Where next for Scottish energy policy?

Written by Liam Kirkaldy on 8 December 2016 in Inside Politics

As UK and Scottish Government energy policies diverge, what does it mean for the sector?

‘It’s Scotland’s oil’ has not been used by the SNP as a campaign slogan in decades. Part claim, part demand, the line dominated the party’s campaigning throughout the 1970s, with oil seen by Scottish nationalists as the most tangible symbol of a union that they felt gave Scotland a raw deal.

In fact oil, and the debate over energy policy, has been central to the party’s growth from the fringes of Westminster to the dominant political force in Scotland.

And while the SNP has not run a campaign using the slogan since the 1974 general election, the sentiment has never really disappeared, even if it has evolved.

Anger over the UK’s failure to create a Norwegian-style ‘oil fund’ – a sovereign fund used to invest surplus profits from the industry – continue to rage, particularly in the run-up to the 2014 independence referendum, when the idea became used as shorthand by Yes campaigners for perceived mismanagement by Westminster.


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Yet, while the White Paper famously predicted oil sitting at over $100 per barrel, the 2014 slump in global prices saw the industry fall to its knees. GERS figures show that, while in 2011-12, Scotland’s geographic share of UK North Sea oil revenues was worth £9.6bn, by last year, revenues had fallen to just £60m.

And so, the North Sea oil and gas industry has entered into difficult times, yet questions over energy policy continue to dominate the party’s attention. And in the context of the SNP’s historical support for oil and gas, the current debate over the future of fracking, along with other forms of unconventional gas extraction, is an interesting one.

For a party which has been deeply supportive of the oil and gas industry, there is a remarkable degree of scepticism within the SNP when it comes to fracking. Part of this may be down to the growth in its membership changing its ideological leanings, with recent party conferences playing host to some pretty fraught debates over whether the leadership had taken a strong enough line on the issue, and whether the current moratorium goes far enough.

Labour has certainly looked to capitalise on criticism of the SNP’s stance, with the party having opposed the technique in the run-up to the last election.

Then, shortly after the vote, the Scottish Parliament backed a motion – tabled by Labour MSP Claudia Beamish – to ban fracking, after Labour, Green and Lib Dem MSPs voted in favour, the Tories voted against and the SNP chose to abstain.

In fact, after the Lib Dems agreed to come out in opposition – eventually – the Scottish Tories are now the only party in Scotland to openly support fracking for onshore shale. As far as Ruth Davidson’s party is concerned, if Scotland is going to require gas, it may as well produce it internally, rather than relying on imports.

Murdo Fraser told Holyrood: “We believe we will continue to have a requirement for gas, both as an energy source and as raw material for the petrochemical industry more generally for many decades to come. We have gone from being a major producer and exporter of gas to being an importer of gas, and it doesn’t seem to make sense, to us, to be sitting on a domestic gas resource that we could be utilising instead of importing it.

“I think it is a particular irony that the Ineos plant at Grangemouth, which is a vitally important component in the Scottish industrial economy, supporting 10,000 jobs, is relying upon Pennsylvanian shale gas which is shipped across the Atlantic. It doesn’t seem to make any sense to be doing that when there is a potential to develop a domestic supply for unconventional gas and get the economic benefit from that here in Scotland.

“If you have your own resource here, does it not make more sense to use that and get the economic benefit and the jobs that would arise, rather than exporting that to other countries.”

Turning to the SNP’s moratorium, put in place while it gathers evidence to inform a consultation, he adds: “There is no doubt what is going on here. This is all a face-saving exercise by the Scottish Government, which realises this is a politically difficult issue to deal with so they are spending lots of money commissioning lots of reports to throw up as much chaff as possible and make the debate as impenetrable as possible for ordinary members of the public.

“Whatever side of the fracking debate you are on, whether you are for or against, people just want some certainty – they just want to know what is happening – and the SNP is just trying to punt this into the long grass because they know it is a difficult decision to make.”

Of course, the debate over fracking takes place in a different world to the one that gave birth to the slogan calling for control of ‘Scotland’s oil’, with recent figures from the World Meteorological Organisation showing 2016 was the hottest year on record. Before that it was 2015, and before that it was 2014. In fact, the figures mean that 16 of the 17 warmest years will have been recorded this century.

