Low-carbon hydrogen is expected to play an important role in helping Scotland reach net zero, particularly in sectors where electrification is difficult, such as heavy industry, shipping and aviation. Understanding how hydrogen deployment could develop under different policy, market and technology conditions is essential for planning this transition.

This research develops a new hydrogen deployment model for Scotland. The model provides Scottish Government with a flexible tool to explore how different assumptions affect hydrogen demand and the infrastructure needed to support it through to 2050.

This report explains how the model was developed and demonstrates its use through two illustrative scenarios:

• Pragmatic scale-up reflects a future where hydrogen use grows steadily, but demand remains the main constraint.
• Industry breakthrough reflects stronger policy support, greater export growth and wider use of hydrogen in sectors where cutting greenhouse gas emissions is particularly challenging.

Key findings

• The report recommends continuing to develop the model as Scotland’s hydrogen sector evolves and using it alongside further analysis of infrastructure costs and future market conditions.
• The model is designed to test different future scenarios and support evidence-based decision making, rather than predict a single outcome.
• In both scenarios, exports drive most of Scotland’s hydrogen demand, with domestic demand led by shipping, aviation, steel and the chemical industry.
• Affordable electricity and timely investment in export infrastructure are the two biggest factors influencing hydrogen deployment. Delays to pipeline connections with the rest of the UK and Europe could significantly limit Scotland’s ability to grow its hydrogen sector and access international markets.
• The findings highlight the need for coordinated policy, competitive electricity prices and investment in export infrastructure to support hydrogen deployment.

For further information, please read the full report.

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

Research complete March 2026

DOI: https://doi.org/10.7488/era/7184

1. Executive summary

Low-carbon hydrogen has been identified as a critical enabler of the transition to net zero. This is particularly the case in sectors where electrification is technically or economically constrained, such as heavy industry, shipping, aviation, and export markets. Achieving this ambition requires transparent, evidence-based analytical tools that can translate policy assumptions into credible deployment trajectories.

This report presents the findings of a research project commissioned by ClimateXChange (CXC) and the Scottish Government to develop a quantitative hydrogen deployment model for Scotland. The project responds to the need for an updated evidence base on Scotland’s hydrogen potential in light of significant policy, market, and technological developments since the 2020 Scottish Hydrogen Assessment (SHA).

As part of the project, we have created a flexible, user-configurable modelling tool. The model allows Scottish Government and Scottish Enterprise to explore how different policy, economic, infrastructure, and market conditions affect the pace and scale of hydrogen deployment across Scotland’s key sectors through to 2050. We used two illustrative deployment scenarios to test the model’s functionality and represent distinct and plausible futures for Scotland’s hydrogen sector.

The low-carbon hydrogen deployment model

The model is a scenario-based analytical tool for estimating hydrogen demand across Scotland’s key sectors through to 2050. It also estimates the supply-side infrastructure required to meet that demand. The model provides a quantitative, user-friendly framework for translating policy, economic, and technological assumptions into sector-level hydrogen demand projections and infrastructure requirements. It can be used to explore alternative deployment pathways, test key assumptions and support evidence-based decision-making.

The model itself, accompanied by a detailed user guide, was developed for use, and continued development, by Scottish Government and Scottish Enterprise analysts. This report summarises the process of its development and documents its use in testing two scenarios. The model is intended to support scenario testing and exploration of alternative futures, rather than provide a single forecast of Scotland’s hydrogen deployment trajectory. Results should therefore be interpreted as conditional on the policy, market and infrastructure assumptions specified within each scenario.

Two scenarios for hydrogen deployment in Scotland

The first scenario, ‘pragmatic scale-up’, is broadly aligned with the International Energy Agency (IEA) Stated Policies Scenario (STEPS). It reflects a world in which hydrogen grows but demand remains the binding constraint. The second, ‘industry breakthrough’, moves closer to an IEA Net Zero Emissions (NZE) trajectory. It is characterised by centralised infrastructure, high shipping and aviation targets, reliance on green hydrogen, and export development. It is a scenario in which hydrogen becomes a structural pillar of Scotland’s industrial sectors where reducing greenhouse gas emissions is particularly challenging.

Under Scenario 1, total hydrogen demand in Scotland reaches 40.2 TWh by 2050. This is underpinned by 11 GW of green and 135 MW of blue installed production capacity. Exports, (both pure hydrogen flows and derivatives such as ammonia and e-fuels), account for the majority of demand. Domestic consumption is led by shipping, aviation (including sustainable aviation fuels (SAF)), the steel sector, and the chemical industry.

Under Scenario 2, total demand reaches 70.3 TWh by 2050, served by 19.4 GW of green and 0.12 GW of blue production capacity. Exports again represent the largest single component of overall demand, with higher transport sector demand reflecting a more ambitious policy environment.

When considered alongside existing Scottish and UK hydrogen studies, both scenarios are above the most conservative projections and broadly in line with mid-range reference cases. However, they sit below the Scottish Government’s previous headline production ambitions and the most optimistic SHA scenarios.

Implications for hydrogen deployment

The model’s outputs are most sensitive to two parameters: electricity prices and the availability of export infrastructure. Electricity prices directly govern the business case for electrolytic green hydrogen production. The availability of export infrastructure acts as a hard boundary on whether Scotland can access international hydrogen demand. These findings are consistent with the broader literature and reinforce the relevance of both affordable renewable electricity and infrastructure.

We highlight several priorities for policy and investment.

• Targeted policy support to enable a competitive electricity price is essential for driving deployment and hydrogen competitiveness.
  
• Export infrastructure deserves early and decisive attention. Both scenarios show that exports drive the majority of Scotland’s hydrogen demand, yet export volumes are acutely sensitive to whether pipeline connections to the rest of the UK and the EU are available on time. Delays to these infrastructure routes are shown to significantly constrain overall system scale or alternatively cause sunk investments. The case for accelerating planning, consenting, and investment in inter-UK and EU cross-border hydrogen infrastructure is therefore strong.

This report and model should be treated as a first analytical layer. It focuses on demand-driven deployment under policy and infrastructure conditions and only considers electricity price conditions as a competitiveness cost-related input. No infrastructure deployment cost drives the deployment of hydrogen infrastructure in the model. Further work is recommended to evaluate the total system deployment costs of each scenario, carry out deeper sensitivity analyses, and update the model as Scotland’s hydrogen market continues to evolve.

Glossary/Abbreviations table

2. Introduction

This report presents the findings of research on the development of a hydrogen deployment model to support policymaking. The research was carried out by Ramboll on behalf of ClimateXChange and the Scottish Government.

Low carbon hydrogen has been identified as a cornerstone of Scotland’s transition to net zero by 2045. This project responds to the need to update the 2020 Scottish Hydrogen Assessment in light of significant policy, market, and technological developments.

Hydrogen is increasingly recognised as a critical enabler of decarbonization across multiple sectors. It is seen as particularly important in industry, long-haul transport, and for process heat, where electrification may be less feasible.

Scotland’s Hydrogen Action Plan (Scottish Government, 2022) sets out ambitions for 5 GW of installed hydrogen production capacity by 2030 and 25 GW by 2045, with a strong emphasis on export potential to Europe. This aligns with the UKG’s ambitions of developing low carbon hydrogen capacity for use in key sectors as outlined in the Hydrogen Strategy update to the market (DESNZ, 2025). Alongside the EU’s REPowerEU initiative (EU Commission, 2026), these strategies collectively signal a growing cross-border demand for clean hydrogen. The Scottish Government’s Hydrogen Sector Export Plan (Scottish Government, 2024) highlights the importance of international competitiveness, underpinned by robust certification and emissions accounting.

3. Methodology

This research was built on three complementary workstreams:

• Literature review: gathering key data and insights to inform model building, assumptions, and scenarios. This ensured an up-to-date technical and policy basis for model development. It delivered inputs for the assumptions, and created a foundation for scenario development. The review covered Scottish and UK policy and strategy documents (including the Scottish Hydrogen Action Plan (Scottish Government, 2022), UK Hydrogen Strategy updates (UK Government, 2022-2025), Clean Power 2030 Action Plan (UK Government, 2024), and relevant low-carbon hydrogen standards and business model frameworks), Scottish technical and market studies, and international benchmarks such as IEA scenarios (including STEPS/CPS) (IEA, 2025) and other public sources. The review was used to define baseline assumptions and parameters, including technology costs, deployment timelines, policy milestones, demand drivers, and key interdependencies across the hydrogen value chain. The outcome of the review feeds into Section 4.1and provides a structured evidence base for modelling choices, scenario narratives, and stakeholder discussions.
  
• Deployment model development: constructing a dynamic hydrogen deployment scenario model that allows for pathway generation based on different scenario configurations. This addressed the core of the research and delivered the modelling tool that then allows for scenario analysis and exploration of deployment alternatives. Model development included: (i) defining the overall model structure and interlinked input/output sheets; (ii) generating modules and dependencies across hydrogen production, demand, infrastructure, and exports; (iii) identifying and implementing parameters and assumptions; (iv) building a dashboard for user-friendly configuration and output interpretation; and (v) testing and calibration of model functionality. The model captures key relationships such as conversion of supply targets into capacity, links between capacity and build times, infrastructure implications of policy targets, and dependencies between hydrogen production buildout and grid needs. A short description of the model is provided in Section 4, with results generated through annual trajectories to 2050.
  
• Scenario specification: creation of two distinct scenarios for analysis. This collected the necessary data and variations to create different pathways for hydrogen deployment (summarised in Section 3.2). The scenarios were then used in the deployment model to generate results on the future hydrogen sector in Scotland (Section 5). Scenario design was based on the literature review, related studies, and project experience. Each scenario includes (i) a narrative describing the underlying assumptions and drivers, and (ii) parameter settings for production, demand, infrastructure, exports, and policy/enablers. The two scenarios are aligned with IEA, UK Government, and Scottish Government policy ambitions and targets. These scenarios demonstrate model functionality and provide a basis for deeper sensitivity analyses on the parameters that most strongly influence hydrogen deployment outcomes.
  

4. Literature review and data

The scope of the study required a deep literature review to establish necessary understanding of the Scottish context and extract relevant data sources. The following sections provide the findings of the review on the Scottish energy landscape and the relevant documents used for model development. We then summarise the two scenarios that were established from the literature review. These scenarios serve as case studies for use of the deployment model.

The Scottish energy landscape

The literature review was used to establish the system context, policy boundaries, and credible deployment pathways for the Scotland hydrogen deployment model before populating detailed technical parameters. In practice, these sources informed (i) the model scope and scenario logic, (ii) the demand sectors and infrastructure pathways represented in the model, and (iii) the policy/commercial assumptions used to interpret results. This was particularly important because hydrogen deployment in Scotland is shaped not only by local resource potential, but also by UK market support frameworks, certification rules, export readiness, and wider European/international market development. The section below sets out the key documents that were used to inform the model design.

At the Scotland level, the Scottish Hydrogen Action Plan (Scottish Government, 2022) provides the primary strategic baseline for domestic and export ambition. This includes the headline production ambition (5 GW by 2030 and 25 GW by 2045) and the broader framing of hydrogen as both a decarbonisation and industrial opportunity. It was used to identify the main demand segments and deployment themes relevant to the model (industry, transport, power system integration, exports, regional clusters/hubs, and enabling infrastructure). The accompanying Business and Regulatory Impact Assessment (BRIA) (Scottish Government, 2022) provided the structure for understanding barriers and delivery risks (e.g., market immaturity, infrastructure needs, investment uncertainty and policy coordination requirements). These informed the way uncertainty is reflected in model dials and scenario ranges rather than treated as fixed outcomes.

The Scottish Government export plan (A Trading Nation: Realising Scotland’s Hydrogen Potential – A Plan for Exports) (Scottish Government, 2024) was then used to add an explicit export-system perspective. This source helped structure how the model considers Scotland’s role not only as a domestic hydrogen producer, but as a future exporter into UK and European markets. It highlighted practical enablers and constraints around export market development. These include demand assurance, certification, transport routes, ports and terminals, storage, and international coordination. These considerations were important for how infrastructure requirements and timing assumptions are framed in the model, particularly where export demand competes with or complements domestic demand growth.

A second group of sources was used to understand the UK-wide policy and commercial framework, which materially affects whether Scottish projects can progress. The UK Government’s Low Carbon Hydrogen Production Business Model (DESNZ, 2022) and the Low Carbon Hydrogen Agreement (LCHA) (BEIS, 2022) were important for understanding the commercial support architecture (e.g., long-term contractual support and price/reference-price concepts), and therefore for interpreting what kinds of projects may be financeable under different market conditions. The Hydrogen Update to the Market (DESNZ, 2025) was used as a current-state snapshot of UK policy progression and programme delivery (e.g., allocation rounds, project support progress, and updates on transport and storage business model development). This helped avoid designing scenarios around outdated assumptions and provided evidence on the pace at which the UK hydrogen market architecture is maturing.

For the power-system interface, the Hydrogen to Power consultation response (DESNZ, 2024) and the Clean Power 2030 Action Plan (UK Government, 2024) were key to understanding the emerging role of hydrogen in dispatchable, low-carbon flexible generation and system balancing. These sources frame hydrogen-to-power as a strategic, but policy-dependent, demand pathway with relevance for long-duration/seasonal balancing and firm capacity provision rather than bulk generation. This was important for defining when hydrogen-to-power demand should appear in scenarios, and how strongly it should be linked to wider electricity-system conditions and policy support. The hydrogen blending consultation document (DESNZ, 2025) was also used, but mainly as a transitional/uncertain demand pathway: it is reflected in the model as an enabler for earlier uptake rather than a core long-term demand assumption.

A third group of sources supported the representation of infrastructure and delivery pathways. The Net Zero Technology Centre (NZTC) Hydrogen Backbone Link (NZTC, 2024) report was used for understanding the strategic case and practical considerations for linking Scotland to European demand centres, including route/infrastructure development thinking and export system integration. The Joint Research Centre (JRC) assessment of hydrogen delivery options (JRC, 2021) and the academic journal article ‘An analysis of the bulk transport of green hydrogen at sea: Comparison between submarine pipeline and compressed and liquefied transport by ship’ (d’Amore-Domenech, R. et al., 2023) provided broader techno-economic context on transport vectors (e.g., pipelines vs shipping and derivative pathways) and how technology choice depends on distance, scale and delivery context. These sources did not directly set final technical parameters, but they strongly informed the infrastructure options represented in the model, i.e., trailers, pipelines and ships.

Finally, the IEA Global Hydrogen Review 2025 (IEA, 2025) and World Energy Outlook 2025 (IEA, 2025) were used as macro-level context sources. The Global Hydrogen Review was especially valuable for understanding the gap between announced project pipelines and projects reaching firm investment stages. It also helped with understanding the continued importance of established demand sectors and the central role of policy support, offtake certainty and infrastructure in unlocking deployment. The World Energy Outlook provided broader power-system and energy-security context (e.g., rising electrification, flexibility needs, grid and resilience constraints), which is relevant for interpreting hydrogen’s role in a future Scottish energy system and for ensuring the model reflects wider system interactions, rather than hydrogen in isolation.

Overall, the literature review provided the evidence base to define a policy-aware, infrastructure-aware and market-aware model structure for Scotland. It informed which dials were necessary in the model (e.g., policy support strength, export ambition, sector uptake, infrastructure rollout timing), the plausible ranges for projected system development, and the main risks and dependencies that should be reflected in scenario interpretation rather than hidden as fixed assumptions.

The representation of Scotland’s current energy system was primarily based on public data from the Scottish Energy Statistics Hub (Scottish Government, 2026), which was used to compile historical datasets on energy, heat and electricity demand. This source also informed the sectoral breakdown of fuel consumption, geographic patterns of consumption, and historical greenhouse gas emissions by type. These datasets were used to establish the baseline system conditions against which hydrogen deployment pathways were assessed.

Variable renewable energy source (VRES) capacity factors were derived from historical installed capacity and actual generation data. This enabled the model to reflect observed system performance and variability, rather than relying solely on generic capacity factor assumptions.

Most of the technical parameters used in the model were drawn from Ramboll’s internal expert knowledge, project experience, and proprietary databases developed across previous hydrogen and energy system studies. These parameters include electrolyser (ELY) efficiencies, low heating values, hydrogen storage characteristics, pipeline specifications, hydrogen tube trailer and shipping assumptions, and conversion/logistics values for hydrogen derivatives such as ammonia, e-methanol and sustainable aviation fuel (SAF). Using these internal sources ensures consistency across technologies and alignment with current engineering practice used in project development.

Scenarios

The research developed two scenarios for hydrogen in Scotland, each of which has a different underlying logic while maintaining an IEA related scope. The two following paragraphs describe the scenarios and their storyline. The scenarios are analysed using the model and results are shown in section 5.

Scenario 1 – “Pragmatic scale-up” (STEPS-aligned; hydrogen grows, but demand remains the binding constraint)

Scotland develops hydrogen in a world that broadly follows the IEA Stated Policies Scenario (STEPS) (IEA, 2025). Governments expand policies beyond what is already enacted. Barriers to new technologies are lower than in a “current policies” world, but aspirational targets are not fully met and new fuels often struggle without continued support. In this context, hydrogen activity expands, but the rate limiter is bankable demand rather than project announcements or supply potential.

Globally, hydrogen demand is still dominated by established uses (refining, chemicals such as ammonia/methanol), while new applications remain small. The IEA notes that new applications are <1% of total hydrogen demand and are heavily concentrated in a limited number of test projects. Scotland therefore prioritises near-term, contractable demand pools (industrial users, refining/chemicals, public procurement) and uses Hydrogen Allocation Rounds / business model instruments to close the cost gap. This reflects the IEA conclusion that stable, predictable demand is a key lever and that firm offtake remains limited, relative to announced project potential.

On supply, Scotland’s comparative advantage is access to low-emissions electricity. However, the “pragmatic” scenario also gives blue hydrogen a meaningful early role. This is because the cost gap for electrolytic hydrogen remains challenging and CCUS-based routes can be competitive in some regions. Accordingly, Acorn CCS progress and an acceptability window for blue hydrogen materially affect the build-out trajectory.

Hydrogen for power system firming/peaking is limited to demonstrations and niche resilience needs, consistent with STEPS’ observation that the dynamism of electricity isn’t automatically matched by strong uptake of low-emissions fuels without policy support.

Exports are a medium-term option, not the backbone: the IEA highlights that hydrogen trade remains limited today and that export-oriented projects often lack off-takers and face infrastructure constraints. Scotland therefore develops export capability cautiously, with realistic delays and selective market focus (UK first; EU later).

Scenario 2 – “Industry breakthrough” (NZE-leaning; hydrogen becomes a strategic pillar for shipping, aviation and industry)

Scotland accelerates hydrogen development in a world moving closer to an IEA Net Zero Emissions by 2050 (NZE)-type pathway (IEA, 2025). In this pathway low-emissions molecules play a larger role because electrification cannot fully decarbonise all end-uses. The use of low-emissions hydrogen and hydrogen-based fuels rise sharply (including high shares in aviation and shipping). Hydrogen-based fuels become a major decarbonisation vector for parts of transport and industry.

In scenario 2, Scotland’s policy framework is designed around the IEA’s central diagnosis that demand certainty is the key lever for investment. Support mechanisms are strengthened, long-term revenue stabilisation expands, and government orchestrates large, credible demand pools (industry clusters, ports, aviation fuel supply chains). The UK and Europe become lead markets for synthetic fuels through SAF mandates that include explicit hydrogen-based sub-targets, creating meaningful e-fuel volumes by 2030 and beyond.

Shipping demand accelerates because the regulatory environment tightens. The IEA describes how the IMO Net-Zero Framework (fuel intensity standard + GHG pricing) can incentivise low-emissions fuels, and that ports and bunkering infrastructure become pivotal early-mover nodes. Scotland leans into this by positioning key Scottish ports as hydrogen-derivatives hubs (ammonia/methanol). This aligns with the IEA’s finding that hydrogen-based fuel handling is concentrated in a limited set of ports and that infrastructure readiness can unlock early offtake.

Export development becomes a cornerstone in hydrogen sector ramp-up. While the IEA cautions that trade is limited today and export projects often lack off-takers, it also shows that trade-oriented project announcements are large and that ammonia/methanol can scale with the right contracts and terminals. Scotland therefore uses aggressive offtake aggregation and export infrastructure build-out, targeting both UK balancing and EU demand growth.

On supply, cheap renewable electricity is fully mobilised (electrolysis at scale). Blue hydrogen plays a time-limited bridging role, contingent on CCS delivery and emissions standards. This reflects the IEA view that multiple production routes can compete depending on costs and policy.

5. Hydrogen deployment model

The deployment model is at the core of this research. This section provides a summary of the purpose, the workflow and the outputs it delivers. The Annex contains a step-by-step description of the model in the form of a user guide. Detailed technical sources are marked within the model.

Purpose and design philosophy

The low-carbon hydrogen deployment model is a scenario-based analytical tool built to estimate hydrogen demand across Scotland’s key sectors through to 2050. It estimates the supply-side infrastructure required to meet that demand. The model was developed to accompany existing qualitative analysis on Scotland’s hydrogen potential. It provides a quantitative, user-friendly framework capable of translating different policy, economic, and technological assumptions into concrete, sector-level hydrogen demand projections and infrastructure requirements.

The model allows users to configure a range of external conditions, energy prices, policy ambition, infrastructure readiness, and others, and observe how sensitive hydrogen deployment is to each of those assumptions. Throughout development, the model structure and its underlying assumptions were refined in close collaboration with the project steering committee. This ensured that the tool was tailored to the specific needs of Scottish policymakers and grounded in the most relevant available evidence. This makes the model serve not just as a forecasting tool, but as a structured framework for stress-testing assumptions, identifying critical dependencies, and supporting evidence-based decision-making.

The model deliberately does not take account of deployment costs to reflect the aim of defining transition possibilities and infrastructure needs. Outputs should be seen to represent transition potential, under certain policy assumptions. The key to the outputs lies in the identification of hydrogen uptake potential per sector, given certain policies.

The model is designed primarily as a scenario exploration and policy testing tool rather than a predictive forecasting model. Its purpose is to assess how different combinations of policy, market, infrastructure and economic conditions may influence hydrogen deployment in Scotland. The outputs should therefore be interpreted as conditional scenarios based on the assumptions and calibration choices embedded within the model, rather than forecasts of future deployment

Model workflow

The model is organized into four interconnected modules, covering demand, production, infrastructure, and exports. Each module captures a distinct dimension of the hydrogen system, see Figure 1. These modules are linked through a common set of user-adjustable input parameters, referred to as dials. These represent the external conditions that determine whether hydrogen becomes competitive in a given sector. The dials allow for specifying Scottish factors such as electricity and gas prices, policy and funding strength, and CCUS infrastructure availability. They also address international parameters governing Scotland’s potential to supply hydrogen to the rest of the UK and the EU.

Electricity price inputs, including user-defined values for 2035, 2040, and 2050, and a score for the broader power procurement and grid environment, form the primary driver of competitiveness across the model. Alongside these, sector-specific policy levers capture the strength of support for hydrogen in individual end-use areas, including heat adoption, power generation, shipping, sustainable aviation fuel, and green ammonia production. A further set of infrastructure dials governs the availability of enabling conditions: the status of carbon capture and storage infrastructure, whether hydrogen production is assumed to be centralised or distributed across Scotland, the availability of export routes to the rest of the UK and the EU, and any assumed delays to deployment. Finally, three macroeconomic parameters (cost of labour, tax regime business impacts, and overall macroeconomic tendency), are combined with electricity price indicators into a composite Demand Development Score, which describes the growth or contraction of legacy sector energy demands over the modelling period.

Each dial setting is converted into a normalised score. These scores are combined, using literature-calibrated weightings, into a single Competitiveness and Likelihood Indicator (CLI) for each demand sector. The CLI captures, in a single value, how favourable the overall environment is for hydrogen adoption in a given sector under the chosen scenario. Each sector is assigned a specific deployment threshold: the CLI must exceed this threshold before any hydrogen uptake occurs in that sector. The presence of positive sector-specific policy support reduces the threshold, reflecting how targeted policy can unlock deployment in sectors where hydrogen would not otherwise be competitive on its own.

The CLI score is then used to determine deployment scale through sector-appropriate logic. For capital-intensive, binary sectors (such as potential hydrogen-based steel plants), the CLI triggers discrete investment decisions, reflecting the all-or-nothing nature of large industrial commitments. For more incremental sectors such as distilleries or road transport, a logistic S-curve converts the CLI into the fraction of total energy demand that switches to hydrogen. The shape and position of the curve is calibrated to reflect each sector’s technology maturity and typical investment cycle. Separate CLIs are calculated for rUK and EU export markets to capture Scotland’s relative competitiveness as a hydrogen and derivatives exporter in each of those markets.

Once sector-level hydrogen demand is established, the model builds full annual trajectories from 2026 to 2050. Deployment timing is governed by a combination of a sector start year, a construction or transition period, and any assumed delay. Together, these determine when hydrogen first enters service in each sector. Different sector types follow distinct demand calculation logics. Legacy incremental sectors project demand by applying the CLI-derived uptake share to current energy consumption, adjusted for the efficiency difference between existing fuels and hydrogen. Legacy non-incremental sectors shift demand on a plant-by-plant basis as the CLI crosses relevant thresholds. New capital-intensive industries derive demand from the number of plants triggered by the binary CLI logic multiplied by per-plant hydrogen consumption. New incremental export demands are matched against literature-derived estimates of accessible rUK and EU import markets, modulated by infrastructure availability and assumed build-out timelines. For the domestic aviation sector, an additional SAF mandate calculation runs in parallel with the general deployment logic, and the higher of the mandate-required volume and the model’s standard deployment projection is taken as the binding output.

The blue-green production is configured directly through the blue hydrogen acceptability dials. These set the relative construction share of electrolysis versus methane reforming with carbon capture, the maximum permissible share of blue hydrogen in the overall supply mix, and the years within which blue hydrogen is eligible to enter and exit the system. If Project Acorn is set to be cancelled in the infrastructure dials, the blue hydrogen share defaults to zero regardless of other inputs.

The infrastructure module then translates production volumes into physical asset requirements, pipelines, storage, and distribution. It uses spatial heuristics that account for whether production is assumed to be centralised at hydrogen hubs or dispersed across Scotland’s geography to serve distributed loads.

Outputs

The model produces a comprehensive set of time-series and summary outputs intended to directly inform infrastructure planning and policy analysis. On the demand side, these include annual hydrogen consumption by sector and production pathways from 2026 to 2050, alongside export volumes to rUK and EU markets. On the supply side, the model derives the electrolyser capacity and renewable electricity requirements associated with green hydrogen production, the SMR or ATR plant capacity and CO2 storage volumes associated with blue hydrogen. It also derives the transport and distribution infrastructure, pipelines, storage, and haulage fleet, required to connect supply to demand across Scotland’s geography. All outputs are accessible through a visual dashboard that allows scenario assumptions to be configured, and results observed in a clear and comparable way.

6. Results

The model was run under the two scenarios described in Section 5.2, generating annual hydrogen demand trajectories, production profiles, and infrastructure requirements from 2026 to 2050. The two scenarios are designed to bracket a plausible range of futures: Scenario 1, ‘pragmatic scale-up’, reflects a world of constrained but real hydrogen growth, while Scenario 2, ‘industry breakthrough’, represents an accelerated, NZE-aligned pathway in which hydrogen becomes a structural pillar of Scotland’s industrial sectors where reducing greenhouse gas emissions is particularly challenging. Both scenarios include support through aviation and shipping targets, moderate-to-low electricity prices, and pipeline export infrastructure to the rest of the UK and the EU, though the timing, scale, and ambition of these conditions differ between them. A key distinction is the role of blue hydrogen: the less ambitious scenario includes a meaningful share of methane reforming with carbon capture. This reflects the persistent cost gap for electrolysis in a pragmatic world. The more ambitious scenario converges rapidly on near-exclusively green hydrogen production.

An overview of the key results across the two scenarios is shown in Table 1^[1]

Scenario 1 – Pragmatic scale-up

Scenario 1 is configured around a distributed deployment of electrolysers, lower overall macroeconomic growth, higher acceptability of blue hydrogen, and low-to-moderate targets for transport sectors. Export infrastructure, i.e., pipeline connections to both the rest of the UK and the EU, is built out but subject to delay, meaning international flows do not begin until 2038. No hydrogen-based heat decarbonisation is assumed.

Under this configuration, total hydrogen demand in Scotland reaches 40.2 TWh by 2050, supported by 11 GW of installed green electrolyser capacity and 135 MW of blue hydrogen production. Demand is modest through the late 2020s, then accelerates between 2030 and 2040 as derivatives export production scales up. A domestic ammonia-for-fertiliser plant is triggered by policies, contributing approximately 2.6 TWh of annual demand. By 2035, cumulative annual demand reaches approximately 9.8 TWh, before growing more gradually to the 2050 endpoint. See Figure 2 for an overview of demand for Scottish hydrogen.

Exports account for a large share of Scenario 1 demand. Pure hydrogen exports to the rest of the UK and the EU reach approximately 18.7 TWh per year by 2050, while hydrogen derivatives exports, primarily ammonia and e-fuels for shipping and aviation markets, contribute a further 7.2 TWh. While the export pipeline infrastructure is eventually built in this scenario, the assumed delays mean that pure hydrogen exports do not commence until 2040 and derivatives exports only begin to ramp meaningfully from 2033 onward.

Scotland’s domestic hydrogen demand reaches approximately 11.4 TWh by 2050. Shipping is the single largest end-use sector, contributing around 4.6 TWh as Scotland’s ports and short-sea routes transition toward ammonia and methanol-based fuels. Aviation, incorporating both general sector uptake and volumes driven by the UK SAF mandate, accounts for approximately 1.5 TWh. Industrial demand is anchored by the chemical industry (approximately 1.8 TWh). The energy sector, hydrogen for power system firming and peaking, demands approximately 1 TWh, with electricity sector end-use adding a further 0.4 TWh. Road transport does not see an uptake, while distilleries and the mineral industry together account for under 0.4 TWh. Heating, light vehicle transport, rail, and paper and wood production do not register material hydrogen demand under this scenario. This is either because the CLI does not exceed sector thresholds or because the assumed policy and infrastructure conditions do not make hydrogen the least-cost decarbonisation option in these areas. Figure 3 shows domestic hydrogen demand across all sectors.

Scenario 2 – Industry breakthrough

Scenario 2 is configured around a centralised deployment of electrolysers with lower reliance on distributed small-scale infrastructure. It has high transport sector targets for both shipping and aviation, low acceptability of blue hydrogen, and more favourable electricity prices. Export infrastructure to the rest of the UK is available on time, while the EU export route is subject to delay. As in Scenario 1, no hydrogen-based heat decarbonisation is assumed. These settings reflect an accelerated policy environment in which strong regulatory support, SAF mandates with hydrogen sub-targets, tightening IMO shipping regulations, and orchestrated industrial demand clusters, enables a step-change in Scotland’s hydrogen deployment, consistent with an NZE-aligned global trajectory.

Under this configuration, total hydrogen demand reaches 70.3 TWh by 2050, supported by an almost entirely green production system totalling approximately 19.5 GW (19.4 GW of installed green electrolyser capacity and 0.12 GW of blue hydrogen). The deployment trajectory is steeper and earlier than in Scenario 1. By 2035, annual demand has already reached approximately 30.7 TWh, driven by the more rapid mobilisation of export infrastructure and the higher transport sector targets. Growth continues, albeit at a more modest pace, through to 2050. The near-complete absence of blue hydrogen in this scenario reflects both the low acceptability dial setting and the expectation that scale-up of green electrolysis, combined with stronger policy support, is sufficient to meet demand from an early stage. See Figure 4 for an overview of demand for Scottish hydrogen.

