Scotland referendum 2014: the impact of independence on energy policies
Analysis of the potential impact of a Yes vote in the Scottish independence referendum on energy policies.
Part of a collection of articles produced by the House of Commons Library which explore the potential impact of a Yes vote on the UK, aiming to inform the debate from an impartial viewpoint.
Current energy policies
Most energy policy decisions are reserved for the UK Parliament. England, Scotland and Wales operate in a single energy market
Most UK North Sea oil and gas reserves are in waters that could be claimed by an independent Scotland. The Scottish First Minister has indicated that revenues from these reserves could be used to create a Scottish sovereign wealth fund
The UK and Scotland have climate change targets enshrined in law. In the event of independence, the UK would have to re-calculate carbon budgets
Scotland has good resources for generating renewable energy and the UK might struggle to meet renewable energy targets if Scotland becomes independent. Conversely, the development of renewables in Scotland is currently dependent on UK support
Under the Scotland Act 1998 energy policy decisions were reserved for the UK Parliament, although the Scottish Government still has influence through devolved powers on planning permission and some renewable energy matters.
Climate change policy is, in general, devolved to the Scottish Government, but policies to tackle this cover a wide range of sectors and span both reserved and devolved matters.
Scotland's wind and wave resources could have a significant role in the expansion of the renewable energy sector, whether or not it remains part of the UK.
North Sea oil and gas reserves have become a key part of the devolution debate. Scotland's electricity transmission system is an integral part of the UK's energy infrastructure.
A single energy market operates across England, Scotland and Wales. A separate but integrated market operates across Northern Ireland and Ireland.
Share of energy generation
The energy sector in Scotland employed 63,000 people in 2012 - 23% of energy-related employment in Great Britain, according to the Scottish Government energy statistics website. This relatively high figure reflects the scale of the oil and gas industry in Scotland.
Department for Energy and Climate Change (DECC) Energy Trends: December 2013 figures show that:
- On average, over the last four years, 77% of UK electricity generation has taken place in England, 14% in Scotland, 8% in Wales and 2% in Northern Ireland
- Both Scotland and Wales are net exporters of electricity, with England importing electricity from both countries and from continental Europe (via the France and Netherlands interconnectors)
- Between 2011 and 2012, England's share of total UK generation increased marginally. Generation shares in Scotland, Wales and Northern Ireland fell marginally due to a decline in gas generation
- In 2011, Scotland exported 26% of the electricity generated there to consumers elsewhere in the UK, the same as in 2012. Transfers from Scotland to England fell by 8% between 2011 and 2012, following a record high in 2011
- Wales exported the equivalent of 10% of its generation to consumers in England in 2012, a decrease from 13% in 2011 and a new record low
Offshore oil and gas
The First Minister announced in 2012 plans to create a sovereign wealth fund from oil and gas revenues in an independent Scotland in a speech at the LSE entitled Independence and Responsibility: the future of Scotland.
An Expert Commission has now been established to consider the fiscal and regulatory regime for oil and gas in an independent Scotland. It is expected to publish its report shortly.
As part of the Scottish National Accounts Project, or SNAP, the Scottish Government estimates that in 2013 Scotland produced 40 million tonnes of oil and natural gas liquids, which amounts to 93% of total UK production.
How oil reserves would be divided up if Scotland gained its independence is a matter for international convention and negotiation between the parties involved.
The default position of the UN Conventions on which this is based would define Scottish waters extending north beyond lines roughly east to west at the Scottish border.
However, the conventions also provide that boundaries can be agreed bilaterally between governments.
A final decision would ultimately come down to negotiations regarding revenues from the reserves. It would be an important part of any independence negotiations.
Ownership and production
One analysis suggests that if the default boundary were to be adopted, 99% of total oil production and 60% of total gas production, over the 30 years from 2011, would come from the geographical area apportioned to Scotland. See: Alex Kemp, 'North Sea Oil and Gas'. in A Goudie, Scotland's Future: The Economics of Constitutional Change. Dundee University Press, 2013.
The UK Government paper “Scotland analysis: Energy” sets out the argument that if Scotland were to exploit the resources alone and then meet the associated decommissioning cost from North Sea installations it would have to invest around £3,800 per head – over ten times more than when costs are spread across the UK – to match the £20 billion the UK Government has committed towards decommissioning in the North Sea.
