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Aileen McHarg: Energy Policy Devolution and the Smith Commission

While the recommendations of the Smith Commission fall well short of the submissions made by the pro-independence parties (see Tom Mullen’s post on this blog for analysis), it is also clear that the process has produced more extensive proposals for further devolution than any pre-referendum agreement between the unionist parties would have done.  Energy policy is a case in point.  Of the three unionist parties, only the Liberal Democrats had made any proposals for transfer of energy policy competences.  By contrast, the Scottish Government argued for full, and the Green Party for very substantial, devolution of energy policy, and this was also a popular candidate for devolution amongst those members of the public and organisations which made submissions to the Commission on specific powers (see the Commission’s summary report).

In my own contribution to the Future of UK and Scotland’s submission to the Smith Commission, I argued that there was a strong case for substantial further devolution of energy policy in Scotland, either completely or – recognising the strong likelihood of continued market integration – on a partnership basis with the UK Parliament and government.  I identified three main arguments for further devolution of energy policy:

First, for historical, geographical, climate-related, and political reasons, there are significant differences in the energy policy context in Scotland compared with the rest of the UK.  Scotland enjoys a considerable comparative advantage in relation to energy resources, and energy policy is therefore an important policy priority for the Scottish Government.

Secondly, the Scottish Parliament and Government do already have some limited competences in energy policy and related areas, which have enabled them to adopt a distinctive energy policy in some respects.  However, the Scottish institutions do not have full powers to give effect to their distinctive policy goals – for example, the Scottish Government’s inability to control electricity grid access and pricing rules has been (they would argue) an obstacle to the achievement of their renewable generation targets.  Their powers are also vulnerable to erosion by Westminster (for example, after 2017, the Scottish Government will no longer have power to set separate subsidy rates for Scottish renewable generators).  And the division of powers between Holyrood and Westminster sometimes seems arbitrary.

Thirdly, energy policy is very substantially devolved in Northern Ireland (only nuclear energy and energy taxation are excepted).  This gives the Northern Ireland Executive much greater policy freedom than the Scottish Government, which can only be partially justified by reference to historical and functional differences in the energy policy context in Northern Ireland.

The Smith Commission’s proposals come nowhere near a complete transfer of energy policy competence.  However, the Commission does recommend further piecemeal devolution of energy policy powers in four areas:

1. The Crown Estate (paras 32 - 34)

2. Energy regulation and renewables (para 41)

3. Energy efficiency and fuel poverty (para 68)

4. Onshore oil and gas (paras 69 - 70)

The most politically significant of these new powers is likely to the last.  Both licensing of the extraction of onshore oil and gas and responsibility for mineral access rights for underground onshore oil and gas are to be devolved.  What this means is the Scottish government will gain full policy control over the highly controversial issue of unconventional hydrocarbon (shale gas and coal bed methane) extraction through hydraulic fracturing (“fracking”) (although revenues from unconventional oil and gas extraction will remain reserved to Westminster, along with energy taxation more generally).  The Scottish Government already has some powers over fracking, through planning control and environmental permitting, and – while not completely opposed to granting permission – it has adopted a much more cautious approach to the issue than the UK government.  It has also criticised UK Government proposals (which are being implemented in the current UK Infrastructure Bill) to amend underground trespass laws to prevent surface owners objecting to drilling for unconventional oil and gas under their land.  The main effect of the Smith Commission’s recommendations is likely to be to remove any doubt about the Scottish Government’s competence in principle to ban fracking, should it wish to do so – and in the absence of tax revenues, it has no strong incentive to permit it.  However, one potential problem in practice is that fracking licences for central Scotland have already been granted, so there may still be questions about whether any blanket ban on fracking would amount to an unlawful interference with vested rights contrary to Article 1 Protocol 1 of the European Convention on Human Rights.  Similarly, unless Scotland is excluded from the scope of the Infrastructure Bill provisions on underground drilling access, this will significantly constrain the future exercise by the Scottish Parliament of new powers in this area.

Devolution of the Crown Estate is also potentially important.  As owner of the seabed and offshore storage rights, the Crown Estate plays an important role in the development of offshore renewables, offshore cables and pipelines, gas storage and carbon capture and storage.  Again, the Scottish institutions already have control over marine planning and licensing, so this will extend their powers to control the offshore energy environment. 

Again, though, there are some caveats. Paragraph 34 of the report provides that:

“The Scottish and UK Governments will draw up and agree a Memorandum of Understanding to ensure that such devolution is not detrimental to UK-wide critical national infrastructure in relation to matters such as defence & security, oil & gas and energy, thereby safeguarding the defence and security importance of the Crown Estate’s foreshore and seabed assets to the UK as a whole.”

