Green is The New Black - How the new 'green' freeports will support the transition to net zero

By Laura Petrie, partner at Brodies LLP, specialising in oil and gas.

The winning bids for two new 'green' freeports to be established in Scotland (one in the Firth of Forth and the other in Inverness and Cromarty Firth) will provide a boost to the generation of renewable energy in Scotland and also support the transition of offshore oil and gas development to a net zero basis. Furthermore, the prospects for job creation, commercial activity and investment will be significant and both private and public sector bodies should be on the front foot with their preparations, to make the most of the opportunity.

What do 'green' freeports mean?

The establishment of a 'free trading zone' means that port operators and companies operating there can defer tax duty and import VAT on goods, as well as other employeerelated contribution deductions. The use of the new freeports is intended to be made primarily available for advanced manufacturing of technologies for the renewable energy industry, including offshore wind, hydrogen production, or for operations in support of oil and gas decarbonisation, while also offering tax and customs incentives. These benefits will help to attract investment to the energy industry and the local area, as well as boosting the job market and opportunities for the wider supply chain.

Access to a freeport can benefit businesses and organisations in many ways. The tax benefits of operating import, manufacture and export activities within a free trade zone provide significant savings for businesses that import raw materials (e.g. steel, concrete) to manufacture items that will never be usedwithin the onshore market, such as offshore wind turbines. Similarly, organisations can benefit from differing tax rates if the raw materials are manufactured into different goods within the free trade zone, before being 'exported' into the UK. This element will significantly assist in the development of hydrogen and CCUS sites which require onshore facilities.

For energy companies already engaged in these types of projects or looking to invest, the new freeports will offer a welcome opportunity to reduce costs and streamline operations.

Preparing for the freeports

Finalising operational arrangements for the new freeports is expected to take about a year, and a further 12-18 months for them both to be fully developed. While this might seem a lengthy wait, those businesses and organisations that wish to use freeports should capitalise on that transitional period by starting preparations now.

Businesses planning to use the freeports for manufacturing should consider how operating within a free trade zone would impact on their tax status and whether their operations could be relocated there.

For supply chain companies servicing the offshore energy industry, establishing a place of business within the free trade zone may be possible. The ability to pass on cost-efficiencies to customers can be a competitive advantage. Furthermore, relief on national insurance contributions is expected to be available to employees who spend at least 60% of their time working within the free trade zone.

Accordingly, locating an operational base within the free trade zone should be considered, including whether employees can move there under current contracts (i.e. can their place of work be dictated by the employer).

There are other benefits to consider too. Increased investment in the area means increased footfall and accommodation demand – either for a company's workforce or in the provision of temporary and permanent accommodation.

Wider opportunities?

Industries involved with energy services should also consider whether they want to be involved in business centred around the freeports. Plans have already been proposed for a green hydrogen plant near the Inverness and Cromarty Firth Freeport – warmly welcomed by local distilleries. Development of that site provides significant opportunities for the supply chain and scope for new property development to benefit from the energy produced.

Businesses interested in renewable and net zero projects should use the time they have now to consider how the freeports may support their business and conduct commercial health checks. Reviewing policies, procedures and standard contract terms to ensure they comply with current regulations, and preparing free trade zonespecific versions, will ensure readiness ahead of the freeports' formal opening.

Green for go

The new green freeports are a significant long-term investment in Scotland, with wider implications for the energy industry. This should be a green light for any interested businesses and organisations to start planning now, so they are ready when the freeports go live. 