Subordinate Legislation
Electricity Act 1989 (Requirement of Consent for Hydro-electric Generating Stations) (Scotland) Revocation Order 2011 (SSI 2011/115)
Item 4 is consideration of a number of negative Scottish statutory instruments. We have a cover note from the clerks on this revocation order, which the Subordinate Legislation Committee discussed yesterday. Did that committee have any issues that it wished to raise with us?
No.
Do members have any comments?
Clearly, we will not have an opportunity to question the minister on the order, but I am interested to find out more about the consultation that was carried out within the industry through the relevant group of the forum for renewable energy development in Scotland and about the consultation that was carried out afterwards. However, that might come up in passing in our discussion with the Minister for Enterprise, Energy and Tourism on the affirmative instruments that will be considered later in the agenda. Perhaps one of my colleagues will raise the issue on my behalf.
Point noted. Do members agree that the committee has no comments to make on the order?
Members indicated agreement.
As it is a negative SSI, we do not have to produce a report on it. It will simply be covered in the minutes.
Environmental Liability (Scotland) Amendment Regulations 2011 (SSI2011/116)
Again, we have a note from the clerks on these regulations. The Subordinate Legislation Committee considered them yesterday and had nothing to report. If members have no comments, do we agree that the committee has no recommendation to make on the regulations?
Members indicated agreement.
Storage of Carbon Dioxide (Licensing etc) (Scotland) Regulations 2011 (SSI 2011/24)
We have a cover note from the clerks on these regulations, on which the Subordinate Legislation Committee has raised no points. If members have no comments, I propose that we make no recommendations. Are we agreed?
Members indicated agreement.
I suspend the meeting until 12 o’clock, when we will have a discussion with the minister on a number of affirmative instruments.
11:43
Meeting suspended.
12:00
On resuming—
Energy Act 2008 (Storage of Carbon Dioxide) (Scotland) Regulations 2011 (Draft)
The final items relate to two affirmative instruments. I will get my notes in the right order. First, we will take oral evidence from the Minister for Enterprise, Energy and Tourism on the draft Energy Act 2008 (Storage of Carbon Dioxide) (Scotland) Regulations. I ask him to introduce his team and make an opening statement, after which we will ask questions. At this stage, the minister’s officials can contribute. When we consider the motion, only the minister will be able to speak.
I am joined by Olive Hogg, Ross Loveridge and Lorna Orr. I thank the convener for the opportunity to make a statement—I will be as brief as possible.
Members are all well aware that Scotland’s energy opportunities are vast. However, a balanced energy future for Scotland depends on more than just renewable power—there must be cleaner thermal generation alongside that, because it is clear that hydrocarbons will remain a central element of the energy mix in Scotland and worldwide.
We recognise that we have a duty to minimise carbon emissions and ensure sustainable economic growth. The facts are that coal is the most abundant and least expensive but most polluting fossil fuel, and that carbon capture and storage is the only technology that is capable of cutting fossil fuel emissions by up to 90 per cent.
One of our energy pledges was to
“support development and implementation of”
carbon capture and storage
“technologies in Scotland, through collaboration with academia, industry and other interested parties.”
The economic opportunities for developing a CCS-based industry are considerable. The potential exists for a whole new industry to emerge in Scotland, which could support up to an estimated 10,000 new jobs in the next 15 to 20 years. The skills and engineering experience that we have gained from the oil and gas industry and the power industry are readily transferable to the new sector.
Further motivation for CCS is provided by the significant export potential for Scotland and the significant scope for international collaboration. Those propositions are supported by a significant quotation from Lord Oxburgh, a former chairman of Shell, who said:
“CCS will be an industry as big as the oil industry”.
All those factors combine to support our ambition for the North Sea to become the European Union’s principal CO2 storage hub.
Of course, we all recognise the huge opportunity that we have at Longannet to test the technology, to see emissions fall and to accelerate development at the same time. I am pleased that Charles Hendry is in Scotland today and that he has confirmed that he expects a final announcement on funding Longannet this summer.
In addition, we are required to implement the EU directive on the geological storage of carbon dioxide. The Scottish Parliament has made great progress on that by agreeing to the legislative consent motion on what became the Energy Act 2008 and by considering the draft regulations that are before us. Scotland’s regulatory framework is seen as world leading by the Global CCS Institute and our approach has been endorsed by the European Commission.
In its current state, the 2008 act prohibits exploration or storage in relation to carbon dioxide without a licence. That prohibition applies only to the offshore area, where the Scottish ministers are the licensing authority for the Scottish 12-mile territorial seas.
