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EE/S3/10/R1

1st Report, 2009 (Session 3)

Report on the legislative consent memorandum on the Energy Bill
(UK Parliament legislation)

Remit and membership

Remit:

To consider and report on the Scottish economy, enterprise, energy, tourism and all other matters falling within the responsibility of the Cabinet Secretary for Finance and Sustainable Growth apart from those covered by the remits of the Transport, Infrastructure and Climate Change and the Local Government and Communities Committees.

Membership:
Ms Wendy Alexander
Gavin Brown
Rob Gibson (Deputy Convener)
Christopher Harvie
Marilyn Livingstone
Lewis Macdonald
Stuart McMillan
Iain Smith (Convener)

Committee Clerking Team:

Clerk to the Committee
Stephen Imrie

Senior Assistant Clerk
Katy Orr

Assistant Clerk
Gail Grant

Report on the legislative consent memorandum on the Energy Bill (UK Parliament legislation)

The Committee reports to the Parliament as follows—

Introduction

1. The UK Energy Bill (“the Bill”)1 was introduced in the House of Commons on 19 November 2009. As the Bill makes provisions applying to Scotland for purposes that lie within the legislative competence of the Scottish Parliament and that alter the executive competence of the Scottish Ministers, a legislative consent memorandum (LCM(S3) 12.3)2 has been lodged by the Scottish Government (see annexe).

Background to the changes proposed in the LCM

2. As the memorandum explains, consent is sought in relation to the following areas. Firstly, the Bill will enable the UK Government to raise a UK-wide levy (which is a reserved matter) on electricity supply to be charged in connection with provision of financial assistance in respect of carbon capture and storage (CCS) demonstration projects. The Bill will also include an explicit reference stating that for major projects situated in Scotland, the UK Secretary of State must consult with Scottish Ministers before making, amending or revoking an assistance scheme and before making regulations relating to assistance schemes.

3. There are further provisions in the Bill which ensure that the Secretary of State obtains the consent of Scottish Ministers before making Regulations under part 1 of the Bill, which amend or contain provision extending to Scotland. This is a similar approach to that taken for the Energy Act 2008.

4. Secondly, the disbursal of the CCS financial incentive funds in Scotland would fall within devolved competence of the Scottish Parliament. The Scottish Government believes that an ‘allocation approach’ is unlikely to be the best option for supporting projects. Given the significant cost of each demonstration project, it would prefer to pursue funding on an individual basis.

5. The Scottish Government announced on 9 November 2009, its position with regard to the use of CCS on coal-fired power stations, which aligns with the UK Government’s position. As such, all new coal-fired power plant in Scotland are now required to demonstrate CCS on 300MW (net) on start up and from 2020, all new coal plant must be fully CCS compliant. In addition to this, if CCS is considered technically and financially viable by 2018, it is likely that retro-fitting of all existing plant would be required by 2025.

The Committee’s consideration of the Bill

6. At its meeting on 13 January 20103, the Committee considered the legislative consent memorandum and took evidence from Jim Mather MSP, Minister for Enterprise, Energy and Tourism and a Scottish Government official. A number of points and questions were raised by the Committee.

7. Initially, the Minister was asked to clarify that should the Scottish Parliament fail to give its consent to the LCM, then the requisite funding for CCS under this initiative would not be forthcoming. The Minister was also asked if in his view, any money raised under the levy would be ring-fenced to fund CCS projects. The Minister indicated that this was his opinion on both matters. He also stated that, again in his view, the income generated would be “substantial” and would be of great benefit to Scotland.

8. The Minister was further asked if there were alternatives to the proposed provisions and the levy should CCS technology prove not to be viable from 2018. The Minister indicated that it was his understanding that viability issues would be kept under review through to 2018.

Recommendation to the Parliament

9. The Economy, Energy and Tourism Committee then discussed whether it wished to recommend to the Scottish Parliament that consent be granted to the UK Parliament to consider the Bill as set out in the legislative consent memorandum. After discussion the Committee reached agreement without division.

10. The Economy, Energy and Tourism Committee therefore recommends that the relevant provisions of the UK Energy Bill introduced in the House of Commons on 19 November 2009 relating to the disbursal of funds for any future Carbon Capture and Storage demonstration projects which will be the subject of assistance schemes (as they relate to environmental issues), so far as these matters fall within the legislative competence of the Scottish Parliament, or alter the executive competence of Scottish Ministers, should be considered by the UK Parliament.

Annexe

LETTER FROM THE MINISTER FOR ENTERPRISE, ENERGY AND TOURISM TO THE CONVENER

7 January 2010

Dear Iain,

DRAFT LEGISLATIVE CONSENT MOTION – UK ENERGY BILL

I am writing to you with reference to the Legislative Consent Motion lodged by Mr Swinney in December 2009, regarding the UK Energy Bill and the disbursal of funds for four Carbon Capture and Storage (CCS) demonstration projects which will be the subject of assistance schemes using levied funds collected from electricity suppliers.

