Gordon Hughes on energy and Independence

Gordon Hughes from the School of Economics, University of Edinburgh, is to make a presentation on ‘The energy sector in Scotland’s future’ at the International Conference on Economics of Constitutional Change in Edinburgh.

These are some of the points he will make:

1. As a separate country, Scotland will be a classic small, open, resource-dependent country but with a rather poor location. This matters because the rents that can be earned from its natural resources are affected by its location and may be lower than would be the case for other European countries.

2. The energy sector is highly capital-intensive and a large share of the revenue generated by the sector is committed to the return on and the recovery of the capital invested. As a mature province, the marginal investment required to sustain the industry in Scotland is considerably higher than in many other parts of the world.

3. Real energy prices are prone to large cycles over the medium term and it would be unwise to assume that they will remain high. Any energy-dependent economy must plan on the assumption of volatile prices and accept the risk that technology can impact on price as fracking has for the US coal industry.

4. Every country in Scotland’s position (even Norway) has suffered from some degree of volatility of the energy market. The boom and bust undermines the viability of non-energy manufacturing activities which close down or relocate and public finances. Not clear if Scottish Government understands consequences.

5. Because of its location, Scotland will depend upon the ability to export large amounts of electricity, gas and even oil to England. Without guaranteed market access, the resource rents from the energy sector will be significantly lower. It is argued that there is a strong mutual interest in maintaining integrated markets. That view may be too optimistic: history tells us that when countries break up, then unified energy markets tend to weaken quite rapidly thereafter with strong incentives to replace imports by domestic production.

Gordon Hughes comments have received a predictable response from the Cybernats and half truths from the Scottish Government. Peter Jones, in today’s Scotsman comments on the abuse Gordon Hughes has received. He says; “swiping at non-aligned people who are contributing their professional expertise to the discussion is just not acceptable. The referendum vote is the most serious decision Scots have been asked to take for 300 years, so surely we have a right to expect some serious discussion, and not insults from a government when its proposal is criticised.”

As he says, the independence debate deserves better.

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    1. Scottish Energy Commission | Utilities Scotland

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