The draft regulations extend the territorial scope of the 2008 act to onshore Scotland and its internal waters. That is dictated by article 2 of the EU directive, which provides that the directive must be implemented across a member state’s whole territory, which is why we must extend the 2008 act to cover the onshore area.
However, article 4 of the directive confirms that member states retain the right to determine the areas from which storage sites may be selected. That includes a member state’s right not to allow any storage in parts or in the whole of its territory. That is why I have decided that the regulations will result in no exploration or CCS activity being allowed in Scottish territory without a licence. That is an important safeguard, and I intend to use it by confirming that the Scottish Government will not permit the geological storage of CO2 onshore in Scotland.
We will permit offshore storage only, which is consistent with the position that the rest of the United Kingdom has taken. I am glad that there is political consensus on CCS between the major parties in Scotland and, indeed, across the UK. The 2008 act was supported by the Scottish Government and endorsed by the Scottish Parliament, so that we would have consistent regulations for CCS on a UK-wide basis. I am pleased that the new UK coalition Government has retained the commitment that Labour made to consistent regulation and that the amendment to the 2008 act that we propose in the order is also being made for England and Wales by the UK Government.
Meanwhile, as I have explained, the opportunities that are associated with CCS for coal and gas are vast. We must ensure that we deliver on that potential. I am happy to answer members’ questions.
Thank you for your opening remarks. I will begin with an obvious question. Why do you require a licensing regime for an activity that you say that you will not permit to happen?
There are two stages to the regulations. We have the licensing regime, which will bring us into line with what is happening throughout the UK and Europe, and the permitting mechanism. That will ensure that what we have in Scotland is exactly what we want. We do not want onshore storage. The focus should be offshore, where we have saline aquifers and the potential in the North Sea to sequestrate CO2 and to use it in long-term enhanced oil recovery. I have with me talented people who may be able to amend that answer.
Dr Ross Loveridge (Scottish Government Directorate for Energy and Climate Change)
I am happy to add to the minister’s comments. In large part, this is a procedural requirement, as the directive must be applied across the territory of the member state. When we were working with the UK Government on the Energy Bill back in 2007 and 2008, the bill was being prepared in parallel with the directive. At that time, the UK assumed that it would be able to apply the directive offshore only.
Since the directive has come into force, there has been a requirement for it to apply across the whole territory of the member state. However, there is scope in article 4 for the member state to determine those areas within its territory where storage may take place, so we will retain the position that the UK Government put forward and which the Scottish Parliament agreed in the LCM—that storage will take place only in the offshore area. We are merely confirming, for purely procedural reasons, the fact that the directive extends the 2008 act. The policy intention, to which the Scottish Parliament signed up, is as it was in 2008—to retain storage offshore.
So in your view, there is no risk that someone may apply for a licence to store onshore and be able to appeal a refusal successfully on the ground that the licence application was predetermined.
We do not believe so, because we believe that we retain control.
My question is not specifically about this issue. I am curious about your earlier comment that Charles Hendry will make an announcement in the summer. Can you share with us some more information about that?
We are told that a decision will be made in the summer—fingers crossed, given that Longannet is the last man standing in the UK demonstrator competition.
Is Charles Hendry visiting Longannet today?
No, he is visiting the Parliament today and will take part in a session on electricity market reform that will take place tonight in the Macdonald Holyrood hotel. We have debated the issue in Parliament, but it is significant that Charles Hendry and a roomful of other people—apparently, there is not a seat left for the event—will take part in a open debate on it and seek to identify everyone’s aspirations for electricity market reform, to tease out possible unintended consequences and try to work together to address those.
While we have you here, can you provide us with an estimate of the capacity for carbon capture and storage that exists in the northern North Sea? I have seen it put at a maximum of about 1.5 billion tonnes equivalent.
Given that Europe’s production of CO2 from, say, the power stations along the northern coast from Belgium and Holland to Germany is in excess of 100 million tonnes a year, we are really talking about only 15 years’ capacity.
We have been told that it is anything from 100 to 200 years’ capacity. We will take your numbers and find out. What is your source for those data?
They came from an inquiry by the German carbon trust into the output from German power stations. Research to update the figures in my own work up to the mid-1990s into the extraction of oil provided the figure of 1.5 billion tonnes. I would be thrilled to think that there would be the capacity that you mentioned.
I will bring Ross Loveridge in, as he is more heavily steeped in it.
I am not sure that anyone would want to be steeped in CO2.
The minister is absolutely correct. I thank Mr Harvie for raising that point. I do not have the figures from the Scottish study to hand but, when the First Minister launched it in 2009, the estimate was that Scotland can comfortably store its own CO2 emissions for more than 200 years and that we could potentially store in the northern part of the North Sea—taking into account not only the Scottish potential, but the Norwegian potential—between 100 and 200 years’ worth of north-west Europe’s emissions. Those figures are based on the estimates in the study.
