded predominantly by the public sector. However, households and businesses pay more than previously understood, through Council Tax and Non-domestic rates. Households and businesses also bear some costs directly, for example through property-level insurance and on-farm investments, but this remains modest in most sectors. 

This balance is unlikely to shift fundamentally. Most of the adaptation investment – including flood protection, transport resilience, and natural flood management – generates little or no direct financial return and is therefore structurally dependent on public funding. Analysis suggests that approximately three-quarters of adaptation investment needs will require public financing regardless of innovations in private finance mechanisms. 

Scope to boost private sector participation 

The study reviewed the innovative funding and financing models being used internationally and within Scotland. Analysis found that there is modest potential to increase private sector participation in adaptation funding and financing across all five sectors, and a range of innovative mechanisms are emerging. These include parametric insurance in agriculture, biodiversity credits and voluntary carbon markets in the natural environment, green and resilience bonds for flood and transport infrastructure, and catchment co-investment models in water.  

Recommendations 

The research report includes several recommendations for further research. These include developing adaptation targets and risk tolerance thresholds, strengthening the evidence base for the “triple dividend”, and creating frameworks for prioritising actions that account for rural vulnerability, social equity, and Just Transition principles. 

For additional recommendations and details of how the investment estimate where reached, please read the report.  

If you require the report in an alternative format, such as a Word document, please contact info@climatexchange.org.uk or 0131 651 4783.