More importantly, paragraph 33 states that, following the transfer of Crown Estate assets to Scotland, “responsibility for the management of those assets will be further devolved to local authority areas such as Orkney, Shetland, Na h-Eilean Siar or other areas who seek such responsibilities.”  This was an issue which was discussed during the referendum campaign, and the Scottish Government had already agreed that, in the event of independence, island communities would be given greater control over the Crown Estate’s marine assets (see Empowering Our Island Communities).  However, if the Smith Commission is to be read as suggesting that the devolution of the Crown Estate should be made conditional on such further devolution, that would be a major restriction of the Scottish Parliament’s autonomy.

The remaining proposals in relation to energy market regulation – which is currently wholly reserved to Westminster – are important in one sense, in that they formally recognise for the first time that the Scottish institutions have legitimate interest in the operation of the regulatory system.  In practical terms, though, Smith’s recommendations are very weak.  The report proposes, first, that “There will be a formal consultative role for the Scottish Government and the Scottish Parliament in designing renewables incentives and the strategic priorities set out in the Energy Strategy and Policy Statement to which Ofgem must have due regard.”  This is a very marginal change, as the Scottish Government, although not the Scottish Parliament, is already a statutory consultee in relation to both matters under the Energy Act 2013, and any move to withdraw those rights would attract the protection of the Sewel Convention.  In any case, the right to be consulted is no guarantee of actual influence, nor is it yet clear what impact in practice the Strategy and Policy Statement will have on Ofgem’s decision-making.

Secondly, Ofgem is to lay its annual report and accounts before the Scottish Parliament, and submit reports to, and appear before, Holyrood committees.  The former proposal is a mere formality – Ofgem’s annual report is readily accessible online to anyone, including MSPs, who wants to read it.  The latter is potentially more significant as a means of ensuring that Ofgem’s decisions and policies take account of Scottish circumstances and priorities.  However, the impact of such a duty to account may be weakened if the account-holder has no power to compel any change.

The Smith Commission’s final proposal is that powers to determine how supplier obligations in relation to energy efficiency and fuel poverty, such as the Energy Company Obligation and Warm Home Discount, are designed and implemented in Scotland will be devolved.  However, responsibility for setting the way the money is raised (the scale, costs and apportionment of the obligations as well as the obligated parties) will remain reserved, and the provision is to be implemented in a way that is not detrimental to the rest of the UK or to the UK’s international obligations and commitments on energy efficiency and climate change.  Again, this seems to be a very minor change.  It may ensure, for example, that suppliers spend a population-proportionate share of energy efficiency subsidies in Scotland, and that the types of investments undertaken are appropriate to the nature of Scotland’s housing stock – both matters of complaint in the past.  However, it will clearly not permit the Scottish government to radically increase the scale of supplier effort in improving energy efficiency or combatting fuel poverty, nor to fundamentally redesign the operation of supplier incentives in this area.

As well the limited nature of the Commission’s specific proposals on energy policy devolution, some further general criticisms may be made.  As with the report as a whole, there is no attempt to justify on any principled basis why these powers are suitable for devolution, but others must remain reserved to Westminster.  In his foreword to the report, Lord Smith states that:

“The recommendations are explicitly designed to create a coherent set of powers that strengthen the Scottish Parliament’s ability to pursue its own vision, goals and objectives, whatever they might be at any particular time.”

However, the energy policy proposals fall short of this claim in two ways.  First, it is not at all clear that they allow the devolved institutions genuine autonomy to develop distinction policy positions “whatever they might be”.  Rather, the proposals seem to be tied to specific policy goals, aimed at enabling the Scottish Government to remove particular obstacles to its current policy objectives or to address particular anomalies that have been identified and that are acceptable to the unionist parties.

Secondly, far from creating a coherent set of powers, the piecemeal devolution of additional energy policy proposals seems likely to produce further anomalies.  For instance, why should Holyrood license onshore oil and gas exploration, but not offshore?  Why are the Scottish Government and Parliament to be consulted over renewables subsidies, but not energy efficiency or fuel poverty levies?  Why should they be able to plan the development of offshore electricity networks, but have no equivalent powers over onshore networks?  Why should Ofgem be accountable to the Scottish Parliament, but not controllable by it?  And so on.

The existence of such anomalies perhaps creates an opportunity for advocates of greater devolution to push at the boundaries of the Smith Commission’s recommendations during the implementation process, and so the ultimate package of reforms may ultimately turn out to be more extensive.  Nevertheless, in the absence of a comprehensive transfer of energy policy competence, with clearly justified limits, energy policy is likely to remain a source of friction between Holyrood and Westminster.

Aileen McHarg is Professor of Public Law at the University of Strathclyde.

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