DTI CONSULTATION PAPER OUR ENERGY CHALLENGE – SECURING CLEAN

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					            DTI ENERGY REVIEW CONSULTATION: OUR ENERGY
         CHALLENGE – SECURING CLEAN AFFORDABLE ENERGY FOR
                           THE LONG TERM

The Scottish Council for Development and Industry (SCDI) is an independent
membership network, which strengthens Scotland’s competitiveness by influencing
Government policies to encourage sustainable economic prosperity. It is a broad-
based economic development organisation, with membership drawn from Scottish
business, trades unions, public agencies, educational institutions, local authorities, and
the voluntary sector. With 2006 being our seventy-fifth year, we have witnessed
many of the changes in the energy industry over the 20th century: the peak and decline
of coal, the development of hydro and nuclear, the North Sea oil and gas boom and
more recently the growth of the renewables industry. SCDI therefore has a strong
interest in energy policy, and has offered its advice to the Scottish Executive, the
Scottish Parliament and UK Government on numerous occasions. SCDI has
promoted the debate on the energy policy in Scotland, through hosting a series of
energy discussions with its committees, bringing its broad-based membership together
with industry experts and academics, as well as consulting senior figures in the energy
industry to discuss the issues.

Summary of SCDI’s headline points

SCDI recommends that government gives clear signals as to the direction that energy
policy will take in the future in order to allow industry to develop appropriate
technology and to direct capital investment accordingly. In our view, an energy
strategy for the next 50 years or so should be based on the following principles, all of
which have a bearing on securing clean, affordable energy for the long-term:

      It is crucial that this review is used by government to set a definitive,
       long-term policy framework which moves the UK to a low carbon
       economy whilst also meeting the challenge of securing affordable energy -
       ensuring UK industries’ competitiveness;
      At SCDI we wish to see Scotland maintain and build on the economic
       benefits of being an energy provider, continuing to export energy and
       expertise to the rest of the UK and beyond;
      SCDI wishes to see a stable, fiscal and regulatory framework which
       actively promotes maximising the production of North Sea reserves;
      SCDI believes that nuclear power should continue to play a central role in
       providing clean, affordable and reliable base-load power and does not see
       long-term storage of waste as an insurmountable obstacle to the
       development of new nuclear stations;
      Greater effort should be made to tackle anti-competitive behaviour in
       Europe’s gas and electricity markets. We welcome Ofgem’s work with
       the European Commission on liberalising these markets and hope to see
       clear progress by the end of this year;
      To secure the national interests of clean, affordable energy for the long-
       term, a broad mix of technologies will be needed at Scottish and UK level.
       SCDI recommends gas, clean coal and nuclear form the backbone of any
       future energy mix, providing clean, affordable and reliable base-load
       power;
   With affordable and reliable energy secured from this backbone of base-
    load power, it will be crucial to maintain and develop existing and
    emerging renewable technologies, as they will undoubtedly satisfy an
    increasing share of heat, transport and power needs;
   SCDI wishes to see higher standards in the energy efficiency of domestic
    and commercial buildings, incorporating more microgeneration
    technology and local and renewable heat solutions; step changes in energy
    efficiency and vehicle efficiency are needed, with new targets for both;
   Given the strategic importance of energy to our way of life SCDI is of the
    view that a more efficient and coherent approach to energy policy is
    required at UK level, particularly regarding interaction with devolved
    administrations; we therefore support calls for the re-emergence of a
    single Department for energy headed by a Secretary of State for Energy.




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BACKGROUND TO THE CONSULTATION

1.     In February 2003 the UK Government published its long-term energy strategy
in its White Paper “Our Energy Future – Creating a Low Carbon Economy”. This
document set four main goals for the country’s energy policy:

      Put the UK on the path to cut CO2 emissions by 60 per cent by 2050, with real
       progress by 2020;
      Maintaining the reliability of energy supplies;
      Promoting competitive markets in the UK and beyond, helping raise the rate
       of sustainable economic growth and improving productivity;
      Ensuring that every home in the UK is adequately and affordably heated.

2.      In setting these goals, the Government left open the option to review, and if
necessary, update its policies in the light of experience. In this review the
Government highlights significant areas of progress on its White Paper objectives,
such as a rise in renewable generation; drop in number of households in fuel poverty;
and the securing of its Kyoto commitment. However, the Government also admits
that since the 2003 White Paper, a number of developments have arisen that have
necessitated another review at this time:

      Evidence about the adverse impact of climate change has continued to grow;
      UK Carbon emission reduction target of 20 per cent for 2010 looks
       increasingly unlikely;
      A sharp rise in fossil fuel prices;
      A general heightening of sensitivity around global energy issues, affecting
       perceptions of the security of supply from major exporter countries and
       contributing to higher price volatility;
      Burgeoning demand for energy in China, India and other rapidly developing
       countries;
      Slow progress in introducing open energy markets in the EU;
      The UK is now a net importer of gas;
      Substantial levels of new investment needed as existing coal and nuclear
       capacity is retired.

3.      The Government’s review will examine the potential impact of these trends on
medium and long term energy goals and assess whether further measures are needed
to achieve longer term aims. This analysis will inform the assessment of future policy
options for the Government’s energy strategy – due in summer 2006. The Energy
review consultation document can be accessed at www.dti.gov.uk/energy/review. It
suggests that there will be no single solution to the UK’s energy requirements. The
Review looks at the role of public policy in shaping the framework in which
investment decisions can be made so that they properly reflect the country’s goals:
securing clean, affordable energy for the long term.




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INTRODUCTION

1.      SCDI welcomes the opportunity to comment on the Government’s energy
review. As this topic is set to become a defining issue of the century ahead, it is
perhaps no exaggeration to conclude that reliable supplies of energy are of vital
importance to the modern way of life. Recent energy trends and projections are
therefore concerning, as our oil and gas reserves inevitably diminish and import
dependency increases. As gas is currently the largest proportion of the UK’s primary
energy supply, and has become the main method of electricity generation, unless
decisions are taken to broaden and deepen the UK energy mix we will not secure
affordable energy in the short or long term. As with the rest of the UK, most in
Scottish industry have already had to contend with soaring energy prices, which,
unsurprisingly, have hit their international competitiveness. It is therefore crucial that
this review is used by government to set a definitive, long-term policy framework
which moves the UK to a low carbon economy whilst also meeting the challenge of
securing affordable energy - ensuring UK industries’ competitiveness.

