Effects of Scotlands Independence on Energy Industry
By Leigh Teixeira
A report published recently estimated that the value of the gas and oil reserves in Scotland is worth £4 trillion and could drastically change the future of the countryís economy. The estimation is however based on the current oil price of around $100 rising to as much as $270 for a barrel. The report doesnít add that most of this money would go to the owners of the reserves, most of whom arenít Scottish. The figure is also based on the highest projects of oil still available in the reserves.
If oil prices rose to such an extreme figure the effect on the international economy would be terrible.
The report and its figures do however allow one to focus on Scotlandís independence and how it would affect the energy market.
The figure in the report was taken from another report on the organisation of development and economic co-operation which was published in March of this year. A number or articles written for the David Hume Institute, based in Edinburgh, Scotland have been based on this report.
The Institute believes that energy will be a big issue in Scotland when the country gains independence from the viewpoint of gas and oil, renewables and that of the consumers.
The effect that an independent Scotland would have on these aspects of the energy industry was best summarised by 3 economists at the Heriot Ė Watt University - Karen Turner, Mark Schaffer and Julian Fennema - in their book called Energy Trends: Scotland and the World. They say that if the international oil prices rise and remain at a high price, or if there are new oil and gas reserve discoveries in Scotland; the whole UK will benefit if Scotland is still a part of it or just Scotland will benefit should it be independent at that time. If there is a drop in oil prices or no new discoveries are made in Scotland, an independent Scotland will absorb the full effects alone but, if it were a part of the UK the effects wouldnít be as bad.
When you look at it, the above is quite obvious and this is why energy always comes up in the debates on Scotlandís independence. The people of Scotland will need to decide if their independence is really worth the risk when they need to vote on the 18th of September 2014.
Other papers written for the David Hume Institution gas and oil, show that if Scotland gains independence, it could have disastrous effects on an already fragile investment market.
If you consider how much money from a number of nations has been invested into the West of Shetland and the North Sea, you wouldnít necessarily think that there would be concern for investment just because Scotland is no longer part of the UK.
Last year, around 11.4 billion was invested in the UKís gas and oil industry and this year itís well on its way to £13 billion. The companies that have invested in the industry are accountable to working with different countries and having to deal with these countriesí different tax regimes.
One of the papers pointed out that what would concern the investors isnít the government itself as the head of Scotlandís government is an oil economist who seems to be on the ball but, the countryís marine boundaries. The authors of the particular paper say that international law has put procedures in place to fix the problem rather than offer a clear, straightforward answer.
Discussions could be a long drawn out process that would delay an actual answer for a number of years. The authors have thus suggested that shared development between the UK and Scotland would support the momentum of the industry throughout that time.
The article raises concerns around the transfer from the UK to Scotland of licensing, regulation, safety and inspection will be a complex task especially for a region that is past its prime with old equipment, difficult to access reserves and soon to experience mass decommissioning.
The article also warns politicians to resist the temptation to use the energy industry as a source of easy profits to meet short term financial difficulties.
Gas and oil isnít the only part of the energy industry that holds good prospects for the countryís economy. The renewables sector looks promising. The big question though, is whether or not independence would hinder Scotlandís ambitions for their renewable industry.
This concerns all of Scotlandís citizens, as campaigners who wish for the country to remain part of UK have pointed out, that energy bills would increase if they cannot look towards bill payers in England, Northern Ireland and Wales to share the burden of paying for the subsidies needed to encourage investment in wind farms.
Other articles written for the David Hume Institute look at how important it is for all countries to make use of renewable energy and what decisions government would need to make should there be a disruption in supply of energy within the UKís joint energy market.
A number of traditional power stations have already been decommissioned and many more will be facing the same fate soon. Wind and wave energy is the way of the future and it is logical to place them where they will run most efficiently.
Scotland is often seen as the best location for wind and wave technology to be developed and if they are independent they could continue selling energy to the rest of the UK.
Economists from the University of Strathclyde say that it isnít certain how the energy market could remain the same should Scotland gain independence. The plans in progress to develop a better link-up between the energy grid in Scotland and England will help.
The economist say that by becoming an independent country Scotland would face greater difficulty in having a secure energy supply than if it were a part of the UK. Scotland has put a restriction on any development of nuclear power plants thus making it very difficult to meet energy needs should there not be sufficient wind or waves to use to generate energy. The costs involved with developing spare capacity would be high and not necessarily efficient to meet the countryís needs.
With this in mind, itís obvious that as an independent country Scotland would have to import energy from other nations. This may not be beneficial for them as the UK would obviously prioritise its own needs and therefore only be able to supply Scotland with the excess, if any.
There is also the UKís obligation to the European Union to cut down on carbon dioxide emissions. The UK would be able to do this if they buy in the Scottish governmentís targets for renewable energy, taking power from north of the Tweed River regardless of the nationís independence. Should Scotland become independent the UK may choose to meet their obligations to the EU by purchasing green energy from Ireland or from Europe or by developing green energy on its own land. This could lead to problems for policy makers in Scotland.
Experts have suggested that if Scotland becomes independent different polices can be implemented such as the tax on carbon emissions which can be increased but, they all have a downside. The experts add that in the long run this could mean that people in Scotland will actually pay more for electricity than those in the UK.
Alex Salmond, the Prime Minister of Scotland will be delivering a speech this week in which heíll be discussing the future of renewable energy in the UK.
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