As in Scenario 1, exports dominate overall demand also in Scenario 2, with derivatives and pure hydrogen exports together accounting for the majority of the 42 TWh total. The earlier availability of the UK export pipeline (on time in this scenario) allows hydrogen trade with the rest of the UK to commence sooner. This strengthens the export revenue case and accelerates the investment rationale for large-scale electrolyser deployment. Domestic demand is driven by a higher-ambition transport sector, with shipping and aviation contributing materially more than in Scenario 1 due to the high regulatory and policy support settings. Industrial hydrogen demand, i.e., steel, chemicals, and associated sectors, follows broadly comparable trajectories to Scenario 1. This is because these sectors are anchored by binary investment decisions that are triggered once the CLI crosses the relevant threshold in both cases. The centralised infrastructure model in Scenario 2 concentrates electrolyser and storage capacity at hubs. This results in a smaller number of decentralised small-scale asset requirements compared to Scenario 1, but requires a more developed inner-Scottish pipeline and transmission system.

Comparison with previous studies

Scenario 1’s projected 40.3 TWh of demand is higher than many more conservative studies. It is well above the FES Falling Behind scenario (~2.9 TWh in 2050), FES Electric Engagement (~10.4 TWh), and the SPICe Spotlight assessment (~14.9 TWh). However, it is notably below the SHA Scenario A H2 Economy result (~65 TWh) and considerably below the Scottish Government’s headline trajectory derived from the Hydrogen Policy Statement, Hydrogen Action Plan, and Trading Nation export plan (which implies approximately 126 TWh by 2050). The result most closely resembles the FES Hydrogen Evolution scenario (~34.5 TWh), but is slightly higher due to the large export volumes that become available once infrastructure is in place. See Figure 6 for a comparison of Scenario 1 with related studies and Figure 7 for a comparison of Scenario 2.

Scenario 2, at approximately 70.3 TWh, comes much closer to the SHA Scenario A H2 Economy benchmark (~65 TWh). It represents the upper end of what a policy-supported, demand-led deployment model credibly projects without assuming full alignment with the most optimistic supply-push scenarios. Like Scenario 1, it remains below the 126 TWh implied by Scottish Government headline targets and the SHA Scenario B Green Export pathway. This underscores the fact that achieving those ambitions would require not only the strong policy and infrastructure conditions embedded in Scenario 2, but also additional demand creation, export market development, and a pace of scale-up that the model’s current calibration does not support. Both scenarios are, however, consistent with the IEA’s assessment that Scotland-scale producers in a STEPS-to-NZE world can expect to occupy the mid-range of the hydrogen deployment spectrum. This means they can be significant contributors to a decarbonising energy system, but constrained by the pace at which global demand for hydrogen and its derivatives actually materialises.

Conclusions

At the core of this research is the development of a hydrogen deployment model. The two scenarios generated by the Scotland hydrogen deployment model represent a test to model functionality as well as an outlook on future system development under IEA related assumptions. The modelling suggests substantial hydrogen deployment in Scotland under a range of future policy and market conditions. Across both scenarios, exports account for the majority of hydrogen demand by 2050, highlighting the importance of Scotland’s ability to access UK and European markets. The results also indicate that electricity prices and the availability of export infrastructure are the most important determinants of deployment, with both factors strongly influencing the scale and pace of hydrogen uptake

Scenario-related considerations

The scenarios show a moderate and a more ambitious outlook for Scotland’s hydrogen sector, spanning a range from approximately 40.2 TWh to 70.3 TWh of total hydrogen demand in 2050. Both scenarios show a period of steep growth between approximately 2030 and 2040 (as export infrastructure, derivatives production, and key industrial investments come online), followed by slower growth through the 2040s. Both scenarios estimate a level of demand in 2050 that is below what can be seen in other studies and projections.

The model’s outputs are most sensitive to two parameters: electricity prices and the availability of export infrastructure. Electricity prices are the primary determinant of the business case for green hydrogen production, directly governing both the competitiveness of electrolysis relative to fossil alternatives and the Competitiveness and Likelihood Indicator scores that drive uptake across most demand sectors. This sensitivity highlights that cheap, reliable access to renewable electricity is the foundational condition for green hydrogen business cases: electricity costs make up the largest component of electrolytic hydrogen production costs.

Export infrastructure availability acts as a hard structural boundary: if pipeline connections to the rest of the UK and the EU are not in place, international hydrogen demand, which accounts for the majority of total modelled deployment in both scenarios, cannot be incorporated regardless of how favourable other conditions are. The findings therefore reinforce the importance of timely infrastructure development alongside continued efforts to secure competitive renewable electricity.

Model development – lessons and next steps

We developed the model to describe deployment of hydrogen and hydrogen related infrastructure in Scotland. It serves as a tool for generating and testing alternative deployment scenarios. It links policy choices and market conditions to hydrogen demand and associated infrastructure requirements. The underlying logic is anchored in determining the demand for hydrogen across different sectors based on the policy landscape and support mechanisms available. Demand for hydrogen translates into the need for hydrogen infrastructure.

The main challenge of implementing policy-driven hydrogen uptake lies in meaningfully combining demand and supply-side support policies for deployment modelling. The approach we took was to work from demand estimation, based on policies. This takes limited account of supply-side-driven uptake of hydrogen. The main aim of this project was to create a user-friendly modelling tool. Within the time and resource available, the capacity for simultaneous modelling of both supply and demand side factors was limited.

The following model refinements may produce more detailed outputs:

• Electricity prices: More detailed electricity price series could improve representation of hydrogen competitiveness.
  
• Demand data: Improved sector-level demand data and bottom-up estimates of current energy use could enhance the quality of outputs .
  
• Hydrogen adoption pathways: Better evidence on technology readiness and sector-specific adoption pathways could refine uptake assumptions.
  
• Technology maturity and adoption: More explicit cost-based assessment of competition between technologies may improve representation of future trade-offs between blue and green hydrogen, alternative transport modes and storage options.
  

References

International Energy Agency (IEA) (2025) World Energy Outlook 2025. Paris: IEA.

Scottish Government (2024) A Trading Nation: Realising Scotland’s Hydrogen Potential – A Plan for Exports. Edinburgh: Scottish Government.

d’Amore-Domenech, R. et al. (2023) ‘An analysis of the bulk transport of green hydrogen at sea: Comparison between submarine pipeline and compressed and liquefied transport by ship’, Energy, 263, 125905.

Net Zero Technology Centre (NZTC) (2024) Hydrogen Backbone Link: Connecting Scotland to Europe – Report 3. Aberdeen: Net Zero Technology Centre.

Department for Energy Security and Net Zero (DESNZ) (2023) Low Carbon Hydrogen Certification Scheme: Consultation Response. London: DESNZ.

Department for Business, Energy & Industrial Strategy (BEIS) (2022) Low Carbon Hydrogen Production Business Model: Heads of Terms. London: BEIS.

Department for Energy Security and Net Zero (DESNZ) (2025) Low Carbon Hydrogen Agreement (LCHA): HAR1 Key Terms Summary and Explanatory Notes. London: DESNZ.

European Commission, Joint Research Centre (JRC) (2021) Assessment of Hydrogen Delivery Options. Luxembourg: Publications Office of the European Union.

Department for Energy Security and Net Zero (DESNZ) (2025) Hydrogen Update to the Market (July 2025). London: DESNZ.

European Commission, Joint Research Centre (JRC) (2021) Assessment of Hydrogen Delivery Options. Luxembourg: Publications Office of the European Union.

Department for Energy Security and Net Zero (DESNZ) (2025) Hydrogen Update to the Market (July 2025). London: DESNZ.

Department for Energy Security and Net Zero (DESNZ) (2024) Hydrogen to Power: Consultation Response. London: DESNZ.

Department for Energy Security and Net Zero (DESNZ) (2025) Hydrogen Blending into the GB Gas Transmission Network: Consultation Document. London: DESNZ.

Scottish Government (2022) Hydrogen Action Plan: Business and Regulatory Impact Assessment. Edinburgh: Scottish Government.

Scottish Government (2022) Scottish Hydrogen Action Plan. Edinburgh: Scottish Government.

International Energy Agency (IEA) (2025) Global Hydrogen Review 2025. Paris: IEA.

Department for Energy Security and Net Zero (DESNZ) (2024) Clean Power 2030 Action Plan (Main Report). London: DESNZ.

Scottish Government (n.d.) Scottish Energy Statistics Hub. Edinburgh: Scottish Government.

European Commission (2026) REPowerEU. European Commission.

How to cite this publication:

Mouelhi, B., Martin Nieto, C., Lüth, A., Raheli, E., Bush, R. (2026) ‘A Low Carbon Hydrogen Deployment Model for Scotland’, ClimateXChange. DOI https://doi.org/10.7488/era/7184

© The University of Edinburgh, 2026.
Prepared by Ramboll on behalf of ClimateXChange, The University of Edinburgh. All rights reserved.

While every effort is made to ensure the information in this report is accurate as at the date of the report, no legal responsibility is accepted for any errors, omissions or misleading statements. The views expressed represent those of the author(s), and do not necessarily represent those of the host institutions or funders.

This work was supported by the Rural and Environment Science and Analytical Services Division of the Scottish Government (CoE – CXC).

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1. Throughout section 5, hydrogen demand is reported in four categories: (a) domestic demand is hydrogen consumed within Scotland across industrial, transport and energy sectors; (b) pure hydrogen exports is hydrogen exported directly to the rest of the UK or the EU; (c) derivative export demand is hydrogen used in Scotland to produce export products such as ammonia, methanol and SAF; (d) total hydrogen demand is the sum of domestic demand, export demand and hydrogen used for derivative production.
   Unless otherwise stated, references to total hydrogen demand include all four components. ↑
   

   
   

Hydrogen derivatives and products (HDPs) are made by combining hydrogen with other elements. These processes make products that can be more easily used, transported or stored than pure Hydrogen.

With Scotland’s ambitious plans to increase low-carbon hydrogen production, HDPs are expected to play an important role in reducing emissions from sectors such as aviation, shipping and road transport. They could also create new export opportunities for Scotland.

This report focuses on ammonia, e-methanol, synthetic aviation fuel (SAF) and other e-fuels (made using hydrogen and captured carbon dioxide). It assesses whether current Scottish, UK, European and international regulations are suitable for supporting the production, storage, transport and use of these fuels. It identifies where they provide a strong foundation and where changes could help the sector grow.

Key findings

• Our study found strong foundations for regulations related to: planning; technology; and health, safety and environmental (HS&E) standards. These include Scotland’s planning and environmental systems, the UK’s Control of Major Accident Hazards (COMAH) framework, and international shipping standards covering hydrogen-derived products.
• Market regulations for hydrogen-derived products are the least fit-for-purpose. A lack of clarity and consistency mean they do not increase confidence in long-term production, and they provide uneven support across products. The key limitations identified are:
  • Support is heavily weighted towards sustainable aviation fuel (SAF). Comparable incentives are not available for ammonia, e-methanol or sustainable marine fuels.
  • Differences between UK and EU rules for renewable fuels and SAF could reduce Scotland’s export competitiveness.
  • Uncertainty in the UK Emissions Trading Scheme (ETS) creates further risk. Power-to-Liquid SAF (e-SAF) is not currently zero-rated, and it is unclear whether the ETS will extend to shipping, reducing confidence in future demand.

Recommendations

• Regulations related to consenting and health, safety and environmental standards (HS&E) should be monitored to ensure they remain fit-for-purpose as the HDP markets and technologies develop.
• Support International Maritime Organization (IMO) proposals to reduce emissions, encouraging future demand for hydrogen-derived marine fuels.
• Most regulations were not designed to support hydrogen-derived products. New support mechanisms, similar to those already available for green hydrogen, could help grow the sector.
• Address gaps and inconsistencies in market rules, including better alignment between UK and EU requirements to support Scottish exports.
• Include e-fuels, including e-SAF, in the UK Emissions Trading Scheme (ETS) and introduce dedicated support for ammonia and e-methanol, similar to existing support for sustainable aviation fuel (SAF).

March 2026

DOI: https://doi.org/10.7488/era/7017

Executive summary

Aims

Scotland has set ambitious climate and hydrogen policies, including an ambition of 5 gigawatts (GW) of low‑carbon hydrogen production by 2030 rising to 25 GW by 2045. Hydrogen derivatives and associated products are expected to play a key role in enabling domestic decarbonisation. They are also expected to help position Scotland as an exporter to meet growing European demand.

Hydrogen derivatives are produced by combining hydrogen with other elements that can be more easily transported and stored. They may then be converted back into hydrogen or used directly as fuels or feedstocks. Where no further processing or conversion occurs before use, the term hydrogen product is used.

This study assesses whether the current regulatory landscape is fit‑for‑purpose to support the growth of hydrogen derivatives and products: ammonia, e‑methanol as well as synthetic aviation fuel (SAF) and wider e-fuels (fuels produced by combining hydrogen with carbon dioxide via electrolysis). Throughout this study these are referred to as hydrogen derivatives and products (HDPs).

The objective is to identify limitations and gaps within the current regulations and propose associated interventions. Drawing on an extensive regulatory review, stakeholder engagement and a criteria-based assessment, this study seeks to answer the following research questions.

1. What is the regulatory landscape for ammonia, e‑methanol and SAF in Scotland?
2. To what extent is the current regulatory regime fit‑for‑purpose to enable Scottish hydrogen derivative production, storage, transport and end‑use?
3. What interventions are needed to create a coherent, safe and effective regulatory environment that accelerates HDPs across the value chain?

The assessment covers fuel types derived from green hydrogen and captured CO₂, and excludes bio‑derived fuels (e.g., bioethanol or biodiesel) and hydrogen production itself. The areas of hydrogen derivative value chain covered include: production in Scotland; storage; transport and use. Our assessment groups regulations by jurisdictions (both domestic and international) and impact area. Impact areas include: consenting and planning; route to market; technical standards and health, safety and environment standards (HS&E). This work follows previous ClimateXChange studies looking at HDP supply chain capabilities (Ella Yip, 2025) and the demand for HDPs (Szebasztian Csernik-Tihn, 2024).

Findings

Our study found strong existing foundations across all jurisdictions for consenting, technology standardisation and HS&E related regulations. These included existing planning, consent and environmental authorisations in Scotland, UK HSE legislations such as COMAH as well as the inclusion of HDPs in international standards under the International Maritime Organisation (IMO).

Route to market regulations, which cover hydrogen derivative related definitions, eligibility requirements and dedicated targets or mandates, were deemed least fit-for-purpose across all jurisdictions. They currently lack the clarity and cross-jurisdictional consistency to fully de-risk long-term production and market demand to maximise opportunities. They further do not provide incentives across all derivatives equally. The key limitations we identified included:

• Uneven support across derivatives
  The UK policy landscape is currently skewed toward SAF, represented by the dedicated SAF mandate and revenue support mechanism. No equivalent commercial incentives exist for ammonia or e‑methanol. There is no mandate or incentive for the production of sustainable HDP maritime fuels.
• Misalignment between UK and EU regulatory definitions
  Definitions and requirements for Renewable Fuels of Non-Biological Origin (RFNBOs) and SAF differ, particularly around greenhouse gas (GHG) emission thresholds, and the proximity of renewable electricity sources. Scotland’s export competitiveness into the EU may be limited if producers comply only with UK requirements.
• Uncertainty in the UK Emissions Trading Scheme (ETS)
  Power to Liquid SAF (PtL or e-SAF) – produced specifically using CO₂ and green hydrogen – is currently not zero-rated within the UK ETS, while the future expansion of the UK ETS to cover maritime sectors remains uncertain. This creates a further commercial risk for producers in terms of more limited offtake potential.

Recommendations

• Consenting and HS&E related regulations should be monitored to ensure they remain fit-for-purpose as the hydrogen derivative market expands and technology develops.
• Regarding specific technical standards and associated routes to market, we recommend supporting the progression of the IMO GHG reduction proposals for marine vessels. This encourages a further future offtake market.
  The majority of assessed regulations are not explicitly designed to promote the hydrogen derivative market. Dedicated support options could be considered, in order to further strengthen the sector. Potential interventions can be taken from adjacent sectors such as (green) hydrogen. For example, the Hydrogen Storage Business Model and Hydrogen Transport Business Model currently does not include hydrogen‑derived fuels (e.g., ammonia, e‑methanol). A dedicated mechanism mirrored on these models could be established for the derivative sector.
• Other proposed interventions focus on addressing regulatory discrepancies and gaps in the route to market impact area. This includes promoting the alignment between UK and EU requirements and definitions for HDPs. The EU market represents a strong opportunity for Scottish production and export potential. Securing compliance with regulatory requirements will be essential.
• We further recommend the inclusion of e-fuels / e-SAF within the UK ETS, aligning e-fuels with biomass-derived options and with the EU ETS approach. We also recommend a dedicated route to market support framework for ammonia and e-methanol. This could mirror the current support dedicated to SAF in the UK, such as specific mandates or revenue support mechanisms. 

We recognise the limits of Scottish Government influence on EU and UK regulations, but our recommendations may usefully inform existing conversations and engagement opportunities to seek improvements in these routes to market.

Glossary & abbreviations

Abbreviations

Glossary of terms and units

Introduction

The production of hydrogen derivatives and products (HDPs) forms an integral part of Scotland’s Hydrogen Action Plan (2022) and 2045 net zero targets. The Scottish Government’s aim is to establish Scotland as a key producer and exporter of hydrogen and hydrogen-derived products. This goal is underpinned by a 5GW low-carbon hydrogen production ambition by 2030, increasing to 25GW by 2045. Scottish export ambitions align with the EU’s goal of importing 10Mt of low-carbon hydrogen from outside of the EU by 2030, a significant part of which is anticipated to be in the form of HDPs.

HDPs are chemicals made by combining hydrogen with other elements so that it becomes easier to store, transport or to use as energy. The main HDPs – ammonia, e-methanol, and sustainable aviation fuel (SAF) – are studied in this report. Only HDPs from green hydrogen were considered, and not those where the hydrogen comes from bio-feedstocks. This means that in the case of SAF, only PtL SAF – also called synthetic aviation fuel or e-SAF – is included.

This study forms part of the Hydrogen Action Plan tasks of ‘building our evidence base’ and ‘identifying market access barriers’ for hydrogen and HDPs (Scottish Government, 2022). In this report, we provide an overview and analysis of the current regulatory landscape for HDPs in Scotland, the wider UK, EU and internationally. We focused on regulations applying to the whole value chain of production, storage, transport, and use. The overarching aim is to identify barriers to developing the Scottish HDPs market. This is important for three reasons: the proximity to 2030 ambitions; the need to create transition opportunities for traditional fossil fuel industries and workforce now; and the anticipated strong competition from other HDPs producers for European import targets. Many relevant route to market regulations sit at UK, EU or international level, limiting direct Scottish Government control over implementation. While the Scottish Government’s overall regulatory influence may be more limited at EU and international level, intervention options can still feed into an aligned Scottish-UK position and overall hydrogen strategy.

The research questions we aim to respond to are:

• What is the regulatory landscape for the core HDPs ammonia, e-methanol, and SAF?
• To what extent is the regulatory landscape fit-for-purpose to enable the growth of the HDPs sector in line with Scottish net zero, just transition and hydrogen ambitions?
• What interventions would be needed to create a coherent, safe, and effective framework that accelerates HDPs across all value chain areas?

To address these questions, we first conducted an extensive literature review of relevant regulations across all four jurisdictional levels. We collated applicable regulations in an extensive database and categorised them against their applicability by fuel type, value chain, and impact area.

The hydrogen derivative fuel types considered are: ammonia, e-methanol, SAF and e-fuel (e.g., e-diesel).

The value chain refers to the activities required to produce, transport, store and use HDPs. Each area has different technical process, risks and regulatory requirements. The value chain areas are: production (Scotland focus), storage, transport and use.

Impact areas refer to aspects that can influence the growth and development of a sector. These are:

• Route to Market – This impact area is used to determine the availability of offtake opportunities and customers for HDPs. Any regulations may affect how easily products can reach the customer. Overall regulatory mandates or targets can impact the size of the market available to the HDP producer, thus affecting the sector’s overall business case. Regulations may also capture market access and funding mechanisms (such as subsidies), providing revenue certainty.
  
• Technology development and standardisation – As technology improves, it enables a sector to do things more efficiently and/or effectively. It can further open up new markets or growth areas. Technology development has to adhere to a standard for quality. Standardisation thus creates certainty and safety for products to work reliably for the users. With international standards, these allow for products and services to be exported globally and thus accelerate global adoption in the sector.

Technical standards referenced in this study focus on standards that serve as the de facto global market‑entry requirements embedded in regulatory acceptance for certain fuels. An example of this are the American Society for Testing and Materials (ASTM) standards, which in the case of SAF, determine eligibility as aviation fuels. ISO and BSI standards, while important technical references, do not in themselves confer regulatory approval and therefore fall outside the study’s focus on regulation.

• Health, safety and environment (HS&E) – A strong HS&E framework demonstrates that a sector operates safely and responsibly which builds public trust and attracts investors. It prevents incidents which could cause shutdowns and project delays to enable a smoother long-term growth of the sector. For developers or operators, a clear, standardised HS&E framework can reduce project development uncertainty.
  
• Consenting – A clear and consistent consenting and planning framework can support effective and efficient project development activities. This reduces the risk of project delays and overall uncertainty for project developers and operators. A lack of clear consenting guidelines or uncertain applicability for HDPs may slow or complicate the approvals process, ultimately affecting investor confidence. This could potentially slow the growth of the sector.

We then assessed each regulation to determine suitability for and potential impact on the Scottish HDPs market, using the following criteria:

• Policy intent: To what extent the policy is designed to support development of the HDPs market
  
• Market impact: How it affects market outcomes in practice with respect to project viability, investment decisions or deployment pathways
  
• Scope and breadth of impact: How much of the market is exposed to the policy’s effects (e.g., one or multiple derivatives or value chains)
  
• Certainty and clarity: How clear, stable and well-understood it is and how much requires interpretation for clarity
  
• Degree of regulatory influence: How easily it can be influenced or changed by Scottish and/or UK Government

An overview of the assessment criteria, scoring approach and weightings is provided in Appendix A. Using the total scores, individual criteria outputs, and associated justifications for each regulation we were able to identify initial gaps, limitations and discrepancies across the regulatory landscape and jurisdictional levels. A stakeholder session was held to validate and refine our initial outputs. These combined outputs then formed the basis of our recommended intervention areas.

To help communicate this complex landscape, we also developed a visual map of all regulations across impact areas and value chain levels. This map is available separate to this report and in Appendix C.

Scope Parameters and Limitations

This study focused solely on regulations regarding the production, storage, transport, and use of HDPs. Only fuel types derived from green hydrogen and a carbon dioxide feedstock were covered, not fuels derived from bio-feedstocks. We also excluded the production of low-carbon hydrogen itself and associated feedstocks such as electricity from renewable energy sources. These topics have already been subject to review and reported on in existing studies^[1]

Regulatory landscape for HDPs

In this section, we capture the relevant regulations for HDPs across each of the jurisdictional levels – Scotland, UK, EU and internationally. Each sub-section focuses on one geography, outlining the regulations assessed, the derivatives and value chain elements to which they apply, and their impact areas. The following sub-sections cover each jurisdictional level:

• Scotland
• UK
• European Union
• International

The overarching policy and sector strategies for each geography are laid out to provide context, and to highlight stated policy intent relating to HDPs.

Our intention in this section is to describe the regulatory landscape for ammonia, e‑methanol and SAF produced in Scotland and transported and consumed either domestically or abroad. Section 5 captures the fit-for-purpose analysis with overall assessment outputs accessible in Appendix B.

Where appropriate, the regulations have been grouped together according to impact areas in each geography. Regulations that showed greater relevance in the scoring assessment and subsequent study recommendations were outlined in additional detail for reference.

A visual regulatory map of jurisdictional levels and impact areas accompanies this report.

Scotland

Policy and sector strategy

Scotland set out an ambition of 5GW of renewable and low-carbon hydrogen production by 2030 and 25GW by 2045, in their Hydrogen Policy Statement (Scottish Government, 2020). One of the Scottish Government’s actions from this Statement was to ensure the regulatory, planning and consenting framework for renewable developments would support the scale-up of hydrogen. Hydrogen is an export ambition and HDPs are included as a form of hydrogen transport vector and commodity. Hydrogen derivative developments are subject to an overarching UK regulatory regime. This is discussed further in Section 4.2.

Scottish climate policy

Scotland’s climate policy framework is underpinned by the Climate Change (Scotland) Act (Scottish Government, 2009). This sets a legally binding target for Scotland to achieve net‑zero greenhouse gas emissions by 2045, five years earlier than the UK-wide target. The Act also requires Ministers to set and meet carbon budgets. These carbon budgets will each cover a series of 5-year periods from 2026 to 2045.

In addition, the Scottish Government published its draft Climate Change Plan 2026–2040 (Scottish Government, 2025) in November 2025. This Plan sets out how Scotland intends to meet its first three carbon budgets covering the period 2026–2040, providing a pathway aligned with independent advice from the Climate Change Committee. The draft Plan is currently undergoing public consultation.

Scotland’s draft Climate Change Plan (Scottish Government, 2025) does not address

deployment targets for HDPs such as ammonia and e-methanol. It does mention the Scottish Government’s plan to consider options for increasing SAF production and its use.

Hydrogen Action Plan

The Hydrogen Action Plan (Scottish Government, 2022) positions hydrogen and its derivatives as essential for decarbonising hard‑to‑abate sectors and supporting a just transition. The Plan outlines actions to develop Scotland’s hydrogen economy, including scaling renewable hydrogen production to support derivative fuels for domestic and export markets. It recognises the need for safe, regulated development of derivatives and highlights their potential role in early export pathways to mainland Europe. Direct actions for HDPs in the Plan are in identifying priority export markets internationally and market access barriers for derivatives.

Hydrogen export plan

Scotland published its first hydrogen sector export plan, A Trading Nation: Realising Scotland’s Hydrogen Potential – A Plan for Exports (Scottish Government, 2024) which sets out Scotland’s ambition to become a major exporter of hydrogen and HDPs to European markets, underpinned by ambitions of 5 GW of production by 2030 and 25 GW by 2045. The plan recognises Europe’s rising demand for renewable hydrogen and hydrogen products and positions Scotland as having the renewable capacity, skills and supply‑chain capability to supply derivative fuels at scale.

Scottish regulatory landscape

Scottish regulations relevant to derivatives primarily address procedures in consenting, planning and permitting of certain activities. A UK regulation on Green Freeports which impacts route to market has been included in this section as it is relevant to Scotland. Table 1 captures the assessed regulations for the development of HDPs in Scotland.

The regulatory landscape is not hydrogen or HDPs specific but is neutral in allowing projects which adhere to the planning framework and regulated activities which require permits to proceed.

• The Environmental Authorisations (Scotland) Amendment Regulations 2025 – which amends the 2018 Regulations to create an Integrated Authorisation Framework (IAF). This framework streamlines the Scottish Environment Protection Agency (SEPA) regulation of waste, water, and industrial activities. These regulations cover activities requiring permits that must be gained separately to planning permission. This streamlined regulation is aimed at enhancing efficiency in the process for hydrogen derivative project developers in Scotland. An overall outcome or evaluation of this aim was not available at the time of writing.
  
• Marine Works (Environmental Impact Assessment) (Scotland) Regulations 2017 – regulations which govern EIAs for Scottish marine developments within the 12-nautical mile boundary. For hydrogen derivative projects, the water usage, waste discharge as well as infrastructure risks will be considered.
  
• Finance Act 2021 with Finance (No. 2) Act 2023 – the 2021 Act (UK Government, 2021) and 2023 amendments (UK Government, 2023) set the UK‑wide legal basis for Freeports, including the tax reliefs and commercial incentives available within designated Freeport tax sites. In Scotland, this framework is applied through the Green Freeports, which focus on net‑zero and just‑transition objectives, including low‑carbon fuels and energy transition projects. This makes it relevant to the hydrogen‑derivatives landscape. For example, the Forth Green Freeport identifies opportunities for alternative fuels alongside offshore wind, shipbuilding, modular manufacturing and creative industries. This emphasis on net‑zero activities provides an additional policy route and potential market access point for HDPs.
  
• Town and Country Planning Act 1997 – the principal consolidating statute that provides the core legal framework for regulating land development, preparing development plans, determining planning applications, and enforcing planning control in Scotland (as significantly amended by later Acts such as the Planning etc. (Scotland) Act 2006 and the Planning (Scotland) Act 2019).

UK

Policy and sector strategy

Strategy and policy on climate, transport decarbonisation, and industrial development all influence direction on HDP production and use. The most relevant UK policies and strategies are outlined below focussing on their relevance to HDPs and the scope of this project.

Climate policy

UK Government is obliged to deliver net zero emissions for the UK by 2050 by the Climate Change Act (UK Government, 2008). Legally binding carbon budgets have been set covering the period out to 2037, and the seventh carbon budget (covering 2038 to 2042) needs to be set by June this year. Additionally, the UK Government has ratified the Paris Agreement.

The Carbon Budget and Growth Delivery Plan (UK Government, 2025) lays out how the Government intends to meet its statutory carbon budgets. This focusses on the period to 2037. HDPs are listed directly as achieving emissions reduction in the following areas:

• Aviation (SAF)
• Shipping (low carbon fuels including ammonia and methanol)
• Road Transport (low carbon fuels including ammonia and methanol)

Deployment assumptions are listed for each of these sectors, but no breakdown is given. Therefore, there are no clearly stated deployment targets for the HDPs that are in the scope of this report.

Maritime Decarbonisation Strategy

The Maritime Decarbonisation Strategy (UK Government, 2025) sets out GHG emissions targets for the maritime sector. (30% reduction by 2030, 80% by 2040, 100% by 2050 relative to 2008 levels). This sets out guiding principles that include a co-ordinated approach to regulation with international bodies such as IMO. The document is clear that there are significant roles for ammonia and methanol in decarbonising the maritime sector. The strategy is focussed on achieving decarbonisation and does not include any targets for or give any direction on the need for domestic UK production of these fuels.

Jet Zero Strategy

The Jet Zero Strategy (UK Government, 2022) recognises that SAF is required to reduce emissions from the aviation sector and included the launch of a SAF mandate as a key objective. Relating to production, a KPI for five commercial scale SAF plants to be under construction was set. PtL SAF is not explicitly mentioned, and the strategy only includes general statements on funding for first of a kind commercial and demonstration advanced fuels plants.

Decarbonising transport

The Decarbonising Transport Strategy (UK Government, 2021) includes the UK Government’s strategy for decarbonising road transport. Electrification, biofuels and hydrogen are included as mechanisms to reduce emissions. This strategy introduced plans to phase out internal combustion engine vehicles in the UK, and these plans have been supported by subsequent governments. That means that while there is support for low carbon drop in fuels as an interim solution (such a biofuels), in the long term this type of fuel will be phased out in the road transport sector. There is no current strategy or policy that supports the use of HDPs in this sector.

Industrial strategy

The UK’s Modern Industrial Strategy (UK Government, 2025) has identified Clean Energy Industries as one of eight strategic sectors. The Clean Energy Industries Sector Plan (UK Government, 2025) includes hydrogen but does not specifically mention HDPs.

Hydrogen Strategy

The UK’s Hydrogen Strategy (UK Government, 2021) sets out a framework for scaling hydrogen production, transport, storage, and use, and set an ambition of 5 GW low carbon hydrogen production by 2030, later doubled to 10GW in the British Energy Security Strategy. There is no mention of HDPs in the Hydrogen Strategy. It does establish policy direction on hydrogen standards and business models that indirectly impact the derivative markets.