2.      While many of the energy policy issues facing the rest of the country apply
equally to Scotland, SCDI believes that there are particular Scottish circumstances
that should be taken into account in addressing the energy challenge. For example,
while nuclear power supplies a quarter of the UK’s electricity requirements, in
Scotland, the share is significantly higher, currently standing at almost 40 per cent.
Given our excellent natural resources, renewable energy has for many years provided
a higher proportion of Scotland’s electricity - primarily through large hydro-electric
power schemes but increasingly from on-shore wind - and this contributes a
significant share of the UK’s carbon reduction targets. Through our diverse and
balanced energy mix Scotland is - to our economic benefit - currently an energy
exporter with some 20 per cent of power supply serving the rest of the UK. Added to
this, our oil and gas industry will remain essential to the UK economy for the
foreseeable future, providing some 75 per cent of the UK’s primary energy supplies
and generating significant benefits to the UK Exchequer as well as the wider
economic well-being derived from a vibrant Scottish-based service and supply
industry whose importance was recently highlighted in SCDI’s Oil and Gas Survey
with £10.1 billion in domestic and international sales in 2004/05 alone.

3.      These factors not only highlight the broad and flexible nature of Scotland’s
energy mix; they help to underline the importance of Scotland’s energy sector at
home as well across the UK. At SCDI we wish to see Scotland maintain and build on
the economic benefits of being an energy provider, continuing to export energy and
expertise to the rest of the UK and beyond. From an experienced North Sea oil and
gas industry to an established nuclear and coal presence - and now with world-leading
companies in the renewables sector - Scotland has one of Europe’s most diverse and
capable energy sectors. This sector plays a vital role in Scotland, particularly in the
local economies of the North East and Highlands and Islands, which are home to
numerous international and domestic businesses, employing more than 100,000
people directly and indirectly in the wider supply chain. Therefore, energy policy,
with its respective fiscal and regulatory frameworks, needs to take cognisance of the
benefits afforded by this distinct national asset.




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4.      It is also necessary to make sure there is a strong skills base for the energy
industry. The planned decommissioning and expansion of nuclear power stations will
necessitate a review of the skills infrastructure and industrial capacity needed to
support long-term energy needs. Ensuring the maximisation of indigenous resources
from the UKCS, through a stable regulatory and fiscal framework, will also require
support to ensure the skills are available to undertake necessary expansion and
decommissioning activities. And if the economic potential afforded by the growth of
the renewables sector is to be realised, government support at all levels will be vital in
ensuring the market mechanisms and regulatory frameworks encourage the
establishment of strong manufacturing and service industries, creating wider
economic benefits.

5.      As noted in the review, a significant power generation gap is predicted over
the next two decades. Given the significant share of renewable generation, as well as
nuclear and coal capacity in Scotland, we perhaps face a less immediate concern than
the rest of the UK. However, as noted in the recent Scottish Energy Study, with the
planned decommissioning timetable, we do nevertheless stand to lose up to 42 per
cent of our generation capacity in the next few decades. Even with Scotland’s greater
aspirations to incorporate renewables to meet our energy needs, it is unlikely that
these existing and emerging technologies will arrive in time, or be able to fill such a
gap, let alone maintain our power export credentials. Therefore, to secure the national
interests of clean, affordable energy for the long-term, a broad mix of technologies
will be needed at Scottish and UK level. This will involve the proliferation of carbon
capture and storage technology so that we may maximise our indigenous coal, gas and
oil reserves. It will also involve maintaining our existing low carbon nuclear assets as
well as building new, more efficient stations. With affordable and reliable energy
secured from this backbone of base-load power, it will be crucial to maintain and
develop existing and emerging renewable technologies, as they will undoubtedly
satisfy an increasing share of heat, transport and power needs.

6.      Given the strategic importance of energy to our way of life, SCDI is of the
view that a more efficient and coherent approach to energy policy is required at UK
level, particularly regarding interaction with devolved administrations. The number
of separate teams within government (DTi, Treasury, Defra, FCO, Ofgem and PMO)
is cluttered, unsustainable and often counter intuitive. This had been clearly
demonstrated by the differing approaches to UKCS investment undertaken by the DTi
and the Treasury, as well as Ofgem’s approval of a transmission charging regime that
threatens to discourage renewable development in some of Europe’s prime locations.
As our energy assets will increasingly be of vital strategic importance a clear, long-
term view of energy policy is perhaps best maintained in a suitably strong and
consistent Department, which could provide greater co-ordination on reserved and
devolved issues with the devolved administrations. We therefore support calls for the
re-emergence of a single Department for energy headed by a Secretary of State for
Energy.

7.     The energy challenge will also need to be met with a more concerted effort to
reduce energy demand; by addressing energy consumption and encouraging a greater
take up of energy efficiency. This approach can serve multiple ends: reducing carbon
emissions from generation and use, reducing energy import dependency and
addressing fuel poverty. Managing energy demand, by reducing consumption and


                                            5
increasing energy efficiency, will therefore be crucial if we are to achieve long-term
carbon emission targets. In SCDI’s view more effort should now be concentrated on
reducing demand and increasing energy efficiency in areas other than the industry
sector, notably the domestic and transport sectors. Much more needs to be done to
promote energy efficiency in businesses and homes in order to reduce demand and
increase resilience to energy price rises. Step changes in energy efficiency and
vehicle efficiency are therefore needed, with new targets for both.
8.      Finally, whilst there is growing appreciation of the climate damaging effects
caused by modern industrialisation, UK emissions still only amount to two per cent of
the wider global problem. In Scottish terms, our global share is just 0.2 per cent.
Whilst SCDI considers it commendable that the UK Government and Scottish
Executive set out ambitious emission targets in their respective climate change
programmes, it makes little sense for UK businesses to incur large abatement cost as a
consequence - harming their international competitiveness - if other countries are not
doing the same. Although we believe the UK Government and Scottish Executive
should continue to strive to reduce emission targets for greenhouse gases, this must be
undertaken in the context of the wider global effort to deal with climate change. It is,
therefore, particularly important that the regulatory burdens of any proposals are taken
into account, alongside the effects on regional, national and international
competitiveness.




                                           6
CONSULTATION QUESTIONS

Q.1. What more could the government do on the demand or supply side for
energy to ensure that the UK’s long-term goal of reducing carbon emissions is
met?

(i)    The long term potential of energy efficiency measures in the transport,
residential, business and public sectors, and how best to achieve that potential.

1.     As there is a significant degree of overlap in our response to both these
questions, the following advice encapsulates the issues:

SCDI’s Main Points:

      We welcome the Scottish Executive’s development of an energy efficiency
       strategy for Scotland and wish to see this provide a more joined-up
       approach to interventions;
      SCDI calls on the Scottish Executive to provide a considerable extension
       of funding for its over subscribed Scottish Community and Householder
       Renewables Initiative;
      We have some concern over the Scottish Executive’s recent Climate
       Change Programme targets for carbon savings and the impact this could
       have on Scottish businesses’ competitiveness;
      SCDI wishes to see higher standards in the energy efficiency of domestic
       and commercial buildings, incorporating more microgeneration
       technology and local and renewable heat solutions;
      We suggest that the setting of a single standard in the construction
       industry could allow consumers to ascertain the energy efficiency of their
       purchases;
      We support calls for a renewable heat strategy for Scotland;
      SCDI welcomes the UK Government’s announcement in its Climate
       Change Programme review of a £5 million trial of smart metering as a
       first step to introducing this concept to the wider public. We wish to see
       the Scottish Executive undertake a similar commitment.
      In Scotland the creation of a National Transport Strategy is a unique
       opportunity to ensure the wider aims of sustainable economic
       development are considered.
      If a UK network of high-speed rail links is approved following the
       Eddrington Review, SCDI would like to see a firm commitment provided
       that it would extend to Scotland and include a link between Glasgow and
       Edinburgh;
      SCDI believes clean coal and gas, nuclear and renewables will all help to
       deliver on the objective of a low-carbon generation mix.