We are not quite there yet but, in a few weeks’ time, we will make an announcement about the latest analysis following on from the Scottish study. We have to make a more detailed assessment of specific storage sites and the results will be published in a few weeks’ time. I hope that that will reassure Mr Harvie by confirming the storage capacity.
My question leads on from that. I am sure that you will have given some thought to the fact that a site is not just the place where a hole is drilled into which stuff is pushed down, but a geological structure. I wonder about the implications of a hole being drilled 10 miles offshore if the structure runs under the land. You will have addressed such obvious thoughts. What protocols will be in place for that?
The key thing is that the Scottish centre for carbon storage is headed up by Professor Stuart Haszeldine, who is one of the leading geologists in the sphere. We have taken him to various settings to be involved in debate with others, and he has confirmed to us that he believes that the saline aquifers and the North Sea reservoirs offer us both the sequestration capacity and the integrity to hold the CO2.
We have the expertise in Scotland—a world asset. It has been supported and endorsed by no less than the European Commission, which employed the University of Edinburgh to undertake its own assessments of the future storage potential across the whole EU.
Regarding the potential migration of CO2 from specific sites to other areas, the legislation and the directive make it very clear that any person who prospects for CO2 storage must undertake a very detailed site characterisation assessment as part of the exploration and that the permit must be awarded on the basis of a clear guarantee that the CO2 will be safely contained within the structure as outlined by the applicant to the permitting authority—which, in this case, would be the Scottish Government. That is designed to give safeguards and reassurances to the public about the behaviour of the CO2 and about the minister’s ability to make a clear and effective decision on the basis of that knowledge.
12:15
We have carried out a world-leading exercise with Russel Griggs, who heads up the regulatory review group. It was essentially a two-day scenario planning exercise, getting all the players in the room. It was not just the geologists, people with oil interests and the generators—it was also the regulators and the local authorities. It involved producing a handbook for how we can make progress on CCS matters. We will give Charles Hendry a copy of it tonight. We have already taken it to the Global CCS Institute, which views it as a useful mechanism for developing the technology. The handbook has also been instrumental in our persuading representatives of the Inter-American Development Bank to come across and see what Scotland is doing on CCS.
Last week, in our conversations with the Canadian high commissioner, a great deal of interest was sparked about potential collaboration, as that country is spending about 3 billion Canadian dollars on CCS over the next five years. The international collaboration issue is important, and Scotland earns its place at the table because of the geology, the academic research, the technology and the momentum that we have been able to generate here.
There being no further questions, we move on to the next item, which is formal consideration of motion S3M-7800, in the minister’s name.
Motion moved,
That the Economy, Energy and Tourism Committee recommends that the Energy Act 2008 (Storage of Carbon Dioxide) (Scotland) Regulations 2011 be approved.—[Jim Mather.]
Motion agreed to.
The clerks and I will prepare a short factual report to submit to the Parliament, indicating our approval of the motion.
Renewables Obligation (Scotland) Amendment Order 2011 (Draft)
Item 7 is another affirmative order. I invite the minister to introduce his new team and to make opening remarks.
I am joined by Nicola Shiels, Neal Rafferty and Sue Kearns. Thank you for this chance to make some opening comments. I am well aware that the committee is familiar with the renewables obligation, as I have sat before the committee and discussed the matter every year since 2007. In doing so for the last time, I thank the committee for its courtesy and for the quality of its engagement on these occasions.
Members will know that the obligation is a fundamental driver behind each decision to invest in renewable electricity-generating capacity. It was introduced back in 2002. In the seven years up to 2009, renewable electricity generation across Scotland has more than doubled. Indeed, the figures for 2009 demonstrate that renewable generation in Scotland from wind and thermal sources such as biomass and renewable waste outstripped generation from natural-flow hydroelectric stations for the first time ever.
That trend will continue over the next 10 years. We expect more and more generation to come from offshore wind, from wave power and from tidal stream. This energy comes from sources where Scotland has a huge competitive advantage, and it can create world-leading industries. It is therefore vital that we maintain the legislation as fit for purpose and the ability to continue to attract investment in new technologies and developments across Scotland in a way that is cost effective and sustainable.
The amendments that are contained in the order are designed to do just that. In proposing that offshore wind generators that accredit after 31 March 2011 should be able to register their turbines in phases, we are acknowledging the lengthy period over which such very large developments will often be constructed, and ensuring that support for those projects is accessible and is delivered in a way that is consistent with that reality.
