Introduction

Purpose of project and study

Mott MacDonald were commissioned by Transport Scotland to identify methods of appraising the return on investment for zero emission / decarbonisation mobility innovation projects to support future development of an innovations assessment methodology.

At present, the assessment of the impact of innovation work in this area is ad hoc, therefore a standard approach would assist project development and evaluation and help prioritise zero emission / decarbonisation mobility projects. The development of impact assessment protocols would not only support work in the decarbonisation of transport but would also have learning applicable to other modes of transport.

The overall project will be multi-phase, with this initial study focused upon information gathering, through a detailed literature review, to provide initial insight into a potential framework for assessment. Subsequent phases will build upon the framework, with the potential to develop more formal guidance on appraisal processes for zero emission / decarbonisation mobility innovation projects.

Scottish zero emissions / decarbonisation mobility context

Transport is the largest contributor to emissions in Scotland and in response to the climate emergency, Scottish Government has committed to reducing emissions by 75% by 2030 and a legally binding target of reaching net zero by 2045. To meet these targets and the scale of change required, it is recognised that investment and support in the growth of zero emission mobility is required.

As such, Scottish industries and academia have continually invested in zero emission mobility to maximise the economic benefits to Scotland and, in doing so, have become one of the global leaders in this space. The Scottish Government have also invested in a number of innovative projects, such as:

Investing an initial £113m towards zero emission buses and supporting infrastructure as part of the first phase of the Scottish Zero Emission Bus Challenge Fund (ScotZEB) to accelerate the uptake of zero emission vehicles.
To grow and attract investment in electric vehicle charging, developing a £60m fund to enable local authorities to develop and deliver partnerships with the private sector.
Setting up the Bus Decarbonisation Taskforce and Zero Emission Truck Taskforce which brings together senior leaders across sectors to work collaboratively and develop a pathway to enable a just transition to new technologies.
Bringing together industry, academia, and enterprise through technology innovation centres.
Building a hydrogen economy through hydrogen demonstration projects and the creation of regional hydrogen hubs across the country.

Overarching project aims

The overarching aims of the project is to review best practice to inform the development of an assessment methodology for demonstrating the economic and social returns on investment in zero emission / decarbonisation mobility innovation projects.

Through the current study, empirical evidence is sought to identify the magnitude of impacts on research and development investment, with due consideration of the distribution of impacts and how ‘Just Transition’ can be achieved during periods of change resulting from innovations. As part of this process, an initial output is to generate a logic map that sets out how public sector investment in zero emission / decarbonisation mobility innovation projects translates through inputs and direct outputs into specific outcomes and economic and social impacts (including identification of metrics).

Focus areas of this study

To support the overarching project aims, several focus areas for the initial review of best practice were identified:

Identify casual links between research and development / innovation funding and outputs, outcomes and impacts.
Generate an understanding of how public sector research and development / innovation funding can stimulate wider private sector activity (particularly within the context of sustainability initiatives).
Identify metrics that can be utilised to assess outputs and impacts.
Compile an empirical evidence base of the scale / magnitude of the generated outputs, impacts per unit of funding.
Consider the extent of Just Transition within the context of public research and development / innovation funding leading to equitable distribution of benefits via private sector activities.

Exclusions and limitations

The following are limitations to the scope of this study:

The current study is not intended to produce a new assessment methodology or a definitive approach, but rather to provide a framework of ideas which could be taken forward / explored further.

The following elements were excluded from the scope of this study:

Creation or roll-out of an assessment methodology.
Economic modelling of the assets.
Recommendation on a singular best practice of assessment.
Research and modelling of energy consumption, generation, production, transportation, distribution and transmission.

Definitions and assumptions

The following terms are use throughout the report and are defined below:

R&D - Research and Development.
Rate of Return – for the purposes of this study, the rate of return indicates the economic and social benefits resulting from an investment, expressed as a percentage of the value of the investment itself.
Indicators – factors used to measure the impact of R&D investment, these include employment impacts, GDP growth and private sector investment that is encouraged as a result of the public sector investment being made.
Total Factor Productivity – a measurement of productivity that focusses on the efficiency of how inputs are utilised to produce outputs. This primarily relates to an increase in output that is not attributable to an increase in inputs, such as capital or labour. Total Factor Productivity instead focusses on how productive efficiency can be impacted without significant changes to inputs, thereby capturing the impact of greater efficiency on productivity rather than an increase driven by a proportionate increase in inputs.
Spillovers – Wider impacts of an action that may not have been intended or which may be the result of seemingly unconnected activities. In relation to R&D investment, spillovers generally relate to impacts outside of the economic sector or geography in which the investment was made.
Knowledge diffusion – The spread of knowledge, innovation or insight that leads to a wider impact on society or the economy. Where one actor innovates, knowledge of the results of this innovation can quickly spread throughout the economy, often across multiple sectors.
Decay effect – the decay effect refers to how the impact of an intervention decreases over time or as the distance from the intervention increases. For the purposes of this study, the decay effect relates to how the benefits of innovation decreases over time, primarily driven by the increased obsolescence of innovation over time, as new technologies and practices develop.
Econometric analysis – umbrella term for a range of statistical analytical approaches that are used to develop and test relationships between two or more variables.

Structure of report

The remaining sections of the report are structured as follows:

Section 2: Approach – outlines the methodology followed for reviewing best practice.
Section 3: Summary of findings – provides an overarching summary of the areas reviewed, including outputs, outcomes, wider impacts, metrics, scale of returns and the key factors to benefit realisation.
Section 4: Interpretation of findings – interprets the findings of the best practice review, developing an overall logic map that provides an understanding of the potential direct and indirect consequences of investment, considering the impacts that may arise and outlining how a framework for estimating return on investment could be developed.
Section 5: Summary and next steps – provides a summary of the findings and suggested next steps for Transport Scotland.

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