2.     SCDI continues to support the Royal Commission on Environmental Pollution
(RCEP) recommendation that the UK should achieve a 60 per cent reduction in
carbon dioxide emissions by 2050. As noted by the RCEP, demand for energy will
need to be reduced by 36 per cent across the UK in order to meet this target. It is
estimated that Scotland’s energy use will need to fall to 112TWh to help achieve a 60



                                         7
per cent reduction by 2050. Recent figures from the Scottish Energy Study show that
in 2002 Scottish total energy use was 175TWh and on current projections this will
increase by one per cent a year up to 2020. The UK Government’s recent downward
revision of its 2010 target for reducing carbon emissions from 20 per cent to 18 per
cent clearly demonstrates the challenge of meeting this goal as society attempts to
balance its economic ambitions with environmental obligations.

3.      Along with many others responding to this review, SCDI suggests this
challenge should be met with a more concerted effort to reduce energy demand, by
addressing energy consumption and encouraging a greater take up of energy
efficiency. This approach can serve multiple ends: reducing carbon emissions from
generation and use, reducing energy import dependency and addressing fuel poverty.
On the supply side, SCDI believes that policy should focus on encouraging low
carbon solutions for our power, heat and transport needs. In short, we all need to
think more about how we use energy as well as how we provide it.

Energy Demand & Energy Efficiency

4.      Managing energy demand, by reducing consumption and increasing energy
efficiency will be crucial if we are to achieve long-term carbon emission targets.
Reducing demand means that users of energy are operating more efficiently - saving
money on bills in the case of businesses and householders - and generation
requirements are lower. We note the UK Government’s view that across the board
energy efficiency measures are expected to deliver around half of the RCEP target of
a 60 per cent reduction in carbon emissions by 2050. However, given the slow
progress in achieving energy efficiency savings, outlined in the 2003 White Paper,
SCDI would like to see significantly more resources applied to educating consumers
on the importance of using energy more efficiently, coupled with more financial
assistance for home energy efficiency measures. Much more needs to be done to
promote energy efficiency in businesses and homes in order to reduce demand and
increase resilience to energy price rises. Step changes in energy efficiency and
vehicle efficiency are needed, with new targets for both. We therefore welcome the
Scottish Executive’s development of an energy efficiency strategy for Scotland and
wish to see this provide a more joined-up approach to interventions.
5.      There is also clear evidence of public support for micro renewable
technologies as well as a knock-on benefit linked to greater awareness of energy
efficiency. SCDI welcomes the Chancellor’s Budget announcement of a new £50
million fund for micro renewables which will make it possible for homes and
businesses to generate their own renewable energy. SCDI calls on the Scottish
Executive to follow this UK commitment with a considerable extension of funding for
its own Scottish Community and Householder Renewables Initiative. Only with the
necessary financial, legislative and regulatory initiatives will these technologies
become affordable options for our homes, schools and businesses. It is SCDI’s view
that there should be a greater drive to make these technologies available in the
construction of commercial and domestic new build.
6.     Whilst an era of more expensive energy will undoubtedly lead to a greater
uptake of energy efficiency measures, this approach alone will be unsatisfactory in
addressing the issues. Often those hit hardest by rising costs will be the poorest in
society who have the least ability to counter them. As well as fuel poverty issues,


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competitiveness is also hit by higher energy costs and many energy intensive users in
our chemical and manufacturing industries have faced rising costs on such a scale that
any number of energy audits would not offset the impact. Therefore, the goal must be
to ensure secure and affordable energy supplies from a diverse energy mix, whilst also
tackling energy demand by providing more incentives, leadership and encouragement
on the benefits of energy efficiency.
Industry

7.      As noted in the review, a sectoral analysis helps to understand energy
consumption, where emissions are coming from and what drives them. DTI’s Energy
Indicators for 2005 show that industry’s share of final consumption has been
decreasing - now standing at 21 per cent. This trend is born out in figures from the
Scottish Energy Study which shows the business sector contributing to over half the
net fall in emissions since 1990. Even though a large part of this reduction has been
the shift in the UK economy away from energy intensive industries, the plethora of
environmental taxes on industry, such as the Climate Change Levy, EU Emissions
Trading Scheme, Renewables Obligation, Large Combustion Plant Directive and
Pollution Prevention and Control regulations have demonstrated a keen focus on this
sector.
8.      It is important, therefore, that businesses not only get the message that energy
efficiency improves the bottom line, but that the principles of good regulation are also
respected. It is concerning that some businesses perceive that the combination of
regulations means that they are faced with a triplication of regulation on energy
efficiency. Such an unnecessary compliance burden is itself inefficient and we would
wish to see consideration given to minimising such requirements. Therefore, the
impacts on business of any new measures need to be carefully considered. With this
principle in mind, we have some concern over the Scottish Executive’s recent Climate
Change Programme targets for carbon savings and the impact this could have on
Scottish businesses’ competitiveness. It is particularly important that the regulatory
burdens of any proposals are taken into account, alongside the effects on regional,
national and international competitiveness.
Domestic

9.      In SCDI’s view more effort should be concentrated on reducing demand and
increasing energy efficiency in other sectors, notably the domestic and transport
sectors, where final share of energy consumption is roughly 36 and 30 per cent
respectively. Particularly in an era when changes in society are leading to a
significant increase in the number of households across the UK, domestic energy
demand will continue to grow. Given that the heating and lighting of buildings makes
up the majority of non-transport energy use, SCDI wishes to see higher standards in
the energy efficiency of domestic and commercial buildings, incorporating more
microgeneration technology and local and renewable heat solutions. Although
Scotland currently has the highest standards for thermal insulation of buildings in the
UK - given the poorer quality housing stock and harsher climate - there is an
opportunity to focus on building standards and regulations and we encourage an
effectively managed adoption of the EC’s Energy Performance of Buildings
Directive, ensuring that new build and renovations meet more stringent energy
efficiency targets. In doing so, perhaps the most effective and straight-forward


                                           9
solution would be similar to the energy rating standards that have existed for domestic
appliances, where the setting of a single standard in the construction industry could
allow consumers to ascertain the energy efficiency of their purchases.