An update to the Hydrogen Strategy was due in late 2025 but has not been published at the time of writing this report.

UK regulatory landscape

HDPs are regulated through a combination of industrial safety legislation (e.g., COMAH), environmental consenting, and sector‑specific regimes (e.g., shipping, aviation, and industrial chemicals). As such there are multiple stakeholders split across these areas, including Department for Energy Security and Net Zero (DESNZ), Environment Agency, Health and Safety Executive, and Department of Transport. This results in a fragmented regulatory landscape which limits the strategic direction, market impact and regulation clarity for new projects.

Route to market

The considered route to market regulations within the UK are shown in the table below, highlighting which hydrogen derivative(s) they are applicable to and at what point in the value chain.

Many of these regulations do not directly promote HDPs and are driven as a result of decarbonisation targets. Regardless, they have an effect on derivatives. Regulations that will have a market impact on hydrogen derivative products are:

• Energy Act 2023 – provides the statutory framework to implement key elements of UK hydrogen policy. For HDPs, the Act helps enable investment by clarifying market arrangements and government intervention powers. The Act provides the framework for setting up business models and funding structures such as revenue support (e.g., SAF Revenue Support Mechanism, covered further below).
  
• UK Emissions Trading Scheme (UK ETS) – sets a carbon price on emissions only from the power generation, industry and aviation sectors, improving the relative competitiveness of low‑carbon HDPs versus fossil alternatives. This is being reviewed for expansion to maritime sector in 2026 and waste incineration in 2028. At present, PtL SAF (e-SAF) does not receive zero-rated status. Zero‑rated fuels are assumed to have zero carbon emissions when used, a designation that applies only to biomass‑based SAF.
  
• Renewable Transport Fuel Obligation (RTFO) – represents the central policy driver for hydrogen‑derived fuels in the relevant transport sector. This includes road vehicles and non-road transports such as non-road mobile machinery (NRMM) and the maritime sector, if the fuel used is a renewable fuel of non-biological origin (RFNBO). It creates demand for eligible RFNBOs through tradable certificates. An eligible RFNBO is required to
  • Achieve a 65% GHG emission saving over the whole lifecycle relative to the fossil fuels fuel baseline of 94 gCO2eq/
  • demonstrate that the renewable electricity or heat used to produce the RFNBO satisfies regionalisation rules and additionality rules. The regionalisation rule includes demonstrating that the electricity comes from the same region and electricity market where production is located. The additionality rule requires the electricity used to make RFNBO is additional, meaning produced from new, upgraded, and recommissioned production, and not diverted from existing renewable power.

Note this RFNBO definition differs from the EU definition and is further discussed in Section 5.1.1.

• RTFO and Sustainable Aviation Fuel (SAF) Mandate Technical Guidance – provides the guidance on technical requirements which are largely consistent between the RTFO and SAF Mandate, covering classification, carbon and sustainability criteria, GHG calculations and evidence requirements. This guides suppliers and allows RFTO and SAF fuels to be consistent across the UK:
  • sets sustainability rules to qualify for certificates with GHG emission savings relative to fossil fuels for SAF having to be equal or above 40%, and for RFNBOs to be equal or above 65%, respectively
  • provide evidence requirements, which include documentation for eligible fuel feedstock, process emissions, evidence that fuel can be tracked from source to final delivery and audits within the supply chain
• UK Carbon Border Adjustment Mechanism (CBAM) – legislation to prevent cheaper carbon intensive products being imported into the UK. Importers are charged a fee based on the carbon emissions from goods production. This will be introduced from 1 January 2027 and mainly impacts green ammonia imports (as fertilisers are included), making it more competitive. Methanol and other fuel are not covered in this legislation.
  
• SAF Mandate – sets a legal obligation on aviation fuel suppliers to supply a minimum proportion of SAF, increasing over time. The mandate therefore acts as a key demand‑side policy for HDPs in aviation, alongside parallel SAF revenue support mechanisms. PtL SAF obligations only start in 2028. In addition, there is currently a consultation to broaden the SAF Mandate eligibility to crop-derived SAF for flexibility.
  
• Sustainable Aviation Fuel (Revenue Support Mechanism) Bill – this set the regulation for the proposed revenue certainty mechanism for UK SAF production. The legislation for the revenue certainty mechanism is expected to be finalised by the end of 2026.
  
• Hydrogen Production Business Model (HPBM) – indirectly supports HDPs production by providing revenue support for the hydrogen used for derivatives production. However, hydrogen used to produce energy carriers for export is excluded from HPBM support.

Technology development and standardisation

Technology development and standardisation regulations for HDPs are designed to ensure that when these are used, they are produced, transported and used safely.

There are specific regulations that set the technical, safety and operational requirements for developing and using hydrogen‑derivative technologies. Similar to ‘route to market’ related regulations, they do not actively promote the HDPs sector. However, they affect the way derivatives are deployed in the end-user market.

• The Alternative Fuels Infrastructure Regulations – regulation to ensure a common set of standards and functionality for the provision of certain alternative fuel infrastructure. These alternative fuels include electricity, hydrogen, synthetic fuels – which comprise of HDPs – supplied to vehicles or ships in a way which is consistent across the UK.
  
• Maritime and Coastguard Agency (MCA) Customer Process for Alternative Fuels – Ammonia – IMO have developed interim guidelines for using ammonia as fuel and these can be used by owners/operators wishing to build new vessels or convert existing vessels to run on ammonia. This guidance is used in conjunction with IMO’s International Code of Safety for Ships using Gases or other Low-flashpoint Fuels (IGF Code). The UK policies in Section 4.2.1 have not been clear on the use of ammonia as a fuel. However, this regulation indicates the MCA is preparing for this to be a possibility, which will ease its deployment as a maritime fuel.

Health, Safety and Environment

Health, Safety and Environment (HS&E) related legislation includes the Control of Major Accident Hazards (COMAH) regime and dangerous substances regulations, which govern the safe handling, storage and transport of hydrogen and HDPs.

Table 4 lists the regulations for HS&E pertaining to HDPs. Most of these are not regarded as a barrier to deployment or constraining market activity, but to support the safe delivery of derivatives. Some of the relevant HS&E regulations for derivatives to note are:

• Control of Major Accident Hazards (COMAH) Regulations – these regulations aim to prevent and mitigate the consequences of major accidents involving dangerous substances. They apply to sites that store or handle large quantities of hazardous chemicals. The regulation is based on the mass of the particular substance so will apply to hydrogen derivative thresholds of ammonia (50 tonnes), methanol (500 tonnes), SAF (2500 tonnes). COMAH would apply to all derivatives – but not all projects as dependent on mass of substances.
  
• UK REACH etc. (Amendment) Regulations 2021 – applies to most chemical substances that are manufactured in or imported into England, Scotland, and Wales – and covers all HDPs. This has an associated fee and processing time for registration. The EU has its own REACH rules, which differ from UK REACH. Section 5.1.3 discusses the implications of this.

Consenting

Hydrogen derivative production facilities and infrastructure are subject to planning and permitting under UK regulations governing emissions to air, land and water, waste management and industrial installations, as shown Table 5.

In particular, some relevant regulations to highlight are:

• The Environmental Permitting (England and Wales) Regulations 2016 – governs the environmental permitting and protection controls framework for any industrial and waste installations and its emissions. HDPs storage and transport in England and Wales will be regulated, however this will not apply to hydrogen derivative production facilities in Scotland.
  
• Planning Act 2008 – Nationally Significant Infrastructure Projects (NSIPs) – NSIPs are large scale projects falling into five general categories (energy, transport, water, waste water and waste). This applies primarily to England and Wales. They include projects as diverse as electricity generating projects, reservoirs and hazardous waste facilities. HDPs would fall under Energy and energy infrastructure such as a pipeline carrying HDPs or storage of derivatives.

Cross-border projects covering Scotland and England (such as transport pipelines) will be subject to different regulatory and planning frameworks. For example, for a linear infrastructure project (e.g., cables, pipelines, rail) crossing the border, a project may need a DCO for the English portion, while the Scottish portion requires planning permission under the Town and Country Planning (Scotland) Act 1997. This would also include engaging with two different regulators handling matters – Environmental Agency and Natural Resources Wales regulating England and Wales, and Scottish Environment Protection Agency for Scotland.

European Union

Policy and sector strategy

Europe’s wider strategy and policy for HDPs is informed by the EU Hydrogen Strategy launched in 2020. HDPs are an indirect benefactor of aims to promote the overall demand for clean hydrogen and the recognition that a supportive enabling framework is required to achieve this.

The EU has several initiatives aimed at both promoting the production and use of hydrogen within the economy, with some specifically recognising the role of HDPs. Standing out are the creation of the European Hydrogen Bank and Global Europe Hydrogen Facility designed to accelerate renewable hydrogen deployment by supporting both domestic production and imports to meet 10 million tonnes by 2030. A key aim is to unlock private investment by bridging the price gap between renewable hydrogen and conventional fuels. Additional policy and regulatory frameworks are realised through the EU’s ‘Fit for 55’ Package to reach at least 55% GHG emissions reductions by 2030 compared to 1990 levels.

EU regulatory landscape

Throughout the EU landscape there is a strong focus on route to market-based regulations, with a wide application to the ‘Use’ value chain area.

Route to market

There is significant route to market enablement in the EU via hydrogen specific regulation and policy on HDPs. Standing out in particular are the definitions of what constitutes low-carbon and renewable hydrogen and the eligibility of the resulting products. The assessed regulations are shown in the table below.

There are three key policy instruments within the EU that take direct action in the promotion of hydrogen derivative products:

1. Renewable Energy Directive III (RED III) outlines and defines the eligibility criteria particularly for hydrogen and HDPs. Hydrogen derivative criteria are defined within the description of Renewable Fuels of Non-Biological Origin (RFNBOs) as well as setting minimum mandates for use of RFNBOs across many sectors of the EU economy, including industry and transport. The European approach does not penalise international products provided they also meet the domestic eligibility criteria.There are strict eligibility criteria within RED III for RFNBOs (and the source hydrogen) via Delegated Acts:
   • GHG saving must by >70% compared to fossil equivalent
   • The source of power must be new renewable energy generation that is enabled by the project (alongside temporal and geographical/location constraint of the generating power asset matching hydrogen production with available renewable power generated locally)
   • CO₂ source restrictions must be complied with, particularly fossil fuel-based emissions. As an example, CCS from Natural Gas powered CCGT will be ineligible beyond 2036.
   • RED III requires translation into law by each member state. At the time of writing this study, 25 out of 27 member states have bypassed the deadline to translate into domestic laws.
2. ReFuelEU Aviation sets volume requirements for low carbon aviation fuel, SAF, to be utilised within the aviation sector. The requirements are driven by mandates on transport fuel suppliers. There are specific, time bound targets for the use of SAF and particularly synthetic or e-SAF. The latter does not take effect until 2030.
   
3. ReFuelEU Maritime sets GHG intensity targets for ships over a 5000 gross tonnage calling at European ports. It is agnostic to fuel types or the usage of RFNBOs and does not explicitly require or promote their usage within the stated aims.

The EU definition of RFNBOs includes hydrogen itself and is not exclusive to HDPs. Therefore, any mandated use of RFNBOs throughout the economic zone does not ensure the promotion of HDPs exclusively as they will be competing directly with hydrogen itself.

Enabling policy that is indirectly supportive of low carbon HDPs includes the following:

• European Union Emissions Trading Scheme (EU ETS) which incentivises industry to utilise HDPs to avoid carbon emission penalty costs by capping the allowable volume of carbon emissions per sector of the economy. This prices carbon emissions based on supply and demand within the market and also penalises non-compliance with costs. Sectors include aviation and shipping within the capped allowances. Utilising low carbon fuels such as RFNBOs is recognised to reduce emissions intensity, offsetting exposure to carbon emissions costs
  
• Carbon Border Adjustment Mechanism (CBAM) which aims to protect production of low-carbon goods domestically by exposing non-domestic goods to the same level of domestic eligibility criteria with respect to GHG emissions, or face tariff penalties. This currently only applies to ammonia as a hydrogen derivative, as it is included within fertiliser as one of the five affected sector goods.

The EU ETS states that the emissions cap is agnostic to fuel choice or emissions reduction approach, therefore the adoption of RFNBOs or HDPs is not a direct policy intention. There is, however, a dedicated support mechanism for RED III eligible SAF within the scheme, which both accounts for the lower lifecycle emissions of SAF fuels (reducing the emissions liability of the airline if using SAF) and awards allowances to support price premium of SAF over conventional jet fuel. Similarly, the EU ETS recognises eligible RFNBO fuel usage as reducing the monitored and reported emissions of a stationary installation, and can effectively be used to offset emissions allowance requirements.

Other regulations that are generally supportive of HDPs within the EU include:

• Alternative Fuels Infrastructure Regulation (AFIR) which affects road infrastructure (fuelling stations), airports and ports predominantly. It requires the rollout and installation of alternative fuel supply infrastructure, such as electric charging and hydrogen refuelling. The standards and mandates are not for HDPs, although they are not explicitly excluded from the regulation.
  
• EU Gas Directive & Regulation (2024/1788, 2024/1789) which has been updated to include provisions for hydrogen pipelines and networks. It has recognition of HDPs ammonia and methanol as supply products relating to hydrogen terminals, particularly for the transformation of these products into hydrogen. It does not have specific provision for the transport of ammonia and methanol as energy carriers themselves (i.e., with own pipeline infrastructure network requirements).

Technology development and standardisation

Drop-in hydrogen derivative fuels or e-fuels are accommodated for within existing EU Fuel Quality Directive. This directive specifies the quality requirements for fuels for example in combustion engines, which will apply the hydrogen derivative drop-in fuels.

Health, Safety and Environment (HS&E)

HDPs are accommodated within existing HS&E regulations within the EU such as EU REACH, which requires the registrations of all chemicals produced or imported into the EU above a certain quality. This is a separate registry from the UK REACH. Similarly, the ATEX regulation provide mandated equipment design requirements of pressurised and explosive substances, including HDPs.

Other supportive initiatives

In addition to the regulation discussed above there are other supportive instruments within the EU particularly targeting the growth of the hydrogen and hydrogen derivative sector:

• The European Hydrogen Bank is an EU-level financing instrument that, through its international pillar, supports the import of renewable hydrogen and its derivatives (such as ammonia, methanol, and e-fuels) from non-EU countries into the EU. It functions through the design of mechanisms like joint auctions and incentives to bridge price gaps, ensure sustainability standards, and help meet the EU’s 10Mt annual import target by 2030.
  
• H2Global is a Germany-initiated auction-based funding scheme that facilitates large-scale imports of green hydrogen and derived products from outside the EU/Germany into Europe. The derivatives included are primarily ammonia and methanol. It functions by using public funds to cover price differences between global producers’ offers and European buyers’ willingness to pay, thereby de-risking early projects.

International

Policy and sector strategy

International legislation falls within collaborative organisations that typically have remits for safety, security, and environmental protection. Efforts to progress decarbonisation are prevalent for aviation and marine sectors relating to frameworks for enabling the low carbon fuels including HDPs.

Regulatory landscape

This study reviewed regulations predominantly related to the marine and aviation environment. These are currently the dominating modes of distribution and use of HDPs internationally. The regulatory landscape internally focuses on technology development and standardisation, particular as it pertains to marine vessels.

Route to market

Within the marine sector the IMO has draft legislation targeting decarbonisation which would see a reduction in carbon emissions from combustion of fuels on large vessels over time.

The draft legislation has 2 main policy considerations which may indirectly influence the market of HDPs as low carbon marine fuels:

• Global Fuel Standard (GFS): Sets yearly intensity reduction targets for ship fuel, forcing gradual decarbonization.
  
• GHG Pricing: Imposes costs on emissions above the standard, with two tiers: a lower price for emissions between base and target, and a higher price for exceeding the target.

Technology development and standardisation

All aspects of the value chain of HDPs are applicable to existing international regulations with respect to technology development and standardisation.

The international regulations assessed are described below in relation to three categorisations:

• Marine vessel construction and operation.
• SAF international proliferation (as drop in fuels like eSAF will have less of an infrastructure barrier to adoption as alternative fuels in marine context).
• Fuel specifications

Marine vessel construction and operation

Non-pipeline transport of HDPs relies on the maritime sector and marine vessels. This sector adheres to internationally agreed regulation via the International Maritime Organisation (IMO). Existing IMO codes cover construction, bulk transport and design of vessels utilising HDPs as both a fuel, a refrigerant, and a hydrogen carrier (in the transportation of HDPs). There is an existing risk-based approval pathway within IMO codes for approving new ship types and fuels, via the Alternative Design Arrangement (ADA).

There is also an existing convention particularly for management of marine pollution within the IMO, the International Convention for Prevention of Pollution from Ships (MARPOL). This regulation is effective in limiting pollution from existing marine fuel types, with respect to NOx, SOx, Ozone depleting substances, Volatile Organic Compounds (VOCs), onboard incineration and fuel oil quality. No alternative fuels are included within the fuel type definitions, however, they would be expected to fit within the same rules for pollution. This is particularly relevant for utilising Ammonia as a fuel with respect to SOx emissions. It is expected that this will be managed and controlled by the inherent design of the vessel to ensure the pollution constraints are met (e.g., via the use of selective catalytic conversion technologies onboard vessels).

SAF international proliferation

Global frameworks exist particularly for the promotion of SAF within the aviation industry, via ICAO Global Framework for SAF. Promotion, support and developmental funding is provided via this organisation, of which the UK is a prominent and influential member.

International fuel specification / standards

For the widespread adoption of new fuels (e.g., SAF) standardised testing methods and specification have been created through the American Society for Testing and Materials (ASTM). This is vital for the commoditisation of alternative fuels to be used by aircraft globally. ASTM standards have been developed for all main variants of e-fuel production pathways, ensuring there is no barrier to adoption due to uncertainty of fuel specification.

Health, Safety and Environment (HS&E)

HS&E regulations are typically covered within local jurisdiction, or embedded within the technology development regulations above. It is noted that international carriage of dangerous good by road covers transport of HDPs beyond marine and aviation environments, ensuring full coverage of transport regulations.

Regulatory gap analysis

Our aim in this section is to address the second and third research question of this study. We explore and discuss the gaps and limitations identified within the regulatory landscapes across and between the different jurisdictional levels, categorised by impact area. These impact areas are ‘Consenting’, ‘HS&E’, ‘Route to Market’ and ‘Technology Development / Standardisation’. To aid assessment we initially reviewed each regulation against a set of pre-determined scoring criteria to help categorise and compare before investigating regulations for gaps and limitations as a more granular level. The assessment methodology and output are shown in Appendix A and Appendix B.

Gaps and limitations

The most significant gaps relate to the Route to Market impact area. Our assessment indicated discrepancies in the treatment or definition of HDPs between jurisdictions as well as the exclusion of one or more of the three derivatives covered in this study.

We also identified wider market gaps that do not necessarily arise from the HDPs regulatory landscape. Examples are outlined separately in Section 5.1.55. While not included within our core analysis scope, they provide useful discussion points on potential actions to promote the wider growth of the derivatives market.

Route to market

Route to market regulations show clear jurisdictional discrepancies that complicate offtake opportunities. Impactful regulations were predominantly EU-led regulations, such as RED III and the EU ETS, which offer a comprehensive and clear support framework with established targets and mechanisms that would incentivise offtake and thus a route to market. Particularly supportive for Scottish HDPs production is the openness for international products under RED III and direct inclusion of derivatives under RFNBO definitions. Although these definitions were deemed comprehensive and supportive in terms of allowing international products and different production methods, market participants have also highlighted them as too restrictive in practice (WoodMackenzie, n.d.). European legislations were considered largely outside the direct influence of Scottish and UK Governments.

Key regulations such as Fit for 55 – ReFuelEU Aviation and FuelEU Maritime offer support to HDPs, but are limited by scope. ReFuelEU Aviation is only applicable to SAF and provisions for synthetic SAF are not expected to come into effect until 2030. This timeframe aligns broadly with realistically expected supply timelines. FuelEU Maritime is not explicitly designed to drive HDPs within the maritime sector. With the options of other fuels or electrification being used, the overall market impact of this regulation on HDPs was deemed to be lower.

The UK route to market landscape heavily favours SAF, with limited support for ammonia and e‑methanol. Overall, there is currently an unclear role particularly for ammonia in the UK’s energy system. The topic is expected to be covered in the next UK Government Hydrogen Strategy Update this year, with an overall greater focus and associated support mechanisms required to incentive wider production and use for this derivative type.

Specific support is only available to e-SAF as a hydrogen derivative via the Sustainable Aviation Fuel (Revenue Support Mechanism) Bill and SAF Mandate (Renewable Transport Fuel Obligations (Sustainable Aviation Fuel) Order 2004. An uncertainty within the Revenue Support Mechanism is found in plans to continue stakeholder engagement on the PtL/e-SAF obligation buy-out price at £5 per litre and the mismatch to anticipated high UK production costs. This pricing mismatch may limit uptake and reduce offtake opportunities. Similar dedicated mandates or wider commercial support frameworks currently do not exist for ammonia and e-methanol. In addition, the SAF Mandate currently does not require PtL/e-SAF to be sourced from the UK, placing local producers in competition with overseas markets.

Limitations identified within the current UK ETS system focused on PtL/e-SAF being excluded from zero-rating and users of PtL/e-SAF not being able to claim reduced emissions allowances as is possible within the EU ETS, resulting in uncertainty of application if the UK and EU ETS were to align in the future. Additional uncertainty in the UK ETS stems from the question of whether maritime sectors will be included in future, with a respective consultation planned for 2026. This makes future treatment of e‑fuels in maritime uncertain, limiting potential offtake routes.

A final limitation to highlight is the difference between UK and EU definitions and criteria for HDPs in their respective regulations. Compared to the EU ETS, the UK ETS regulation currently excludes applications in the maritime sector and has no emissions allowance for PtL/e-SAF. UK and EU definitions for SAF and RFNBOs also differ. EU requirements for RFNBOs currently exceed those of the UK, particularly with regard to the geographic correlation for renewable energy sourcing for derivative production. This currently risks reduced export potential for Scottish-produced e-methanol and ammonia if they only adhere to UK requirements.

As highlighted throughout this section, there are opportunities to reduce barriers to offtake and expand the market by seeking greater alignment between UK and EU jurisdictions. A core focus lies in aligning definitions and criteria for HDPs. Additional market engagement with Scottish producers seeking offtake options can help assess the feasibility and impact of further alignment.

Technology development & standardisation

Our analysis of technical standards identified a regulatory landscape with high degrees of certainty and clarity. Although these standards are not designed to promote derivatives, they do not currently represent barriers. Rather, they are enablers by setting the rules and guidance by which technologies and products, including for HDPs (e.g., ammonia fuelled marine engines) will need to abide.

International frameworks exist that cover the three major hydrogen derivative products. Current legislation does not create barriers to their growth, especially for transporting ammonia and methanol, which are already widely traded.

The standards for fuel testing, and promoting the wider usage of new fuels (ASTM), is available for key HDPs already, such as e-SAF (including PtL, Fischer-Tropsch variant), ammonia, methanol and drop-in motor fuels (e.g., e-diesel). With requirements for utilisation of the drop in fuels already regulated under existing legislation e.g., the UK Motor Fuel Regulations (2021).

For marine transport, the IMO IBC Code and IGC Code frameworks, enables transport of substances, such as ammonia as a hydrogen derivative, but not for its use as a fuel. However, there are existing accommodations for alternative fuels such as ammonia and methanol via the IMO IGF code Alternative Design Arrangement. The main gap is the lack of formalised standards for using HDPs outside the risk‑based ADA process. The IMO has released interim guidance for safely using ammonia as a fuel in marine vessels, which is a positive step in accommodating this hydrogen derivative within the sector.

Health, Safety and Environment

We assessed the HS&E regulatory environment as largely-fit for purpose. Regulations are characterised as agnostic to HDPs specifically, thereby not directly targeting or limiting the growth of the market as a policy intent. There is a low degree of influence of the Scottish Government to introduce amendments in European and Global regulations such as EU REACH, EU ATEX directive and the Agreement concerning the International Carriage of Dangerous Goods by Road. There are areas for efficiency and improvement, however, for instance in the current dual burden of complying with both UK and EU REACH regulations if a Scottish producer was to export to Europe.

Consenting and Development

Scotland and the UK have a supportive consenting landscape, with existing regulations already applicable to HDPs specifically. An example of this is the Town & Country Planning Hazardous Substances (Scotland) Regulations 2015. A Hazardous Substances Consent would be required for on-site storage above the thresholds of 50t for ammonia, 500t for methanol and 2,500t for jet fuel.

The Planning and Infrastructure Act 2025 sets out to accelerate the planning and delivery of critical infrastructure – including those for clean energy projects and NSIPs but HDPs are not explicitly covered. The new Environmental Delivery Plans also require clearer guidance for derivative‑specific facilities, creating uncertainty for developers. Establishing additional clarity is important to de-risk the wider value chain for HDPs produced in Scotland, ensuring barriers or complexities in transport or storage outside of Scotland do not impede local production business cases.

Attempts at improving existing regulations and permitting requirements have already been introduced. An example of this is the Environmental Authorisations (Scotland) Amendment Regulations 2025, which seeks to streamline the regulation of waste, water, and industrial activities outside of the overall planning regime. Initial stakeholder feedback has been that it is still too early to establish if the intended outcome has been achieved. We recommend continued monitoring and engagement with stakeholders on these amendments.

Additional regulatory limitations for consideration

We have identified additional market mechanisms and current challenges within the (green) hydrogen production landscape that could be applicable to HDPs. These represent a wider current limitation where a market promoting mechanism is available to hydrogen production, but not to derivatives. They are worth acknowledging when considering the future growth of the HDPs market in Scotland.

• UK power network and policy costs exemptions
  An existing scheme for relief to energy intensive industries offers an exception of up to 90% of Transmission Network Use of System (TNUoS) charges. It is unclear whether electrolytic hydrogen or derivative production will qualify for these exemptions, and for how long this scheme may be active. The Climate Change Levy exemptions currently apply to electrolysis for hydrogen production, reducing the cost of power to green hydrogen producer, however, it is uncertain if further exemptions will follow for power consumed by production of HDPs.
• UK hydrogen‑focused regulations do not extend to derivatives
  Policies such as the Hydrogen Transport and Storage Business Models exclude hydrogen‑derived fuels (e.g., ammonia, e‑methanol), limiting support for derivative project deployment. Similar mechanisms could be considered for and targeted at the derivatives market specifically.
• UK / EU hydrogen certification schemes
  There is a mismatch between recognised standards for certifying low carbon hydrogen utilised within the UK and EU. The UK has a single Low Carbon Hydrogen Standard, with no further standard definition to describe HDPs utilising this hydrogen. Currently, this standard is voluntary unless receiving support via HPBM scheme. The EU, however, has a selection of third-party certification schemes (CertifHy EU RFNBO, ISCC EU, REDcert EU, TUV SUD CMS 70). The lack of a singular certification scheme may lead to additional administrative and cost burden for hydrogen derivative producers.

Intervention areas

Xodus identified the following proposed interventions and recommendations based on the gap and limitations analysis in Section 5.1. Interventions cover specific regulation areas and wider market supporting interventions outside of existing HDP regulation. We suggest that route to market interventions are the main priority, given the existing applicability and suitability of the regulatory landscape to accommodate HDPs across the other impact areas. Xodus recognise that the route to market aspects lie primarily within UK and EU jurisdictions, with more limited direct regulatory influence for the Scottish Government. The interventions thus represent overall engagement and discussion topics to promote greater alignment between jurisdictions to benefit the overall hydrogen derivative value chain.

Intervention 1: Inclusion of e-fuels / e-SAF within UK ETS

• Description: Recognise synthetic renewable fuels used by regulated industries as part of the UK ETS, similar to what the EU ETS currently does – both schemes are misaligned at present. Ptl/e-SAF is currently zero rated in the EU and not in UK. Synthetic fuels should be recognised as low or zero emissions within the emission factor available for fuels, similar to biomass implementation currently.
• Changes would remove potential additional burdens on producers to monitor and adhere to two separate ETS definitions and regimes. Inclusion of synthetic fuels within UK ETS would incentivise further offtake and thus promote market growth.
• Associated regulation: UK Emissions Trading Scheme
• Jurisdiction: UK

Intervention 2: Extend suitable hydrogen funding mechanisms to incentivise the production of hydrogen derivatives

• Description: Existing hydrogen incentivisation models recognise the production of hydrogen and hydrogen derivatives where these are not exported as energy carriers. These could be extended to include the direct subsidisation of ammonia production within the Hydrogen Production Business Model and recognise ammonia as a hydrogen storage solution within the Hydrogen Storage Business Model.
• Impacts focus on promoting deployment and offtake by improving the initial economic viability of production plants. The intervention further addresses the current focus on green hydrogen production and similar funding options for SAF.
• Associated regulation: Hydrogen Production Business Model, Hydrogen Storage Business Model
• Jurisdiction: UK

Intervention 3: Targeted end-use and route to market support for ammonia, e-methanol and other e-fuels

• Description: Implementation of instruments and regulations specific to the use of low carbon ammonia, e-methanol and other e-fuels. Support would require dedicated targets for production and consumption of ammonia and e-methanol in Scotland and the UK. A consenting perspective can aim to promote options for fast-tracking associated production plant applications. For targeted financial support an example is the Advanced Fuels Fund (AFF).
• This recommendation is closely aligned with Intervention 2 on expanding the dedicated route to market and offtake support for ammonia and e-methanol. They consider the current focus on dedicated support for SAF (e.g., through the SAF Mandate and Revenue Support Mechanism). The impact of recommendation focuses on promoting market and offtake demand, thus supporting economic viability for producers.
• Associated regulation: AFF, Hydrogen Production Business Model, similar targeted support for ammonia and e-methanol as found in the SAF Mandate
• Jurisdiction: UK

Intervention 4: Explore options to harmonise the UK and EU definition and eligibility criteria of SAF

• Description: The UK SAF Mandate definition and eligibility criteria for SAF are less restrictive than the EU counterpart. Impacts of aligning requirements focus on enhancing efficiency in offtake across multiple jurisdictions. This reduces burden on producers and supports overall viability, market development and export options from Scotland/UK to EU. It is recommended to explore options and associated impacts to harmonise requirements between the two jurisdictions. Stakeholder engagement with producers can further explore the extent of the issue on available market size.
• Associated regulation: UK SAF and ReFuelEU Aviation
• Jurisdiction: UK & EU

Intervention 5: Support progression of IMO GHG reduction proposals for marine vessels

• Description: Support the representation of UK and Scottish interests within IMO forums. Promote inclusion of hydrogen derivative applications within GHG reduction options for marine vessels in support of the Net Zero Framework. This would impact the overall potential offtake market for HDPs where they are used as a marine fuel. Strengthens a further demand market for produced derivatives.
• Associated regulation: IMO Net Zero Framework
• Jurisdiction: International

Conclusion

This study focused on assessing the regulatory landscape for HDPs in Scotland across key market impact areas and different geographical jurisdictions. We considered relevant Scottish, wider UK, EU and international regulations within the HDP and net zero policy context. Our evaluation of key impact areas covered consenting of hydrogen derivative related infrastructure, route to market regulations, technology development and standardisation as well as HS&E related requirements.

Our assessment of the regulatory landscape showed an existing fit for purpose framework particularly within the consenting, standardisation and HS&E related regulations in Scottish, UK and international jurisdictions. Existing regulations for industrial and traditional fossil-fuel based projects are already directly applicable, even where the overall policy intent is not focused explicitly on HDPs. Examples of this have included COMAH, Pipeline Safety Regulations and UK/EU REACH requirements.