And it is this growing concern over the danger posed by climate change that has driven environmental groups to oppose fracking, while calling for greater investment in renewables.

But they, too, have become a focal point for unrest against Westminster’s approach. Questions of its mismanagement – once embodied by oil – have now manifested themselves in renewables.

SNP MP Callum McCaig, the party’s energy and climate change spokesperson, describes some of the tension to emerge between the Scottish Government and its UK counterpart over the direction of UK energy strategy.

He told Holyrood: “Up until the general election in May 2015, there was a relatively coherent energy policy at a UK level, and while I and colleagues in the SNP may not have agreed with everything in there, there was a mix of different energy-generation technologies in the mix and above all, there was a degree of clarity about what the future would hold and what that meant for investment in the UK and in Scotland, in terms of the renewable sector.

“But since the election, there have been several decisions taken by the UK Government, often at very short notice, which have had a detrimental effect on the renewables sector, all of which were taken at the eleventh hour, with no forewarning. That has led to a huge increase in the uncertainty facing investors in energy generation – not just in low carbon generation but in all generation. The UK is seen as a less safe bet when it comes to investing in energy generation.”

This point is echoed by a recent report, ‘Investor confidence in the UK energy sector’, produced by the UK Energy and Climate Change Committee, which covered how a series of government policy announcements, made over the summer of 2015, “appeared to signal a significant change of direction on low-carbon energy policy”.

The report says: “The changes took many stakeholders by surprise and raised serious questions about the government’s plans for meeting long-term carbon objectives. Given that great pains have been taken in recent years to take account of investors’ need for policy stability and predictability, it was not surprising that stakeholders identified investor confidence in the UK energy system as a priority area for us to investigate.

“We found that the government’s actions have clearly had an impact on the confidence of many investors. While the effect is not as great as has been experienced in some other countries – where the implementation of retroactive policies has caused investment to collapse – there nevertheless has been a dip in confidence since the election in May 2015.”

It is this inconsistency which has angered opposition parties from across the Commons.

As McCaig puts it: “You have a whole host of differing policy announcements, often contradictory. The carbon capture and storage decision was taken without informing the bidders for the two projects, and I also believe without informing the Department of Energy and Climate Change, without giving them prior warning. We have seen decision after decision taken, often by the Treasury and often for the wrong sort of reasons. That CCS decision was taken weeks before the UK Government was negotiating as part of the high ambition coalition at the Paris climate talks. 

“On the one hand, you have some good, progressive attempts to reduce carbon emissions – taking global leadership and signing off things like the Fifth Carbon Budget. But then on the other, you have complete chaos when it comes to the actual certainty over what is going to happen, over the short, medium and long term.”

The sort of frustration described by McCaig is shared across the Scottish Parliament, where, barring the Tories, there seems to be broad acceptance the Scottish Government’s options have been severely curtailed by the approach at Westminster.

Scottish Green energy and climate change spokesperson, Mark Ruskell, told Holyrood: “The context surrounding the subsidy cuts that we have seen from the Westminster Government is really important, it was incredibly damaging to the renewable sector and I personally know people who have lost their jobs as a result.

“I think the assumption from the Scottish Government is that there is still a healthy pipeline of projects on their way – particularly in onshore wind, but I don’t think we can be complacent about that. There are a number of pressures which the industry is facing at the moment – cost pressures – and the withdrawal of subsidies will make many projects economically unviable. The government needs to look at ways it can support the industry moving forward.

“One of the difficulties we have seen, though, is that it has often been SNP councils at a local level which have sought to exclude onshore wind wholesale from council areas – we have seen that in a number of examples.”

Current confusion stems from a change of direction, announced by then Secretary of State for Energy, Amber Rudd, with the UK dropping support for renewables, while putting its faith in a mix of gas-fired power stations, and new nuclear development.

Explaining the thinking behind the decision, Fraser says: “Nuclear power is low carbon energy. It is, on a whole systems basis, cost competitive, with even the cheapest forms of renewable power. And we have in Scotland a legacy of knowledge and expertise from the nuclear industry which could be utilised with a new generation of developments.”