In recent evidence to the Scottish Parliament's Economy, Energy and Tourism Committee (PDF), Professor Alex Kemp of the University of Aberdeen highlighted the “complex situation…when decommissioning takes place after Scottish independence but the claw back extends to the pre-independence date”. Contrary to the UK Government's position, the Scottish Government believes “responsibility for decommissioning tax relief will be the subject of a negotiation between the Westminster and Scottish Governments.”
Whatever the outcome, tax relief of between 50% to 75%, on total decommissioning costs of up to £45 billion, will have a significant financial impact on any future Scottish or UK government.
The Climate Change Act 2008 created a legally binding target to reduce the UK's emissions of greenhouse gases (GHGs) by at least 34% of 1990 levels by 2020 and 80% below 1990 levels by 2050.
The UK also has a binding target to generate 15% of energy from renewable sources by 2020 under EU legislation. To achieve this target, it is estimated in the Committee on Climate Change "The Renewable Energy Review" that a significant proportion of electricity – up to 30% – will have to come from renewable sources.
The Climate Change (Scotland) Act 2009 set targets for a reduction of at least 42% of 1990 levels by 2020 and an 80% reduction target for 2050. In addition the Scottish Government's renewable electricity target is set at generating the equivalent of 100% of electricity demand from renewables by 2020.
Scotland's more ambitious target is to generate the equivalent of 100% of Scotland's gross annual electricity consumption by 2020.
Dividing up the commitments
In written evidence to the House of Commons Energy and Climate Change Committee in 2012, the Department of Energy & Climate Change DECC said that the way UK-wide targets could be divided up under an independent Scotland scenario would depend on negotiations with the EU.
More details and all the submissions to the House of Commons Energy and Climate Change Committee inquiry on the impact of potential Scottish independence on energy and climate change are available on the parliamentary website.
Further DECC analysis on commitments
In April 2014, the DECC position was set out in Scotland Analysis: Energy (PDF), which includes documents and an infographic illustrating the likely costs to households and businesses.
This stated on renewables:
“Scotland accounts for around 10% of electricity sales in the UK but received 28% (£560 million) of the total paid by all UK consumers to support renewable generators through the current Renewables Obligation in 2012/13.
Scottish independence risks undermining the current basis for success of the low carbon sector in Scotland. The reality of independence is that Scottish low carbon energy is unlikely to be able to rely on the current levels of financial support provided by all UK energy bill payers.”
On meeting renewables targets it recognised the likelihood that the UK would not be able to produce enough renewable energy to meet its own targets, but also took the view that there were various options available for meeting the target, which might or might not include Scottish renewables:
“If the continuing UK were to look beyond its borders for low carbon and renewable energy or credits towards meeting its target, it would need to consider which sources provided the cheapest and most reliable options.”
Scottish production would be one of several possible sources.
Scottish Government's views
Chapter 8 of the White Paper Scotland's future sets out the Scottish Government's views on how the energy and gas markets could work together following independence:
- Scotland would continue to participate in the GB-wide market for electricity and gas
- The Scottish Government plans to establish an Energy Partnership with the UK Government, and provide market incentives to deliver a mix of generation
- Control of offshore licensing and leases would create new opportunities to deliver community benefits from offshore development
- The creation of a Scottish Energy Fund would be an early priority.
The fund would be used for two purposes:
- to provide investment for future generations from a natural resource that can only be extracted once
- to provide income that can smooth receipts from oil revenues
UK Government view
The UK Government's Scotland Analysis: Energy from April 2014 argues that:
- If Scotland becomes an independent state, the current integrated energy system could not continue. It would difficult to agree a common approach to energy policy required to maintain the integrated energy system proposed by the Scottish Government
- If the costs of supporting Scottish energy network investment, small-scale renewables and programmes to support remote consumers fell on Scottish bill payers alone it would add around £380 to annual household energy bills and around £110,000 to energy costs for a medium-sized manufacturer in 2020
- If the costs of supporting large scale Scottish renewables fell to Scottish bill payers the total potential increase would be around £190 for households and £608,000 for a medium sized manufacturer in 2020
- If no electricity was traded between an independent Scotland and England and Wales there would only be minimal impacts on security of supply in England and Wales