Current limitations and gaps within the regulatory landscape were predominantly found to be within the route to market impact area. The UK regulatory landscape here is skewed towards more dedicated support for SAF production and use compared to e-methanol and ammonia. In addition, as there is currently not a support mechanism for the decarbonisation of marine vessels, there is opportunity for the Scottish Government to intervene and further support this.

Our analysis showed a discrepancy in requirements for HDPs in Scotland/UK compared to EU counterparts. Examples of this included the differences between UK ETS and EU ETS extent and a more stringent RFNBO definition in EU regulations overall.

We recognise that the route- to market regulations lie largely outside the Scottish Government’s direct regulatory influence. Interventions were thus proposed to guide future engagement between Scottish, UK and EU regulatory counterparts, focusing on alignment and standardisation of criteria in HDPs. We consider that improved regulatory alignment across different jurisdictions and more targeted support for all hydrogen derivative offtake will be crucial for the underlying business case of hydrogen derivative production.

Progress in these route to market areas would support the path towards more effectively realising Scotland’s ambitions of becoming a hydrogen derivative exporter. At the same time, any local demand for derivative products could be met with a reduced administrative burden or compliance risk for producers.

References

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European Parliament and of the Council, 2003. European Parliament ETS DIRECTIVE 2003/87/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL. [Online]
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Appendices

Assessment methodology

This section gives a more detailed description of the methodology used to assess and score each regulation reviewed within this report across Scotland, UK, EU and international jurisdictions. The full tabulated results are shown in Appendix B.

We started with a comprehensive desk-based literature review of hydrogen derivative relevant regulations and wider jurisdiction policies. All regulations were captured in an Excel database and categorised according to the following aspects:

• Applicable derivatives: which hydrogen derivative(s) the regulation applies to (ammonia, e-methanol, SAF or combination of these)
  
• Applicability across value chain: which stage of the hydrogen value chain the regulation affects (production, storage, transport or use)
  
• Primary aspect of impact: the market growth or development factor impacted for HDPs, covering:
  • Health, Safety and Environment (HS&E): affects safety requirements, risk management, or operational controls
    
  • Consenting or Permitting: affects planning, permitting, approvals, or regulatory authorisations
    
  • Route to Market: affects demand creation, market access, offtake, or commercialisation
    
  • Technology development or Standardisation: affects technology requirements, standards, or technical development
• Expected impact timeframe: the likely timeframe in which the regulation is expected to have most impact on the HDPs market, split into 0-2, 3-5 or 5+ years.

Where a regulation was judged to impact more than one of the impact areas listed above or could not clearly be attributed to a single category then it was given an impact area labelled as Multiple or Cross-Cutting.

Each regulation was further reviewed for specific applicability considerations and limitations in their treatment of HDPs. Findings were used to shape justifications for each assessment score. The assessment criteria, associated definitions and weightings can be seen in Table 12. A focus was to identify the overall policy intent and market impact of a regulation with regards to HDPs, as well as how clear or certain specific requirements or guidance is.

An acknowledgement of regulations only focusing on one derivative specifically – such as the SAF mandate – was reflected in the lower weighting of scope and breadth of impact. A sub-scoring was also introduced for the degree of regulatory influence – with a higher scoring accounting for direct Scottish Government influence and a 2.5 score for UK-level regulation authority.

Individual scores for each aspect of a regulation were then collated to generate a total score for the regulation’s applicability to, and support for the HDPs market. This then provided an indicator of potential areas of concern and limitations as well as regulations that offered a more supportive environment.

In a subsequent step, these scoring indicators were used to revisit regulations to identify specific gaps and discrepancies between jurisdictions. These were then used to inform potential intervention areas and recommendations.

Regulatory assessment outputs

The full tabulated results are shown by jurisdiction and the primary aspect of impact. Abbreviations are used for the value chain and derivative types, as follows:

• Value chain area
  • Production (P)
  • Storage (S)
  • Transport (T)
  • Use (U)
• Derivative type:
  • Ammonia (A)
  • E-Methanol (M)
  • SAF (S)

Scoring description

The total score shown in the rag review tables on the following pages are weighted averages across the key impact areas with a score between 1 and 3. The total score is a nuanced output, whereby a given score can be used to infer the characteristics of a given regulation, for example:

High scoring (2.5- 3) can be characterised as regulations that are a combination of the following:

• Explicitly designed policy for HDPs that will directly affect a Scotland value chain
• Clear and direct market impact e.g., through targeted support, subsidy, mandates for HDPs and products
• Applies to multiple HDPs across multiple parts of the value chain
• There is a high degree of regulatory influence due to being a regulation under either a Scottish government or UK government jurisdiction

Lower scoring (1.5-2.5) can be characterised as regulations that are a combination of the following:

• Neutral or indirectly supportive regulation for HDPs within a Scottish value chain
• Neutral or indirect effect on the HDPs market, as likely not targeting these substances specifically within the economy
• Applies to a limited number of HDPs (e.g., 1) or only a limited part of the value chain
• The Scottish government has a limited degree of regulatory influence, owing to the fact the regulation is set at beyond the jurisdiction of Scotland or the UK governments (e.g., Internationally)

Scotland full results

HS&E

No Scotland specific regulations were identified for review.

Consenting

The following regulations are all active within Scotland.

Route to market

No Scotland specific regulations were identified for review.

Technology development & standardisation

No Scotland specific regulations were identified for review.

UK full results

HS&E

All HS&E related legislations were deemed to have an impact timeframe of 0-2 years.

Consenting

All consenting related legislation were deemed to have immediate impact timeframes of 0-2 years.

Route to market

Impact timeframes for route to market regulations cover 0-5 years, with the Renewable Transport Fuel Obligations (RTFO) and Sustainable Aviation Fuel (SAF) Mandate Technical Guidance and wider RFTO set at wider 3–5-year timeframes. The Sustainable Aviation Fuel (Revenue Support Mechanism) Bill currently has a longer impact time frame of 5+ years.

Technology development & standardisation

Impact timeframes for the guidance and regulations related to technology development and standardisation are focused on 0-2 year periods, with more immediate, existing impacts.

EU full results

HS&E

These HS&E regulations are currently active.

Consenting

Not reviewed at the European block level. Consenting is specific to local jurisdiction.

Route to market

All regulations are active now and expected to impact within 0-2 years, with the exception of ReFuelEU Maritime which is expected to be long terms 5+ years.

Technology Development & Standardisation

Multiple or cross-cutting.

The expected impact timeframe for HDPs through RED III is 3-5 years.

International full results

HS&E

The ADR regulation below is active now.

Consenting

Not reviewed at the international level. Consenting is specific to local jurisdiction.

Route to market

The IMO Net-Zero Framework is draft legislation with expected impact in the medium term (3-5 years).

Technology development & standardisation

Below are standards / guidance, except for the ICAO Global Framework for SAF which is a Strategy / Policy initiative. All are active with an impact timeframe 0-2 years.

Multiple or cross-cutting.

No regulations fit within this category.

Regulatory map

How to cite this publication:

Chan, S., Fernandes, J., McWhirr, C., Jurgens, L., (2026) ‘Regulatory Landscape for Hydrogen Derivatives and Products in Scotland’, ClimateXChange. DOI: https://doi.org/10.7488/era/7017

© The University of Edinburgh, 2026
Prepared by Xodus Group on behalf of ClimateXChange, The University of Edinburgh. All rights reserved.

While every effort is made to ensure the information in this report is accurate as at the date of the report, no legal responsibility is accepted for any errors, omissions or misleading statements. The views expressed represent those of the author(s), and do not necessarily represent those of the host institutions or funders.

This work was supported by the Rural and Environment Science and Analytical Services Division of the Scottish Government (CoE – CXC).

ClimateXChange

Edinburgh Climate Change Institute

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+44 (0) 131 651 4783

info@climatexchange.org.uk

www.climatexchange.org.uk

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

1. >For other reports in this series on hydrogen derivatives and products, please visit the CXC Publication Page, and see ‘Review of demand for hydrogen derivatives and products’ and ‘Scotland’s capabilities in producing hydrogen products and derivatives’. ↑

February 2026

DOI: https://doi.org/10.7488/era/7018

Executive summary

Governments across the world are introducing policy targets to decarbonise heavy duty vehicles (HDVs). This shift presents an economic opportunity for Scottish companies. Scottish Government commissioned this research to identify the current and future economic impact of decarbonisation across three particular supply chains:

• HDV and niche vehicle manufacturing
• HDV charging infrastructure
• Hydrogen refuelling infrastructure

*HDVs are vehicles with gross vehicle weight of more than 3.5 tonnes (for example, heavy goods vehicles, buses, coaches, municipal vehicles, emergency service vehicles). Niche vehicles are those with gross weight of less than 3.5 tonnes (for example, wheelchair accessible vehicles and four by four electric vehicles).

Key findings

• Strong global policy and market forces are accelerating HDV decarbonisation
• The speed of transition varies by type of HDV and low carbon fuels are playing a role alongside zero emission options
• Scottish HDV and niche vehicle manufacturing supply chain activity is concentrated in a few companies
• The HDV charging infrastructure supply chain is mainly service based and is growing
• The HDV hydrogen refuelling infrastructure supply chain is very limited, with the main growth opportunity identified after 2035
• Market demand stimulation is vital but supply side actions are important too

Current make-up and capabilities of supply chains

HDV and niche vehicle manufacturing

• The overall supply chain includes 21 companies with locations in Scotland. We estimate there are between 3,200 and 4,000 jobs in this supply chain, with annual turnover of between £800m and £1,000m.
  
• The zero emission HDV and niche vehicle manufacturing supply chain is a subset of the above. We identified seven active, or recently active, companies. We estimate there are between 300 and 500 jobs in this supply chain, with an annual turnover of between £80m and £120m.

HDV charging infrastructure

• We identified 15 active companies. We estimate there are between 200 and 400 jobs in this supply chain. There was insufficient evidence to estimate the supply chain turnover.

Hydrogen refuelling infrastructure

• We identified seven active companies and estimate there are less than 100 jobs in this supply chain. There was insufficient evidence to estimate the supply chain turnover.

Supply chain strengths and opportunities

We conducted a SWOT analysis of each supply chain. The strengths and opportunities for each are summarised here.

HDV and niche vehicle manufacturing

Scotland’s main strengths are in niche manufacturing and vehicle integration, rather than mass production. Existing companies have expertise in the building of specialist vehicles, bespoke design, systems integration and aftersales support. However, the manufacturing base is small, fragmented and relies heavily on imported chassis and core systems. The most realistic opportunities for Scottish companies sit in specialist and niche applications, such as municipal and emergency vehicles.

HDV charging infrastructure

A key strength is the presence of established EV charging integrators and service providers with experience in depot-based charging, developed through the bus sector and early HDV projects. There are, however, notable gaps in the supply chain. Opportunities are driven by growing HDV electrification and policy requirements for charging infrastructure both domestically and internationally.

HDV hydrogen refuelling infrastructure

Scotland’s main strength is its practical delivery experience derived from hydrogen mobility projects, particularly for buses and municipal fleets. However, the supply chain is small and capacity constrained. There is significant reliance on a few providers and on imported core equipment. Opportunities for Scottish companies in hydrogen refuelling infrastructure are limited and use-case specific.

Future demand

For the three key supply chains discussed above, we used employment numbers as a proxy for economic growth. Our estimate for the potential change in job numbers to 2030 and 2035 is compared with current job numbers in Table 1.

Feedback from stakeholders also identified a small number of examples where companies in other sectors have benefited from HDVs decarbonisation, such as clean heat, onshore renewables and civil engineering

Abbreviations

Introduction

Governments across the world are introducing policy targets to decarbonise heavy duty vehicles (HDVs) as part of activities to reduce greenhouse gas emissions. This shift presents an economic opportunity for Scottish supply chains.

This report aims to identify the current and future economic impact of decarbonisation on key supply chains. Findings are based on desk-based evidence and conversations with 27 industry and other stakeholders. We identify active companies and their capabilities in each supply chain and analyse the strengths, weaknesses, opportunities and threats (SWOT) for each. We then estimate how policy drivers might impact demand in the coming decade. Finally, we examine how other sectors in Scotland could benefit from opportunities related to HDV decarbonisation.

This section summarises what the research was trying to achieve and how it was carried out. Further information on this can be found in Appendix A.

Research aims

The aims of this research study were to:

• Identify and assess the current make-up and capability level of
  • the Scottish HDV manufacturing supply chain, including HDV manufacturing
  • the Scottish HDV charging infrastructure supply chain
  • the HDV hydrogen refuelling infrastructure supply chain
• Identify the strengths, weaknesses, opportunities and threats for the existing supply chains
• Identify and assess how demand for Scottish supply chain and manufacturing services may change in future, particularly in light of policy drivers and decarbonisation targets
• Identify how other sectors in Scotland (e.g. low carbon energy, heat in buildings, construction, digital) can benefit from new supply chain opportunities related to HDV decarbonisation

Scope and boundaries

The supply chains of interest are:

• HDV and niche vehicle manufacturing – manufacture of physical and/or digital products. This includes the supply chain currently active in the manufacture of fossil fuel powered vehicles as well as the subset of this that is already active in the manufacture of zero emission vehicles.
• HDV charging infrastructure – manufacture of physical and/or digital products and the delivery of services associated with design, installation, operation and maintenance.
• Hydrogen refuelling infrastructure – manufacture of physical and/or digital products and the delivery of services associated with design, installation, operation and maintenance.

The research DOES cover:

• Companies currently active in these supply chains and those with the capabilities to potentially become active in future
• Battery electric, hydrogen fuel cell and hydrogen combustion powertrains

The research DOES NOT cover:

• Hydrogen production and transportation activities
• Biofuel, biomethane or hydrogenated vegetable oil (HVO) fuelled HDV activity
• Retrofitting of the existing HDV fleet with decarbonisation technologies

Research method

The research was carried out between October 2025 and February 2026. It consisted of desk research, one-to-one consultations with 27 industry and other stakeholders from across the three supply chains and a validation workshop, attended by 13 industry and other stakeholder from ten organisations.

It is helpful to further define some of the key terms we use in this report to help clarify the scope:

• Overall HDV and niche vehicle manufacturing supply chain – this includes all companies involved in the manufacture of HDVs and niche vehicles, regardless of the technology used to power the vehicle. This supply chain therefore includes companies that are currently only involved in the manufacture of diesel powered HDVs and niche vehicles, companies that are currently only involved in battery electric powered vehicles and companies involved in a mix of several technologies. It is important that we capture this overall supply chain as companies currently active only in diesel powered vehicle manufacture will need to consider moving into zero emission powered vehicles as HDVs are decarbonised
  
• Zero emission HDV and niche vehicle manufacturing supply chain – this is a subset of the overall HDV and niche vehicle manufacturing supply chain. It is useful to separately identify the make-up and capabilities of this supply chain to understand the current economic contribution by companies already active in responding to the decarbonisation of HDVs
  
• The category of ‘niche vehicles’ includes Scottish companies involved in production of battery electric wheelchair accessible vehicles and full electric 4×4 vehicles that are under the weight threshold of 3.5 tonnes, meaning they are not classed as HDVs
  
• Companies identified as having the potential to become active have been identified as part of this study. These are companies that have been reviewed using desk-based, publicly available, information, such as websites. This is useful to understand the extent to which there are companies have the potential to develop goods and services relevant to one, or more, of the three supply chains being investigated. It is also useful to note that only a small proportion (less than 5%) of the companies identified as being potentially active have confirmed that they are actually interested in doing so. The others have capabilities that have been assessed as potentially relevant.

Desk research was used to identify companies active, and having the potential to become active, in the three supply chains, to build an understanding of the composition of each.

This desk research also identified estimates of employment numbers and turnover for each company. We cross-checked the lists of active companies with stakeholders and added those we had not identified during the desk research. We categorised each company’s capabilities by assigning them to different segments of the supply chains.

We used a combination of desk research and stakeholder feedback to identify the strengths, weaknesses, opportunities and threats relevant to each of the supply chains.

We used the findings of the desk research to understand the nature and timing of HDV decarbonisation and how this might impact on the number of jobs in each of the supply chains between now and 2030 and 2035. We used number of employees as the best available proxy for economic growth of the supply chains. We tested this understanding of how HDV decarbonisation would impact on the supply chains with industry and other stakeholders, both through one-to one consultations and in a group workshop.

During our discussions with stakeholders, we also identified a small number of examples of how companies from other sectors have benefited from the decarbonisation of HDVs.

A more detailed description of the research method can be found in Appendix A.

The context for HDV decarbonisation

Policies in support of HDV decarbonisation

Internationally, governments are moving to decarbonise HDVs through a mix of regulation, long-term targets and public funding. There is broad recognition that HDVs are harder to decarbonise than cars and vans. Vehicles are more expensive, infrastructure requirements are greater, and operators face tighter margins. As a result, leading countries are not relying on market forces alone. They are setting clear end dates for diesel sales, placing obligations on manufacturers and fleets, and investing directly in vehicles and infrastructure.

Many countries have now committed to 100% zero-emission HDV sales by 2040 under the Global Memorandum of Understanding on Zero-Emission Medium- and Heavy-Duty Vehicles. In the strongest cases, these commitments are backed by binding domestic regulation. The European Union has established the most comprehensive framework. Its CO₂ emission performance standards require manufacturers to achieve progressively deeper emissions reductions, reaching a 90% reduction by 2040 (EU Regulation 2019/1242). The rules apply across most truck and bus categories and are supported by mandatory monitoring and financial penalties for non-compliance. This provides long-term certainty to industry and sends a clear signal on the direction of travel.

The United Kingdom is currently consulting on a new HGV CO₂ emissions regulatory framework, setting out a pathway towards the government’s intention of ending the sale of new non-ZE HGVs up to and including 26 tonnes by 2035, and all new non-ZE HGVs by 2040. (UK Government, 2026). This approach is supported by targeted public funding. The Zero Emission HGV and Infrastructure Demonstrator (ZEHID) programme is investing around £200 million to deploy zero-emission trucks and develop charging and hydrogen refuelling infrastructure. The aim is to test real-world performance, reduce cost uncertainty and inform future policy development (Innovate UK Business Connect, 2024).

In North America, regulation is combined with significant financial support. The United States has introduced strong state-level fleet requirements alongside large federal grant programmes to support vehicle purchases and infrastructure rollout (EPA, 2024). Canada has also set a 2040 sales target and is investing in charging and refuelling infrastructure to enable uptake. These measures are designed to stimulate early demand and support domestic supply chains.

China is playing a central role in global HDV decarbonisation. It has deployed large-scale subsidies and regional mandates, particularly in logistics hubs and freight corridors. This has enabled rapid deployment of zero-emission trucks and buses in targeted applications (ICCT, 2025) Although approaches vary across provinces, the overall scale of intervention is significant.

Several European countries are placing strong emphasis on infrastructure as a critical enabler. Spain is combining fleet support under Real Decreto 983/2021 with hydrogen investment programmes such as H₂ Pioneros, linking transport decarbonisation with industrial and regional policy (Gobierno de España, 2021; MITECO, 2023). Norway operates competitive funding schemes that support zero-emission trucks and associated charging infrastructure, prioritising projects that deliver the greatest emissions reduction per unit of public funding (Enova, 2025). The Netherlands has adopted a similar model through its Hydrogen in Mobility subsidy scheme, which supports both hydrogen vehicles and refuelling stations (Netherlands Enterprise Agency, 2025). Ireland and Denmark are also investing in vehicle grants and infrastructure to support the transition (ZEVI, 2024; Danish Ministry of Transport, 2021).

Overall, the strongest policy frameworks combine three elements: clear long-term targets, enforceable regulatory standards and sustained public investment. The European Union, the United Kingdom, the United States, China, Norway and the Netherlands stand out in this regard. International evidence suggests that regulation alone is insufficient. Coordinated action across vehicles, infrastructure and market development is required to deliver large-scale change and to position domestic industries for emerging global opportunities.

Market trends in HDV decarbonisation

This section summarises the key market trends for the three supply chains. Understanding the market trends is important to identifying and assessing the likely nature, scale and timing of HDV decarbonisation. This will drive changes in demand for goods and services provided by the three supply chains we are investigating in this study.

A more detailed description is provided in Appendix B.

HDV and niche vehicle manufacturing

International Energy Agency (IEA, 2025) is projecting that around 20% of new global bus sales and 13% of new global heavy truck sales in 2030 will be battery electric.

The European Automobile Manufacturers Association reports that, globally, around 2.9 million HGVs and 362 thousand buses were manufactured in 2024 (ACEA, 2024). Around 20% of buses sold around the world in 2024 were zero emission, either battery electric vehicles (BEV) or hydrogen fuel cell electric vehicles (HFCEV), compared with only 3% of HGVs.

China is by far the largest national market, with Europe and North America also significant regional markets (IEA, 2025). In the EU, Germany, France, the Netherlands and Sweden account for 85% of zero emission HDV sales (Mulholland, E., et al, 2025).

In the UK, in 2024, there were 50,987 newly registered HGVs, of which 268, or 0.5%, were zero emission battery electric. In the same year, 9,919 new buses and coaches were registered in the UK, with 1,719, or 17.3%, of these being zero emission battery electric.

In Scotland, in 2024, there were 3,958 newly registered HGVs, with 12 of these, or 0.3%, being zero emission battery electric. In the same year, 663 new buses and coaches were registered, of which 74, or 11.2%, were zero emission battery electric (Department for Transport 2026 [4] and [5]).

Charging infrastructure

The International Energy Agency (IEA, 2024), expects significant growth in the stock of HDV charging devices installed, globally, estimating a twenty-fold increase by 2035.

China is the market leader in the adoption of electric buses and electric trucks and therefore is the also market leader in deployment of heavy-duty charging devices (IEA, 2024).

After China, Europe is the second largest market for electric bus and electric truck sales with the accompanying need for charger installation (IEA, 2024). The countries in Europe with the highest projected demand for battery electric truck charging infrastructure are Germany, Italy, France, Poland and Spain, collectively accounting for more than 70% of the total charging needs in the EU-27 (Basma, H and Schmidt, J. ,2025).

In the UK, it is projected that there will be a need for 400,000 truck chargers serving HGVs by 2050 (Drake, W. et al, 2023). Reports reviewed for this study found differences of opinion on the extent to which HGV charging devices would be located in the depot. One report assumed that 93% of HGV chargers would be based in depots (Drake, W. et al, 2023) whilst another stated an expectation that 77% of HGV charging would take place at depots (Energy UK, 2025).

Charging will typically take place overnight and most charging devices (97%) will be less than 100kW capacity. Public opportunity charging will require chargers with high capacity for quicker charging times. It is projected that 2,000 350kW and 1,200 1MW chargers will be required by 2050 (Drake, W. et al, 2023).

Licenced HGVs in Scotland represent 6.9% of HGVs licenced in the UK, based on Q3 2025 data (Department for Transport, 2026 [3]). It could be assumed that a similar proportion of HGV charging devices will be installed in Scotland, meaning approximately 27,600 installed by 2050 (based on UK data from Drake, W. et al, 2023). If these charging devices were installed equally over the period 2026 to 2050 then annual installations of HGV chargers would be just over 1,100 per year in Scotland. However, HGV operations in Scotland can differ materially from the UK average in ways that affect charging demand. For example, routes are often longer and less densely connected, with more variable terrain and harsher weather conditions. These factors can increase energy consumption per journey and, in turn, raise the frequency and duration of charging required per vehicle. At the same time, the spatial distribution of logistics activity in Scotland may reduce opportunities for high utilisation of individual charging sites compared to more densely populated parts of the UK. This could mean a greater number of chargers are needed to provide adequate coverage and resilience, even if utilisation rates per charger are lower. Taken together, these differences mean that Scotland’s share of charging infrastructure demand may not scale directly in line with its share of the HGV fleet.

The rate of electric heavy duty vehicle adoption will be influenced by the extent to which fleet operators use low carbon fuels, such as biomethane, HVO and biodiesel, as a means to decarbonisation their vehicles in the short term. For example, this is a strategy supported by both Logistics UK (Logistics UK, 2025) and the Road Haulage Association (Road Haulage Association, 2025), both representative bodies for the freight transport sector. If fleet owners follow this strategy in the short term, then this could delay some purchases of battery electric vehicles and reduce the associated demand for charging infrastructure.

Hydrogen refuelling infrastructure

Hydrogen refuelling stations (HRS) rollout is modest compared to charging infrastructure deployment. As of 2024, there were approximately 1,160 HRSs worldwide, mostly confined to Germany, Japan, and South Korea, compared to 4.5 million EV charging stations (Mohapatra, 2025).

The value of the global hydrogen refuelling station market was estimated at about USD 1.00 billion in 2025 and is projected to grow at a 19.8% CAGR over the period 2025 – 2033, inclusive of all applications including passenger vehicles (Grand View Research, 2026).

The EU has committed €600 million through the Alternative Fuels Infrastructure Facility to support 38 new hydrogen refuelling stations (European Commission, 2025). Member states must install one HRS every 200 km along the core of the Trans-European Transport Network (TEN-T), where minimum transport movement thresholds are exceeded. The aim is to complete these installations by 2030 with interim targets set for 2025.

In 2023, the UK had zero fuel cell HGVs in operation and only 6 HRSs. Scotland had four hydrogen refuelling stations for public use (Transport Scotland, 2022). Two of which are based in Aberdeen to support the fleet of bus and municipal hydrogen HDVs with further stations in Orkney and outside Edinburgh. The need for a minimum viable network of hydrogen refuelling stations is limiting deployment of hydrogen powered HDVs (Hydrogen UK, 2023). Cost of hydrogen fuel is also a limiting factor, according to some stakeholders. Strong near-future deployment opportunities lie in off grid refuelling applications for construction based HDVs with full HDV rollout expected to grow from 2035 onwards.

Current make-up and capabilities of supply chains

This section uses the findings of the desk-based research and feedback from stakeholders to identify and assess the current make-up and capabilities of the Scottish HDV and niche vehicle manufacturing, HDV charging infrastructure and HDV hydrogen refuelling infrastructure supply chains.

HDV and niche vehicle manufacturing

Overall HDV and niche vehicle manufacturing supply chain

The overall HDV and niche vehicle manufacturing supply chain includes 21 companies with manufacturing locations in Scotland. This includes manufacturers, and their supply chains, active in fossil fuel and zero emission HDVs and niche vehicles. Combined, we estimate these companies employ 4,402 people and generate turnover of £1,123 million. It should be noted that these figures are indicative as some of the companies reported employment and turnover includes contributions from operations located outside of Scotland. In addition, some of these companies are also involved in other markets, in addition to HDVs and niche vehicles, so the total HDV and niche vehicle employment and turnover is less than the amounts stated. We estimate that 12 of these 21 companies are exclusively active in the HDV and niche vehicle manufacturing supply chain. These 12 companies employ 3,251 people and generate annual turnover of £804 million. We estimate that the current employment range for this supply chain is between 3,200 and 4,000. We also estimate that current turnover ranges between £800m and £1,000m.

An overview of the number of companies active in each supply chain segment is shown in Table 2.

The most economically significant segment of the overall HDV and niche vehicle manufacturing supply chain is the HDV Original Equipment Manufacturer (OEM) segment. Based on the employee numbers of the seven HDV OEMs in this segment, compared to the total 21 companies in the overall supply chain, it represents 72% of the total supply chain. The niche vehicle manufacturing segment, with two companies, is the next most significant segment of the supply chain, representing 20% of the total supply chain.

Zero emission HDV and niche vehicle manufacturing supply chain

Seven of the 21 companies active in the overall HDV and niche vehicle manufacturing supply chain are also active in the zero emission HDVs and niche vehicle manufacturing supply chain. Combined, these seven companies employ 3,005 employees and generate annual turnover of £792 million. However, our research indicates that the number of people currently employed in Scotland in the zero emission HDV and niche vehicle manufacturing supply chain is limited to several hundred. Based on stakeholder feedback and desk research, we estimate 85% to 90% of the HDV and niche vehicles manufacturing activity in Scotland uses diesel internal combustion engines and 10% to 15% being zero emission vehicles, almost all of these being buses. We also estimate, based on a combination of stakeholder feedback and desk research, that six of the seven zero emission HDV and niche vehicle manufacturing supply chain companies have a low single digit percentage of their employees engaged in zero emissions activities. We estimate that only Alexander Dennis Limited has a significant proportion of its HDV (bus) manufacture that is zero emissions. This is based on sector wide data about the proportion of new bus sales that are zero emission in the UK as we were unable to obtain data directly from the company for this study. We have used the resulting estimate, of 10% to 15% of HDV and niche vehicle manufacturing in Scotland being zero emission, to estimate associated zero emission employment to be between 300 and 500 and zero emission annual turnover to be between £80m and £120m.

An overview of the number of companies active in each supply chain segment is shown in Table 3.

The OEM and niche vehicle manufacturing segments of the overall HDV and niche vehicle manufacturing supply chain are assessed as being the most economically significant, based on proportion of employment in those sectors. The OEM segment is the most economically significant of the zero emission HDV and niche vehicle manufacturing supply chain. The companies active in these segments are shown in Figure 1.

An additional company, H2 Vehicle Systems, was registered last year and is focused on emissions reduction from diesel HDVs; it is also seeking to develop hydrogen powered HGVs. There are no Scotland-based manufacturers of chassis that are used in HGVs.

There are seven companies that are active in design and manufacture of subsystems that are used in HDVs, including mechanical, hydraulic, electrical and electronic components, and five others that design and manufacture bodywork for HDVs and niche vehicles.

Companies with potential to become active

Based mainly on desk research, we have identified 102 companies as having relevant capabilities, meaning they have theoretical potential to become active in the zero emission HDV manufacturing supply chain. Of this total, 96 could provide mechanical, hydraulic, electrical and electronic system and subsystem design and manufacture. This includes, for example, sensors, control systems, power convertors and drive systems. There are also companies offering precision engineering services for the design and manufacture of parts, and others manufacture and supply materials for structural components and interior fittings.

Together, the subsystem and system capabilities in Scotland could support the further development and customisation of zero emission HDVs. Each of these companies could, potentially, work with existing OEMs to customise and optimise zero emission HDVs for specific purposes. This could include, for example:

• lightweighting, through the use of composite materials
• improving the energy efficiency of auxiliary equipment, through the design of electrical, mechanical and hydraulic subsystems
• enhanced software control of systems to optimise use and minimise energy consumption, for example through using telemetry data

However, we do not have sufficient information on whether these companies would view the zero emission HDV manufacturing supply chain as an opportunity.

Scotland’s role in the rest of the UK and international markets

Based on interviewee feedback, we have confirmed that seven of the 21 companies active in this supply chain export to markets outside the UK. Others may also export but we did not find evidence during our research to confirm this. We have also confirmed that three of the seven companies active in the zero emission HDV and niche vehicle supply chain export to markets outside the UK. Others may also export but we did not find evidence during our research to confirm this.

Role of the supply chain in other sectors

Companies that are further back in the supply chain have opportunities to sell into other net zero supply chains, including other forms of transport such as automotive, rail, and maritime.

Challenges faced

The main issue facing companies that are trying to enter the market for decarbonised HDV and niche vehicles is that customer demand is still very low. The majority of sales, particularly in the UK, are for fossil-fuel powered HDVs. Feedback from our interviews with companies and other stakeholders is that uncertainty around the deadlines for mandating zero emission HDVs is not stimulating demand compared to the situation where credible regulated deadlines were in place.

While an increasing percentage of buses are now electric, most of the OEMs supplying these vehicles are located outside of Scotland and the UK. As the majority of systems and sub-systems are integrated by the bus OEM, there is a much smaller opportunity for Scotland-based companies to become part of these supply chains.