The SNP, meanwhile, continues to oppose new nuclear developments, though the party’s strategy relies on using the electricity generated by existing nuclear stations north of the border, at least until they are forced to close over the next ten or 15 years. Some would question the consistency of opposing a low-carbon technology which is currently needed to keep the lights on.

McCaig’s opposition seems to be based less on safety concerns, and more on economic ones.

He says: “There will be differences of opinion here, and I agree with the SNP policy here, but not from a hugely ideological point of view. My issue is in terms of costs – it is too expensive – and if you invest in that technology, there is an opportunity cost for the other technologies you could invest in, which I think are a better bet.

“Then secondly, we still have absolutely no idea how we can safely dispose of it [the waste]. The concept of geological storage is there, but there is not a particularly long queue of places wishing to have it in their communities. I think there are other technologies we can use if you combine them with pump storage, the likes of battery storage, perhaps, then the potential to deploy a far greater range of renewables is there. There is always the ability, through interconnection, to join up with other markets to balance out supply and demand.”

Instead, to McCaig, the answer lies in pursuing carbon capture and storage (CCS) – a technology which has long been viewed as a kind of get-out for those seeking to reconcile the need to burn fossil fuels with a concern for the increasingly dangerous impacts of climate change.

But efforts to develop the technology hit a buffer with an announcement from the Conservative Government, last November, that it would axe a £1bn grant for developing CCS – despite having promised the funding in its manifesto.

The decision faced strong criticism in the recent report from the House of Commons’ Energy and Climate Change Committee, which warned: “Pulling the plug on the competition without warning in this way was damaging both to the relationship between government and the industry, and to investment into the UK.”

It said: “This delay also seems to be in direct contradiction with the direction of energy and climate change policy set out in the government’s ‘energy policy reset’. With gas and without CCS, we will not remain on the least cost path to our statutory decarbonisation target.”

“If government is committed to its climate change targets, it cannot afford to sit back and simply wait and see if CCS will be deployed at the moment when it is needed.”

And so, inevitably, the U-turn formed another bone of contention for those irritated by the UK Government’s approach to renewables.

McCaig says: “The Committee on Climate Change has said that, without CCS in the mix, then meeting carbon-reduction targets becomes not just more difficult but considerably more expensive. I have described it in the past as a ‘get out of jail free card’ in terms of climate change – that is oversimplifying things because it is neither getting out of jail, or getting out for free, but it has to play a part of the mix, certainly during a transitionary period.

“Even with exponential growth in terms of renewable deployment, we are still nowhere near the level of energy production that comes from fossil fuels. Then you have some industrial processes in which the by-product is pure CO2, so it is not just about energy but industry as a whole. And if you are capturing it from industrial processes, I don’t see why you wouldn’t try and capture it from electricity production as well. It makes the whole thing an awful lot more viable from an economic point of view.

“So certainly in that transitionary period [to renewables], which is probably a 30- or 40-year window, I think, then using CCS on existing plants is a sensible way forward. But it requires demonstration that it can be done, and done in a cost-effective way.

“The frustration for me in terms of the decision to pull the plug on Peterhead is two-fold. One, they have not come up with a solution for plugging that gap, and they are still suggesting CCS will play a part in the mix. But the other point is that Peterhead could have been home to one of the pioneering plants for CCS, and so as well as helping to save the planet, it would have been a tremendous business opportunity for the north-east of Scotland to utilise some of the skills we have in oil and gas and deploy them in a new technology that is likely, if it is cracked, to have a huge market globally.”

As you might expect, Murdo Fraser is much more defensive of the UK Government’s u-turn on CCS funding. He said: “The projects that were being proposed were extremely expensive and I believe UK Government colleagues are still looking at how we can support more efficient, more economic CCS projects. I think there is still interest in supporting the technology, but it is reasonable for government to look at the costs of progressing these kinds of technologies, and whether they are economic against other technologies.”

Environmental groups have often expressed scepticism of CCS, with critics suggesting that the technology, still in its relative infancy, is being used to justify current emissions.

