Energy Bill
The next four items concern legislative consent memorandums. The first two are on the legislative consent memorandum on the United Kingdom Energy Bill. I invite the minister to make some opening remarks to explain what changes are proposed. If you could keep your remarks as brief as possible, minister, that would be helpful.
I am grateful for the opportunity to address the committee on the memorandum that Mr Swinney, the Cabinet Secretary for Finance and Sustainable Growth, lodged under rule 9B.3.1(a) of the Parliament's standing orders. The UK Energy Bill was introduced in the House of Commons on 19 November, and the LCM was lodged in the Scottish Parliament on 2 December 2009.
Alongside the accelerated expansion of renewables, our future electricity mix must feature clean fossil fuel technologies such as carbon capture and storage. Scotland has the potential to become an international leader in the development of CCS technologies, which will make a significant contribution to both economic growth and the reduction of carbon emissions. The Energy Bill will enable the UK Government to raise a UK-wide levy on electricity suppliers, the funds from which will be used to support four commercial-scale demonstration projects for carbon capture and storage across the UK, including the winner of the UK CCS competition. The raising of the levy is a reserved matter, but aspects of the disbursal of the funds throughout the UK touch on devolved matters that relate to environmental issues, so an LCM is required.
The bill focuses on introducing the levy and developing a mechanism for an assistance scheme to disburse the levy funds. Secondary legislation, including criteria for how projects will be assessed and moneys allocated, will be decided on in the second half of 2010, following consultation. For CCS projects that are situated in Scotland, the bill includes an explicit reference requiring the secretary of state to consult the Scottish ministers before making, amending or revoking an assistance scheme and before making regulations on assistance schemes.
Since the LCM was lodged, there have been a number of updates on the position of the bill, which I wish briefly to clarify. I have also written to the convener on these points.
In relation to paragraph 6 of the LCM, I clarify that the secretary of state will obtain the Scottish ministers' consent before making regulations under part 1 of the bill that amend or contain provision extending to Scotland that would be within the legislative competence of the Scottish Parliament. That is similar to the approach under the Energy Act 2008. In relation to paragraph 7, following further discussions with officials, I clarify that moneys are likely to be allocated on an individual project basis rather than on an allocation basis. Given the considerable cost of demonstration projects, an allocation approach would be unlikely to meet the cost of funding individual projects.
We believe that the LCM represents the best opportunity for Scotland to secure funding towards the demonstration projects. My officials are in negotiation with UK officials to ensure that Scotland has the maximum possible opportunity to gain the money. There is a positive relationship between the two Governments on the matter, and Scotland's competitive advantage is well understood. We are clear in our view that Scotland has the potential to win a good number of the demonstration projects, given the good credentials that are held by Longannet and the imminent submission of a consent application for a new coal plant with CCS at Hunterston.
As Minister for Enterprise, Energy and Tourism, I invite the Parliament to agree that the relevant provisions in the UK Energy Bill that relate to the disbursal of funds for any future carbon capture and storage demonstration projects will be the subject of assistance schemes as they relate to environmental issues and that, so far as these matters fall within the legislative competence of the Scottish ministers, they should be considered by the UK Parliament. I invite the committee to support the legislative consent motion and I look forward to responding to members' questions.
I ask members and the minister to keep questions and answers as brief as possible.
To clarify, is it your view that, if we do not agree to the LCM, the consequence might be that Scotland does not receive the allocation of funding for CCS projects?
Yes.
Has the Scottish Government been given a guarantee that the funds will be spent solely on CCS technologies or other energy matters, as opposed to the levy being a new tax that goes towards the massive UK debt burden once the cost of CCS technologies has been met?
Our understanding is that the moneys are utterly ring fenced for use towards the CCS demonstration projects. Our view is that we are in pole position as we have not only a good relationship with the Department of Energy and Climate Change on the matter but a project in Longannet that is in phenomenal shape to win the competition.
What income is expected to be generated by the levy?
We are told that between £600 million and £800 million per annum will be raised, for a duration of 18 years. That is a substantial sum. The issue is of strategic importance for Scotland, given our credibility in CCS as a result of preparations in relation to Longannet and Scotland's good fortune in that our geology will enable us to play a key part in such a demonstration.
If one of the forthcoming demonstration projects is located in Scotland, is it your assessment that there will be a net benefit to Scotland and that expenditure in Scotland on the project will far outweigh the Barnett share of the levy that will be raised?
It absolutely is—that is exactly the judgment that we have come to. Given the quality of the Longannet project, in particular, and the criteria that it meets, and given the prospect for other projects in Scotland, we envisage that we will benefit more from the project scheme than from any Barnett formula allocation.
You talked about an 18-year period. The Scottish Government and UK Government's position is to require the retrofitting of existing plant for carbon capture by 2025 if such an approach has been demonstrated by 2018 to be technically and financially viable. If the approach's viability is not proven, what will happen to the levy-raising power after 2018?
I am not sure that I can give you a clear answer on that. You are right to consider that possibility, in the spectrum of possible outcomes, but activity on CCS throughout the globe—at home and in Norway, Germany, Japan and the States, for example—is such that the balance of probability is that the technology will succeed and that Scotland will play a key part.
There must be a plan B, though.
There has to be a plan B. I invite David Rennie to say a little about that.
David Rennie (Scottish Government Business, Enterprise and Energy Directorate):
For the record, I am head of the fossil fuels and CCS development team in the Scottish Government.
As part of the policy statement on new stations and retrofitting for CCS, the UK Government—with which the Scottish Government is aligned on this point—has said that there will be a rolling review of CCS, with a view to taking a final decision on retrofitting by 2018. If CCS is not regarded as viable at that stage, for whatever reason, other options will be considered. I do not want to open up the discussion too widely, but I will say that there are options to do with emissions performance standard and other technologies. We understand that, at that stage, the levy will have been operational for a number of years. Money will have been spent to get projects to a certain point, and residual money might be available to be used for other types of technology.
In other words, although the minister has said that money will be ring fenced—I accept his point—the potential is there for the money to be reallocated to other energy projects.
The potential is there, but I do not think that that has been spelled out at this early stage. It is certainly a possibility.
If there are no more questions, we move on to formal consideration of the legislative consent memorandum. Is the committee content to recommend to the Parliament that it agree to allow the UK Parliament to legislate on our behalf, as set out in the legislative consent motion?
Members indicated agreement.
Are members also content to leave it to me and the clerk to draft a short, factual report on the matter?
Members indicated agreement.
Meeting suspended.
On resuming—