Offshore wind generators will be able to register five phases of turbines over a maximum period of five years. The first phase should include a minimum number of turbines equivalent to 20 per cent of the proposed total installed capacity of the development. Over time, we believe that that flexibility will have a positive effect on the development of further offshore wind capacity in Scottish waters.
Our consultation also found a great deal of support for extending the principle in the future, particularly as wave and tidal projects begin to come forward at scale. We have also agreed, in light of the outcome to our consultation, to extend the principle of grandfathering to stations using biomass and waste. As members will know, grandfathering is the principle that protects the level of renewables obligation certificates banding at the point at which a specific investment is made. Grandfathering means that stations that are financed and commissioned on the basis of a certain number of ROCs per megawatt hour will not have that support reduced as a result of a future review. That mirrors the position across the rest of the UK and takes into account the evidence from stakeholders that grandfathering will protect investment, particularly in small-scale projects.
More widely, we have also announced an intention to conduct in the coming year a broad review of biomass support through the obligation. Our starting point for that is a desire to make the support consistent with the Government’s policy aim to see biomass generating plant designed at a scale that is consistent with the most efficient use of what is a limited resource. We want an approach that will make a vital contribution to meeting our ambitious renewable heat targets.
The order also introduces new sustainability criteria for biomass and biogas generation. Mandatory reporting against those criteria will take effect from April this year and will be linked to support from April 2013. The new criteria impose a carbon dioxide emissions ceiling for biomass generators and direct land use criteria that are consistent with the relevant European Commission renewable energy directive. The criteria and their continued development will be informed by the work of the UK biomass and biogas sustainability implementation group, which involves direct input from Scotland and Scottish stakeholders.
The order also complies with the renewable energy directive through its introduction of mandatory sustainability criteria for bioliquids. In order to qualify for ROCs, generators using bioliquids will need to comply with those criteria from 1 April this year. The order now extends, again in compliance with the directive, to biodiesel that is partially derived from fossil fuel, although ROCs will only be eligible against the biomass proportion of the fuel’s energy content.
The changes mentioned thus far are being implemented in a uniform manner across all the UK obligations, but we have one more that is unique to Scotland: an amendment to our enhanced wave and tidal definitions that is designed to enable projects to receive capital grant support as well as our higher ROC band when appropriate. The change has been agreed by the European Commission and warmly welcomed by the vast majority of our stakeholders.
The changes will improve the efficiency and sustainability of the obligation. They are designed to maintain confidence in the system—confidence that is more important than ever before. Before I formally move the motion on the order, I am happy to respond to any questions that the committee may have.
Thank you for your opening remarks. The committee has received a written response from Scottish Renewables on the order. It generally welcomes the order, but it raises concerns, stating that
“the Scottish Government has not acted upon our suggestion to increase tidal stream support to same level as wave support ... stating that they are not in a position to change the tidal band in April 2011 as part of the current legislative amendment”.
Can you explain the Government’s reasoning for that and how you propose to address the issues that Scottish Renewables has raised?
Many respondents to our consultation pressed the Government to reconsider its current level of support on tidal power. Specifically, they pressed the Government to raise it from three to five ROCs, which is the same level for wave power. We are not making that change as part of the current amendments, but we made it clear in our response that we remain entirely open to the case for such a change and are ready to take forward a fresh review should the evidence support such a move.
There will be further evidence of that approach in our liaison with the UK Government when we discuss energy market reform with it this evening. I hope that that will open another level of debate beyond what is happening between officials in the Scottish Government and officials in the Department of Energy and Climate Change. I hope that the debate on the renewables obligation will continue to be characterised, as it has been all the way through, by openness and engagement with all the stakeholders.
There seems to be a difference between the evidence base suggested by Renewables UK and that suggested in the Ernst & Young report. What assessment has the Government made of those two evidence bases to determine whether either or both are right—or wrong?
One lesson that I have learned in politics, particularly in my role as minister, is that the more that we lend ourselves to consultation, the more likely it is that when the consultation is completed, no matter how elegantly we carve our way through it, we may well offend the vast majority of people with our final decision. Our inclination is therefore to get people together to have a debate, such the one that we will have tonight on electricity market reform.
Going forward, we will look to ensure that those conflicting opinions are represented in the room, because when you ask people why they hold conflicting views, invariably it does not take long before they converge on a common goal and we have the chance to mediate and resolve the conflict. The fact that we are aware of the conflict is a plus, and the fact that we have a mechanism to handle it is an even bigger plus.
I will follow up on the convener’s question. Scottish Renewables has said that ROCs should be the same for tidal stream and wave. What is the Government’s argument for not making them the same?