The opportunities are greater for those supplying OEMs that design and manufacture specialised vehicles, but even here, feedback from our interviews strongly suggests that demand for zero emission vehicles will remain low due to customer concerns regarding duty cycles and opportunities to recharge or refuel the vehicle during use.

Stakeholders representing relevant industry associations whose members operate HGVs, confirmed that at present there is interest from their members regarding zero emission vehicles. There are also concerns, particularly around total cost of ownership (TCO) and the perceived increased costs of charging and hydrogen refuelling would have on their operations. There was universal concern regarding the impacts on SMEs, which represent the majority of HGV users, particularly haulage firms. Most of those interviewed believe that it is likely only larger operators, particularly those who want to be first movers, will adopt zero emission technologies prior to legislation coming into force. The only exception to this would be if the customer of the haulage firm required a reduction in scope 3 emissions (i.e., from its supply chain). In these cases, there is competition from low carbon fuels, such as biomethane or HVO as an alternative solution to zero emission vehicles. It was clear from these discussions that smaller companies, in particular, would like to see commitment from government on when legislation will come into force and assurances that the necessary charging and refuelling infrastructure will be in place, before they would commit to purchasing/operating a zero emission HDV. A lack of hydrogen refuelling infrastructure was highlighted by another stakeholder as the prime reason that they had stopped operating HFCEVs.

Companies further back in the supply chain told us that they tend to be more reactive to what customers need. They can supply into zero emission HDV manufacturing but equally could supply into OEMs that are manufacturing diesel powertrain vehicles. In many cases these companies supply a range of sectors and application areas, with automotive and HDV being just one. Overall, there are likely to be opportunities for such companies in the future, but this will be dictated by decisions made by the OEMs.

Charging infrastructure

We have identified 15 companies active in the HDV charging infrastructure supply chain with locations in Scotland. All of these companies are involved in other activities not related to HDVs. Eight of the 15 companies also have operational locations outside of Scotland. Employment and turnover data identified from desk research covers all activities in all locations of each company. It has, therefore, not been possible to use the desk-based data to reliably estimate the proportion of the total employment and turnover associated with the HDV charging infrastructure projects and carried out by staff based in Scotland.

Instead, we spoke with six of the 15 HDV charging supply chain companies and, based on these discussions, we are able to report an indicative level of current employment associated with HDV charging infrastructure work and carried out by employees based in Scotland. Companies provided information on employment related to HDV charging infrastructure activities but not turnover. This was due to a combination of the interviewees finding it easier to provide data on employment and it being less commercially sensitive than turnover data.

Based on the discussions with the six HDV charging infrastructure supply chain companies, we identified 114 employees, operating from a Scottish location that work on HDV charging infrastructure activities. It is estimated that there are between 200 and 400 employees, across all 15 supply chain companies, that are active HDV charging infrastructure projects. This estimate was tested at the validation workshop held during this study and the attending stakeholders confirmed this is a reasonable estimate. It is not possible to be more precise given the lack of data from the nine companies not interviewed as part of this study.

Based on feedback from stakeholder interviews and desk research it is reasonable to estimate that at least 90% of employment is related to the design and installation and operations and maintenance segments of the supply chain. We have not been able to reliably allocate employment numbers to a single segment of the supply chain as seven of the 12 companies active in design and installation are also active in the operation and maintenance segment. We do not have data on the activity split for the companies involved in these segments and are, therefore, unable to allocate employment numbers separately between them.

An overview of the current make-up and capability level of the Scottish HDV charging infrastructure supply chain, is shown below.

An overview of the number of companies active in each supply chain segment is shown in Table 4 (please note that the figures in Table 4 total more than the 15 companies we identified for this supply chain. This is due to some companies being active in more than one segment of the supply chain).

The 12 companies active in the design and installation and operation and maintenance segments are show in Figure 2.

Four companies have also been identified as being owners of HDV charging infrastructure facilities: First Bus, FOR EV, Green Wheel Electric and Enerveo. The company included in the charger parts, components and systems manufacture segment has not been identified in this report due to this activity not being in the public domain.

Companies with potential to become active

We have identified 60 companies with capabilities potentially relevant to the charging infrastructure supply chain. We found no evidence that any of these were currently active in this supply chain. Our assessment of their capabilities was made based on reviewing information on their websites and most have not confirmed if they are interested in entering the supply chain.

The supply chain segment assessed as having the most potentially relevant companies was design and installation. Some of the companies identified in this segment also had capabilities that are potentially relevant to operation and maintenance. The companies were, typically, either low voltage EV charging installers, high voltage electrical contractors or civils contractors with experience in different sectors. To enter the HDV charging infrastructure market, the low voltage EV charging installers would have to develop new skills and competences to work on high voltage systems and become familiar with the installation requirements of different charging devices. Civils contractors may also require additional accreditations to work in high voltage environments. High voltage electrical contractors are likely to face the lowest barriers to entering this market of all the potential companies identified. This is due to the nature of their existing experience and skills being very similar to what is required to design and install HDV charging infrastructure.

Potential parts and systems manufacturers, for both fixed and mobile charging equipment, were identified. This covered enclosure fabrication, electronic components and devices, embedded software and cables, connectors and sockets. To enter the charging infrastructure market, these companies would have to develop supply chain relationships with manufacturers of HDV charging equipment. No manufacturers of this kind are currently located in Scotland. It is challenging to develop relationships with geographically remote customers unless there are unique attributes to the parts and systems these companies are able to supply. This could include circumstances where, for example, the potential Scottish supplier has parts or systems protected by intellectual property rights.

Six companies were identified as having the potential to manufacture fixed HDV chargers and two with the potential to manufacture mobile HDV chargers. Most of these companies are currently active in low voltage charger manufacture. It has not been confirmed if they are interested in investigating the HDV charger market.

One existing HDV charger manufacturer, located outside of Scotland, was identified as a potential inward investor for assembly activities. It has not been named due to confidentiality considerations.

Scotland’s role in the rest of the UK and international markets

We have confirmed that four of the 15 companies active in the HDV charging infrastructure supply chain export to markets outside the UK. Others may also export but we did not find evidence during our research to confirm this.

We spoke with three of these four exporting companies. In all three cases the companies described how they successfully delivered an HDV charging infrastructure design and installation project in the UK for an international customer. Having demonstrated competence in this type of project the same client then contracted with them to deliver the same type of project in overseas markets.

Two companies in the Scottish charging infrastructure supply chain described having offices in overseas companies. This includes the United Arab Emirates, which was described as having very similar electrical installation standards as the UK. Other examples of target international markets include countries in Europe such as Sweden and Germany.

Whilst there is evidence of international markets being accessible to electrical design and installation companies it is possible that opportunities for civil engineering contractors will be restricted to Scotland and the rest of the UK. This is due to reliance on capital intensive equipment that is not easy to transfer to overseas locations.

Four of the supply chain companies located in Scotland were part of a UK or international group. This means that the locations in Scotland typically service just the Scottish market or the UK market, depending on where other offices in the wider group are located. In these cases, the opportunities arising internationally will be serviced directly from other locations closer to those markets.

Role of the supply chain in other sectors

Some of the active supply chain companies identified are focused only on EV charging markets covering all sizes of vehicle, including HDVs.

Other companies have a wider target market and provide services to other sectors. For example, an electrical design and installation company servicing electrical systems works in the commercial and industrial sectors. The ability to carry out high voltage electrical projects has very wide applications, including in other sectors where decarbonisation is being driven by electrification.

Civil engineering design and installation contractors also have a wide range of application sectors for their services. Some of these may be closely connected to net zero, such as installation of district heat networks and wind farm development. Other civils work is not connected to net zero, such as expansion of the road transport network.

Challenges faced

The main challenge faced by companies in this supply chain is the current low demand from HDV operators. The main reason for this low demand is uncertainty amongst HDV operators about hard deadlines for when zero emission vehicles only will be available on the new vehicle market. All stakeholders recognise the long-term shift to decarbonised HDV fleets but, without an immediate regulatory or commercial reason to switch, there is limited incentive.

There is also uncertainty about which powertrain option to invest in amongst operators. Representative bodies, such as Logistics UK and the Road Haulage Association are lobbying for low carbon fuels to play more of a role in the short-term decarbonisation of fleets. Although these are not zero-emission solutions, they are commercially proven and an attractive option for some operators seeking to demonstrate action on greenhouse gas emission reduction to their customers. Pursuing this as a decarbonisation option in the short term could delay the adoption of zero emission HDVs and the charging and refuelling infrastructure they will require.

Other challenges

• Low operator awareness of, and skills required for, fleet decarbonisation plus limited awareness of Scottish supply chain options
• Sporadic short term grant funding for operators
• Grid capacity constraints and connection queues
• Availability of finance for fleet operators
• Physical space constraints in HDV depots
• Skills shortages in key areas, such as high voltage design engineering
• Training gaps for low voltage charger installers interested in high voltage HDV charging installation

Hydrogen refuelling infrastructure

We have identified seven companies active in the HDV hydrogen refuelling infrastructure supply chain with locations in Scotland. All of these companies are involved in other activities not related to HDVs. This means that it has not been possible to use company level employment and turnover data, identified during the desk research, to estimate the scale of HDV activity.

We spoke with two of the seven supply chain companies and a further six stakeholders with knowledge of the hydrogen economy. Based on these discussions, we estimate that the HDV hydrogen refuelling infrastructure supply chain employs fewer than 100 people in Scotland. As with the charging infrastructure supply chain, there is very limited manufacturing activity, with only two of the seven supply chain companies being active in components and systems manufacture. Most equipment used by the Scottish companies being sourced from the rest of the UK or overseas and integrated by companies in the Scottish supply chain rather than manufacturing original equipment. Based on our discussions with stakeholders, the limited number of jobs within the HDV hydrogen refuelling infrastructure supply chain are concentrated across systems integration, design, construction and installation and ownership, operation and maintenance. It has not been possible to calculate exact percentages of jobs in each of the supply chain segments as six of the seven companies are active in more than one segment and we do not know the relative split of activity between segments. Although all seven supply chain companies were approached for interview, only two participated, meaning there is insufficient data available to estimate the exact breakdown of employment by supply chain segment. There is also insufficient data available to allow us to estimate the turnover for this supply chain as those companies who did speak with us preferred to provide information about employment levels rather than turnover.

An overview of the number of companies active in each supply chain segment is shown in Table 5 (please note that the figures in Table 5 total more than the seven companies we identified for this supply chain. This is due to some companies being active in more than one segment of the supply chain).

The seven companies active in the hydrogen refuelling infrastructure supply chain are show in Figure 3.

Companies with potential to become active

Our research has also identified 19 companies with the potential to become active in the hydrogen refuelling infrastructure supply chain. This assessment was made through review of their capabilities, e.g. based on information on their websites, and suggestions made by stakeholders during the consultation period that highlighted potential activity.

Most of these companies have capabilities that are potentially relevant to the component and system manufacturing segments of the supply chain. Identified companies are either already active in adjacent component supply chains or developing capabilities in hydrogen specific supply chains. The types of components include compressor and decompressor equipment, pipework, valves, metal tanks / vessels, nozzles and tubes, sensors. For example, Stewart Buchanan Gauges Ltd is designing and developing hydrogen valves, which could be relevant to the HDV hydrogen refuelling infrastructure supply chain.

The design, construction and installation companies identified mostly offer concept design, detailed design, and health and safety consultancy and support services that include hydrogen safety. It has not been confirmed whether work has been done in the hydrogen refuelling market specifically.

Scotland’s role in the rest of the UK and international markets

The UK hydrogen refuelling market is at a very early stage of development. There is limited completed or planned refuelling infrastructure. However, where it has been developed, these refuelling sites have generally been delivered by Scottish OEMs and systems integrators.

In terms of international markets, feedback from stakeholders confirms that Scotland-based systems integrators and OEMs are providing, or have provided, services and products to international markets including Europe and Asia. However, it was noted that the likelihood of entering the Chinese market is now limited due to central government financial support and rapid deployment leading to high levels of in market competition. The decline of demand in the USA market since the beginning of the current Government Administration has been damaging to what has been a core market for Scottish companies.

Role of the supply chain in other sectors

The design of the system for hydrogen refuelling infrastructure is unique to the end-use, however opportunities exist in adjacent hydrogen sectors as they develop including off-grid power generation and distribution, hydrogen storage and transport. The core hydrogen technologies and capabilities can be energy storage and refuelling applications, with stakeholder feedback identifying that there is more activity in the energy storage segment at present.

Further back in the supply chain the component manufacturers generally transition from legacy oil and gas industries and deliver components that can be used in other net zero markets including the broader hydrogen derivatives market. This could include ammonia for the decarbonisation of maritime as well as other potential applications in energy generation and storage utilising liquid or gaseous vectors and mechanical components for applications such as pumped hydro. The challenge for the supply chain is the slow progress and certainty around the development of these other net zero markets.

Challenges faced

The central challenge faced by this supply chain is a lack of clear and positive policy intent. Further, the dangers of a net zero targets easing to allow for a small amount of fossil fuel use poses a threat to the development of the hydrogen refuelling market, resulting in it becoming a marginal technology to address residual emissions rather than a primary route to decarbonisation. It was recognised through consultation with stakeholders that hydrogen (more generally) but particularly hydrogen HDVs will likely play a comparatively small but critical role in the achievement of net zero targets. The technology will likely occupy a marginal role in the achievement of the final, hard to abate reductions necessary for net zero. If policy goals shift towards allowing a small role for fossil fuels, the hydrogen economy is likely to contract.

Attracting finance to enable pilot market activity that can demonstrate commercial viability has also been identified as a key challenge.

A lack of component certification standards for hydrogen refuelling infrastructure applications was also identified as a challenge to the development of compliant components.

We note that international markets have more proactively set targets and support mechanisms for the deployment of hydrogen refuelling stations and hydrogen HDVs more broadly. One stakeholder noted that it would be helpful for the supply chain to have a clear point of contact within Transport Scotland to discuss challenges and opportunities related to hydrogen refuelling. Further challenges beyond the scope of this project include the cost of energy, the cost of producing and transporting hydrogen, and consequently, the levelised cost of hydrogen.

SWOT Analysis

Summaries of the key findings of the SWOT analysis for each supply chain are shown in Table 6: SWOT analysis – HDV and niche vehicle manufacturing supply chain, to Table 8: SWOT analysis – HDV hydrogen refuelling supply chain.

Scotland’s main strengths are in niche manufacturing and vehicle integration, rather than mass production. Existing companies have expertise in the building of specialist vehicles, bespoke design, systems integration and aftersales support. Capabilities in software, control systems and energy management are largely transferable to zero-emission HDVs and align with areas where future value is expected to sit. Strong links to public-sector procurement have enabled early trials and demonstrator projects, generating learning even where commercial outcomes remain uncertain.

The analysis, however, highlights some significant weaknesses. The manufacturing base is small, fragmented and relies heavily on imported chassis and core systems. Scottish companies, therefore, have very limited influence over technology pathways or product availability, which are shaped by global OEM decisions. Zero-emission HDV production (outside buses) remains at pilot scale, with no clear evidence of employment growth to date. High vehicle costs, limited infrastructure and weak customer demand reinforce a cautious, wait-and-see approach across the supply chain.

Opportunities are largely policy-driven rather than market-led. UK and EU emissions standards and demonstrator funding create long-term demand for zero-emission vehicles, but the most realistic opportunities for Scottish companies sit in specialist and niche applications, such as municipal and emergency vehicles, and in service-led activities including integration, engineering support and digital systems.

The threats are significant. International competition, particularly from large Chinese OEMs, constrains Scotland’s ability to compete on cost or scale. Uncertain demand, high upfront costs and reliance on global supply chains increase commercial risk. Stakeholder feedback from some company and other stakeholders expressed doubt that policy targets for zero emission HDVs will be enforced as stated, and viewed this as leading to market uncertainty.

A key strength is the presence of established EV charging integrators and service providers with experience in depot-based charging, developed through the bus sector and early HDV projects. This aligns well with evidence that depot charging will dominate HDV charging to 2030. Scottish companies already provide design, grid connection, installation and operations services, and some are seeing early employment growth linked to HDV charging.

There are, however, notable gaps in the supply chain. Only one domestic manufacturer of HDV charging components was identified, providing cooling systems for HDV chargers. The Scottish supply chain relies heavily on imported equipment. Skills shortages, particularly for high-power installations, and limited training provision constrain the pace of deployment. HDV charging infrastructure remains limited, with activity concentrated in pilots and early depot projects. Uncertainty about current and future demand for HDV charging infrastructure, combined with stop-start grant funding, have reduced confidence among both fleet operators and infrastructure providers.

Opportunities are driven by growing HDV electrification and policy requirements for charging infrastructure both domestically and internationally. These create potential for job growth and positive economic impact in the installation, operations and maintenance segments of the supply chain, rather than in manufacturing.

The main threats relate to delivery risk and investment confidence. Grid capacity constraints, high connection costs and short-term funding cycles all have a negative impact on deployment. The lack of domestic manufacturing of HDV charging devices, and very limited component supply chain, limits the value retained in the Scottish supply chain.

Scotland’s main strength is its practical delivery experience derived from hydrogen mobility projects, particularly for buses and municipal fleets. A small number of Scottish-based companies can deliver end-to-end refuelling projects and have developed strong safety, engineering and operational expertise. Scotland’s renewable electricity base also supports the long-term potential for green hydrogen, where refuelling is co-located with production.

The analysis, however, highlights significant weaknesses. The supply chain is small and capacity constrained. There is significant reliance on a few providers and on imported core equipment. Projects are, typically pilots or demonstrators and have been delivered on a standalone, case-by-case basis, with limited coordination between hydrogen production, refuelling infrastructure and vehicles, except for the coordinated approach of Aberdeen City Council. Failed or stalled projects have reduced confidence among public-sector sponsors and fleet operators.

Opportunities for Scottish companies in hydrogen refuelling infrastructure are limited and use-case specific. Evidence gathered during this study suggests hydrogen is most viable for HDV applications with high utilisation and predictable duty cycles where purchase agreements can be forecast, for example, buses or refuse vehicles. Policy frameworks and demonstrator funding continue to support trials and demonstrators and there is potential for Scottish companies to participate in roles such as system integration, EPC delivery and operations, rather than in equipment manufacture.

The main threats relate to low demand and sidelining of hydrogen adoption in long-term policy and strategy. High vehicle and fuel costs, limited hydrogen powered HDV manufacture and uncertain utilisation undermine the commercial case for refuelling infrastructure. The use of battery electric HDVs is scaling more quickly and at a lower cost. Ongoing policy uncertainty, high capital costs and reliance on small global equipment supply chains further increase investment and delivery risks.

Our detailed analysis of the strengths, weaknesses, opportunities and threats for each supply chain is provided in Appendix C.

Future demand changes for each supply chain

This section considers the potential change in demand of the three supply chains in Scotland as a response to the decarbonisation of HDVs. For the estimation of the current economic size of the HDV and niche vehicle manufacturing supply chain we have been able to use both turnover and employment data. Due to a lack of robust turnover data for the remaining two supply chains, from both desk research and stakeholder interviews, we have used employment estimates as a proxy for change in demand and all future economic size estimates. We recognise that using employment data has limitations in the extent that it can reflect changes in productivity. We consider 2030 and 2035 timeframes. No account has been made for any inward investment contribution to the supply chains in our estimated future economic size. Whilst we believe inward investment could be an important contributor to supply chain growth, the level of uncertainty about the scale of any such activity is too high to quantity the resulting impact. The employment projections are based on the growth of the existing supply chain companies.

We reviewed desk-based evidence to identify the nature, scale and timing of the shift to decarbonised HDVs. This provided context for how the market demand would change for the three supply chains covered in this study.

We spoke with 27 industry and other stakeholders covering all three supply chains. We combined the feedback from these stakeholders with what we found from the desk-based review. We used this to develop a view of what could happen to the number of jobs in Scotland in these supply chains from now until 2030 and then to 2035. We focused on employment numbers as a proxy for economic growth as stakeholders were more willing and able to provide data on projected employment than projected turnover.

We presented our emerging findings, about the scale of jobs growth in each of the three supply chains to 2030 and 2035, to a group of 13 industry and other stakeholders at a workshop. Some stakeholders had differing opinions on how quickly decarbonisation of HDVs will occur. Some point to parts of the HDV market where it can already be more cost effective to buy zero emission vehicles. For example, city buses and lighter heavy goods vehicles (HGVs). Others highlight the position of many HGV fleet operators that low carbon fuels, such as biomethane and hydrogenated vegetable oil (HVO), should play an important role in decarbonisation of HGVs in the short term, therefore delaying the uptake of some zero emission vehicles. However, there was broad agreement by the majority of stakeholders that the indicative scale and timing of job growth in each of the three supply chains was reasonable, given their understanding of HDV decarbonisation to 2030 and 2035.

Based on this, our estimate for the potential change in job numbers across each supply chain, to 2030 and 2035 is compared with current job numbers in Table 9.

HDV and niche vehicle manufacturing supply chain, including zero emissions

Based on stakeholder feedback we estimate that the size of the overall HDV and niche vehicle manufacturing supply chain is likely to remain stable or have modest growth in line with market demand for HDVs. We expect the global market demand for HGVs and buses and coaches to be less than 5% annually: 3.9% according to Grandview Research (2023) and 4.2% according to Research and Markets (2025). Within this overall supply chain, the zero emissions HDV and niche vehicle manufacturing activity is projected to move existing employment from fossil fuel vehicle manufacture to zero emission vehicle manufacture. There was some uncertainty expressed by one stakeholder about whether the pace of change would be slower than these projections suggest but the view by most stakeholders was that it was a reasonable estimate.

HDV charging infrastructure supply chain

The charging infrastructure stakeholders feedback consistently reported a significant projected increase in employment to 2030 related to HDV charging infrastructure, driven by a quickening pace of Heavy Goods Vehicle (HGV) decarbonisation. There was uncertainty about the level of jobs by 2035 due to concerns that regulatory targets to mandate new HDV sales to be net zero have not yet been established for the UK and a perceived risk that targets could subsequently be changed in future.

Hydrogen refuelling supply chain

Stakeholder feedback and desk research suggests that any significant jobs growth in hydrogen refuelling infrastructure supply chain would likely take place after 2035. One stakeholder highlighted the risk that regulatory targets could be softened to require a high level of zero emission HDV adoption rather than complete zero emission adoption. They viewed this as a risk to current investment and an issue that could significantly curtail employment growth in the supply chain in future. Stakeholder feedback and desk-based research suggests that hydrogen refuelling will play a targeted but modest role in HDV decarbonisation. This may emerge through the development of a trunk road network approach to establish a minimum viable operating model for HDV refuelling infrastructure and, therefore, hydrogen HDV operation. This approach is being followed in Europe with regulatory and fiscal support from the European Commission. An alternative could be infrastructure funded by the private sector on a case-by-case basis. Shorter-term opportunities exist in the deployment of mobile refuelling solutions, where battery electrification and recharging is not suitable, such as mining and some agricultural purposes.

Cross-check of job projection estimates made in this study

We have compared our estimates of future job numbers with those made in a previous study (Scottish Enterprise 2024). This Scottish Enterprise study provides ranges of full time equivalent (FTE) jobs related to capital investment and operation & maintenance under two scenarios. The first scenario is ‘Business as Usual’, which assumes the rate of change is slower with less appetite for change at consumer level with the Net Zero target being missed. The second scenario is ‘Strong Ambition’, which assumes high levels of deployment driven by societal change and strong policy support. Table 10 provides upper and lower job number estimates for different supply chains, calculated from data in the Scottish Enterprise report. The lower number in each cell is the estimated job numbers under the Business as Usual scenario. The second figure in each cell is the estimated job numbers under the Strong Ambition scenario. The Scottish Enterprise data for the sectors equivalent to the supply chains being investigated in this study are shown in Table 10.

We observe that the current and future employment estimates we made for the three supply chains, in this study, (shown in Table 9) are broadly compatible within the ranges of the two scenarios stated in the Scottish Enterprise (2024) report. Note that Table 10 provides job estimates for the zero emission HDV manufacturing supply chain only and not the overall HDV and niche vehicle manufacturing supply chain.

Comparison of HDV decarbonisation driven jobs growth with growth in other sectors

It is also useful to compare the current size and growth potential of the HDV related supply chains with some other sectors in the Scottish economy. This provides a context to the potential contribution of job growth from the decarbonisation of HDVs with potential job growth in other sectors. Table 11 shows current and projected employment growth from the same Scottish Enterprise study (Scottish Enterprise 2024).

We observe that, by 2035, the number of jobs estimated for the supply chains driven by HDV decarbonisation (those shown in Table 10) is lower than the estimated job growth in offshore wind and heat pumps but comparable to hydrogen production and higher than heat networks and CCUS.

Benefits to other sectors from HDV decarbonisation

We looked for examples of where companies in other sectors, currently outside of the three HDV supply chains might benefit from HDV decarbonisation. We did this through stakeholder interviews and desk-research.

Companies in different parts of the construction sector have skills and capabilities relevant to the civil engineering aspects of development of charging infrastructure and hydrogen refuelling infrastructure. This includes early surveying, planning and design of civil works and also civil engineering contractors to carry out groundworks in preparation for the installation of electrical infrastructure or hydrogen refuelling equipment.

Companies in the renewable energy generation sector can move downstream into the development and provision of charging stations using their expertise in planning and project management. We identified one example of this, with Greenwheel Electric Ltd in the process of planning an electric only charging station in West Dunbartonshire. Greenwheel Ltd is part of Muirhall Energy, an established onshore wind developer. This enables Greenwheel to provide a 100% renewable electric charging station offering.

Companies in the clean heat sector can use their technologies to provide systems capable of electrifying HDV truck cabins and buses, to reduce the draw on electricity from the main vehicle battery. We are aware of one company that has taken part in a pilot project to provide heat for an electric bus using their technology usually deployed in home heating. We are also aware of a company with a heat pump technology also being used to provide a cooling system for an HDV charger manufacturer. We cannot name these companies due to commercial confidentiality.

Stakeholder views on maximising economic opportunities

We asked stakeholders from each of the three supply chains to identify what could be done to maximise the economic opportunities from the decarbonisation of HDVs. A broad range of demand side and supply side suggestions were made. These are summarised in Figure 4.

The suggestions made by interviewees, in relation to each of the three supply chains, are described in more detail in the following sections. Further details are in Appendix D.

HDV and niche vehicle manufacturing

• Increased clarity of regulation and when new HDV sales must be zero emission
• Long term, stable funding for operators to overcome total cost of ownership (TCO) issues
• Support for operators to access financial models to fund vehicle and infrastructure investment
• Improving skills provision for companies to safely work on OEM supplied BEV and HFCEV chassis when using these as a base to build customised HDVs

Charging infrastructure

• Policy and regulatory certainty for HDV operators and manufacturers
• Long term, stable funding for operators to overcome TCO issues
• Coordinated research to understand locations where grid reinforcement is required and managing future connection queues
• Support existing companies to enter the HDV charging manufacturing supply chain and attract inward investment opportunities
• Promote Scottish supply chain capabilities to Scottish operators, including networking at existing public HDV charging sites
• Invest in more in Graduate Apprenticeships to address areas of skills shortages, such as high voltage electrical design engineering
• Support low voltage charger installers to upskill if they are interested in entering the high voltage HDV charging installation market, including establishing links with charging device manufacturers
• Raise awareness of the market opportunities for civil engineering contracts and support skills development to work in high voltage environments

Hydrogen refuelling infrastructure

• Clear long-term policy confirming 100% net zero target
• Development of industry standards to support hydrogen system component development
• Promote Scottish supply chain companies to fleet operators and identify the main Government/Transport Scotland contact points for the supply chain

Conclusions

Strong global policy and market forces are accelerating HDV decarbonisation

We identified strong drivers for HDV decarbonisation, resulting in a clear direction of travel. This includes regulation and funding support from governments in major markets, including China, Europe and North America. Market drivers are also arising from companies that are increasingly demanding evidence from their supply chains that real action is being taken to reduce greenhouse gas emissions.

The speed of transition varies by type of HDV and low carbon fuels are playing a role alongside zero emission options

Many countries, including the UK, have set target dates by which sales of new diesel and petrol HDVs will be replaced by zero emission HDVs. The regulatory measures to support this are still being consulted on at a UK level. The feedback we received from stakeholders interviewed for this study highlights different views about how quickly the transition to zero emission HDVs is likely to happen.

Some stakeholders highlight examples of companies buying zero emission HDVs, without any grant funding support, due to the total cost of ownership being lower than traditional diesel alternatives. This has typically been in the bus market and lighter end of the HGV market.

Other stakeholders suggested that fleet operators are using low carbon fuels, such as biomethane and HVO in the short term for cost and proven performance reasons. Two of the main HGV fleet operator representative bodies are in favour of using low carbon fuels as a decarbonisation technology and this would likely contribute to delay in investment in battery electric and hydrogen powered HDVs.

Scottish HDV and niche vehicle manufacturing supply chain activity is concentrated in a few companies

We identified nine companies in Scotland during this study as being active in the manufacturing of HDVs or niche vehicles. Six of these are active, or have recently been active, in zero emission HDVs. An additional 12 companies are involved in the manufacturing supply chain, with only one of these having been active in zero emission manufacturing. In most of these companies, the transition to zero emission vehicles is likely to lead to safeguarding of existing jobs as diesel vehicle manufacturing is displaced. Currently the 22 active companies employ several thousand employees, with a few hundred of these being active in zero emission activities. Exporting is a key route to market for most of the companies in this supply chain. Although an additional 103 companies with Scottish locations have been identified as having potentially relevant capabilities, only three were identified as developing new products targeting this supply chain. For the remaining potential companies, there is uncertainty about whether they are either aware or interested in entering the supply chain. If they chose to do so there would be significant barriers if they did not have a clear, unique proposition.

The HDV charging infrastructure supply chain is mainly service based and is growing

We identified 15 active companies with locations in Scotland in this supply chain. We estimate that current employment is between 300 and 500 and the focus is on design, installation, ownership, operation and maintenance. Only one parts manufacturer, producing cooling systems for a large charging device manufacturer, was identified. Some companies in this supply chain are already active in European and Middle East markets, delivering HDV design and installation projects. All companies interviewed from this supply chain expect significant growth in their HDV charging business. An additional 60 companies were identified as having capabilities potentially relevant to this supply chain. Some of these are currently involved in the manufacture of charging devices for cars and light vans and it is not known whether they view HDV charging manufacture as a market development opportunity. Others are involved in installation of domestic and light commercial charging infrastructure and would need additional skills development to enter the HDV charger installation market. Again, it is not known how many of these companies view the HDV market as a realistic opportunity.

The HDV hydrogen refuelling infrastructure supply chain is very limited with the main growth opportunity identified after 2035

We identified seven companies with Scottish locations as being active in the hydrogen refuelling infrastructure supply chain. We estimate that total current employment is fewer than 100. There is limited manufacturing capability in Scotland, with most systems integrators sourcing equipment from outside of Scotland. Most of the activity in this supply chain relates to hydrogen refuelling infrastructure design, installation and operation for demonstrators. The main focus is on supporting hydrogen powered buses and public sector vehicle fleets. Discussions with stakeholders in this sector highlighted that the most significant uncertainties relate to the timing of additional hydrogen powered HDV deployment and no future employment growth estimates have been made. There was general agreement from stakeholders that significant levels of adoption would take place mid to late 2030’s but this is very dependent on HDV decarbonisation policies being ‘zero emission’ rather than ‘almost zero emission’.