Ruskell says: “We have to look at every technological option but CCS is still pretty much conceptual. In terms of the technologies we need to invest in, and capture the intellectual property around, I wouldn’t see CCS as a get out of jail free card. What we do need to recognise, and this is where the SNP have been a bit weak, is that there is a limit on the expansion of the offshore oil and gas industry, and if we can focus on the jobs and the intellectual property that can come from decommissioning, and retain that in Scotland, we will have an advantage globally. There is going to have to be decommissioning in the North Sea sector regardless of whether there is future expansion or not.”

And, regardless of the pros and cons, there is no getting away from the fact the funding is gone. So whether CCS is a get out of jail free card or not, there is no real reason to assume Scotland will be able to rely on a functioning CCS facility anytime particularly soon. And so the SNP will press on with plans to extract every single drop of oil from the North Sea, while the planet will continue to warm.

Analysis from the International Energy Agency (IEA) found that two-thirds of the world’s remaining oil reserves must stay in the ground if the world is to keep warming to under 2C degrees and avoid the worst effects of climate change.

More recent findings were even less optimistic, with evidence from Oil Change International suggesting the potential carbon emissions from the oil, gas, and coal in the world’s currently operating fields and mines would take the world beyond 2C of warming. Worse, it found that the reserves in currently operating oil and gas fields alone, even with no coal, would take the world beyond 1.5C.

And so either Scotland takes a radically different approach to its current energy policy, or it expects other states around the world to leave other oil reserves in the ground to make up the difference. And whatever the exact amount of oil that can be extracted, the idea of extracting all of the North Sea stuff has led the party to face accusations of hypocrisy. So is there a contradiction in the SNP policy?

Not to McCaig. “I don’t think it is necessarily contradictory but I think one means we have a moral duty to act on the other. So the fact we have been an early adopter in terms of the Industrial Revolution and a major producer, not just in terms of oil and gas but also in coal, means we have taken far more per head of population than what would globally be allowed. So I think there is a moral duty on Scotland, and the UK, as well as other advanced industrial nations which also happen to produce large amounts of fossil fuels, to be at the forefront of that change.”

He adds: “At this moment in time, regardless of whether we get it [oil and gas] from the North Sea or we get it from Saudi Arabia or wherever, it is going to be required. Your requirement for the fuel does not go away just because you stop producing it from your area. “If we are going to lead that charge in terms of investment in new technologies, then making the most of the resources we have that are not so great for the planet, and working out how we can perhaps use them in a way that allow them to continue to be used in a less harmful way, and using the revenue that comes from that process [to invest in renewables], is a reasonable way to go forward.

“We could sit on our hands and not invest, we could say, ‘fine, we are not going to have any more oil and gas’, but neither of [these] things help solve the global picture. So doing it hand in hand, and recognising our role – both current and historical – in the development and use of fossil fuels means we have a responsibility to help.”

Energy has dominated Scottish political debate for decades, and yet, because of the way powers sit between the Scottish and UK Governments, the relationship between the competencies of the two has been a peculiar one. In fact, when it comes to energy policy, the SNP and Tories can both claim to be in opposition, depending on which parliament is in focus.

And it is perhaps this unusual relationship between responsibilities which has led tensions to develop – though with Amber Rudd moving from energy onto home affairs, it is at least possible relations between the Scottish and UK Governments could improve. McCaig is at least optimistic that the relationship cannot deteriorate any further.

He said: “Greg Clark is certainly more open-minded to the low carbon, green energy sector, both as a part of the energy mix but also hopefully, as part of the industrial strategy. The other thing, and probably the bigger change for the sector, is that George Osborne is no longer in Number 11, because he was undoubtedly a bigger impediment to the green energy sector than Amber Rudd or Andrea Leadsom ever were. Early indications suggest Philip Hammond will be a far less political chancellor than his predecessor, and if that is the case, I think it will be beneficial for the low-carbon electricity sector, because I think the case stacks up, it was just being ignored because it didn’t fit in with George Osborne’s view of the world.

“So I am cautiously optimistic, but it is worth recognising that that optimism comes from an incredibly low starting point. I don’t think they could be much worse, and even being moderately better – they could still not be great and it would be a move for the better. But Greg Clark seems a sensible kind of guy, from my dealings with him so far, so I hope he will realise that investing in low-carbon electricity generation, and in renewables in Scotland, is a win-win all round.”  

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