Figures show the renewable energy sector may be kind to the environment, but would wreak significant damage on the Scottish labour market
RENEWABLE energy is playing a big role in the Scottish election campaign. This is no surprise. The development of the sector has been very striking in recent years, not just in the proliferation of wind farms across the country, but in terms of the economic and environmental arguments that surround it.
Yet the politics of renewables are baffling. One the one hand we have the SNP which trumpets the success of the green sector as a great opportunity for Scotland. Yet this is at odds with its core policy of independence, which would cripple the nascent industry at a stroke.
On the other we have Labour which has somehow been forced onto the defensive on renewables, even though the success of the industry in Scotland is directly attributable to their stewardship of UK energy policy over the last decade.
Underpinning the whole debate are a set of economic assumptions made by ministers that are so specious it is amazing that they are not challenged more often.
To see why the renewable energy market depends on Scottish membership of the UK requires only a brief glance at how the market is structured. Since most renewable technologies are not yet economically viable, they require subsidy. The main subsidy mechanism fostered by the last UK Labour government, the Renewable Obligations (RO) scheme, essentially rewards producers of renewable electricity by increasing the price of electricity to the general consumer.
Since between 35 per cent and 40 per cent of renewable electricity is produced in Scotland, while only 9 per cent of total electricity is consumed here, it doesn't take a genius to work out that Scotland benefits from a transfer from the rest of the UK of more than a quarter of the total value of the subsidy. In 2009/10, the total value of the RO scheme was 1.1 billion, and the net transfer to Scottish producers from it 310 million. Add to that the various tax breaks, grants and direct subsidies that government throws at the industry on top of ROs, and we had a net benefit to Scotland of some 330m in that year.
This figure is increasing annually as the RO mechanism is cranked up to encourage growth in the sector. On top of this, similar mechanisms are being developed to subsidise renewable transport fuel and renewable heat, as well as energy from small "micro-renewable" producers. All rely on artificially high energy prices across the UK.
Now, if Scotland left the UK, its renewable energy producers would no longer benefit from these mechanisms. In other words they would not be able to access the huge UK energy market for their output at a subsidised rate. Either Scottish consumers and taxpayers would have to make up the difference on their own, or else the industry would wither on the vine.What's curious about this situation is that the SNP has successfully made the renewable energy debate its own, despite the fact that its flagship policy is inimical to the sector. A recent biography Salmond: Against the Odds points out that green energy is the one of the few areas of policy that the First Minister is genuinely enthusiastic about. According to the author, David Torrance, "on this he's been remarkably consistent from his undergraduate days until his first term as First Minister. He's zealously pursued renewable energy initiatives, from developing electric cars to a new generation of offshore wind farms. Even the normally hostile Daily Record has pointed out that this 'could prove his greatest legacy to Scotland'."
The puzzle is why the unionist parties, and Labour in particular, do not point this contradiction out more often. You would have thought that the market architecture developed by Labour to promote renewable energy, which is of such apparent benefit to Scotland, could be promoted as an excellent of example of how the party has made the Union work to Scotland's advantage.
But perhaps they are right to be cautious. For the economic advantages of the switch to renewable energy are greatly exaggerated. In their enthusiasm for the sector, SNP ministers like to make out that green energy offers us an economic opportunity akin to the discovery of oil for Saudi Arabia.
Such claims should raise the eyebrows of even the doziest of economic commentators. If you switch from one method of production to another that is no more efficient, there should be no net benefit. In other words, for every job created in producing renewable energy, there is presumably an equivalent number foregone in the production of conventional energy.
And of course renewable energy production is less efficient than conventional, in that it requires subsidy, so logically you have to expect a net economic loss from the switch as the costs of the subsidy are paid for by consumers and taxpayers, reducing investment elsewhere. So those who promote the renewable energy sector on its potential for job creation are only counting one side of the ledger. What happens if you tot up the losses as well?
A recent study I worked on for the consultancy Verso Economics, Worth the Candle, did just that. It used the Scottish government's own model to estimate the impact of these subsidies on the wider economy. Not surprisingly the research showed that taking money from the rest of the economy to subsidise green energy resulted in more jobs foregone than created. In the UK as a whole, 3.7 jobs are foregone elsewhere for every one created in renewable energy.Apply this to the Scottish government's claim that 48,000 jobs are going to be created in renewable energy by 2020 in Scotland alone, with the equivalent of 100 per cent of our electricity being generated from these sources, and you have some very worrying implications for employment elsewhere in the economy.
Luckily this unpalatable outcome is most unlikely because the projected job figures for the industry are greatly exaggerated. They are many times more than the number of people employed in the whole of electricity production at the moment. In practice, once the windmills are up, they employ remarkably few people.
Even so the report is the latest in a long line of studies from around the world that show the same unsurprising results - green energy costs more jobs than it creates. This isn't to say necessarily that the costly switch to green energy is not worth it on environmental grounds, but that is a different argument. The Scottish government promotes green energy as if it is an economic opportunity, rather than a necessary cost.
The only way to make money out of renewable energy is to foster such a concentration of production that, locally, the benefits outweigh the losses. Indeed the Verso study shows that the net cost in Scotland was only 1.1 jobs forgone for every green job created.
Yet this beggar-my-neighbour approach can only work if the neighbour is prepared to be beggared. Currently, UK policy makers are happy with a situation where electricity production is shifted to Scotland from the rest of the country, even if it means higher prices and job losses for all.
Since this framework would obviously not survive the end of the Union, it is a great curiosity of this election campaign that the parties seem to have ended up on the wrong sides of the debate.
• Tom Miers is an independent public policy consultant. Worth the Candle is available from www.versoeconomics.com