Against Holyrood having a greater grasp on energy policy

Scotland has set itself some of the most ambitious climate change targets in the world. Audit Scotland recently calculated the bill to meet these targets will be around £11 billion and it is unclear where much of this money will come from.

Audit Scotland also stressed that three-quarters of these targets could be met for around half the cost. This makes sense as investing ever larger sums of money usually provides increasingly marginal returns. The green lobby often argues the reverse position, suggesting that ever increasing investment in renewables will provide ever larger economic benefits.

This is concerning as the figures used to further this argument are often deeply flawed. If the various claims are to be believed then Scotland would be hosting approaching 100,000 green jobs within the next decade.

However, a large majority of the jobs claimed are temporary, often lasting only a few years whilst turbines are built and installed. A small fraction of the jobs it’s claimed will be generated are likely to turn into long term employment.

Additionally, most of the projections underpinning these claims assume Scotland can develop its own renewable energy assets and then export both energy and expertise abroad. These are bold and ambitious assumptions that are not shared in reports published by institutions such as the European Commission.

A host of countries, including Germany and Denmark, have banked on similar green policies involving exporting their products and expertise. This is a game that does not add up, with each country basing policies on developing their own markets and that of their neighbours.

The report released yesterday by Reform Scotland suggests the Scottish economy could benefit by up to £2bn in export earnings each year from renewable energy.

But much of this is based on the current Renewables Obligation system. This system forces electricity suppliers to source an increasing share of their electricity from renewable sources at a premium over conventional energy.

The additional costs of sourcing energy at premium prices are passed on to consumers including households and businesses. The additional costs are treated as a tax whilst the premiums paid to producers are a subsidy. In this sense the renewable exports cited by Reform Scotland are simply an accounting footnote moving a tax on consumers to producers.

Subsidies on production are deducted from any measure of economic growth in the same way that taxes (such as those on production from the North Sea) are added to the value of the economy.

It is easy to focus on the differences between economists’ views, but a vital point raised by Reform Scotland is a move away from the Renewables Obligation system and consideration of a wider range of carbon-based taxes.

These would better reflect the environmental impact of all carbon-producing activities. This suggestion deserves serious consideration, especially if other taxes such as VAT could be reduced or partially removed.

Ambitions such as 100 per cent renewable electricity or 50 per cent of electricity exported, sound like suspiciously round numbers.

Most of the renewable energy targets are politically driven, they are not driven by industry and often skirt around fundamental issues such as whether the grid can cope with an increasingly intermittent supply or increasing volumes of energy exported south of the border.

If our ambitions are to reach further and faster, then their justification cannot rest with economic development. Significant investment will be needed to upgrade the national grid and provide additional infrastructure to enable renewables.

The public purse is being squeezed like never before, and the additional costs that will need to be met by households and businesses must be made clear.

• Richard Marsh is director of Verso Economics. http://scotsmanconferences.com/