10.      Given that in the domestic sector alone 80 per cent of energy used goes
towards heating, SCDI believes that renewable heat and biomass can play significant
roles in addressing the Government’s aims of securing clean, affordable energy for
the long term. SCDI notes that policy support has focused on renewable electricity;
however, given the diminishing fossil fuel reserves, attention now needs to be turned
to how that support is used to meet heat needs. There are a wide range of
technologies that can produce renewable heat solutions and with Scotland’s
considerable agriculture and forestry resources SCDI believes it is well placed to
become a major player in this field. Taking into account the findings of the Forum for
Renewable Energy Development in Scotland’s Biomass Group and the recent
recommendations of the Scottish Parliament’s Environment Committee biomass
inquiry, we support calls for a renewable heat strategy for Scotland. Targets, financial
incentives and a supportive regulatory framework will be important if these
technologies are to develop. In SCDI’s view the public sector can and should drive
initial demand for this industry, enabling the creation of a sound supply chain base.
Public procurement is an obvious way this could be encouraged.
11.     Ultimately, for individuals, government has to get the message across that
energy is a precious commodity, to be valued and conserved. SCDI suggests one way
of doing this is through the introduction of smart metering and energy efficiency
ratings of consumer goods which have both been shown to encourage energy
efficiency in households and businesses. If people can become more actively
involved in and informed of their energy use and its costs - both financially and
environmentally - greater responsibility will develop. SCDI therefore welcomes the
Government’s announcement in its Climate Change Programme review of a £5
million trial of smart metering as a first step to introducing this concept to the wider
public. We wish to see the Scottish Executive undertake a similar commitment.
Transport

12.     While half of carbon emissions come from buildings, a quarter come from
vehicles. With carbon emissions from the transport sector now 10 per cent above
1990 levels, more needs to be done to address climate change in this area. The
demand for transport fuel has been growing at an alarming rate as society becomes
more affluent and individual consumption leads to greater use of energy. In Scotland
the implications of this are borne out in the Scottish Executive’s revised Climate
Change Programme, where a 21 per cent increase in road traffic is forecast by 2021.
Central to any interventions made by the Scottish Executive and UK Government will
be striking a balance between the different objectives of a sustainable transport
system. In Scotland the creation of a National Transport Strategy is a unique
opportunity to ensure the wider aims of sustainable economic development are
considered.

13.    However, it is particularly important that national initiatives are designed to
avoid discriminating against peripheral regions, particularly the Highland and Islands
in Scotland. Improving connectivity in these areas is fundamental to promoting
economic development and raising standards of living. At SCDI we want to see


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policies that take into account the importance of local solutions to promote sustainable
transport in these regions rather than a one size fits all approach. For example, in
peripheral economies air connections are very important, with more needed rather
than less. As air quality in peripheral regions is significantly better than in main
centres of demand, the expansion of connectivity in these regions should not be
handicapped by policies designed for centralised areas. Therefore, whilst we see no
reason to object to the principle of including the air transport sector in phase II of the
EU Emissions Trading Scheme, it is important that the introduction of such a scheme
takes account of the issues in these areas

14.     In considering more effective demand management in the transport sector,
SCDI suggests the planning system has a key role to play. We broadly support the
aims of the Scottish Planning Policy for Transport and are in favour of the
development of more integrated transport strategies to encourage a shift away from
car use. Greater coordination of public transport strategies will be essential if we are
to make public forms of transport truly viable alternatives to car use. In attempting to
address congestion in towns and cities and introduce cleaner, greener commuting
methods, initiatives like tram systems, local congestion charging, increased use of bus
lanes or multi-occupancy lanes, intermodal park and ride facilities on the outskirts of
towns and cities will all be necessary. Increasingly, the development of transport
policy will have to focus on providing a range of high quality options to the car “the
carrots” as well as “the sticks” such as charging. Along with integrating more
effective public transport strategies to encourage a shift away from car use, SCDI has
supported the principle of a national road user charging scheme at UK level, as well
as advocating the use of congestion charging to promote more sustainable transport
systems.

15.     Rail travel over longer distances and connections between towns, cities,
regions and other countries also needs investment to improve frequency and speed. In
SCDI’s view, improved rail infrastructure and services are crucial if we are to control
and reduce private car use and short-haul air travel. Therefore, if a UK network of
high-speed rail links is approved following the Eddrington Review, SCDI would like
to see a firm commitment provided that it would extend to Scotland and include a link
between Glasgow and Edinburgh. SCDI is aware there is some concern that the UK
Government may opt for a less expensive system of electrification in England which
would not benefit Scotland or build the high-speed rail links further than the north of
England. Collaboration will be vital in attempting to formulate sustainable transport
policy across the UK, controlling and reducing private car use and short-haul air
travel. Finally, improved rail links could also help with the efficient use of freight. In
SCDI’s recent submissions to the Scottish Executive we have called for the planning
system to be used to ensure better links with industry and rail infrastructure. This
means more rail freight interchanges and ensuring there is capacity on the rail
network to accommodate both passenger and freight growth.

16.     Whilst demand management policies will go some way to achieving
sustainable transport goals, transport demand is nevertheless likely to grow.
Therefore, a major drive must also be provided to achieve further advances in
alternative fuels and more efficient engines. SCDI would like to see more support
provided by government to promote the RD&D and commercialisation of new vehicle
technologies and cleaner fuels. Biofuels offer the potential for significant carbon


                                           11
savings in the transport sector and will play a key role in meeting the UK’s target of
cutting CO2 emissions by 60 per cent by 2050. Therefore, SCDI welcomes the
introduction of a Renewable Transport Fuel Obligation and we wish to see this policy
fully supported by including financial incentives to the agriculture sector to grow the
energy crops needed for the industry. Scotland is playing a leading role in the
development of this sector and at Argent Energy’s Motherwell site we have a first in
Europe in terms of biodiesel plants. We need to see this industry grow and further
work will need to be undertaken to provide alternative fuels and greater engine
efficiencies in the aviation, rail and marine sectors as well as greater support provided
to hydrogen based energy solutions, such as the current project underway on Unst in
the Shetlands.

Energy Supply Sector

17.     Whilst it is true the energy supply sector is the biggest single contributor to
carbon emissions, it is also the sector that has contributed the most to the fall in
emissions since 1990. SCDI believes clean coal and gas, nuclear and renewables will
all help to deliver on the objective of a low-carbon generation mix. Our view is that
some gas, clean coal and nuclear should form the backbone of any future power mix,
providing clean, affordable and reliable base-load power. We also have the added
opportunity that carbon capture technologies can be exported to the major
industrialising economies where they can play a vital role in addressing increasing
emissions.

