An economic justification for Community Benefit Funding

The Scottish Government is currently consulting on the approach that should be taken for Community Benefit Funding for energy projects. However, the economic justification for community benefit funding has not been made and, therefore, there is a risk that any policy could have unintended consequences or could target the wrong actors within the sector. To address this, we have independently considered whether or not there is an economic justification for Community Benefit Funding.

Summary

We have found that there is an economic justification for the payment of community benefits, but this should come from economic rents within the sector, rather than developer profits.

High “economic rents” are paid to landowners: they must derive mainly from ownership since they cannot be justified by costs to landowners, which are minimal.
The ownership of land suitable for renewable energy is highly concentrated, giving landowners market power.
Energy market conditions mean that developers themselves will not make excessive profits.
Scottish Enlightenment figures, including Adam Smith, articulated the economic justification for intervening in cases of “economic rent”.
Natural capital is generally considered to be in common ownership, so the wider public should benefit from any “economic rents”.
Local communities have a stronger sense of ownership of local natural capital and so have a stronger claim.