Alf Young: Counting the political cost of energy

THE energy sector and how it evolves in the years ahead lies at the very core of the Scottish Government’s case for independence. The oil reserves still lying under the North Sea will, we are told, propel an independent Scotland into sixth place in the global wealth league. Exploiting wind, wave and tidal resources can, the Salmond government insists, trigger the reindustrialisation of Scotland, creating some 130,000 jobs in the process.

So an awful lot of political eggs are incubating in Scotland’s energy basket. And any questioning of the Edinburgh government’s bullish assumptions about our energy future is going to be greeted by the SNP in full rebuttal mode. Just in the past few days we have seen a rammy over who will pay for decommissioning North Sea platforms and pipelines. Doubts have also emerged from one big Far Eastern investor about the financial viability of offshore wind around our shores.

These won’t be the last. Shortly we will hear the Westminster coalition’s final decisions on future subsidy levels for renewable forms of energy generation. After last year’s row about cutting feed-in tariffs from solar panels, there are plenty of mutterings that onshore wind could be next to have its incentives cut down to size.

In addition, an expert group has advised the UK government that, despite the risk of triggering earth tremors, it should allow more onshore drilling for gas in the practice known as hydraulic fracturing or fracking. One early estimate puts the reserves of shale gas beneath Lancashire alone sufficient to supply UK gas requirements as a whole for more than five decades.

And next month a minister from the Department of Energy and Climate Change, Charles Hendry, is visiting Iceland for talks about how the UK might tap in to that island nation’s abundant reserves of geothermal energy, via the longest high-voltage sub-sea cable link in the world.

Exploiting energy resources and meeting energy needs is one of those issues that is now creating new inter-dependencies between nation states. Anyone who comes at it from a perspective of asserting a yet-to-be-won national sovereignty is going to have to keep changing their story, if they are to keep up with a fast-moving international game.

Tuesday’s row on North Sea decommissioning erupted in a Westminster committee exploring the impact of Scottish independence on the UK energy market. The costs of removing redundant platforms and pipelines from the North Sea over the next 30 years is widely put at around £30 billion.

Professor Alex Kemp of Aberdeen University told MPs that, since the bulk of that infrastructure lies in Scottish waters, “if there was separation, the costs would be tax deductible against income from tax revenues coming from Scottish waters.”

Later, in a letter to The Scotsman, he estimated these reduced tax revenues at £16.5bn over those 30 years.

For the SNP, that analysis carries profound implications. The academic lauded by Alex Salmond himself last September as “undoubtedly the top expert on the North Sea oil industry” implies that a significant slice of the future tax riches from offshore oil recovery, instead of swelling the coffers of an independent exchequer and propelling Scotland into place as the sixth richest country on the planet, would go instead on subsidising dismantling the hardware that made the industry possible. That promised Scottish oil fund might have to wait.

Prof Kemp’s warning on the tax write-off costs of decommissioning and where they might fall drew an immediate response from another witness facing the MPs, Scottish energy minister Fergus Ewing. Mr Ewing insisted that, since the UK had enjoyed all the tax revenues from oil and gas up till now, it has “a moral and certainly a legal obligation to be responsible for decommissioning.”

When SNP politicians talk about the UK and the obligations it should face up to, they make it sound as if Scotland left that union at some point in the dim and distant past. None of the oil revenues were spent here. None of the liabilities accrued here. It’s in tune with the First Minister’s claim that, since the UK Treasury had caused the banking crisis, the UK should bear the full cost of bailing out profligate banks, including Scottish ones.

Or, as one nationalist entrepreneur is suggesting, in post-it notes he is selling online for propaganda use on Scotland’s filling station forecourts: “Did you know Scotland is the only country in the world to discover this stuff and get poorer?” Does he really believe we are collectively poorer than we were in the 1970s? It’s simply not true. But trying telling that to your next SNP canvasser.

In another letter to The Scotsman, Fergus Ewing appeared to be having second thoughts. He suggested that, post-independence, the Scottish and UK governments would simply negotiate “to ensure that UK public-sector assets and liabilities, including tax relief on decommissioning, are shared fairly”. He also pledged that these discussions would have “no impact on the future value of decommissioning tax relief received by North Sea operators”. The rate of relief would stay the same.

But in the most recent UK budget, chancellor George Osborne promised legislation this year to replace the existing reliefs with a system of signed contracts with oil and gas companies, providing them with certainty on the level of reliefs they will receive when decommissioning starts.

Does Fergus Ewing know this is happening? Does the Scottish Government intend being a party to these contracts, and the liabilities they will entail, when they are finally drawn up? Since the whole point of them is to increase certainty across the industry and encourage more new entrants into the North Sea, further exploiting fields the major players have no further interest in, I think we should be told.

But, of course, the energy decommissioning story and who helps pay for it, doesn’t stop at offshore oil and gas. One day it will apply to offshore wind, where Korean-owned Doosan Power Systems has decided to pull-out at the starting gate, as far as offshore Scotland is concerned.

Has the Scottish Government done a full life-cycle analysis of the costs of first subsidising offshore wind production sufficiently to get it in place and then providing tax relief on its eventual decommissioning? For a technology that will still be in its infancy here by the time of the referendum, it can’t expect the rest of the UK to feel any moral or legal responsibility to share the burden.

Then there’s the nuclear power station at Torness, symbol of an energy technology the SNP despises. On current plans it will stop generating by 2023. It was built by a Scottish state-owned utility and is now an offshoot of France’s EDF. Who, in an independent Scotland, will pay for its decommissioning, the way UK taxpayers, north and south of the Border, are currently paying for the dismantling of older nuclear plants across Scotland at Hunterston, Chapelcross and Dounreay?