18.    Renewable technology is also well placed to play an increasing role in
providing clean, affordable and reliable power supply. Nowhere else in the UK is this
more apparent than in Scotland. The renewables industry is currently on course to
achieve a significant share - 18 per cent - of Scotland’s power generation, three years
ahead of schedule. Given this considerable achievement, and the setting of an even
higher aspiration to achieve 40 per cent of Scotland’s electricity supply by 2020,
Scotland can and will be meeting a considerable share of the UK’s target for reducing
carbon emissions, as well as ensuring security of supply. However, to maximise the
potential of this industry the UK Government, Scottish Executive, local authorities
and Ofgem will need to provide ongoing support and development of both the market
mechanisms and regulatory frameworks.




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Q.2. With the UK becoming a net energy importer and big investments to be
made over the next twenty years in generating capacity and networks, what
further steps, if any, should the government take to develop our market
framework for delivering reliable energy supplies? In particular, we invite views
on the implications of increased dependence on gas imports.

SCDI’s Main Points:

      SCDI recommends gas, clean coal and nuclear form the backbone of any
       future energy mix, providing clean, affordable and reliable base-load
       power;
      It is crucial that support is maintained to grow complementary renewable
       technologies to ensure they develop as significant future supply sources;
      Greater effort should be made to tackle anti-competitive behaviour in
       Europe’s gas and electricity markets. We welcome Ofgem’s work with
       the European Commission on liberalising these markets and hope to see
       clear progress by the end of this year;
      The UK Government must provide clarity on its carbon reduction targets
       and the corresponding market framework to encourage investment in low
       carbon generation;
      Current procrastination over EU ETS Phase II is unhelpful for private
       investors in the energy sector looking for clear, long-term signals outlined
       in policy initiatives incentivising low or zero carbon emission
       technologies;
      SCDI wishes to see a stable, fiscal and regulatory framework which
       actively promotes maximising the production of North Sea reserves;
      Government’s Carbon Abatement Technology Strategy should be
       developed in order to find ways to make these technologies commercially
       viable and capable of being implemented;
      In Scotland, SCDI repeats its suggestion that support for this technology
       come from the Scottish Executive’s £20 million green jobs fund;
      Government should ensure that the renewables industry has a chance to
       develop in the context of long-term policy stability and this means a
       commitment to supporting market mechanisms such as the Renewables
       Obligation;
      SCDI believes that the development of Scotland’s renewable generation
       will only be encouraged by a more efficient planning system, a more
       equitable transmission charging methodology for Scotland in the wider
       GB electricity market and serious commitment to provide greater
       capacity in the transmission infrastructure.

19.     In the face of rising dependency on primary energy imports to meet our
electricity, heat and fuel needs, ensuring the right decisions are taken today is crucial
if we are to enjoy affordable energy from a secure base, now and in the future. It is
therefore wise to continue to encourage a balanced energy mix, whilst maintaining a
strong energy independence.




                                           13
20.     As has been witnessed by the dash for gas over the last 15 years, large
investments in a single technology, over a short period, does not represent a
sustainable approach to power generation. To secure the national interests of clean,
affordable energy a longer term view of the development of power generation is
needed. It is SCDI’s recommendation that gas, clean coal and nuclear form the
backbone of any future energy mix, providing clean, affordable and reliable base-load
power. At the same time, it is crucial that support is maintained to grow
complementary renewable technologies to ensure they develop as significant future
supply sources.

21.      From the various comparisons of unit costs for each technology it is clear that,
left to the market, the emerging power generation gap in the UK is likely to be filled
by more gas. As noted by Deloitte’s report, “Meeting the 2020 Vision - securing the
next generation,” if this happens it could lead to the power generation sector
exceeding CO2 targets by more than 30 per cent in 2020. As a consequence of this
scenario security of supply would be undermined from an over reliance on imported
gas, with the resulting exposure to greater price volatility and damage to UK
competitiveness. Whilst we wish to see a general policy of reducing gas use for large
scale power generation, we accept that in the interim - as our nuclear capacity, clean
coal and renewable technologies develop - gas will continue to play a significant role
in meeting heat and power needs. As we will increasingly rely on gas imports, SCDI
wishes to see a diverse range of sources of this supply, with expanded LNG storage
capacity. Whilst we welcome the £10 billion investment in gas import infrastructure,
the benefit of this extra capacity will not be fully realised unless greater effort is made
to tackle anti-competitive behaviour in Europe’s gas and electricity markets. We
welcome Ofgem’s work with the European Commission on liberalising these markets
and hope to see clear results by the end of this year.

22.     As noted in Deloitte’s report, in order to influence commercial decisions in
the UK energy market, government needs to takes a stronger lead in providing clear,
long-term signals on market and fiscal frameworks in order to stimulate investment
needed to meet UK emission targets and deliver security of supply. Major low carbon
technologies that can achieve these aims, such as carbon capture and storage for gas
and coal supplies, nuclear and renewables, have significant technical and commercial
barriers to overcome. As the value of avoided emissions is likely to be an important
driver of private investment decisions, a long-term price for carbon will be crucial.
The UK Government must therefore provide clarity on its carbon reduction targets
and the corresponding market framework to encourage investment in low carbon
generation. In this regard, the EU Emissions Trading Scheme is an important
mechanism which could be used as it incentivises CO2 reduction in the power
industry at least cost. Current procrastination over EU ETS Phase II is therefore
unhelpful for private investors in the energy sector looking for clear, long-term
signals outlined in policy initiatives incentivising low or zero carbon emission
technologies. In an industry where investment decisions are viewed in terms of
decades, a long-term framework needs to be developed that encourages private sector
investment in energy infrastructure to meet policy objectives. Business investment
follows policy certainty. It is e crucial that government develops a credible strategy,
which will give industry the confidence to invest appropriately.



                                            14
Oil & Gas

23.     Indigenous resources from the UKCS will continue to play a key role in
underwriting the UK’s economic growth for the foreseeable future. SCDI wishes to
see a stable, fiscal and regulatory framework which actively promotes maximising the
production of North Sea reserves. As espoused by many of our members in the oil
and gas industry, the current fiscal policy in its present form will not help achieve this
aim. If we are to ensure security of supply by maximising the lifespan of indigenous
resources then the Treasury must accept that large windfall taxes on the industry will
encourage the exact opposite as investment in this globally mobile industry is
undertaken elsewhere. This evidence has been borne out recently in the Chancellor’s
Budget statement where the Treasury has been forced to cut its tax take estimates
from the North Sea by £1.5 billion, which represents the bulk of the £2 billion
expected when it doubled supplementary corporation tax from 10 to 20 per cent.
Given that the production decline is now forecast between six and seven per cent,
unless this short term opportunism is addressed, the long-term benefits of security of
supply and the tax contribution this sector could make will be seriously affected.