Market demand stimulation is vital but supply side actions are important too

Various initiatives already exist at government and industry level to stimulate market demand for zero emission vehicles and the associated charging or hydrogen refuelling infrastructure. Key actions, which are already well understood, include clear and stable policy, consistent funding support, clear regulations and addressing grid capacity and connection constraints. Stakeholders interviewed for this study also highlighted several actions addressing specific supply side issues. These includes awareness raising and networking with fleet operators, particularly for SMEs, to highlight Scottish supply chain capabilities. The importance of addressing current and future skills shortages in electrical design and installation and training capacity to upskill low voltage EV charging installers are also examples of supply side actions required to maximise economic opportunities for the Scottish supply chains.

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Appendices

Research method – further detail

The research method used for this study consisted of:

• Desk based research
  • Development of a categorisation framework for each of the three supply chains
  • Development of supply chain database structures
  • Initial population of the supply chain databases
  • Identification and review of relevant policy and market information
• Stakeholder engagement
  • Preparation of engagement materials
  • Preparation of target stakeholder lists
  • Conducting stakeholder interviews

Desk based research

Development of a categorisation framework for each of the three supply chains

The first task of the desk-based research was to develop and agree a framework for the three supply chain segments being investigated:

• HDV and niche vehicle manufacturing supply chain
• HDV charging infrastructure supply chain
• HDV hydrogen refuelling infrastructure supply chain

The three supply chain structures used to categorise companies were as follows:

HDV and niche vehicle manufacturing supply chain:

• Material manufacturers
  • Polymers, composites and rubbers
  • Metals and alloys
  • Ceramics
  • Other
• Sub-systems and components manufacturers
  • Electrical components and systems (wiring, cables, connectors, etc)
  • Electronic components and systems (displays, sensors, processors, lighting, power electronics, etc)
  • Mechanical components and systems (bearings, gears, etc)
  • Hydraulic and pneumatic systems (pumps, compressors, valves, etc)
  • Seals, gaskets, and tubing
  • H₂ storage tank
  • Exterior panels and glazing
  • Interior panels, enclosures and fittings
  • Other
• System manufacturers
  • Drivetrain
  • Battery systems
  • Fuel cell systems
  • HV system
  • Thermal management systems (for energy supply and for cabin)
  • Chassis and frame (including suspension, steering, and braking)
  • Embedded software systems
  • Other
• System integrator/OEM
  • Heavy goods vehicles
  • Buses and coaches
  • Agriculture / forestry vehicles (tractors, combines, harvesters, etc)
  • Construction vehicles (excavators, rollers, dump trucks, etc)
  • Other on-road HDVs (fire appliances, refuse trucks, tankers, etc)
  • Other off-road HDVs (mining, quarrying, etc)
  • Other
• Other
  • Software/ digital – aftermarket (e.g. telematics)
  • HDV conversion – full battery electric
  • HDV conversion – hydrogen fuel cell
  • HDV conversion – hydrogen ICE
  • Other
• Non HDV niche vehicle manufacture

HDV charging infrastructure supply chain:

• Material manufacture
  • Metals
  • Polymers
  • Other
• Fixed charger component and system manufacture
  • Enclosures
  • Cables, connectors and sockets
  • Semiconductor chips
  • Electronic components and devices
  • Communication components and devices
  • Sensors
  • Displays
  • Embedded software
  • Other
• Fixed charger systems integrator / OEM
  
• Design, construction and installation
  • Design and planning
  • Site inspection and preparation (civil engineering)
  • General site construction
  • Engineering, procurement and construction (EPC)
  • High voltage / grid connection
  • Other
• Ownership
  • Site owners
  • Asset owners
• Operation and maintenance
  • Charge point operators
  • Maintenance services
  • Other
• Mobile charger component and system manufacture
  • Enclosures
  • Cables, connectors and sockets
  • Semiconductor chips
  • Electronic components and devices
  • Batteries
  • Sensors
  • Displays
  • Embedded software (inc. battery management system BMS)
  • Chassis
  • Wheels/traction system
  • Other
• Mobile charger systems integrator/OEM
• Mobile charger systems maintenance

HDV hydrogen refuelling infrastructure supply chain:

• Material manufacture
  • Metals
  • Polymers
  • Other
• Components and systems manufacture
  • Enclosures
  • Nozzles and tubes
  • Pipework
  • Valves
  • Compressor and decompressor equipment
  • Dispensers
  • Regulators / controllers
  • Sensors
  • Displays
  • Electronic components and devices
  • Embedded software
  • Metal tanks / vessels
  • Composite tanks / vessels
• Systems integrator / OEM
  • Fixed systems
  • Mobile systems
• Design, construction and installation
  • Concept design engineering and consultancy
  • Detailed component design
  • Engineering, procurement and construction (EPC)
  • Detailed site design and planning
  • Health, safety and environmental consultancy
  • Site inspection and preparation (civil engineering)
  • Equipment installation and commissioning
  • General construction
  • Other
• Ownership, operation and maintenance
  • Site owners / operators
  • Asset owners / operators
  • Maintenance services
  • Other

Development of supply chain database structures

Using the above supply chain frameworks, we created MS Excel based databases to record:

• Companies either active, or with the potential to become active, in the supply chain
• Supply chain position (based on the agreed frameworks)
• Technology area (e.g. battery electric or hydrogen fuel cell electric)
• Geographical location (postcode, local authority area, economic development region)
• Number of employees and, where obvious from the activities of the company or through company interview, an estimate of the number of employees involved in the relevant supply chain
• Turnover of the company (where available) and, where obvious from the activities of the company or through company interview, an estimate of the turnover involved in the relevant supply chain – note that publicly available data on actual turnover is typically only available for larger companies
• Whether the company exports or not, where such data exists in the public domain or via company interviews. In the case of interviewed companies we also sought an approximate % breakdown of the domestic/export (outside UK) turnover related to the relevant supply chain

Initial population of the supply chain databases

We populated the supply chain databases based on our previous knowledge of companies from other studies, supplemented by additional desk research. This additional desk research included reviewing trade news sites, such as Freight Carbon Zero. We also used our subscription-based access to a proprietary database, which allowed us to generate lists of companies. We reviewed all companies identified via these methods to ensure quality control of the supply chain databases we created. This involved reviewing the online presence of all companies identified via this route using company websites, LinkedIn profiles and posts, etc.). The initial population was supplemented by feedback from the stakeholder interviews later in the study.

Identification and review of relevant policy and market information

We identified and reviewed numerous data sourced. Those used in the development of this report are included in the references section.

Stakeholder engagement

Preparation of engagement materials

We prepared a draft briefing note for the study. This contained details of the study background, scope and intended uses of the outputs. The briefing note included the information, legally required under GDPR regulations, to provide potential stakeholders with the opportunity to confirm their informed consent to participate. This included information about what personal data would be collected, how it would be processed, their right to withdraw consent and the data deletion policy.

A draft list of discussion topics was also developed to capture the information necessary to contribute, alongside the secondary research, to answering all of the study research questions.

Preparation of target stakeholder lists

We collated a list of 89 stakeholders and contacted them via email along with the briefing document. The stakeholder list had representation across all three supply chains and included companies and other stakeholders, such as support organisations and sector representative bodies.

Conducting stakeholder interviews

A total of 27 interviews were carried out over MS Teams (30% engagement rate), exceeding the planned target of 20-25.

In addition to these one-to-one interviews, we held an online validation workshop in January 2026, where initial findings were presented and discussed prior to the report being produced. This provided an opportunity to test and validate the findings. A total of 13 people, from seven companies and three support organisations/representative bodies, attended.

Market trends in HDV decarbonisation

Understanding the market trends is important to identifying and assessing the likely nature, scale and timing of HDV decarbonisation. This will drive changes in demand for goods and services provided by the three supply chains we are investigating in this study.

HDV and niche vehicle manufacturing

Globally, around 2.9 million HGVs and 362 thousand buses were manufactured in 2024 (ACEA, 2024). Asia had the largest share, accounting for around 56% of HGVs and 62% of buses, with China responsible for around 60% of HGVs and 52% of buses manufactured in Asia in 2024.

Around 20% of buses sold globally in 2024 were zero emission, either BEV or HFCEV, compared with only 3% of HGVs. However, global zero emission bus sales have remained fairly constant at between 60,000 and 70,000 per year, over the last five years, while sales of zero emission HGVs grew from around 20,000 in 2020 to 96,000 in 2024 (IEA, 2025). Asia dominates both markets, with 79.7% of zero emission bus and 83.3% of zero emission HGV global sales. Europe came second with 13.9% of zero emission bus and 12.4% of zero emission HGV global sales, followed by North America with 1.9% and 2.0% respectively. Other global regions accounted for less than 1% of sales of both vehicle types. China is by far the largest national market, accounting for 68.2% of zero emission bus and 82.2% of zero emission HGV sales in 2024. It should be noted that China was an early adopter and that around 65% of China’s current electric bus fleets were in service before 2019. Figure 5 and Figure 6 provide further detail of global sales of zero emission buses and HGVs respectively (IEA, 2025).

In the EU, sales for all HDVs dropped by 15% in 2025 compared with 2024, to 176,000 units (IEA, 2025). However, registration of zero emission HDVs grew by 45% over the same period to 4,100, or 1.7% of all HDV registrations. 22% of new buses were zero emission, compared with 19% of medium and light goods vehicles and only 1.4% of HGVs. In total there were more than 100 BEV and 20 hydrogen fuel cell (HFC) HDV models available in the EU in 2025 (Mulholland, E., et al, 2025). 35% of all zero emission HDV sales were in Germany, followed by France (27%), the Netherlands (15%) and Sweden (8%). However, the percentage of total sales that were zero emission vary on a national basis, with, for example, 7% of all HGV sales in Sweden being zero emission compared with only 1.8% in Germany, and 64% of all bus sales in Denmark being zero emission compared with 24% in Germany (Mulholland, E., et al, 2025). The leading zero emission OEMs in the EU are Volvo and Renault for HGVs, Ford and Mercedes for light/medium goods vehicles, and Mercedes and MAN for buses. Chinese OEMs (mainly BYD and Yutong) secured 21% of the zero-emission bus market and surveys of bus operators suggest that this could climb higher, should Chinese OEMs be able to offer ownership cost savings of 10-20% versus European OEMs (Suneson, A. et al, 2025).

In the UK, in 2024, there were 50,987 newly registered HGVs, of which 268, or 0.5%, were zero emission battery electric. In the same year, 9,919 new buses and coaches were registered in the UK, with 1,719, or 17.3%, of these being zero emission battery electric. (Department for Transport, 2026 [4] and [5]).

In Scotland, in 2024, there were 3,958 newly registered HGVs, with 12, or 0.3%, of these being zero emission battery electric. In the same year, 663 new buses and coaches were registered, of which 74, or 11.2%, were zero emission battery electric. (Department for Transport, 2026 [4] and [5]).

There are strong policies, often supported by significant investments, around the world to support the introduction of zero emission HDVs, including: in the EU a target of 100% of city bus sales as zero emission by 2035 and reduction of emissions from other HDVs by 90% by 2040 (EU Parliament news, 2024), and the UK Government’s Zero Emission HGV and Infrastructure Demonstrator (ZEHID) programme (Innovate UK, 2024) aiming to support the transition to net zero by 2050. Despite this, there are other considerations, including the US decision to repeal various electric vehicle targets, that mean that the overall projected market share of electric HDVs is now less than was projected in 2024. Nevertheless, the International Energy Agency is projecting that around 20% of new global bus sales and 13% of new global heavy truck sales in 2030 will be electric (IEA, 2025).

Charging infrastructure

The International Energy Agency (IEA, 2024), expects significant growth in the stock of HDV charging devices installed, globally, to 2030 and also to 2035. Its report looks at two future scenarios. The first is called Stated Policies, referred to as STEPS, and this is what is thought the growth will be with the existing policies that are already in place. The second scenario is called Announced Pledges Scenarios, referred to as APS, and this is what is thought the growth will be if additional policies, which have been announced but not implemented, are added to what is already in place. Figure 7 shows 1 million charging devices installed by 2023, rising to between 5.5 million and 6.6 million chargers by 2030 and between 13.8 million and 17.9 million by 2035. Most of these HDV chargers will be installed in truck and bus depots, with a small percentage (less than 1% in 2035) being opportunity chargers, which means, for example, at motorway service areas.

China is the market leader in the adoption of electric buses and electric trucks and therefore is also market leader in the deployment of heavy-duty charging devices (IEA, 2024). China is also leading on manufacturing heavy duty trucks that are enabled for battery swapping, which is much quicker than plug-in charging.

After China, Europe is the second largest market for electric bus and electric truck sales with the accompanying need for charger installation (IEA, 2024). The countries in Europe with the highest projected demand for battery electric truck charger infrastructure are Germany, Italy, France, Poland and Spain, collectively accounting for more than 70% of the total charging needs in the EU-27 (Basma, H and Schmidt, J. ,2025). The European Commission has introduced the Alternative Fuels Infrastructure Regulation which mandates Member States to build out publicly accessible charging infrastructure on main road networks (European Commission, 2024). HDV manufacturers are also working together to roll out fast charging infrastructure to help overcome fleet operator concerns about lack of charging availability (Milence, 2025). By 2030, Europe will require more than 300,000 public and private charge points for medium and heavy-duty trucks, compared to approximately 10,000 in 2024, at an estimated cost of €7 billion (Herit, A., Hildebrandt, E. and Becker, H., 2024).

Hydrogen refuelling infrastructure

The roll out of hydrogen refuelling stations (HRS) is modest compared to charging infrastructure deployment. As of 2024, there were approximately 1,160 HRSs worldwide, mostly confined to Germany, Japan, and South Korea, compared to 4.5 million EV charging stations (Mohapatra, 2025). The value of the global hydrogen refuelling station market was estimated about USD 1.00 billion in 2025 and is projected to grow at a 19.8% CAGR over the period 2025 – 2033, inclusive of all applications including passenger vehicles (Grand View Research, 2026). The growth in hydrogen powered mobility and related infrastructure is expected to peak in 2040 – 2050, led by HDVs as existing constraints such as limited hydrogen production, refuelling storage, and delivery technologies are addressed. Refuelling stations will likely have to deploy a range of refuelling pressures to cater for different vehicle technologies and requirements, in the early stages of deployment, whilst the market guides the dominant technology selection. At present, refuelling stations are predominantly focused on 350 bar refuelling as this is the most cost effective despite the improved efficiency of 700 bar refuelling for HDVs. A recent Hydrogen Energy Journal (Otto et.al, 2024) article found liquid hydrogen refuelling to be more cost effective than gaseous refuelling for HDVs, offering higher flow rates, lower station energy demand and simpler station design. Estimated refuelling costs were €0.16 to €0.58 per kilogram for liquid hydrogen compared with €1.02 to €3.73 per kilogram for gaseous hydrogen, with further component development and standardised protocols identified as key enablers for infrastructure deployment.

Hydrogen-powered HDVs are likely to represent a delayed or smaller share of zero-emission vehicles compared with electrification over the next decade.

As of 2025, 62% of the world’s hydrogen refuelling stations are in Asia (Zhu, 2025). China leads expansion with major hydrogen fuel cell electric vehicle (HFCEV) subsidies, highway-based HRS deployment, toll exemptions for hydrogen trucks, and provincial station incentives, targeting 50,000 fuel-cell vehicles and up to 200,000 tonnes per year of green hydrogen production by 2025 (IEA, 2025, [2]). South Korea plans 280 liquid hydrogen stations by 2030, supported by strong public – private partnerships (Zhu, 2025). India aims to deploy 1,000 hydrogen trucks and buses by 2030, though infrastructure plans are unclear. Australia and New Zealand are at earlier stages, with Australia operating 13 HRS and New Zealand 6, largely driven by local companies and pilot deployments (CSIRO and GHD, 2023). North America has experienced significant slowdown in hydrogen markets due, in part, to policy decisions of the current Administration in the USA.

In February 2025, H2 Mobility announced closure of several HRSs in German cities, shifting focus from urban light vehicle applications to larger infrastructure for commercial vehicles and buses with 350, 500, and 700 bar options (Mohapatra, 2025). The EU has committed €600 million through the Alternative Fuels Infrastructure Facility to support 38 new hydrogen refuelling stations (European Commission, 2025). Member states must install one HRS every 200 km along the TEN-T core network, with minimum levels of passing HDV transport. The aim is to complete installation by 2030 with interim targets set for 2025. Binding EU targets require a 90% reduction in HDV emissions by 2040 and zero emission for urban buses, supported by policies that ease barriers to scale-up (Hydrogen Europe, 2025). Despite this, Hydrogen Europe expects hydrogen HDVs and refuelling to lag battery electric solutions until at least 2030.

It is likely that in the UK investment in infrastructure will have to happen before hydrogen powered HDVs are adopted in significant numbers. In 2023, the UK had zero deployed heavy-duty fuel cell trucks and only 6 HRSs. As of 2022, Scotland had four hydrogen refuelling stations for public use (Transport Scotland, 2022). Two of which are based in Aberdeen to support the fleet of bus and municipal hydrogen HDVs with further stations in Orkney and outside Edinburgh. Without a minimum viable network of hydrogen refuelling stations deployment of hydrogen HDVs will be limited (Hydrogen UK, 2023). Strong near-future deployment opportunities lie in off grid refuelling applications for construction based HDVs with full HDV rollout expected to grow from 2035 onwards.

Detailed SWOT Analysis

HDV and niche vehicle manufacturing supply chain SWOT

Strengths

• Scotland has a small number of specialist HDV manufacturers and integrators (e.g. buses, emergency vehicles, refuse, gritters, temperature-controlled bodies) with application-specific knowledge rather than being involved in mass-market production
• Some companies (e.g. Emergency One, Gray & Adams, James A Cuthbertson, Farid-Hillend) have capabilities in vehicle integration, bespoke design, and aftersales support
• There is evidence of some limited export activity, mainly by Emergency One that has significant and growing international export activity in relation to its diesel vehicles. It has also exported a small number of zero-emission vehicles
• Rokbak is referenced as part of the top end of the HDV value chain in Scotland and is implicitly export-oriented through its mining and construction markets, which are typically international in nature
• There is demonstrable capability in control systems, energy management systems, telematics, and software-driven optimisation (e.g. battery management, route-aware energy optimisation). These capabilities are largely transferable to zero-emission HDVs (BEV and hydrogen), even if current market pull is weak
• Scottish manufacturers are well embedded in public-sector procurement (local authorities, emergency services), providing familiarity with regulated markets and specialist use cases where OEM solutions are less mature
• Interviewees consistently note that Scotland has experience and expertise in hydrogen technologies that could be applied to zero-emission HDVs, at a knowledge and R&D level, even if commercial delivery has been weak
• Scottish public bodies (e.g. local authorities, Transport Scotland) have been willing to act as early adopters and demonstrator partners, providing capital support and participating in trials for zero-emission HDVs and associated infrastructure. This has resulted in real-world pilots, learning exercises, and prototype deployments, even where projects have struggled to deliver sustained operational outcomes
• Scotland operates within a clear UK and international policy framework that is committed to 100% zero-emission HDV sales by 2040, supported by regulatory standards and funding programmes such as ZEHID

Weaknesses

• Scotland has only a very small number of companies with full OEM or chassis-design capability; most are, primarily, assemblers, converters or bodybuilders, rather than system owners
• Most depend on imported core systems (chassis, batteries, power electronics, fuel cells), sourced from European or even global manufacturers
• As Scottish companies rely on imported chassis and systems, strategic decisions by European, Asian, or global OEMs directly shape what Scottish manufacturers can offer. This limits Scotland’s ability to influence technology pathways (e.g. BEV vs hydrogen) and increases vulnerability to shifts in OEM priorities
• The historic component manufacturing base has largely disappeared, leaving a “hollowed-out” supply chain with limited depth
• The overall scale of HDV manufacturing in Scotland is small, with a relatively high cost base, particularly compared with European and global competitors. This means that Scotland is not considered to be internationally competitive in zero-emission HDV manufacturing
• Most HDVs produced or integrated in Scotland are diesel powered, with zero-emission vehicles representing only a very small proportion of output.
• Most manufacturers report minimal customer demand for BEV or hydrogen HDVs and adoption is seen as policy-driven rather than market-driven, leading to hesitancy and “wait-and-see” behaviour across the supply chain
• Vehicle costs (particularly BEV and hydrogen chassis) are consistently cited as prohibitive, thereby limiting demand
• Charging and hydrogen refuelling infrastructure is viewed as inadequate, unreliable, or too uncertain to support operational deployment. Hydrogen projects in particular are described as fragmented, poorly coordinated, and failing to deliver end-to-end solutions. These issues are also contributing to limited demand
• Smaller manufacturers lack the resources to invest in high-voltage training, facility upgrades, or in-house zero-emission R&D without clear demand signals
• Competition for skilled engineers (e.g. from aerospace and other sectors) can constrain company growth
• Although public support for zero-emission HDVs is acknowledged, it is perceived by a number of interviewees as fragmented and risk-averse. The projects funded to date have not translated into clear, coordinated supply-chain development
• UK-wide programmes (e.g. ZEHID) are acknowledged, but Scottish participation, in terms of manufacturing, appears limited. As a result, learning, data, and supply-chain development benefits are not strongly feeding into Scottish manufacturing capabilities

Opportunities

• Binding UK and EU CO₂ performance standards require steep emissions reductions from HDV manufacturers to 2040, creating a guaranteed long-term market for zero-emission vehicles and associated components
• To meet these targets, well over one-third of new medium and heavy-duty trucks sold in Europe will need to be zero-emission by 2030, significantly increasing demand for compliant vehicles, systems, and sub-assemblies
• UK government funding of approximately £200 million through the ZEHID programme supports vehicle deployment, infrastructure build-out, and real-world trials, creating opportunities for manufacturers and Tier 1 – 3 suppliers to participate in funded projects and supply chains
• Demonstration activity supports learning-by-doing, product validation, and early revenues for companies involved in zero-emission HDV technologies.
• Registrations of zero-emission HDVs in the EU grew by 45% between 2023 and 2024, with increasing model availability across trucks and buses, indicating accelerating market momentum that benefits manufacturers positioned in these segments
• Battery-electric HDVs are expected to dominate early adoption due to increasing range (500–700 km) and broad OEM engagement, creating opportunities across electric drivetrains, power electronics, batteries, and vehicle integration
• Niche vehicles (e.g. refuse vehicles, emergency vehicles, gritters, construction and municipal vehicles) are less well served by OEM zero-emission offerings than standard long-haul trucks. Scottish companies already active in specialist vehicle build, integration and/or conversion could participate in these segments if demand materialises
• The transition to zero-emission HDVs is expected to drive service-led revenue models (e.g. vehicle-as-a-service, battery-as-a-service), with a majority of future profits projected to come from services rather than vehicle sales, opening opportunities for supply-chain companies to move up the value chain
• There are also opportunities in energy management systems, control software, telematics, battery management, route optimisation and auxiliary load optimisation for battery electric, and to a lesser extent hydrogen, HDVs. These opportunities sit mainly at component, sub-system or service level, rather than full vehicle manufacture
• Some interviewees suggest that attracting an anchor OEM or Tier-1 supplier of scale could enable parts of the domestic supply chain to be rebuilt. This is identified as conditional and uncertain, rather than a current strength or guaranteed outcome
• Transition to BEV and hydrogen HDVs would require new skills in high-voltage systems, hydrogen safety, maintenance and infrastructure servicing. There could, therefore, be potential opportunities in training, certification and technical support services, subject to market uptake

Threats

• Global zero-emission HDV manufacturing is currently dominated by Chinese OEMs, that produced approximately 230,000 zero-emission HDVs in 2024 alone, creating strong price and scale competition for European-based supply chains
• Chinese manufacturers are gaining share in specific segments such as electric buses, with European operators considering them where cost savings of 10–20% can be achieved. This increases competitive pressure on UK and European manufacturers and suppliers
• Despite general growth the demand for HDVs, market penetration of zero emission heavy trucks remains very low (around 1–2% of new sales in the EU), creating uncertainty over near-term production volumes and making it difficult for suppliers to justify large-scale capital investment
• Adoption is uneven across countries and vehicle categories, which is resulting in demand volatility for manufacturers and their supply chains
• Some existing Scottish HDV manufacturers face commercial uncertainty, including restructuring, relocation or reduced activity. The potential loss or downsizing of OEM-level capability could further weaken the domestic supply chain and reduce critical mass
• Compliance with tightening CO₂ standards carries financial penalties for manufacturers that fail to meet targets, increasing cost pressure throughout the supply chain
• Smaller manufacturers and suppliers face higher relative risk due to the cost of retooling, certification, and technology development required to support zero-emission platforms
• Market uptake of zero-emission HDVs is strongly dependent on the parallel rollout of charging and hydrogen refuelling infrastructure, which remains incomplete and uneven, limiting demand certainty for manufacturers
• Competing technology pathways (battery-electric versus hydrogen fuel cell) create strategic risk for suppliers that must choose where to invest without clarity on long-term market dominance
• Zero-emission HDVs currently involve significantly higher upfront costs than diesel equivalents
• Many fleet operators, particularly SMEs, report low confidence in costs, technology maturity, infrastructure availability and financial models for zero-emission HDVs
• Weak or delayed demand threatens the viability of any domestic manufacturing or supply-chain investment
• Multiple stakeholders express low confidence that current 2035 and 2040 zero-emission targets will be enforced as stated
• Changes or delays to policy signals reduce incentives for manufacturers, suppliers and operators to invest in zero-emission HDVs or related infrastructure
• Several interviewees raise concerns about the survivability of small OEMs, start-ups and infrastructure providers over the next 5–10 years. This creates risk for operators and public bodies committing to vehicles or infrastructure with long asset lives
• Transition to zero-emission HDVs requires specialist skills in high-voltage and hydrogen systems. Competition from other sectors (e.g. aerospace, energy, defence) risks diverting skilled labour away from HDV manufacturing and support
• Whilst changes have been made to maximum weight limits for HDV tractor units, to allow for the extra weight of batteries, this change has not been made for trailer units. This is a threat to companies involved in refrigerated trailer manufacture that would like to use batteries to provide the refrigeration but are constrained by the weight limits

EV charging infrastructure supply chain SWOT

Strengths

• Scotland has several established EV charging systems integrators with direct experience in bus and emerging HGV depot charging, including end-to-end capability across design, planning, installation management, operations, and maintenance
• Companies such as FOR EV, Envevo, eVolt Charging (SWARCO) and Cleaner EV are already delivering high-power depot charging, with HDV activity forming a growing share of their business and employment in Scotland
• Some companies report that HDV charging already accounts for a significant proportion of Scottish jobs, with expectations of further growth to 2030
• Scottish operators and suppliers have practical experience delivering depot charging infrastructure for buses and, to a lesser extent, HDVs. Examples include electrification of bus depots (e.g. First Bus depots in Glasgow and Aberdeen) and early HDV depot installations (e.g. John G Russell, forestry and logistics sites)
• Depot charging is identified in multiple sources as the dominant charging model for HDVs to 2030, aligning Scottish experience with expected market structure
• Scotland has a number of Independent Distribution Network Operators (IDNOs) and grid-connection specialists with Scottish offices (e.g. Energy Assets, GTC, Last Mile, SSE/Optimal Power Networks) that support HDV charging delivery
• A reasonable local supply chain exists for surveys, engineering design, and project development, which are required early in HDV charging projects
• Interviewees noted positive roles played by Transport Scotland, Innovate UK and ZEHID in mapping routes, supporting demonstrations, and generating operational data for HDV charging and fleets
• Scotland is perceived as a good testbed for the development and deployments of depot-focused HDV charging due to geography, duty cycles, and fleet characteristics
• Evidence from international and UK studies shows that depot and semi-private charging will dominate HDV charging to 2030, with public en-route charging a much smaller share. Scotland’s strongest current capabilities, depot charging, fleet software, grid connections and integration services, align with this projected market structure.
• Some companies report rapid growth in Scottish employment linked to EV and HDV charging, particularly in design, engineering and operations roles.
• Experience from the bus sector has transferred into HGV charging projects, reducing early-stage delivery risk
• Scottish-based providers offer a range of commercial models, including, capital purchase, charging-as-a-service, long-term operating and maintenance contracts, asset-sharing and third-party access to depot infrastructure. The availability of multiple models reduces adoption barriers and, therefore, helps to drive market uptake

Weaknesses

• There are no HDV charging hardware OEM manufacturers based in Scotland, and limited UK manufacturing more broadly, reducing opportunities for local value capture beyond integration, installation, and services
• Much of the HDV vehicle and charger OEM ecosystem is based outside Scotland, limiting pull-through into local supply chains
• Stakeholder feedback identifies a limited number of civils contractors in Scotland with the certification, experience, and competence to deliver large-scale, high-power HDV charging installations, particularly in hazardous or fuel-station environments
• Stakeholder feedback also reports that very few Scottish contractors currently identify as being active in HDV charging installations, and HDV charging skills are not widely held
• The HDV charging market is early-stage and fragmented, with limited numbers of electric HGVs in operation; operators lacking confidence due to limited shared experience. This is limiting market demand
• Grant-driven demand has previously distorted market timing, with stop-start funding leading to delayed investment decisions
• HDV charging infrastructure in Scotland remains very limited in number, with most activity focused on small pilots, early depot installations or bus depots, rather than widespread freight or haulage coverage
• Public en-route HDV charging infrastructure is sparse, with most freight operations expected to rely on depot charging that is not yet widely available
• Depot electrification for HDVs faces space constraints, particularly where high-power chargers displace operational or parking space
• There is a lack of shared knowledge and structured education for haulage operators, many of whom are new to electrification and cautious due to previous poor experiences or lack of trusted advice
• Charging infrastructure capacity remains unevenly distributed, with weaker coverage in rural, island and remote areas
• Maintenance and uptime requirements are more difficult to meet in these locations due to distance, workforce availability and cost
• Training provision in Scotland for large-scale EV charging installations is limited, with no colleges identified as offering relevant qualifications (beyond courses focused on domestic or small commercial charging)
• Interviewees highlighted shortages of suitably trained High Voltage design engineers, electrical engineers and power engineers, creating risks to scale-up and maintenance capacity, particularly outside the Central Belt
• Grant schemes for depot and fleet charging are described as short-notice, time-limited and inconsistent, creating uncertainty and delaying investment
• First-come-first-served funding structures tend to favour large operators, limiting access for SMEs
• HDV charging infrastructure is capital intensive, with uncertain utilisation rates in the early market.
• Public charging hubs are described as a high-risk investment, particularly where uptake is uncertain or policy signals are unclear.
• Concerns were expressed about the long-term survivability of smaller charging start-ups, increasing perceived risk for fleet operators.
• Evidence points to a lack of shared planning and information between charge-point developers, site owners and HDV operators. This means that infrastructure siting decisions are not always aligned with actual freight routes or operational patterns, increasing risk of under-utilisation

