We should worry about a Scottish Government which has missed its climate targets and wants to incentivise the maximum extraction of fossil fuels
The Scottish Government has taken a very strong line on reducing emissions and combating climate change. The targets it has set for Scotland are some of the most challenging in the world. It has failed to meet them in the last three years and there is a fundamental contradiction between its rhetoric and its enthusiastic support for the North Sea oil and gas industry.
For the foreseeable future any investment in renewables in Scotland will be dwarfed by heavy spending on fossil fuel extraction, particularly offshore oil and gas. The White Paper “Scotland’s Future,” makes clear that an independent Scottish Government would support and incentivise production of North Sea oil and gas, the revenues from which will make a vital contribution to Scottish public income.
An independent Scotland, therefore, would be very unlikely to regulate to deter or inhibit banks from lending to oil and gas companies and would face hostility from the oil and gas industry as well as the banking industry were it to seek to do so.
Indeed the Scottish Government’s own Scottish Investment Bank has already made loans to companies in the Aberdeen-based oil services sector.
There is a marked difference in attitude by Government and the public to, say, the extraction of oil from tar sands in Alberta (described as ‘the most destructive project on earth,’ threatening to have a devastating impact on the global climate and destroying the way of life for indigenous communities, by the World Development Movement), or fracking in Sussex, than to the continued extraction of oil and gas from the North Sea. Our own fossil fuel industry does not excite controversy.
Yet the burning of all types of fossil fuels contribute to climate change.
The White Paper is equivocal about the attitude of future Scottish Governments to onshore fossil fuel extraction through “fracking” or the exploitation of shale gas or coal-bed methane, so it is not possible to predict what controls, if any, might be imposed on banks lending to such activities. Furthermore, the White Paper makes no mention of coal, despite the existence of open cast mining in Scotland.
Lack of clarity on these issues makes it impossible to assess the green credentials of an independent Scottish government. It talks a good game, but its actions have not yet lived up to its hype.
The Carbon Bubble and its impact on Scotland
The term ‘Carbon Bubble’ comes from a new and potentially devastating report, “Unburnable Carbon 2013,” produced by the non-governmental organisation Carbon Tracker and the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. It has calculated the effect of burning all the fossil fuel reserves currently held by energy companies worldwide, state-owned and commercial, and matched this against the world’s commitments to fight climate change by reducing emissions. Its conclusion is that if the world is to meet its targets these reserves cannot all be used – 60-80% of them must stay in the ground and become ‘stranded assets.’
The implications for governments and investors such as pensions funds are profound because the valuations of energy companies depend on the value of their fossil fuel reserves. If these reserves cannot be exploited, their valuations fall. These valuations also underpin lending by banks to fossil fuel extraction projects. In the words of Martin Wolf, the Financial Times’s influential economics commentator, investors are making ‘risky bets in the climate casino.”
Public institutions and government departments are required by the Climate Change (Scotland) Act to reduce their carbon emissions towards an overall target reduction of 42% by 2020. However there is no obligation to make a similar cut in Scotland’s extraction of the source of these of most carbon emissions: fossil-fuels.
The response of the Scottish Government to the “Unburnable Carbon” report has been dismissive. Minister for Energy, Enterprise and Tourism Fergus Ewing told the Scottish Parliament that ‘no contradiction exists’ between the policy of maximising oil and gas extraction and reducing emissions, ‘therefore suggesting that fossil fuels from the UK Continental Shelf will be extracted, exported and primarily burnt elsewhere,’ according to the Parliament’s information service.
That is Nimbyism, not environmental responsibility.
The White Paper actually talks of a ‘prize’ of four billion extra of oil equivalent worth £200 billion over 20 years through increased recovery, with no indication of the effect this would have on emissions. With the next UN Climate Change conference due in Paris in 2015 to consider new legally binding targets for emissions reductions, some investors and banks are already reconsidering their valuation models. The Scottish Government may have to do the same.
This is not a government anyone seriously interested in combating climate change should support.
Ray Perman is former chair of WWF Scotland, trustee of WWF UK and author of the recent report “Smaller, Greener Banking” for Friends of the Earth Scotland