Carbon Capture and Storage

24.     In the case of carbon capture and storage, the Government’s Carbon
Abatement Technology Strategy needs to be developed in order to find ways to make
these technologies commercially viable and capable of being implemented. A much
stronger lead is needed from government, providing incentives for new plants to be
built capture ready and ensure that current plant remains in the mix by enabling the to
technology be retrofitted so that existing plants can continue access our indigenous
fossil fuel reserves and contribute to security of supply. SCDI call on government to
support this technology in order that it might be brought to the market and have the
earliest possible influence on long term investment decisions. With China alone
accounting for one quarter of the world’s coal consumption, exporting this technology
would undoubtedly be one of the biggest contributions the UK could make to curbing
carbon emissions. In Scotland, SCDI repeats its suggestion that support for this
technology come from the Scottish Executive’s £20 million green jobs fund.

Nuclear

25.     As a major contributor to the goal of achieving clean, affordable energy for the
long-term, SCDI is of the view that the nuclear industry will have an important role to
play for many years to come. Therefore, SCDI supports the nuclear industry’s call for
long-term clarity over the Government’s carbon reduction targets and corresponding
market framework to encourage investment in low carbon generation. There will also
need to be decisive and clear decisions made with regard to the UK’s future strategy
for long term waste disposal. And government will need to outline a clear approach
to the funding of future decommissioning liabilities as well as provide greater clarity
on the planning and health and safety policies that will impact on this industry. We
expand our advice on this area at question three.



Renewables


                                           15
26.    SCDI believes that a diverse range of renewable sources, such as offshore
wind, wave and tidal, could greatly increase the predictability and reliability of the
renewables contribution to the energy supply mix - to date largely met by hydro
power and on-shore wind. Scotland has significant potential in these areas and will
continue to play an important role in the delivery of future UK energy policy goals,
adding to UK security of supply and contributing to carbon emission reductions.

27.     Clearly, without a more holistic and realistic look at all elements affecting the
renewables development timetable, the clarification and assurance needed by
investors regarding long-term price stability and commitment will be seriously
undermined. In the final analysis, government should ensure that the industry has a
chance to develop in the context of long-term policy stability and this means a
commitment to supporting market mechanisms such as the Renewables Obligation.
Further to this, SCDI believes that the development of Scotland’s renewable
generation will only be encouraged by a more efficient planning system, a more
equitable transmission charging methodology for Scotland in the wider GB electricity
market and serious commitment to provide greater capacity in the transmission
infrastructure needed to release Scotland’s renewable potential. As Scotland is and
will be meeting a disproportionate share of the UK’s international obligations, due to
more abundant natural resources, the additional costs incurred in doing so should be
spread equitably across the UK.

Q.3. The Energy White Paper left open the option of nuclear new build. Are
there particular considerations that should apply to nuclear as the Government
re-examines the issues bearing on new build, including long term liabilities and
waste management? If, so what are these and how should the Government
address them?

SCDI’s Main Points:

      SCDI believes that nuclear power should continue to play a central role in
       providing clean, affordable and reliable base-load power;
      We do not see long-term storage as an insurmountable obstacle to the
       development of new nuclear stations;
      It is important that a satisfactory solution to the management of existing
       and future waste is provided promptly;
      SCDI suggests that it may be easier to commission new nuclear build on
       existing sites which could help shorten the planning process, make use of
       existing transmission infrastructure, and provide a continuity of highly
       skilled jobs and wider economic benefits to communities which are
       familiar with the industry.

28.     The UK’s nuclear generation industry currently makes a significant
contribution to ensuring security of supply and emission reductions. While the UK as
a whole depends on nuclear power for 25 per cent of its electricity supply, Scotland is
significantly more dependent on this source of power. Almost 40 per cent of
Scotland’s electricity is generated by its nuclear power stations at Hunterston B and
Torness. Hunterston B is likely to close in the next ten years, with Torness
concluding its productive life a decade or so later. A future energy policy that had no


                                           16
place for nuclear energy would therefore have to find significant alternative sources of
electricity. Given that nuclear power would be replaced primarily by fossil fuel
generation, at least for the foreseeable future, this would represent a huge increase in
the UK’s carbon dioxide emissions as well as a potentially significant increased
reliance on imported sources of fuel. At present British Energy’s UK nuclear
generation avoids some 40 MtCO2 each year which is almost twice the savings
sought through the EU ETS in phase 1. This will be lost if our current nuclear assets
are retired. It is difficult to see how nuclear power can be removed from the
generation mix if the UK is to maintain a secure energy supply and combat climate
change in the medium to long term. SCDI believes that nuclear power should
continue to play a central role in providing clean, affordable and reliable base-load
power.

29.     Given the long lead-time for the construction of nuclear power stations,
decisions regarding the industry’s future in the UK must be made now. Clearly, long-
term nuclear waste management is an issue that concerns many members of the
public.     Although we acknowledge the Committee on Radioactive Waste
Management is currently reviewing this issue and is still to report, we believe the
issues will prove to be political rather than technical and therefore do not see long-
term storage as an insurmountable obstacle to the development of new nuclear
stations. There is international evidence of long term solutions to waste management
and public acceptability of new nuclear build in countries such as Finland. In
providing the environment in which to encourage private investment in new nuclear
power, and secure public support, government must accept that the management of
nuclear waste is a legacy issue that cannot be expected to be met in the expected
lifetime of any commercial company. Government will therefore be expected to take
the role of guarantor to satisfy public safety concerns and it is important that a
satisfactory solution to the management of existing and future waste is provided
promptly.

30.     As we recommended at question two, government must also provide long-
term clarity on its carbon reduction targets and the corresponding market framework
to encourage investment in low carbon generation, such as nuclear. As noted earlier,
the EU ETS is an important mechanism that could be used in this regard as it
incentivises CO2 reduction in the power industry at least cost.                Current
procrastination over the implementation of an EU ETS Phase II is therefore unhelpful.
The Government will also need to outline its approach to the funding of future
decommissioning liabilities as well as providing greater clarity on the planning and
health and safety policies that will impact on this industry. SCDI suggests it may be
easier to commission new nuclear build on existing sites which could help shorten the
planning process, make use of existing transmission infrastructure, and provide a
continuity of highly skilled jobs and wider economic benefits to communities which
are familiar with the industry. As a major player in meeting the Government’s aim of
achieving clean, affordable energy for the long term, the UK’s existing nuclear assets
will need to be maintained whilst also considering new build.




                                          17
Q.4. Are there particular considerations that should apply to carbon
abatement and other low-carbon technologies?

SCDI’s Main Points:

      SCDI welcomes the Treasury’s consultation on the barriers to
       commercial deployment [of Carbon Capture and Storage technology] to
       fully support the demonstration and commercialisation of this
       technology;
      There should be significant investment to support clean coal technologies
       so that they may make an increasing contribution to future energy needs;
      We welcome the Scottish Executive’s intention to support the
       [renewables] industry by varying the Renewables Obligation to encourage
       wave and tidal development.

