A distinctive Energy Policy for Scotland?

Professor Peter McGregor, Department of Economics, University of Strathclyde

 The objective of this paper is to explore the extent to which there has emerged a distinctive energy policy for Scotland, and to examine the degree to which any differentiation from UK energy policy may be judged to be either desirable or problematic. This requires a detailed consideration of both UK and Scottish energy policies. It is critically important to recognise that any energy policy in the present UK institutional setup operates in the context of liberalised energy markets. Energy policy instruments have to induce market participants to change their behaviour in such a way as to produce an outcome that meets the ultimate objectives/ goals of energy policy subject to a range of economic, political and legislative constraints. Typically, progress would be assessed at least partially through monitoring of intermediate targets or indicators. Implicit in this policy framework is a judgement that, in the absence of energy policies, liberalised markets would produce outcomes that were incompatible with the objectives of policy makers, including lower emissions to inhibit climate change and greater economic development.

We begin with a comparison of the objectives, targets, instruments and constraints of Scottish and UK energy policy. The desirability of this distinctiveness is assessed first analytically, drawing on the literature on fiscal federalism that deals with the appropriate allocation of responsibilities in the context of multilevel governance. We then explore the efficacy of a number of instruments of Scottish energy policy by simulating their impact on carbon emissions to explore the feasibility of achieving the Scottish Government’s proposed, legally-binding target of an 80% reduction in emissions by 2050. The simulations are conducted using an energy-economy-environment computable general equilibrium model of the Scottish economy.

The results suggest that there are trade-offs between the Scottish Government’s objectives in terms of economic growth and population and their emissions targets. The development of new marine energy technologies proves more promising in that it simultaneously stimulates economic development and limits emissions. We conclude that Scottish energy policy has more ambitious goals, more demanding targets (including one of no nuclear electricity generation), but tighter constraints and fewer instruments than UK energy policy. Furthermore, tradeoffs exist between the price, security of supply and environmental objectives of policy, which would normally require more policy instruments. We end with a discussion of the desirability of adopting fewer Scottish-specific targets and/or more instruments through further devolution of powers to the Scottish Parliament.