Opportunities

• Global HDV charging capacity is projected to grow approximately twenty-fold by 2035, driven by increasing electrification of buses and trucks
• Under both IEA scenarios, total deployed HDV charger stock increases significantly between 2023 and 2035, with depot charging representing the dominant share of installations
• Truck depot chargers are projected to grow more rapidly than bus depot chargers to both 2030 and 2035, despite bus depot charging being more established today
• By 2030, Europe is expected to require over 300,000 public and private HDV charge points, with infrastructure investment estimated at €7 billion by 2030 and €40 billion cumulatively by 2040
• Most HDV charging infrastructure investment to 2030 is expected in private depots and semi-public hubs such as logistics and industrial sites, representing the majority of forecast capital expenditure
• Overnight depot charging is expected to grow fastest for HDVs with predictable routes and daily mileages below 200 km, including city buses and urban delivery fleets
• These market drivers and trends suggest opportunities for design, grid connection, installation, operation and maintenance services focused on fleet depots rather than public roadside charging. This will create demand for higher-power chargers (including megawatt-scale), depot upgrades and associated grid works, even if deployment remains uneven in the near term
• The European Commission Alternative Fuels Infrastructure Regulation (AFIR) creates legally binding requirements for the rollout of high-power public HDV charging along the TEN-T network between 2025 and 2030, supporting demand for compliant charging infrastructure
• The Clean Transport Corridor Initiative reinforces AFIR implementation by coordinating cross-border HDV charging deployment across major European freight corridors
• Multiple commercial models are emerging, including charging-as-a-service, OEM-led advisory models, and specialist charging point operator-led public hubs, creating opportunities across equipment supply, financing, installation, and operations
• Increasing scale and complexity of depot charging creates demand for fleet charging management software, including scheduling, power management, access control, billing and data reporting
• Increased charger utilisation rates significantly reduce levelised infrastructure costs per kWh, improving the economic case for infrastructure deployment
• Some fleet operators (e.g. bus depots) are opening depot charging infrastructure to third parties during off-peak periods. This suggests opportunities in shared-use models, site management, customer access systems and on-site operations, subject to safety and contractual constraints
• Interviews and market evidence point to likely future HDV charging at ports, logistics hubs, rail freight terminals and motorway service areas, often as stand-alone sites rather than extensions of existing fuel stations. This creates potential demand for planning, civil engineering, grid reinforcement, site development and long-term operation, though projects could be complex and capital intensive
• Expansion of EV and HDV charging will require more trained engineers and technicians for design, installation and maintenance. As there is limited current training provision there are opportunities in training delivery, certification support and maintenance services, particularly for large-scale and high-power installations
• Interviewees suggest opportunities to increase employment, with companies reporting plans to scale to 100+ HDV-related roles by 2030 (from a current baseline of 10s of jobs), particularly in design, engineering, systems integration and operations
• Some Scottish-based charging infrastructure companies report early export activity, primarily in design, project management and systems integration, often following UK customers into overseas markets
• These opportunities are service-led rather than hardware-led and remain secondary to the UK market

Threats

• Limited availability of grid connection capacity and the cost of grid upgrades are identified as key barriers, particularly for high-power and megawatt-scale charging installations
• Strengthening of substations is required at a significant proportion of identified en-route charging locations, adding cost and complexity to deployment
• Competition for grid capacity (including from data centres and other large users) is reported as a growing risk.
• Availability of finance for fleet operators to invest simultaneously in HDVs and charging
• High upfront capital requirements, particularly for public high-power charging hubs, create exposure to utilisation risk if fleet uptake is slower than projected and, therefore, potentially undermining business cases for both public and private charging sites
• Approvals for charging stations and physical space constraints at depots, logistics hubs, highway sites, and safe parking areas are cited as barriers to deployment
• Public charging sites, while fewer in number, require very high power levels, increasing complexity of siting and permitting
• Alternative solutions such as battery swapping and electric road systems are referenced as potential substitutes for wired charging in some markets, particularly outside Europe, creating uncertainty over long-term infrastructure configurations
• Megawatt chargers represent a small proportion of total charger numbers but a disproportionate share of installed power, increasing exposure to technology standardisation and cost risks
• Frequent changes, delays or short-notice grant schemes create uncertainty for investors, charging providers and fleet operators
• Lack of long-term policy clarity on vehicle phase-out dates, grant continuity and infrastructure support discourages speculative investment in charging hubs, particularly for HDVs
• There are some concerns about the long-term survivability of smaller charging providers and start-ups, particularly in a capital-intensive, low-utilisation early market
• Market exits or consolidation could leave operators dependent on a small number of large providers, increasing cost and risk
• Shortages of appropriately trained electricians, engineers and maintenance personnel threaten delivery timelines and ongoing reliability
• Limited training provision for large-scale and megawatt charging systems increases the risk of bottlenecks as deployment scales
• Charging infrastructure remains less viable in rural, island and remote areas, where grid reinforcement, maintenance response times and utilisation are more challenging
• Public-sector service-level requirements can further increase costs and delivery risk in these locations
• With no domestic charger hardware manufacturing and reliance on imported equipment, Scotland risks capturing mainly service-level value, even if deployment accelerates
• Large international charging networks and energy companies may dominate future HDV charging hubs, limiting local supply-chain participation

Hydrogen refuelling infrastructure supply chain SWOT

Strengths

• There have been a number of hydrogen mobility and refuelling projects (e.g. buses, refuse vehicles, council fleets) delivered in Scotland, particularly in Aberdeen, providing real-world operational learning and proof of concept
• Companies such as Logan Energy and Hydrasun operate as EPC-style integrators, delivering end-to-end hydrogen refuelling solutions including design, procurement, installation, commissioning and servicing, with experience across multiple projects
• Large, multi-partner initiatives such as the Th2istle Project in the north east of Scotland plan to integrate hydrogen production, mobility applications (including HDVs), and agriculture, construction and industrial uses supporting the development of local clusters of hydrogen production and use
• Hydrogen refuelling projects have benefited from European, UK and Scottish public funding, through Horizon Europe and national demonstrator programmes, enabling early market activity despite weak commercial demand
• Stakeholders highlighted Scotland’s renewable electricity base as strategically attractive for green hydrogen production, supporting the long-term viability of hydrogen production for refuelling infrastructure
• Scotland has engineering and manufacturing companies capable of producing hydrogen-compatible components, including valves, gauges and pressure-rated equipment. These companies already supply some hydrogen applications internationally, even where domestic hydrogen mobility demand is limited.
• Scottish hydrogen refuelling integrators and component suppliers are active in some international markets, particularly in Europe and Asia but generally more so in a hydrogen coordinator capacity. Activity in HDV hydrogen refuelling is limited.

Weaknesses

• Scotland has a very limited number of active hydrogen refuelling infrastructure providers, many of whom are already operating at or beyond capacity. This constrains delivery capability, limits competition, and increases costs and lead times
• The Scottish market depends heavily on a small number of companies (e.g. system integrators and EPC-style providers). When individual companies exit, pause activity, or fail to deliver, there are few alternative domestic suppliers available
• While Scotland has capable engineering companies upstream, most critical refuelling components are sourced from outside Scotland. Even project sponsors and councils reported limited visibility of Scottish supply chain participation, weakening local economic impact
• With no domestic manufacture of complete refuelling stations or core systems, Scotland risks capturing value mainly in integration, construction and maintenance, even if hydrogen refuelling deployment increases
• Project owners highlighted a shortage of hydrogen-skilled engineers and technicians in Scotland, affecting delivery, maintenance, and long-term operability of refuelling assets
• Scottish engineering companies reported an inability to commit to hydrogen product development or certification due to unclear or shifting standards (e.g. BSI), limiting their participation in refuelling infrastructure projects
• Hydrogen refuelling projects have been developed on a fragmented, project-by-project basis, with limited coordination between production, infrastructure, vehicles, and end users, increasing risk and reducing learning and knowledge transfer
• Failed or stalled hydrogen HDV refuelling projects in Scotland have reduced confidence among councils and public bodies in the domestic supply chain’s ability to deliver reliably

Opportunities

• Hydrogen refuelling is viewed as most viable for specific HDV applications where utilisation rates are high (e.g. buses, refuse vehicles, city logistics, clustered depot fleets) and where centralised refuelling can be coordinated and duty cycles are predictable
• UK government funding of approximately £200 million through the ZEHID programme supports vehicle deployment, infrastructure build-out, and real-world trials, creating opportunities for manufacturers and Tier 1-3 suppliers to participate in funded projects and supply chains
• Scottish and UK-based integrators can generate economic benefits by acting as system designers and integrators, assembling largely imported components into bespoke refuelling solutions and providing ongoing operations and maintenance services
• Refuelling infrastructure is seen as a critical enabler for downstream hydrogen applications. Successful deployment, where hydrogen refuelling is co-located with production, could unlock demand for hydrogen vehicle deployment
• Several companies active in Scotland already deliver hydrogen refuelling or storage projects internationally (Europe, Asia), suggesting that capabilities developed domestically could be applied in more advanced or faster-moving overseas markets
• International policy frameworks (e.g. EU AFIR, national hydrogen strategies) mandate hydrogen refuelling along key freight corridors and set HDV decarbonisation targets to 2040. These frameworks create long-term, externally driven opportunities for hydrogen refuelling infrastructure

Threats

• Fleet operators have, to date, only limited interest in hydrogen vehicles due to high costs, limited vehicle availability, and operational uncertainty. This is suppressing demand for refuelling infrastructure regardless of Scottish capability
• Hydrogen refuelling stations are capital intensive, with compressors and storage systems representing major cost components. These costs are particularly difficult to justify at low utilisation levels typical of early HDV deployment
• Hydrogen production costs, closely linked to electricity prices, remain high, with parity to diesel estimated at ~£9/kg. This weakens the commercial case for refuelling infrastructure and is largely outside the control of the Scottish supply chain
• Stakeholders reported delayed UK Government strategy publication, withdrawn or paused funding, and shifting UK and Scottish government priorities, leading to cancelled projects and stalled final investment decisions
• Battery-electric HDVs and charging infrastructure are cheaper, faster to deploy, and scaling rapidly. Multiple stakeholders noted that electrification now covers most HDV use cases, increasingly restricting hydrogen to niche applications
• Hydrogen HDV OEMs are limited in number, with some exiting the market or being acquired. This reduces vehicle choice, increases risk for financiers, and undermines confidence in long-term infrastructure utilisation
• Other countries (e.g. Germany, Netherlands, parts of Asia) have clearer strategies, stronger infrastructure rollouts, and better market coordination, drawing investment and supplier focus away from Scotland
• Core refuelling equipment (e.g. high-throughput compressors, dispensers, cryogenic systems) is supplied by a small number of international manufacturers. This limited supplier base is leading to long lead times and is increasing the risk of delays, cost escalation and maintenance downtime
• As hydrogen refuelling infrastructure requires specialist skills, project delivery and maintenance depend on a limited pool of experienced companies and individuals. If these companies downsize or exit the market, there are few readily available alternatives

Industry views on how to maximise the economic opportunities

HDV and niche vehicle manufacturing supply chain

The main obstacle to zero emission HDV and niche vehicle manufacturing is the lack of clarity about when legislation will come into force that mandates that sales of new HDVs must be zero emission. The uncertainty about timing and location of charging and hydrogen refuelling infrastructure is also a barrier. This is preventing the customers of the HDV manufacturing supply chain from ordering zero emission vehicles. If these obstacles can be addressed, then other considerations regarding total cost of ownership (TCO) and new financing models can also be addressed.

Discussions with OEMs indicate that additional support will be required to up- or re-skill their staff to work with both BEVs and HFCEVs. For example, one of the conversion manufacturers that was interviewed has to use the OEM that provides the chassis to power down the HGV prior to working on it (e.g. for maintenance and repair) and power up the vehicle afterwards. Delivering these skills is likely to require specialist training facilities, perhaps building on that already provided by the further education (FE) sector for zero emission private and light goods vehicles. In addition, there will need to be consideration of how training is delivered to new entrants to the workforce, who will require knowledge of conventional diesel and zero emission powertrains, during the period where both are in use.

HDV charging infrastructure supply chain

All of the charging infrastructure stakeholders interviewed highlighted the need for policy and regulatory certainty. This includes certainty around long term, stable funding to support operators with the costs of zero emission vehicles and charging infrastructure. It also includes clarity about when the HDV manufacturers will be required to place only zero emission vehicles on the new sales market.

Co-ordinated planning of future HDV depot charging needs was also highlighted as a required action. This information could be communicated to grid operators to identify where grid reinforcement work would be required and help plan for future connections demand.

Growing the Scottish HDV charging device manufacturing capability was also highlighted as an action, including parts, components and finished original equipment. This could involve pursuing both inward investment opportunities and providing innovation support to existing and new Scottish companies interested in entering this sector.

Interviewees reported that it would be beneficial to improve the awareness of the HDV charging infrastructure supply chain in Scotland amongst HDV operators. One stakeholder suggested a ‘show and tell’ type event at an existing public HDV charging site.

Actions related to developing skills and competencies were also highlighted by several stakeholders in this supply chain. More funding for Graduate Apprenticeships was highlighted as a helpful supporting action. Examples of skills in short supply included high voltage design engineers. Developing accessible high voltage charging installation training for companies currently active in low voltage EV charger installation was also highlighted as a way to increase capacity in the supply chain. This could involve improving links between charger manufacturers, colleges and private training providers. Increasing capacity in the civil engineering contractor part of the supply chain was also highlighted as important. This would include raising awareness of the business opportunity and the route to developing skills and competencies to carry out civils work in high voltage environments.

HDV hydrogen refuelling infrastructure supply chain

Consultations repeatedly identified the need for clear, long-term policy that positively enforces net zero targets including phase-out of internal combustions engine vehicles. This underpins confidence in all the included supply chains. At present, the role of hydrogen refuelling infrastructure in reducing HDV emissions is unclear due to a lack of acknowledgement in policy strategy, driving uncertainty and risk for investors and the supply chain. A clear and sequential positioning of hydrogen HDVs and refuelling infrastructure in policy will provide enough clarity for the public and/or private sector to begin project planning to develop a trunk network with hotspot and highway nodes. In the meantime, support for mobile refuelling solutions would benefit market development. This would help the supply chain to capabilities in ongoing operations and maintenance to develop skills and competences.

The development of industry standards for hydrogen components for refuelling applications would benefit the component manufacturers that underpin the supply chain and could, potentially, open other energy transition opportunities for companies that can operate to these standards.

Promoting Scottish supply chain companies to fleet operators and providing details of the key Government / Transport Scotland contact points for the hydrogen refuelling infrastructure supply chain were also identified as useful actions.

How to cite this publication:

Taylor, J., Creamer, D., Leigh, E., Morrison, M. (2026) ‘Scotland’s HDV supply chain and net zero’ ClimateXChange

© The University of Edinburgh, 2026
Prepared by Optimat Limited on behalf of ClimateXChange, The University of Edinburgh. All rights reserved.

While every effort is made to ensure the information in this report is accurate as at the date of the report, no legal responsibility is accepted for any errors, omissions or misleading statements. The views expressed represent those of the author(s), and do not necessarily represent those of the host institutions or funders.

This work was supported by the Rural and Environment Science and Analytical Services Division of the Scottish Government (CoE – CXC).

ClimateXChange

Edinburgh Climate Change Institute

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

Governments across the world are introducing policy targets to decarbonise heavy-duty vehicles (HDVs) – those with a gross vehicle weight of over 3.5 tonnes. This transition presents significant opportunities for Scottish businesses.

With this in mind, this research aims to identify the current and future economic impacts of HDV decarbonisation across three key supply chains:

• HDV and niche vehicle manufacturing
• HDV charging infrastructure
• Hydrogen refuelling infrastructure

The report examines the scale, strengths, weaknesses and growth potential of the above supply chains, including how demand could evolve to 2030 and 2035. The report findings are visualised in an accompanying infographic.

Key findings

For further information, please read the full report.

• Strong global policy and market drivers are accelerating the decarbonisation of HDVs.
• The pace of transition varies across different vehicle types, with low-carbon fuels expected to play a role alongside zero-emission technologies.
• Scotland’s HDV and niche vehicle manufacturing capability is concentrated in a relatively small number of specialist companies.
• The HDV charging infrastructure supply chain is predominantly service-based and is expected to continue growing as vehicle electrification increases.
• The hydrogen refuelling infrastructure supply chain is currently small, with the greatest growth opportunities expected after 2035 and in specific use cases.
• Stimulating market demand will be essential to support supply chain growth, alongside targeted supply-side actions to strengthen Scottish capabilities and maximise economic opportunities.

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

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.

Research completed: March 2026

DOI: https://doi.org/10.7488/era/7087

Executive summary

Background and purpose

Scotland’s businesses, infrastructure, communities and natural environment face increasingly severe climate change impacts. Yet, the required adaptation actions – 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 (and eight subsectors):

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

It then presents two further discrete analyses: macroeconomic modelling to estimate the wider economic effects of similar levels of adaptation spending, The five sectors were chosen to reflect the diverse approaches required to assess indicative adaptation costs. We examine four aspects of climate adaptation investment: required investment, its macroeconomic impacts, public-private funding splits, and the potential to mobilise private capital. This work is intended to support the Scottish Government in building an evidence based 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.

Why adaptation investment matters

Failing to invest in mitigation and adaptation carries significant economic costs. Estimates for this study suggest climate change could reduce GDP by 0.3-0.4% a year in the 2030s, rising to 1.2-1.6% by the 2050s and 1.6-3.3% by the 2070s. Other studies project higher impacts but these depend on the models and assumptions used. The Scottish Environment Protection Agency estimate that flooding alone already costs Scotland an estimated £500 million per year. Adaptation can reduce these damages, but it also requires upfront investment, is rarely fully effective, and involves trade‑offs between expenditure and residual risk. The key question is therefore not whether to invest in adaptation, but how much and who should pay.

Adaptation investment also delivers wider benefits, often described as the “triple dividend”: avoided losses, economic gains, and social and environmental co-benefits such as biodiversity improvements, carbon sequestration, and better mental health. These co-benefits further strengthen the economic case for adaptation.

Climate costs are projected to rise significantly beyond 2040. The research and strategic priorities below are therefore time-sensitive: early action on adaptation can reduce long-run costs and delivers benefits that delayed investment may not recover.

Estimated climate adaptation investment need for Scotland in five sectors

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

Previous estimates from the Climate Emergency Response Group, Paul Watkiss Associates, and the Office for Budget Responsibility – based on UK wide analyses and international benchmarks – suggested Scotland’s total adaptation costs would range from £196 million to £1,340 million per year from 2030 onwards. The 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 study also compared the estimated annual adaptation investment needs to current allocations in the Scottish budget. It found that only the agriculture sector is likely meeting its adaptation needs. The communities (flooding), transport, and nature sectors will likely require additional investment to maintain current risk levels. We could not assess the water sector due to a lack of available information on existing adaptation spending.

The results in this report carry low confidence and should be viewed as indicative, not precise. Confidence levels vary by sector (Table 1) due to fragmented data, limited understanding of asset vulnerability, and the lack of clear adaptation targets to scale investment needs. Where Scottish specific data was unavailable, we crosschecked estimates with international comparisons, which also have limitations because of differing risks and institutional contexts. These figures therefore 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

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 matters considerably. Income-tax-based recovery is progressive but dampens household consumption and reduces activity in consumer-facing sectors. Charging-based approaches – such as higher food prices in agriculture or water bills in the water sector – tend to be regressive, falling disproportionately on lower-income households for whom essential goods represent a larger share of budgets. Recovery through public spending cuts generates the most widespread economic losses, particularly across service sectors. Funding design is therefore important to consider alongside investment scale.

These results should not be interpreted as a full cost-benefit assessment of adaptation. The modelling captures the demand-side effects of spending and cost recovery, but does not account for avoided climate damages, residual risks, or the broader triple dividend of adaptation.

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

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. Central and local government fund and finance most adaptation-relevant expenditure across transport, flood management, water infrastructure, agriculture, and the natural environment. This is largely through existing budget lines that deliver multiple objectives alongside adaptation. 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. However, several important caveats apply:

• Scaling private investment will not happen through market forces alone. It will require concerted public policy action, enabling conditions, and in many cases public co-financing to de-risk private investment. The private sector’s role is best understood as complementary to, rather than a substitute for, public adaptation finance.
• There is a critical distinction between private financing (where private capital provides upfront funding) and private funding (where costs are ultimately borne by the private sector rather than transferred back to government or consumers). Many instruments that appear to increase private participation in practice shift the funding burden, rather than share it. Policy ambitions to mobilise private capital should be assessed against this distinction.
• High benefit-cost ratios in the adaptation literature typically reflect societal and environmental returns, including non-market values that generate no cash flow. Private investors assess financial returns, incremental revenues and recoverable costs, which are considerably lower. Treating strong societal co-benefit ratios as evidence of private investment attractiveness risks generating unrealistic expectations about the scale of private finance that can realistically be mobilised.

Recommendations

The report lays out the following key recommendations, in no particular order:

Table 2: Key recommendations for further research and strategic priorities.

Glossary

Introduction

Overview, aim and scope

Tackling the climate emergency is a priority area for the Scottish Government – alongside eradicating child poverty and growing the economy and delivering high quality sustainable public services (Scottish Government, 2025a). As part of tackling the climate emergency, three questions have emerged associated with the need to better understand:

• The costs of the Scottish Government climate change ambitions for adaptation and the residual damage of necessary trade-offs.
• The macroeconomic effects of climate impacts and adaptation.
• How these costs are being met today, and options for how these costs will be met by different groups, including public and private sectors.

This project provides an initial exploration of some of these issues. In doing so, it supports the Scottish Government in developing an evidence base on the potential costs of climate adaptation across a range of sectors. This is important information to assist in strategically planning and driving forward future adaptation action, in line with Scotland’s National Adaptation Plan.

The analysis focuses on three interconnected research objectives:

1. Estimate adaptation investment needs for five sectors – agriculture, communities (focusing on flooding), natural environment (woodland creation, peatland restoration and nature restoration), transport (trunk roads and motorways and railways), and water (supply and treatment) – until 2040. This should be aligned with the with adaptation objectives defined in the Scottish National Adaptation Plan 3 (SNAP3) 2024–2029;
2. Assess the likely investment split, over time, between the public sector, private sector businesses and individuals for each sector; and
3. For each sector, identify the potential to support private sector participation in funding and financing adaptation, highlighting barriers to scale, and recommending policy instruments to mobilise private capital.

Context: climate risks in Scotland

Scotland’s businesses, infrastructure, communities and environment are becoming increasingly exposed to climate change. These impacts carry serious economic consequences.

The estimated impact of climate change on the UK’s economy differs depending on the climate scenarios used and wider socio-economic assumptions made within modelling. This study assessed the results for Scotland using results from a major EU project (Bosello et al., 2020). Across several climate scenarios, these suggests that from 2030 Scotland’s economy could be 0.3 – 0.5% smaller each year. By 2050, losses could rise to 1.2 – 1.6%, increasing further to 1.5 –3.3% by the 2070s. These are shown in Figure 1, and have been used as the basis for supporting subnational assessments of economic impacts in Scotland (e.g. Climate Ready Clyde, Highland Adapts, South East Scotland and Forth Valley).

Figure 1: Projected impact of climate change on GVA in Scotland for a range of future climate scenarios using Shared Socioeconomic Pathways 2 (SSP2). High Investment Mobility. SSP2 is also known as ‘middle of the road’ and assumes the world follows a path in which social, economic and technological trends to not shift markedly from historical patterns…

A second study, Rising et al. (2022), included additional risks, such as low-probability high-impact events, projecting that under current policies – and compared to a 2000 baseline – the total cost of climate change damages to the UK are projected to increase from 1.1% of GDP at present to 3.3% by 2050 and up to 7.4% by 2100 (Rising et al., 2022). Furthermore, the Office for Budget Responsibility (OBR) estimate that the cost of climate change could even reduce the UK level of GDP by 8% by 2070 if the world was to warm by 3^oC by the end of the century (Office for Budget Responsibility, 2025).

While adaptation can significantly limit climate related damages, fully eliminating climate risk is neither technically feasible nor economically rationale (Rexer & Sharmer, 2024). This means that even robust adaptation actions will leave some residual risk, highlighting the need to target measures that deliver the greatest benefit relative to their cost.

The Climate Change (Scotland) Act 2009 requires a National Adaptation Plan to be published every five years, aligned with the latest UK Climate Change Risk Assessment (CCRA). The latest, SNAP3, covers 2024 – 2029. SNAP3 sets out outcomes, delivery objectives and policy actions. It the first UK Adaptation Plan to also be supported by a monitoring and evaluation framework to track progress. However, specific objectives around risk reduction, as well as associated costs or budgetary allocations remain undefined in Scotland and across the UK.

As the Scottish Government prepares to receive the upcoming fourth UK Climate Change Risk Assessment (CCRA4) and Well Adapted UK report, there is growing recognition of the need to be more specific about the assumptions underpinning adaptation planning, and the costs and benefits. The Climate Change Committee (CCC) recommends that the Scottish Government introduce quantified, timebound adaptation targets to better track progress and strengthen accountability, consistent with preparing for +2°C warming by 2050 while managing risks associated with up to +4°C by the end of the century (Scottish Government, 2025b). However, setting such targets requires clarity on the level of climate risk that government and society are willing to tolerate.

This raises the important question of the acceptable level of risk, and for whom. Different communities, sectors and social groups will be affected in different ways. Given these complexities, developing adaptation targets will likely require broader engagement, including opportunities for the public and stakeholders to contribute to discussions about acceptable levels of risk. It also involves considering who pays – raising questions of equity and risk ownership. As such, adaptation target setting can be closely linked to Just Transition principles.

Defining the level of climate risk that is acceptable is therefore closely associated with the question of how much adaptation investment is needed, and who should pay for it.

Yet current evidence on these questions for Scotland is limited. There are partial estimates of adaptation investment need within the literature, but no agreed sector-specific adaptation targets, no systematic estimates of the investment required to meet them, and no established framework for understanding how costs should be shared between the public sector, private sector, and individuals.

This gap matters: without a clearer picture of adaptation investment needs, it is difficult to plan strategically, allocate budgets effectively, or make the case to mobilise private capital alongside public expenditure. But it is also challenging due to the deep uncertainty of climate change – including our warming trajectories and socioeconomic change.

This report seeks to begin closing that gap. Drawing on a range of analytical methods and the best available evidence across five sectors – agriculture, communities (flooding), transport, water, and the natural environment – it provides indicative estimates of Scotland’s adaptation investment needs to 2040, an assessment of public-private investment splits, and an exploration of opportunities to increase private sector participation in financing Scotland’s adaptation.

This report is structured as follows:

• Section 2 sets out a general account of the economics of adaptation. This sets out the conceptual framework for estimating investment needs, and approaches exploring the public-private investment split. It also positions the existing evidence base for Scotland.
• Section 3 presents our approach and methods.
• Section 4 provides sector-specific results for agriculture, communities (floods), the natural environment, transport, and water. It explores adaptation investment needs, macroeconomic effects and wider impacts, and funding and financing arrangements across all five sectors.
• Section 5 presents a summary of our analysis
• Section 6 outlines recommended research and strategic priorities.

The economics, costing and financing of adaptation

The economics of adaptation

In simple terms, adaptation costs and benefits can be estimated by first assessing the current and future impacts of climate change, then evaluating how much these impacts can be reduced and at what cost (Boyd and Hunt, 2004; UNFCCC, 2009). Adaptation measures can substantially reduce damages, but even well-designed strategies involve trade-offs: investing more in adaptation may deliver greater risk reduction but also increases cost. As a result, reducing risk to zero is neither technically feasible nor economically desirable, and some residual risk will always remain (Rexer & Sharma, 2024).

The scale of costs and benefits depends heavily on chosen objectives. For example, whether aiming for economic efficiency, reducing risks to acceptable levels, or maintaining today’s relative level of climate risk despite worsening conditions. In practice, estimating adaptation costs is highly complex because of deep uncertainty, with issues of socioeconomic change, future emissions, climate models, regional scenarios, impacts, adaptation responses, and political priorities combining to make modelling challenging (Wilby and Dessai, 2010; Taylor et al., 2025; Valverde et al., 2022). These uncertainties make it challenging to assess costs and benefits, creating the potential for over or underestimation of investment.

Despite this, there are some examples. These include national design standards for flood risk (e.g.to a 1-in-200-year event in Scotland, or up to 1-in-10,000-year in the Netherlands (Westerhof et al., 2023)), and emerging work on resilience in warming trajectories more broadly. The UK Government’s Long Term Investment Scenarios explore the optimum levels of investment under different climate scenarios and then use that to guide the spending envelope in the UK’s Flood and Coastal Erosion Risk Management (Environment Agency, 2021). And on reference scenarios, the Climate Change Committee has advised the UK Government to plan for 2 degrees of warming and prepare for 4, while in France the French Government has adopted a reference trajectory of four degrees.

Furthermore, adaptation investment can deliver multiple co-benefits, collectively known as the ‘triple dividend’ (Global Commission on Adaptation, 2019):

• The first dividend relates to avoided losses from successful adaptation. For example, a home that doesn’t flood because flood defences were built.
• The second relates to induced economic benefits such as the stimulus to the economy. For example, from capital investment in infrastructure development projects.
• The third includes social and environmental benefits. For example, afforestation projects that slow water runoff to rivers provide flood mitigation but also deliver biodiversity gains, carbon sequestration, and mental health benefits through green space access.

Considering all three dividends has the potential to improve the economic rationale of investing in climate change adaptation (Figure 2). In this report, while our analyses partially explore triple dividend benefits, it is beyond the scope of work to comprehensively consider wider savings made on triple dividends (see Section 8 on next steps).

Figure 2: The economics of adaptation. The orange line shows projected climate change impacts on GDP (%) without adaptation; the teal line shows residual damages with adaptation. The gap between them represents the gross benefits of adaptation – subtracting the cost of adaptation yields the net benefits, comprising components such as avoided losses and economic, social and environmental co-benefits. Shaded areas indicate indicative uncertainty ranges only. The benefit breakdown is illustrative and not to scale. Adapted from Boyd and Hunt (2004), Global Commission on Adaptation (2019), and Watkiss et al. (2026a).

Apportioning adaptation costs

A key challenge in estimating adaptation investment needs is defining what constitutes ‘adaptation’ and how to attribute costs when activities serve multiple purposes. Climate adaptation rarely occurs in isolation – it is typically integrated into broader investment programmes, delivered alongside other policy objectives, or embedded within routine infrastructure maintenance and renewal. This raises practical questions for cost estimation: should we count the full cost of a project that includes adaptation as one of several objectives, or only the incremental cost of climate-proofing measures above a baseline investment?

To address this, the study adopted the adaptation cost taxonomy developed by the Multilateral Development Banks (MDBs), which has been widely applied internationally to track adaptation finance and compare investment needs across countries (MDB, 2022). This taxonomy categorises adaptation investments into three types based on the role adaptation plays in the overall investment (Figure 3):

Figure 3 Taxonomy of adaptation costs. Adapted from Watkiss et al. (2026a) based on Multilateral Development Banks (2023).

• Building climate adaptation into proposed programmes and investments (climate proofing). For example, to include climate change in the design standards for new road investments. In this case, adaptation is not a major objective. Instead, assessments investigate the incremental costs of adaptation, over and above the core programme / investment costs.
• Targeted/pure adaptation programmes and investments (targeted adaptation). In this case, the primary objective of the policy, programme or project is adaptation to climate change. For example, investing in coastal flood protection to address sea-level rise. In this case, the total costs of the investment are counted as adaptation.
• Investments with multiple benefits that include adaptation (mixed objectives). Sitting between the two extremes above are a set of cases where adaptation is one of several objectives of the policy, programme or project (a secondary or significant objective). For example, investing in peatland restoration will lead to greater resilience of the peatland (to climate change) as well as off-site benefits (water management) but this investment is primarily associated with biodiversity and ecosystem services. In this case a proportion of the cost is attributed to adaptation, but this is often difficult to do accurately and involves more subjective decisions.

These distinctions are important for climate adaptation investment estimation and the economic rationale for investment. However, this categorisation can create potential for confusion in practice. Activities that might have been pursued primarily for economic development, environmental restoration, or other policy goals can be classified as ‘adaptation’ if they deliver climate resilience benefits – even when adaptation was not the original or primary driver. This raises important questions about additionality: would the investment have proceeded anyway without climate considerations?

Approaches to costing adaptation investment

International approaches

There is no single ‘correct’ method for costing climate adaptation. Instead, there are a variety of approaches, and the most appropriate approach depends on the context. Factors such as specific objectives, analysis level, measure types, and critically, the available data and resources all influence the choice (World Bank, 2024; Taylor et al., 2025).