31.     The use of Carbon Capture and Storage (CCS) technologies provide
significant opportunities to reduce carbon emissions from gas and coal fired
generation, as well as enhancing oil recovery from indigenous reserves. The UK has
a unique opportunity to lead the development of low carbon technologies in order to
meet the challenge of climate change. Two potential new CCS projects have been
announced recently which will begin to test the business case for this technology.
The Miller project in Scotland, involving BP, Shell, ConocoPhillips and Scottish and
Southern Energy has the potential to reduce CO2 emissions from Peterhead Power
station by up to 90 per cent, with Shell and Statoil planning similar undertakings in
Norwegian gas fields. However, this technology is costly and often cannot be
recovered by power generation and enhanced oil recovery alone. There are, therefore,
significant technical, environmental and commercial issues to be overcome before its
use can become widespread. SCDI welcomes the Treasury’s consultation on the
barriers to commercial deployment and encourages government to fully support the
demonstration and commercialisation of this technology.

32.     The UK has plentiful supplies of coal and in Scotland it is estimated that there
is some 200 year’s worth of reserves. As outlined in Mitsui Babcock’s Clean Coal
Technology Study, coal, along with nuclear fission, will be an essential bridge to a
future of sustainable energy from renewable energy sources and potentially nuclear
fusion. SCDI accepts that coal-fired generation is currently a comparatively high
emitter of greenhouse gases, although Scottish coal is of a very high quality, and low
in sulphur. However, the benefits it brings in terms of security and stability of supply
suggests that there should be significant investment to support clean coal technologies
so that they may make an increasing contribution to future energy needs. The
decisions of UK generators on whether to opt-in or opt-out coal-fired plant under the
Large Combustion Plant Directive will have a significant impact on security of
supply. SCDI encourages government to intervene to support the demonstration of
this technology as well as incentivising its commercial deployment.

33.    Ongoing support for other low carbon technologies, such as renewables, also
needs to be maintained through the use of market mechanisms, such as the
Renewables Obligation, as well as funding support for the RD&D and
commercialisation of early stage wet renewable technologies. In Scotland we have
world-class institutions, such as the Marine Energy Test Centre in Orkney, and ideal


                                          18
conditions suited to wind, wave and tidal power projects. Like many others across
Scotland, at SCDI we wish to see the development of a more diverse range of
renewable technologies to meet our energy needs. Further support is needed to help
address the technical and commercial barriers that these technologies face in order to
reduce costs and make them commercially viable. As a step in the right direction we
welcome the Scottish Executive’s intention to support the industry by varying the
Renewables Obligation to encourage wave and tidal development. In SCDI’s view
this should be achievable without undermining the existing use of the Obligation - as
regards the on-shore wind industry. However, as with the problems that have beset
the on-shore wind industry in Scotland, the regulatory frameworks that impact on the
development of these technologies need to be supportive.

Q.5. What further steps should be taken towards meeting the government’s
goals for ensuring that every home is adequately and affordably heated?

SCDI’s Main Points:

      SCDI suggests that a policy of ensuring sustainable and affordable energy
       supplies will be the most effective way of ensuring every home is
       adequately and affordably heated;
      More effort should be made to raise household incomes as well as the
       standards of design and insulation of buildings will be also be required;
      We call on the Scottish Executive to continue and greatly enhance funding
       of its own micro renewable scheme, the Scottish Community and
       Householder Renewables Initiative.

34.     As noted in the review the Government’s overall target, set out in the UK Fuel
Poverty Strategy and the 2003 White Paper, was to seek an end to the problem of fuel
poverty by 2010. SCDI notes that from 1996 to 2003 the number of households in
fuel poverty fell from 6.5 million to 2 million. However, since 2003 domestic energy
bills have increased markedly, undoing much of this effort. In Scotland, every time
domestic fuel prices rise by more than 5 per cent, 30,000 households are pulled back
into fuel poverty. The poorer quality housing stock and harsher climate add to the
price problems and successive energy price rises have plunged an estimated 330,000
households back into fuel poverty in Scotland.

35.    On the supply side, SCDI suggests that a policy of ensuring sustainable and
affordable energy supplies will be the most effective way of ensuring every home is
adequately and affordably heated. As gas will be the main primary energy source in
providing heat needs for some years to come, the promotion of competitive markets
across Europe, with increased storage capacity at home and imports from a wide
range of sources, will be crucial. However, given the inevitable upward trend of
primary energy costs, more effort to raise household incomes as well as the standards
of design and insulation of buildings will be also be required. Current rebates
afforded through tax credit schemes and a greater drive towards energy efficiency
should also be maintained and developed to help alleviate the problem for the most
vulnerable in our society.




                                         19
36.     SCDI believes that government also has a role to play in developing
microgeneration technologies, which could be used to provide renewable solutions to
the problem. One way of ensuring the penetration of these technologies could be to
mandate their requirement in building standards, ensuring all new build and
renovations meet higher energy efficiency standards. SCDI also suggests targeting a
proportion of micro renewable grant schemes to poorer households. With proper
support these technologies could develop to provide a suitable degree of reliable
sources of energy with greater cost certainty. SCDI welcomes the Chancellor’s
Budget announcement of additional funding of microgeneration technologies and
calls on the Scottish Executive to continue and greatly enhance funding of its own
over subscribed micro renewable scheme, the Scottish Community and Householder
Renewables Initiative.

OTHER ISSUES

(ii)   Implications in the medium and long term for the transmission and
distribution networks of significant new build in gas and electricity generation
infrastructure.

SCDI’s Main Points:

      Together with the planning and consents regime, the current regulatory
       system is in danger of seriously delaying infrastructure investment and
       stifling the development of renewable energy technologies in the North of
       Scotland;
      Ofgem’s regulatory controls should be subject to a wider range of
       sustainability tests such, as environment and security as well as price;
      SCDI calls on the DTi and National Grid Company to support Ofgem in
       undertaking reviews of both the current transmission charging regime
       and final sums liability payments.

37.    Aside from the increase in LNG storage facilities and new pipeline
connections for our increasing dependency on imported gas, government will need to
provide more proactive direction to the management and regulation of the electricity
market if it is to achieve the objectives set out in its energy policy.

38.     Given the Government’s White Paper commitment to develop the renewables
sector, SCDI has some concern that elements of the present regulatory regime,
overseen by Ofgem, are not delivering on wider energy policy objectives, particularly
in Scotland. Scotland’s huge renewable potential is widely acknowledged and
through the renewable industry we continue to provide a significant contribution to
UK emission targets. However, as highlighted by many of our members in the
industry, the constrained nature of the transmission and distribution network needs
priority action on transmission investment to key distribution areas on the remote
Scottish mainland and island locations. At SCDI we see the problem as twofold:
punitive transmission charging regimes and a lack of strategic support for
infrastructure investment.




