Paterson slides - Scottish Constitutional Futures Forum

Energy Policy and Scotland’s Constitutional Future Setting the Scene

John Paterson University of Aberdeen

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) 7

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 8

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 10

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 12

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? 14

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 15

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... 16