Climate adaptation objectives can be framed in several ways – by setting targets based on future warming levels, engineering resilience standards, specific risk reduction goals, economic thresholds, or process-based requirements (World Bank, 2024). Each framing influences the scale of action, investment needs, and acceptable levels of residual risk. These choices shape how ambitious adaptation efforts must be, the types of projects prioritised, and the balance between public, private, and household responsibilities. Higher resilience standards typically require greater upfront investment, while economic optimal or process-based approaches may lower costs but leave more risk unaddressed (Taylor et al., 2025).

Costing methodologies exist on a spectrum: ‘top-down, science-first’ approaches use economic models and sector-level damage assessments to estimate aggregate costs, while ‘bottom-up, policy-first’ approaches build estimates from detailed project-level information gathered from contractors, engineers, and technical specialists, focused on answering specific near-term questions. There are also hybrid methods that blend top-down and bottom-up approaches. The World Bank identifies various tools and approaches for both sets of methods including top-down sector integrated assessment models (IAMs), computable general equilibrium (CGE) models, through to bottom-up sector-based costing, climate adaptation markups, and budget tagging approaches at the more granular level (World Bank, 2024).

The most accurate estimates for appraisal or project delivery come from bottom-up costing based on detailed contractor quotes. However, this approach requires substantial resources, data availability, time, and technical capacity to progress projects through to a level of maturity which can provide this, and this is not always available (Taylor et al., 2025).

European estimates

Multiple European countries have recently attempted to quantify their national adaptation investment needs, each developing similar, yet distinct, methodologies suited to their institutional context and data landscape. To inform the approach to Scotland, this study reviewed literature from these studies and drew key lessons from each, as follows:

Austria took a parallel approach (Knittel et al. 2017), adopting a top-down budget review using expert interviews to assign flexible apportionments of current spending to climate adaptation (such as 60% for flood infrastructure for example) and bottom-up costing of 67 National Adaptation Strategy measures grouped into cost bands. The two methods produced different results, €488m/yr versus €385m/yr respectively, revealing they measured fundamentally different things: current government activity versus strategic intent (Knittel et al., 2017).

France compiled existing estimates across 15 policy areas, gathering what stakeholders had already produced and providing unit-cost benchmarks from completed projects. It was openly acknowledged this represented ‘what exists’ in planning discussions rather than rigorous comprehensive costing (Dolques et al., 2025).

Spain aggregated funding from multiple sources, historical environmental spending, COVID recovery allocations, and department budgets, applying different percentages based on how directly measures addressed adaptation (100% for flood defences, 40% for ecosystem restoration, 10% for co-benefits). This reached €1.55bn for 2021-2025, though many costs remained undefined and excluded (MITECO, 2020).

Bulgaria grouped measures into Low/Medium/High-cost bands (up to €1m, €1-100m, over €100m) but using specific figures where detailed studies existed, such as €347.81m for irrigation from cost-benefit analysis (Dale & Zhekova, 2019).

Croatia took a strategic approach, developing a prioritised 20-year portfolio of adaptation investments (€3.6bn) through climate modelling and stakeholder workshops, then justifying the annual cost (€183m) by showing it was less than current average damages from extreme weather (€295m) (Croatian Parliament, 2020).

EU level analysis by Neumann et al. (2025) compiled national studies, adjusted them for different emission scenarios and hazards, then extrapolated to countries lacking data using sector economic output as a proxy. Transport estimates drew on seven national studies while agriculture relied on only three, highlighting persistent data gaps (Neumann et al., 2025). A separate EU level study (European Commission, 2026) conducted a bottom-up analysis, which reviewed member state risk assessments, identified and costed relevant measures and then scaled them to the EU. This suggests annual investment needs of €69bn/year to 2050, dominated by infrastructure and ecosystem investments.

There have also been estimates for the UK. These have focused on the costs of adaptation today by categorising actions in the National Adaptation Plan (NAP) in line with Multilateral Development Bank (MDB) taxonomies and estimating investment needs (Watkiss et al., 2026a), though there have been some estimates for future costs as part of the forthcoming Well Adapted UK report (e.g. in Watkiss et al, 2026b and others).

All these studies were transparent about the limitations of the methods used, acknowledging uncertainty rather than presenting false precision. They demonstrated that pragmatic, evidence-led approaches are essential given current data constraints, and framed estimates as ‘evolving documents’ requiring iterative refinement, not as definitive adaptation investment estimates.

Existing estimates for adaptation investment need

Globally, climate finance flows have grown significantly, with total flows reaching US$1.9 trillion in 2023 and private contributions exceeding US$1 trillion for the first time. However, the vast majority of this is directed towards mitigation, with Climate Policy Initiative (2025) estimating only 3.4% is going towards adaptation. The latest United Nations Environment Programme (UNEP) estimates show that developing countries will need at least US$320bn/yr – $400bn/yr for adaptation by 2035, which is roughly ten times higher than today’s international public adaptation finance flows (Watkiss and England, 2025).

To date, there has been limited research specific to Scotland on climate change adaptation investment need. Estimates are instead deduced from broader studies, ranging from £196–£1,340m per year:

• A recent World Bank study suggests that near-term adaptation investment for the EU27 could amount to 0.1% – 0.4% of GDP annually by 2030 (World Bank, 2024). Scotland’s Climate Emergency Response Group (CERG) applied these values to Scotland, estimating £196 – £784m per year by 2030 (CERG, 2024).
• Indicative estimates for the UK suggest adaptation costs of around £5bn/yr to 2030 for a subset of priority risks, rising to £10bn/yr or more when all 61 CCRA3 risks and proactive adaptation measures are included (Watkiss, 2022). These figures are expected to increase significantly after 2030 as the number of high magnitude climate risks grows from 12 to 21 by the 2050s. Yet these estimates remain partial and indicative, with substantial gaps in sectoral coverage, inconsistent assumptions, and a bias toward engineering solutions rather than social or institutional adaptation (Watkiss, 2022). Using Watkiss (2022) values, and assuming Scotland accounts for 7.5% share of UK economic output as a proxy (Harari & Murray, 2024), implies adaptation costs of approximately £375 – £750m per year.
• Analysis by the Office for Budget Responsibility (OBR) suggests adaptation costs of around 0.3% of GDP per degree of warming (OBR, 2021). The OBR also highlights that adaptation costs are likely to rise unevenly over time, with larger and more frequent economic shocks expected later in the century. Using 2024 prices, these costs are equivalent to £670 – £1,340m per year for Scotland under 1 – 2°C of warming respectively.

Scotland’s specific vulnerabilities and policy landscape mean these broader UK estimates may not accurately reflect Scotland’s climate adaptation investment need. For example, Scotland faces a distinctive combination of climate hazards and geographic contexts. This includes a higher proportion of woodland and peatland, topographic challenges, and 93 inhabited islands, that may not be captured by downscaling UK-wide estimates based on Scotland’s share of GDP. The CCRA3 Scotland summary is also the only national summary to identify flooding as the most severe and costliest hazard to businesses, further highlighting the limitations of direct comparison to UK-level estimates.

Investment need will also vary within Scotland, with some regions more vulnerable to climate risks. Nascent estimates of the public sector adaptation gap in Glasgow City Region (Climate Ready Clyde, 2021) suggested a gap of £187m in 2018/19 alone for the region’s local authorities and the health board, equivalent to around 2% of combined local authority and NHS expenditure across the region’s eight councils and two health boards. No other regional estimates in Scotland have been published.

While national climate adaptation investment estimates are lacking, some public bodies, such as Scottish Water and Network Rail Scotland, have conducted bespoke asset climate vulnerability assessments and initial adaptation cost estimates to facilitate strategic business planning (e.g., Network Rail Scotland, 2024; Scottish Water, 2025). Others have more limited research on specific adaptation investment need. Therefore, while some sector specific information exists, it is fragmented.

As well as absence of Scotland-wide adaptation estimates, there is a lack of robust estimates of the wider returns from adaptation investment. These include avoided climate damages, economic benefits, and broader socio-environmental gains that comprise the ‘triple dividend’ of adaptation.

Who pays for adaptation?

Financing versus funding

A critical but often overlooked distinction in climate adaptation investment is the difference between financing and funding (Watkiss and England, 2025). Financing refers to where the upfront money comes from, whether public grants, government borrowing, sovereign green bonds, or private capital, and the financial instruments and terms involved. Funding, by contrast, refers to who ultimately pays for the adaptation over the lifetime of the investment, whether through public budgets, taxation, or user charges. This distinction matters because private sector involvement can help close the financing gap without necessarily closing the funding gap: costs may simply be transferred back to governments or households rather than genuinely shared.

This is illustrated in Figure 4, which shows options for delivery of a programme of coastal flood protection in a developing country context. Here, the delivery is provided by the private sector, who build the contract. The financing can be provided in many ways, including from public budget, tax rises, or private sector financing through the capital markets. These are important since there is much greater potential for private sector financing than for developing business. For example, it is possible to attract significant amounts of private sector financing to support public sector investment, but ultimately government repays with interest. Therefore, it is important to consider whether we are seeking to boost private sector funding (i.e. the proportion of companies and businesses that actually contribute to the costs of adaptation), or merely the financing.

Figure 4: A simple example of the financing, funding, and delivery of adaptation for coastal protection. Source: Watkiss and England. 2025.

The role of public and private sectors

In recent years, there have been substantial efforts to better understand the factors which can inform whether such activities should be funded by the private or public sectors. These include whether the costs and benefits of activities are public or private as well as the level of financial returns they offer. These can be none/limited (and are therefore typically public), below-market or market level returns (OECD, 2023). The level of market returns for many adaptation options have been classified in Table 3, and these have been reviewed and updated to be relevant to the sectors in scope of this study:

Table 3 – Adaptation activities and potential returns in developed countries for the sectors explored in the study. Updated from Watkiss and England, 2025 and OECD, 2023.

Building on this approach, UNEP (2025) outline a useful typology (adapted into Figure 5) for understanding where public and private actors are best placed to act, based on the combination of level of returns and whether the costs and benefits are public, private or joint. These can be used to help classify a broad range of activities which are funded by either the public sector, private sector, or a mix of both.

Type A actions are public goods, such as major flood protection schemes, that generate little or no financial return and are therefore typically initiated and funded by government. Type B actions involve a mix of public and private costs and benefits, and where returns are typically below market. For example, supporting climate-smart agriculture. These typically involve blended finance arrangements. Type C actions sit within existing well-functioning markets and generate commercial returns, such as industrial cooling systems, and would be expected to be entirely privately financed and funded.

Figure 5: Simplified categorisation of adaptation types (A-C) and opportunities for private sector engagement. Adapted from UNEP (2025).

Barriers to adaptation finance

Private sector investment in climate adaptation remains persistently low, despite adaptation often delivering high economic returns for society (World Bank, 2024).

The core problem is that while the societal benefits of adaptation can be substantial, the financial returns that matter to private investors are much lower. Adaptation frequently reduces losses or damages and generates limited revenues, making it difficult to construct a viable business case for private finance. This is especially the case, given the opportunity cost of capital, and difficulties of modelling climate-related disruption in cashflows and returns (Watkiss and England, 2025). There are also issues of discounting, where costs arise today, but benefits occur far in the future and are therefore higher. The private sector also uses higher discount rates than the 3% in the public sector (HM Treasury, 2026), compounding this issue.

Many studies reporting high benefit-to-cost ratios for adaptation are measuring economic or societal returns, which include non-market benefits such as environmental value. Private investors, however, assess financial returns, incremental revenues and cash flows, which are considerably lower. This distinction is frequently misunderstood and leads to unrealistic expectations about the role private finance can play (Watkiss and England, 2025).

Watkiss and England (2025) identify five main categories of barrier to adaptation finance:

1. Information barriers, including insufficient data on climate risks and limited investor understanding of adaptation as an asset class.
2. Market failures, including public good characteristics and underdeveloped adaptation markets.
3. Behavioural barriers, including low perceived urgency and limited willingness to pay for risk reduction.
4. Policy and governance barriers, including weak or conflicting regulation and poor cross-sector coordination.
5. Financial and bankability barriers, including long payback periods, small project sizes, high complexity, and limited replicability.

Scaling private investment into publicly identified adaptation priorities remains a significant challenge, particularly for smaller, fragmented projects involving many actors and beneficiaries.

Boosting private sector opportunities

Globally, current private sector contributions to climate adaptation are very small (approximately 3% of total needs). Even with substantial innovation and concerted effort, the private sector is expected to deliver only around 15% of required adaptation by 2035, with even less in least developed countries and small island developing states (Watkiss & England, 2025). However, this varies significantly based on country and sector structure. Recent analysis of the UK’s third National Adaptation Plan finds much higher numbers, suggesting around 45% of total adaptation costs are borne by private households and businesses (Watkiss et al., 2026a), in part driven by the privatised nature of the water sector in England. As Scottish Water is publicly owned, the equivalent figure for Scotland is likely to be lower, with a greater share of adaptation costs falling to the public sector.

As a result, climate adaptation is currently funded predominantly by the public sector, both globally and within the Scotland. Central and local government fund most adaptation-relevant expenditure across transport, flood management, water infrastructure, agriculture and the natural environment, largely through existing budget lines that deliver multiple objectives alongside adaptation, climate-proofing, or pure adaptation investment (e.g. for flood protection). Across all sectors, households and businesses also bear some adaptation costs directly. For example, through property level insurance or on-farm investments. However, this remains modest.

Crucially, scaling up private sector participation will not happen through market forces alone. It will require concerted public policy action, enabling conditions, and in many cases public co-financing to de-risk private investment. The private sector’s role is therefore best understood as being complementary to, rather than a substitute for, public adaptation finance (Watkiss and England, 2025).

Governments can adjust the financial characteristics of adaptation activities to increase private sector participation, either at the market level or at the level of individual investments. At the market level, this can include improving existing markets (e.g. through better provision of climate risk information), creating new markets (e.g. through water credits), or supporting public provision where markets fail (Greenhill et al., 2026). At the level of individual investments, policy and regulation or blended finance arrangements can be used to alter financial characteristics and improve commercial viability (World Bank, 2019; Watkiss and Ward, 2025). Where neither approach is sufficient, there remains scope to diversify the range of public financing sources and instruments. This is illustrated in the decision tree in Appendix A.

Climate justice considerations

Another significant consideration within the costs of adaptation are the distributional aspects, and the need for a “just resilience”. The CCC report to Scottish Government on climate adaptation and just transition in 2022 highlighted that fairness in adaptation is strongly linked to just transition concepts, and it is crucial to consider distributional effects to ensure effective and fair adaptation (CCC, 2022). Several characteristics that lead to increased vulnerability and reduced adaptive capacity to climate risk were identified, and include low-income groups, the very young and the elderly, and those in rural regions. The CCC recommended that policy to help address adverse distributional impacts should be routed in an understanding of the distributional effects of climate risks and opportunities.

While climate risks are unevenly distributed and demand equitable responses (European Environment Agency, 2025), they also involve costs. Such costs can be explored from several perspectives. A simplified set of approaches is shown in Table 4, ranging from most targeted to those most socialised, though in reality the approach may be context specific.

Table 4: Indicative approaches to guide who should pay for adaptation: Adapted from Paul Watkiss Associates.

The CCC recommended that policy to help address adverse distributional impacts should be rooted in an understanding of the distributional effects of climate risks and opportunities.

Early work underway globally is considering some of the principles behind the costs of adaptation. The Government of New Zealand (2025), set out some early principles in its National Adaptation Framework such as ensuring pre-and post-climate event costs are shared across society and over time, and that the public sector is used to incentivise private sector action, and to take market-based approaches that adjust over time. While beyond the scope of this report, it is noted that such considerations may have the potential to significantly vary relative distribution of costs.

Knowledge gaps and challenges

Evidence gaps in Scotland’s adaptation investment landscape

It is important to note here that adaptation investment, globally, is poorly understood, and many countries are, like Scotland, working to quantify their national adaptation investment needs. Scotland faces multiple knowledge gaps around climate adaptation investment. These include:

• No clear understanding of the total investment required across sectors, including whether this will involve millions or billions of pounds, or how this spending will be distributed with time.
• No detailed picture of what climate adaptation investment could deliver for different sectors.
• No specific, measurable, achievable, relevant and time-bound (SMART) adaptation objectives under SNAP3.
• No assessment of associated costs of not adapting, and/or expected residual damages.
• No budget allocation for each SNAP3 objective.

These knowledge gaps make it difficult to determine whether a financing gap exists or how large that gap might be in Scotland.

Broader knowledge gaps in Scotland and beyond include:

• Lack of robust estimates of the wider returns from adaptation investment, including avoided climate damages, economic benefits, and broader social and environmental gains that comprise the ‘triple dividend’ of adaptation.
• Limited research exploring opportunities for blended public-private funding partnerships to support climate change adaptation spending.

Further research on these broader topics is key to ensuring and prioritising just and equitable climate adaptation solutions in Scotland.

Box 1: Challenges and limitations

Estimating Scotland’s climate adaptation investment need is inherently challenging. This work provides an initial method, approach, and set of assumptions to estimate climate adaptation spending across sectors. It is intended as a first step that will require further development. The figures presented should therefore be treated as indicative, order of magnitude estimates rather than precise calculations. Readers and peers are encouraged to build on this analysis by adding new assumptions, incorporating additional sub-sectors or hazards, or testing alternative scenarios and risk-tolerance thresholds.

The key data limitations and challenges underlying these estimates include:

Baseline spending: Incomplete information on current adaptation expenditure across Scotland makes it difficult to establish a reliable baseline from which to measure progress or scale up investment.

Asset vulnerability: Comprehensive inventories of climate-vulnerable assets are lacking in most sectors, and there is limited understanding of how vulnerability will evolve as the climate changes.

Climate and socio-economic uncertainty: Projections of how Scotland’s climate will change over the coming decades remain uncertain, as does the evolution of the broader socio-economic and political landscape.

Risk tolerance: Without clearly defined government risk tolerance thresholds or adaptation objectives for each sector, it is difficult to establish an ‘end goal’ against which investment needs can be scaled.

Scope limitations: The analysis focuses on selected sub-sectors and key hazards; many relevant adaptation actions and climate risks across Scotland’s wider economy are not included.

Methodological assumptions: Estimates rely on assumptions regarding appropriate adaptation objectives for 2040 and whether spending continues at current levels or scales up in line with growing climate risks.

Study methods

Our approach

Scotland faces similar challenges in estimating climate adaptation investment need to those across Europe, and the fragmented data landscape means no single method could be applied consistently across all sectors. The study therefore adopted a pragmatic, multi-stage and multi-method approach:

1. estimating adaptation costs for each sector using the most appropriate costing method given available evidence;
2. feeding these into a macroeconomic model to explore the economic impacts of different financing routes;
3. mapping current governance arrangements to understand how adaptation is being paid for today; and,
4. exploring the potential to increase private sector participation.

Due to resource and data limitations, the three analyses were conducted separately, with differing underlying assumptions. The cost estimates, macroeconomic modelling, and funding analysis are therefore not directly comparable with one another. Each is intended as a broad exploratory assessment, and further integrated analysis would be needed to draw firm conclusions across all three components.

Throughout, developing robust estimates also required identifying which SNAP3 targets and objectives are relevant to each sector and considering wider socio-economic context beyond climate risk alone. The detailed steps are shown below.

Step 1: Adaptation costing

Adaptation objective setting

We adopted 14 of the 23 objectives set out in SNAP3 (Scottish Government, 2024a). The selected objectives covered four of the five broader SNAP3 outcome areas identified by the Scottish Government: Public Services (PS), Economy, Business & Industry (B), Nature Connects (NC), and Communities (C) (Scottish Government, 2024a). Objectives relevant to the fifth SNAP3 outcome area, Connected and Engaged Society (CE), were not included in the scope of this analysis. The specific sectors, objectives and corresponding outcome explored within our analysis area are summarised in Table 5.

Table 5: Climate change adaptation outcome area and objectives from SNAP3 that align with the five sectors considered in our work were selected and, where relevant, amended. Sectors not explored – due to resource constraints – are crossed through in the objectives below.

The sectors and sub-sectors included in our study are defined as follows:

Table 6 Sectors and sub-sectors explored within this analysis

Note that, due to resource constraints, a range of other key sectors – for example, energy, telecommunications, and health – have not been explored in this report. Furthermore, even within the sectors we have examined, we have not conducted full sectoral analyses. For example, within transport, adapting ferries, aviation, and canals was not included in the analysis due to resource constraints. Consequently, the results should be interpreted accordingly.

Context setting

To estimate the uplift or scaling factors for adaptation investment needs to 2040, we considered how wider socio‑economic conditions, such as population change, economic growth and sectoral investment trends, might evolve over time. These factors can be important. For example, estimating future flood defence needs can require assumptions about future population distribution, while economic growth and inflation trajectories influence both the cost of adaptation measures and the scale of potential economic losses.

In practice, this broader socioeconomic context was only relevant to a limited part of our analysis. Most estimates relied on sector specific data and updated risk information – such as SEPA’s revised flood risk mapping or current housing stock – rather than the national socioeconomic scenarios developed for CCRA3. As a result, although we originally intended to use the central CCRA3 socioeconomic scenarios to inform investment scaling, these were largely not required in the final workflow.

If needed for future updates, this contextual information can be revisited, but for the purposes of this assessment it played only a minor supporting role.

Apportioning adaptation spend

Following the MDB taxonomy introduced in Section 2.2, this study applied different cost attribution approaches across the five sectors depending on the type of adaptation investment and available evidence. The specific methods used for each sector are detailed below and further elaborated in the sector-specific analyses (Section 4).

Climate-Proofing (Incremental Costs)

For infrastructure investments where adaptation is integrated into planned programmes but not the primary objective, we estimated incremental costs above baseline investment, for example:

• Transport (trunk roads and motorways): We applied relevant climate-proofing uplifts from the literature to Scottish Government 2026/27 budget lines for road maintenance and renewal. These uplifts reflect the additional investment required to design infrastructure for future climate conditions rather than historical baselines. For example, upgraded drainage capacity to handle more intense rainfall, enhanced slope stabilisation for increased landslide risk, or heat-resistant surfacing materials. The baseline represents the investment that would proceed regardless of climate change; the uplift captures the incremental adaptation cost.

Mixed Objectives (Apportioned Costs)

For investments delivering multiple benefits including adaptation, we apportioned costs based on expert judgment in consultation with Paul Watkiss Associates, who have extensive experience applying the MDB taxonomy internationally. For example:

• Woodland creation: Forestry investment delivers multiple benefits including timber production, carbon sequestration (mitigation), biodiversity, recreation, and climate adaptation (ecosystem resilience, water regulation, reducing downstream flood risk). We reviewed stated objectives in Scottish Government forestry programmes and applied expert judgment from Paul Watkiss Associates, aligned with on-going UK level adaptation investment need research, to determine what proportion of woodland creation costs should be attributed to adaptation.
• Peatland restoration: Peatland restoration similarly delivers carbon sequestration, biodiversity recovery, water quality improvements, and adaptation benefits (enhanced water storage and flow regulation reducing flood peaks, maintaining ecosystem function under climate stress). We assessed the relative emphasis on these objectives in Scotland’s peatland restoration programmes and apportioned costs, accordingly. These apportionments were cross-checked through expert review with Paul Watkiss Associates.
• Nature restoration: We applied similar logic to wider nature restoration funding, examining whether investments prioritise climate resilience objectives (e.g., creating ecological corridors to enable species migration under climate change, restoring coastal habitats for natural flood defence) or primarily target biodiversity and ecosystem health goals, and attributed costs proportionally.

Different analysts might reasonably apply different attribution percentages to the same mixed-objective investments, as there is no objectively correct answer to how investment should be apportioned across multiple objectives, including the distinction between climate adaptation and mitigation. The percentages applied in this study are therefore documented transparently in the sector-specific analyses (Section 4) and supplementary data.

Targeted adaptation (pure adaptation)

For dedicated adaptation investments where climate risk reduction is the primary or sole objective, we counted total programme costs:

• Flood protection schemes: We examined historic budget allocations from Scottish Government expenditure data and uplifted these to current construction prices using appropriate indices. Estimates drew on SEPA’s updated flood risk mapping and UK-wide research on flood defence costs, scaled to Scotland’s exposure and asset base.
• Property-level flood resilience (PFR): We scaled recent UK research on PFR costs and uptake rates in proportion to Scotland’s residential and non-residential building stock at flood risk, using SEPA flood risk data to estimate the exposed population.
• Capacity building (communities): We engaged with Scottish Government policy teams to identify planned and potential future investment in community-level adaptation capacity, resilience planning, and climate literacy programmes where adaptation is the primary objective.

Sector-specific considerations

A pragmatic, multi method strategy was adopted that used the most appropriate costing approach for each sector, determined by data availability and evidence maturity. The core approaches drawn upon were:

• Drawing on existing sectoral analysis of initial adaptation investment estimates for specific plausible future scenarios (e.g., water and rail).
• Applying relevant climate proofing uplifts from the literature to relevant Scottish Government 2026/27 budget lines (Scottish Government 2026b), reflecting changing climate risks (e.g., trunk roads and motorways).
• For each plan or budget line, including the Scottish Government Draft Climate Change Plan (CCP) (2025) and the Scottish Government 2026/27 budget (Scottish Government, 2026b), the multiple objectives were examined to identify the proportion of investment directly related to adaptation (e.g., agriculture, woodland creation, peatland restoration, and nature restoration).
• Examining and uplifting historic budget allocations to current construction index prices (e.g., flood protection schemes).
• Drawing on wider UK research and scaling estimates in proportion to Scotland’s building stock or relevant assets (e.g., flood-protection schemes and property level flood resilience).
• Engaging with Scottish Government policy teams to discuss likely investment changes for spending with adaptation relevance (capacity building within communities).
• Applying value transfer methods by exploring how adaptation cost estimates compare when scaled to the Scottish context, drawing on Neumann et al. (2025) as an international benchmark for agriculture and transport infrastructure, and on UK Government (2025) analysis for flood protection schemes.
• Undertaking expert review to cross-check estimates against parallel analysis being undertaken for the Climate Change Committee’s Well Adapted UK report, due for publication in Spring 2026.

For further detail on methodological approach used, please see the sector-specific analyses, the appendices B and C (for additional information on Network Rail Scotland and Scottish Water’s analysis respectively), and supplementary data.

Step 2: Estimating macro-economic effects of spending

Macro-economic effects

Fully modelling the costs and benefits of adaptation, including all potential avoided damages, productivity improvements, health gains, and environmental co-benefits, is extremely resource intensive and was beyond the scope of this project. Instead, the Centre for Energy Policy at the University of Strathclyde used a Computable General Equilibrium (CGE) model of the Scottish economy to explore one deliberately narrow but important question: what are the direct economic effects of additional climate adaptation investment in Scotland, and what economic activity does this spending stimulate?

CGE models are widely used by governments and research institutions, including HM Treasury and the Scottish Government, to understand how changes in one part of the economy ripple through the rest. For this study, a model was used that represents the Scottish economy across 30 broad sectors and is built on Scottish Government Input-Output tables from 2019, chosen to reflect the structure of the economy before the disruptions of Covid-19 and the war in Ukraine. The model traces how adaptation spending affects prices, production, employment, and incomes across sectors, and how these effects in turn influence government revenues and public finances. It also accounts for how wages and employment interact. It allows for migration in and out of Scotland depending on relative economic conditions. Finally, it divides households into five income groups to understand how different parts of society might be affected.

For this research, we assumed that climate change adaptation is a form of capital spending that does not create additional production capital for production sectors. Instead, it allows them to maintain the same production capacity, which would be at risk in the face of climate change.

Understanding the modelling approach: spending and cost recovery

To make the modelling approach clearer, it is helpful to think of adaptation in two phases:

Phase 1: Sectoral spending for climate adaptation measures
In Phase 1 the scope of the work is to model how the spending flows through the Scottish supply chains. We model how the sector makes additional purchases of goods and services to deliver adaptation measures (for example, construction materials, engineering services, flood defences, or restoration work). This spending initially flows through Scottish supply chains, creating economic activity in the sectors that deliver the work and in households that benefit from the associated wages and employment.

Phase 2: Cost recovery
Over time, the sectors and/or government need to recover the costs of adaptation. Each sector may have a different cost recovery approach, depending on its business models and economic structure. We modelled three stylised approaches to illustrate the broad channels through which different funding choices affect the economy:

(1) “Government pays, funded through income tax” (used for Communities, Rail and Trunk roads) may have the following implications:

• Income tax rates rise to cover adaptation costs.
• Household disposable incomes fall, especially for higher earners.
• Consumer spending is dampened across society.
• This approach is typically progressive, as those earning more pay a larger share.
• Government spending in other areas (health, education, etc.) is preserved.

(2) “Government pays, funded through government spending cuts” (used for Natural environment) may have the following implications:

• Public spending declines towards all sectors to cover adaptation costs.
• Public administration/defence, education, and tertiary sectors suffer most.
• This approach tends to be mixed.

(3) “Industry pays, funded through higher prices” (used for Agriculture and Water) may have the following implications:

• The adapting sector faces a cost they have to cover, which firms pass on to consumers through higher prices.
• Higher prices reduce export competitiveness (assuming similar price increases are not also happening abroad), which reduces demand for Scottish goods.
• This approach tends to be regressive, as lower-income households spend a relatively larger share of their budgets on essential goods and services.

Important caveats
All approaches are highly stylised and are used to illustrate the broad economic channels and trade-offs that different funding choices create. In reality, adaptation funding is likely to involve a blend of government and industry contributions, as well as other mechanisms such as borrowing, grants, or targeted levies. The scenarios presented here should be treated as illustrative, helping to understand the direction and scale of potential impacts rather than precise forecasts.

More detail on the methodological approach and more detailed analysis of selected sectors can be found in Appendix D.

Note: The macroeconomic modelling cannot be taken as an assessment of the costs and benefits of adaptation. While the modelling captures the direct economic stimulus of adaptation spending and the effects of cost recovery, it does not model residual damages. Neither does it quantify the full range of avoided climate damages, increased resilience, reduced disruption to businesses and households, improved business continuity, health gains, long-term productivity benefits, or environmental co-benefits that underpin the wider “triple dividend” of adaptation. The results should therefore be interpreted as a conservative and partial estimate, representing only one dimension of the economic effects – the demand-side impacts of the spending and its financing – rather than the full spectrum of costs and benefits of adaptation.

Steps 3 and 4: Estimating current and future private sector contributions

In each of the sectors represented in the report, there are existing models which are being used to cover the costs of adaptation today. To explore the current and future potential splits, the project documented the broad governance models of each sector today. We then carried out a qualitative evaluation of the potential use of blended finance, regulation and policy and innovative models. We note that these vary significantly based on the broad structure of the sector, and appetite for change.

Our focus has been on the theoretical potential to increase private sector contributions (noting that this may not be ultimately desirable). This is based on the need to prioritise public sector expenditure on those areas which cannot be met by private sector or households directly. The range of models explored includes:

• Innovative models using private finance to provide upfront capital
• Models which increase private sector funding for adaptation
• Provision of adaptation goods and services (which ultimately reduce costs for public and private sector activities

To identify potential innovations, we drew on the Paul Watkiss Associate database of innovative accelerators (England et al., 2023; United Nations Environment Programme, 2024), as well as recent wider work exploring financing options (Watkiss and England, 2025). Further supplemental models were identified through desk-based searches during this project. We undertook a rapid review and used expert judgement to extract innovative approaches that they felt were potentially relevant in a Scottish context.

Due to the limited resources available for the project, the review has inevitably been ‘light touch’ but serves as the basis for further exploration and discussion to inform the development of SNAP4, as well as the future business models of public bodies such as Scottish Water or Network Rail.