Energy Policy and Scotland’s Constitutional Future

Setting the Scene

John PatersonUniversity of Aberdeen

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The legislative background

• Scotland Act 1998– Created Scottish Parliament and Scottish Executive

(now Government)– Reserved certain powers to the UK Parliament– Anything else is deemed to be devolved– Devolution of reserved powers possible by

secondary legislation

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Reserved matters

• Specific reservations in Schedule 5 include the following:– Generation, transmission, distribution and supply

of electricity– the ownership of, exploration for and exploitation

of deposits of oil and natural gas– Coal, including its ownership and exploitation– Nuclear energy and nuclear installations

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Devolved powers

• Despite the general reservation, some energy matters have been devolved by secondary legislation to Scottish Ministers, including: – the Renewables Obligation in Scotland– consent for power stations >50 MW onshore and

>1 MW offshore

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Other relevant powers

• Other legislative powers impact upon energy projects, including:– Fiscal– Environmental regulation– Planning

• Of these, fiscal powers are reserved, whereas environmental and planning are devolved

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The current position

• Thus, even though energy is a reserved matter, the net effect in Scotland of the deemed and executively devolved powers is:– Significant development of renewable generating

capacity– Effective block on new nuclear development

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Other relevant factors

• Energy developments are also influenced by GHG emission reduction and renewable targets, in relation to which the Scottish Government has been more ambitious:– Reduce GHG emissions by 42% by 2020 (UK target

34%)– 20% of all energy from renewables by 2020 (UK

target 15%)– Aim to decarbonise electricity generation by 2030

(no UK target)

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Comparative advantage - renewables

• Scotland possesses natural advantages to make such targets more achievable:– 1% of EU population– 25% of wind resource– 10% of wave resource– 25% of tidal resource– CO2 storage capacity > Germany, Netherlands and

Denmark together

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Obstacles?

• The Scottish Government has identified potential challenges, including:– The transmission charging system militates

against electricity generation in the north of Scotland while effectively offering a subsidy in the south-west of England

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The oil and gas advantage

• In addition to a comparative advantage in relation to renewables, Scotland would also have significant hydrocarbon reserves:– Estimates vary, but the fact that 90% of UKCS

production to date has been in Scottish waters indicates possible future scenarios

– NB delimitation of an international maritime boundary need not follow the median line approach on which this figure is based

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The future of oil and gas?

• The Scottish Government suggests that devolution of fiscal powers in relation to oil and gas would allow for – a regime better adapted to the needs of the

maturing province– the establishment of an oil fund

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Calman Commission on Devolution

• Recommended energy remain a reserved matter• Saw merit in a UK-wide approach...• ...but interestingly did not address transmission

charging, as believed it was beyond their remit• Preference for UK approach to energy premised

on perceived benefits in terms of – security of supply, – meeting international targets – service to consumers

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Scottish Government’s riposte

• Scottish Government felt Calman’s analysis missed the point that existing arrangements did not allow Scotland’s full energy potential to be realised

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A complex picture - renewables

• Transmission charges v support for renewables under Renewables Obligation – Transmission charges are higher in Scotland, but– One-third of renewables support goes to Scotland, while

Scotland only has 10% of households• Energy Bill: how will matters look under the new

Feed-in Tariffs with Contracts for Difference?• Would an independent Scotland with expensive

renewables find itself in a buyer’s or a seller’s market in the EU?

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A complex picture - hydrocarbons

• What are the regulatory resource realities of devo max or independence?

• How will current licences be affected?• What are the tax implications for companies

operating north and south of the border?• Will uncertainty affect investment decisions?

Any delay would exacerbate the problems caused by ageing infrastructure

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Conclusions

• Scotland has significant hydrocarbon and renewable resources

• In the best-case scenario, an independent Scotland or one with devo max could reap significant rewards

• In other scenarios, things could be much tougher

• The referendum is a very high-stakes game for the whole UK...