That is a function of timing. We are not approaching the issue from a doctrinaire position; we are showing a willingness to engage and a keen desire to do that in conjunction with colleagues in Westminster.
Neal Rafferty (Scottish Government Directorate for Energy and Climate Change)
When we introduced the higher bands in Scotland to begin with, we did so on the basis of a piece of work that suggested that tidal stream costs were lower than those for wave, which is why we have the differential now. The Ernst & Young study, which was published in March last year, was quickly followed up by a piece of work by Renewables UK, which is vocal about the need to introduce the same support levels for both sets of technology. It is quite a compelling piece of work. We are currently considering the matter with our UK Government colleagues in the context of a wider banding review.
Renewables UK makes a strong case, and we know that the industry speaks with one very strong voice in general, and is saying that there should be a single band of five ROCs for wave and for tidal stream. We are considering that suggestion in the context of the UK banding review and we shall see where that moves over the next few weeks and months. The case is fairly strong and it is being put fairly unanimously by the industry, so there is a good chance that there will be movement on those bands in the next few months.
That is helpful. Thank you.
What would the impact be if we did not do anything?
It would be negative. We have been flexing with the reality of the sector and the technologies, which are evolving. That has won us a lot of friends and has also meant that many people have read the signals and made the investment—hence we have been able to meet the 31 per cent target and to uplift the 2020 target from 50 to 80 per cent. That approach is allowing the Parliament—let alone the Government—to be seen as an honest, flexible, listening broker.
I am sure that there will be an interesting debate tonight on whether the targets are achievable. Where did the pressure come from to allow phased development? Did it come only from the industry or was it recognised within Government that an all-or-nothing approach was a hindrance to development?
It certainly came from the industry, but you will remember that we held a low-carbon finance conference last year, on 28 and 29 September. Another conference has been announced today, so there is a process.
By bringing people together in that format, we identified greater clarity on the risks and rewards that are involved in the sector and developed a greater understanding of the challenges that companies face in making the financial case to get the necessary financial backing. In essence, we are trying to get all the players joined up in common cause and to show the flexibility that puts in place the confidence that enables investment and follow-on investment to happen.
12:30
Did any local authorities express any reservations about whether their planning departments would be able to cope?
In terms of offshore wind?
Yes.
That will be more an issue for Marine Scotland than for local authorities per se.
We did not receive any representations from local authorities through the consultation process.
Anything that involves a large amount of civil engineering reminds me instantly of the Office of Fair Trading inquiry at, I think, the end of 2006 into the granting of civil engineering contracts. The OFT found that there was massive capitalisation in that area but then decided to fine the companies concerned a slap on the wrist of a couple of hundred million pounds, which was peanuts in comparison with the $8 billion that the industry was worth then.
Is your system robust enough to combat Adam Smith’s old equation that we can be certain that, when two or three people in the same business get together, be it for purposes of play or merriment, within two hours they will have created a conspiracy to raise prices? You have to be robust about that.
The robustness and scrutiny exist. The scrutiny is not only national but global. We have some interesting parties—such as Ronnie Bowie from the Institute and Faculty of Actuaries, which has repositioned itself as the faculty of enterprise risk managers—looking over our shoulder and the shoulder of the industry to ensure that the industry grows in a way that is conducive to maximising our economy and its competitiveness.
Given the massive scale of the civil engineering, we are beginning to see real collaborations, and there is interest from companies from outwith Scotland in being involved and participating here.
After the financial crisis that we have all been through and having seen the moral hazards and the disaster that they can cause in the financial sector, I like to think that we are about to enter a new era of a higher level of ethics. There is a requirement for that.
I am not sure whether the Adam Smith quotation was a condemnation of businessmen or a condemnation of the game of golf.
Perhaps it was a condemnation of some of the things that we taught in our business schools in the past, but they are being remedied here in Scotland as I speak.
We move on to consideration of motion S3M-7872, on the Renewables Obligation (Scotland) Amendment Order 2011.
Motion moved,
That the Economy, Energy and Tourism Committee recommends that the Renewables Obligation (Scotland) Amendment Order 2011 be approved.—[Jim Mather.]
Motion agreed to.
This was the minister’s last appearance before this committee—and, possibly, any committee of the Parliament—before his retiral. I wish him the best of health and a long and happy retirement.
Thank you very much indeed. That is much appreciated.
That concludes the final meeting of the Economy, Energy and Tourism Committee 2007 to 2011.
Will members join me in giving the convener a vote of thanks on behalf of the committee? [Applause.]
Meeting closed at 12:34.