Muddle #3: Renewable energy

As with monetary policy, leaving the UK will actually reduce Scotland’s influence over renewable energy. Trying to square this circle is a mistake, but the SNP has made such a fuss about green economics that they’re now trapped into an impossible argument on the subject. 

The problem is that switching to wind, wave, tidal and the rest requires subsidies because they are more expensive than conventional forms of generation. And these subsidies are disproportionately paid to Scottish producers by taxpayers and energy consumers from the rest of Britain.

The maths is simple. More than a third of renewable energy is produced in Scotland, while less than a tenth of taxpayers and consumers are based here. So deduct one from the other and roughly a quarter of all UK subsidies are transferred to Scotland from elsewhere.

In 2009/10 a report Worth The Candle (which I worked on) calculated that total subsidies were about £1.4bn, implying a transfer to Scotland of c£330m, and it’s going up every year.

The point is that if Scotland leaves the UK this transfer will be put at risk, something that has been picked up by Citigroup and some of the power companies among others, and was mentioned by Ed Davey, the UK Energy Secretary, at Holyrood yesterday.

In other words an independent Scotland would have either to stump up this subsidy deficit itself (leading to higher taxes and bills) or pull the plug on renewable investment here.

The SNP denies this, saying that the rump UK (shall we call it r-UK?) would still need to meet its green energy targets and would be happy to continue paying a premium to import it from Scotland.

In truth it seems highly unlikely that r-UK consumers would be happy at all for their bills to be subbing a foreign country, and more probable that r-UK policy would be changed to favour r-UK producers. But either way, Scotland would lose its say on the issue.

None of this would matter much if the SNP hadn’t made such a song and dance about the economic potential of renewable energy. Salmond and Swinney are on record claiming that switching to wind power et al will save Scotland from the global recession, replace North Sea Oil as a limitless cornucopia of free money, and create 130,000 jobs, virtually eliminating unemployment in the process.

This is nonsense, of course. If you replace one form of production with a more expensive version it can only cost jobs, unless it involves beggar-thy-neighbour transfers from elsewhere.

So there we have it: A big part of the SNP’s economic prospectus for the future relies on staying in the UK, not leaving it!

PS: One of the SNP’s gripes about UK energy policy (which they often deploy to distract attention from the above muddle) is that remote producers have to pay higher grid charges. So a wave power plant in, say, the Orkneys, has to pay more than a wind farm in Essex. But transporting power costs money just as transporting other goods and services to market does. Most energy consumers are not in Orkney, but in places like London, Birmingham and Glasgow. Are they saying that we should subsidise the transport costs of everyone who makes anything not absolutely next door to the place where it is sold?

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One Response to Muddle #3: Renewable energy

  1. peter smaill says:

    Excellent analysis of an intra UK transfer not in the SNP calcs so far. Even bigger is the total state sector pension fund deficit which is off balance sheet- Scotland by virtue of 8.4 pc of the population but nearly 10 pc of the govt employees has £18.3 bn to find to cover the per capita differential alone. And then there is rail- 15pc of the route miles and three times the subsidy of rUK per journey……all off balance sheet

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