                                         20
39.      SCDI generally welcomed the introduction of British Electricity Trading and
Transmission Arrangements bringing benefits for generators in Scotland, through
easier and cheaper access to the full GB market; better prices for their power and the
abolition of cross-border interconnector charges. However, the creation of a single
market has also brought with it a complex set of arrangements for connecting to and
using the GB transmission system. In our view, the National Grid Company’s
transmission charging methodology, approved by the regulator Ofgem, has produced
a strong locational transmission charging regime that sends price signals to encourage
investment in generation closer to densely populated markets in the south of England
whilst penalising Scottish generators. In effect, this means that the development of
renewable projects in optimal, but peripheral, locations is becoming more difficult to
finance, with many schemes marginalised and therefore unable to proceed. There is
clearly an issue when Ofgem can approve a system that appears to contradict the
objectives of the Government’s own energy policy. This is evident concerning the
development of renewable energy from optimal locations in Scotland. It cannot be
considered a satisfactory system when the DTi has to tackle a market failure, created
by regulation, and cap transmission charges to enable development in some of
Europe’s prime renewable locations. The problem has been compounded by other
nuances of the regulatory framework for electricity, such as the huge final sums
liability payments demanded of developers for extending the grid network. Together
with the planning and consents regime, the current regulatory system is in danger of
seriously delaying infrastructure investment and stifling the development of
renewable energy technologies in the North of Scotland.

40.     SCDI supports calls, suggesting that Ofgem’s licence should be extended
beyond its main locus - the protection of value for money for the customer - and
brought more into line with the wider objectives of the Government’s energy policy.
With the multifaceted nature of evolving energy policy it is SCDI’s view that
Ofgem’s regulatory controls should be subject to a wider range of sustainability tests,
such as environment and security, as well as price. We therefore welcome Ofgem’s
recent consultation on final sums liability as an important demonstration of this wider
consideration. Taking this forward, SCDI calls on the DTi and National Grid
Company to support Ofgem in undertaking reviews of both the current transmission
charging methodology and final sums liability payments.

41.     SCDI believes that the development of Scotland’s renewable generation
should be encouraged by a more efficient planning system, a more equitable
transmission charging methodology for Scotland in the wider GB electricity market
and serious commitment to provide greater capacity in the transmission infrastructure
needed to release Scotland’s renewable potential. As Scotland is and will be meeting
a disproportionate share of the UK’s international obligations, due to a more abundant
Scottish natural resource, the additional costs incurred in doing so should be spread
equitably across the UK. It is our view that adhering to this principle will also
minimise the cost to consumers.




                                          21
(iii) Opportunities for more joint working with other countries on our energy
policy goals.

SCDI’s Main Points:

      SCDI suggests that the Government’s ambition must be to engage in long-
       term international frameworks with the rest of the developed world,
       through technology as well as targets;
      Further engagement with Member States on energy and climate change
       policy will be beneficial in ensuring security of supply and tackling
       climate change, as well ensuring a level playing field for UK businesses in
       the implementation of EU directives and other regulations;
      SCDI calls on the UK Government to engage fully with the principles of
       the current proposals, however difficult this challenge may appear to be.

42.     With 98 per cent of emissions occurring outside the UK, climate change is a
global issue which demands global solutions. The scale of the challenge is underlined
by the International Energy Agency predictions that global energy demand will be
more than 50 per cent higher in 2030 than today, with greenhouse gas emissions 60
per cent higher. Whilst it is a commendable that the UK Government takes a lead in
securing emission reductions, it must not do so at the expense of UK competitiveness.
We must continue to bear in mind that UK emissions contribute just two per cent to
the bigger problem and to some extent a greater focus on developing low carbon
technologies for export will be far more effective in tackling the global problem,
particularly in industrialising countries where these technologies can play a major role
in offsetting the damage that will be caused by planned fossil fuel use.

43.     SCDI suggests that the Government’s ambition must be to engage in long-
term international frameworks with the rest of the developed world, through
technology as well as targets, coordinating efforts to assist developing economies
meet their energy needs in an environmentally sustainable way. High level target
agreements, such as the Kyoto commitment, move us in the right direction but major
emitters such as the USA need to be brought onside if serious efforts are to be made
to tackle this problem.

44.     The recent politically charged energy spats between Russia, the Ukraine and
Belarus, demonstrate the importance of securing a diverse range of supply countries
to meet our energy needs. Together with a competitive internal energy market across
Europe, this would, to some extent, alleviate the volatility of energy prices. In this
regard, SCDI supports the principle of a common European Energy Policy, as
outlined in the Commission’s Green Paper. Harnessing the political weight and
economic clout of the EU 25 would go some way to achieving the UK’s energy policy
goals: sustainability, competitiveness, and security of supply. Therefore, further
engagement with Member States on energy and climate change policy will be
beneficial in ensuring security of supply and tackling climate change, as well ensuring
a level playing field for UK businesses in the implementation of EU directives and
other regulations. Today’s EU was founded on a desire to create economic and
political agreement enabling post-war Europe to achieve, amongst other things, the
security afforded by a common energy policy. SCDI calls on the UK Government to



                                          22
engage fully with the principles of the current proposals, however difficult this
challenge may appear to be.

(iv)    Potential measures to help bring forward technologies to replace fossil
fuels in transport and heat generation in the medium and long term.

SCDI’s Main Points:

      SCDI encourages the Scottish Executive and UK Government to do more
       to help bring down cost and increase the proliferation of these
       technologies, particularly for the micro scale where they could have the
       greatest impact.

45.     To bring foward any technology which is still some way off will require long-
term moral and financial support from government. It is clear that more work still
needs to be done on fuel cell technology, hydrogen storage technology and hydrogen
distribution before hydrogen alternatives to fossil fuels can compete on cost,
convenience and performance.

46.     SCDI’s view is that government can play a central role in supporting RD&D
as well as aiding commercialisation of alternative fuels encouraging their proliferation
in the market - such as the Renewable Transport Fuel Obligation, the duty on oil-
based fuels and exemptions from other road charges. We also note that the Forum for
Renewable Energy Development in Scotland has a hydrogen and fuel cell group
looking at these technologies and would expect the Scottish Executive and UK
Government to carefully examine the recommendations made in future reports.

47.     However, as the most cost-effective use of hydrogen is likely to be for
transport use, demand management and energy efficiency will likely be the most
effective measures in tackling heat needs, certainly in medium term. On the supply
side, alternative heat technology appears to be focusing on micro and macro scale
renewables such as Combined Heat and Power (CHP), solar thermal, ground source
heat pumps and biomass heating. The development of alternative heat technologies
was a key ambition of the 2003 White Paper and SCDI encourages the Scottish
Executive and UK Government to do more to bring down cost and increase the
proliferation of these technologies, particularly for the micro scale where they could
have the greatest impact.




Niall Davidson
Policy Analyst
The Scottish Council for Development and Industry

April 2006




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