Based on further discussions between DECC and Scottish Government officials, I would like to take the opportunity to update the Committee with regard to two changes on the policy intention of the draft motion which have recently emerged.

Firstly, paragraph 6 of the memorandum, confirms that the Secretary of State will obtain the consent of Scottish Ministers before making regulations under part 1 of the Bill which amends or contains provision extending to Scotland. I wish to clarify that this would relate to provisions which would be within the legislative competence of the Scottish Parliament. This is a similar approach to that taken in the Energy Act 2008.

Secondly, in relation to paragraph 7, subsequent discussions on policy means that an allocation approach is unlikely to be the best option for supporting projects. Given the significant cost of each demonstration project, pursuing funding on an individual project basis is, we believe, the best way ahead.

We believe that Scotland is well placed to benefit from such an approach. We have a number of outstanding prospects for demonstration projects. We also have significant potential storage capacity in the North Sea as well as strengths in academia and industry and infrastructure which are already ensuring that Scotland is a leading player in the development of CCS. We are confident that a number of these demonstration projects could be located in Scotland.

I hope this update is useful and I look forward to discussing the LCM at my forthcoming appearance at the Committee on 13 January.

JIM MATHER

LEGISLATIVE CONSENT MEMORANDUM
UK ENERGY BILL

Draft Legislative Consent Motion

The draft motion, which will be lodged by the Cabinet Secretary for Finance and Sustainable Growth, is:

“That the Parliament agrees that the relevant provisions of the UK Energy Bill introduced in the House of Commons on 19 November 2009 relating to the disbursal of funds for any future Carbon Capture and Storage demonstration projects which will be the subject of assistance schemes (as they relate to environmental issues), so far as these matters fall within the legislative competence of the Scottish Parliament, or alter the executive competence of Scottish Ministers, should be considered by the UK Parliament.”

Background

This memorandum has been lodged by John Swinney Cabinet Secretary for Finance and Sustainable Growth under Rule 9.B.3.1(a) of the Parliament’s standing orders. The Energy Bill was introduced in the House of Commons on 19 November. More information on the Bill can be found at:

http://services.parliament.uk/bills/2009-10/energy.html

Content of the Energy Bill

The UK Energy Bill will introduce a financial incentive, funded by electricity suppliers, to support up to four Carbon Capture and Storage (CCS) commercial-scale demonstration projects. It is expected that the CCS incentive will be able to provide financial support for future retrofit. This supports our ambition to move to a low carbon economy while maintaining the security and diversity of electricity supplies.

The Bill will also include provisions required to implement other policies in relation to refocusing Ofgem’s objectives and creating a mandatory social price support scheme. Whilst neither of these areas will require an LCM, Scottish Government officials will liaise closely with DECC colleagues on the content of these Bill clauses.

Provisions Which Relate to Scotland

The UK Energy Bill will enable the UK Government to raise a UK wide levy (reserved) on electricity supply to be charged in connection with the provision of financial assistance in respect of CCS demonstration projects. The Bill will include an explicit reference stating that for projects situated in Scotland, the Secretary of State must consult with Scottish Ministers before making, amending or revoking an assistance scheme and before making regulations relating to assistance schemes.

In addition to this there are further provisions in the Bill which ensure that the Secretary of State obtains the consent of Scottish Ministers before making Regulations under Part 1 of the Bill which amend or contain provision extending to Scotland. This is a similar approach to that taken in the Energy Act 2008.

Reasons for seeking a legislative consent motion

The disbursal of the CCS financial incentive funds in Scotland would fall within devolved competence and an appropriate amount of the UK raised levy would be assigned to Scotland based on the Barnett formula. However, any allocation of funds is unlikely to be sufficient to fund a demonstration project (current cost of a project is estimated at around £1bn). However, by pursuing the LCM to allow disbursal of the funds on a UK wide basis Scotland would stand to benefit if successful in securing at least one of the 4 demonstration projects.

Consultation

On 9 November 2009 DECC published the response to their consultation “A Framework for the Development of Clean Coal.” The response can be found here:

http://www.decc.gov.uk/en/content/cms/consultations/clean_coal/clean_coal.aspx

On the same day the Scottish Government also announced its position on coal fired power stations, which aligns with the UK position. All new coal plant are now required to demonstrate CCS on 300MW (net) on start up and from 2020 all new coal plant must be fully CCS. In addition to this, if CCS is considered technically and financially viable by 2018 it is likely that retro-fitting of all existing plant would be required by 2025.

Over the coming months DECC will be working with stakeholders to further develop policies to establish a dedicated financial support mechanism for CCS. They expect, subject to successful enactment of the Bill, to consult formally in early Summer 2010 on the detail of the secondary legislation required to fully implement the CCS incentive. The aim is for the statutory framework for supporting CCS, including the necessary regulations, to be in force in time to support the first CCS demonstration project under the existing competition.

Conclusion

An ambition of the Scottish Government is to move to a low carbon economy while maintaining the security and diversity of electricity supplies. The proposals of the Bill will help achieve this and should be supported.

SCOTTISH GOVERNMENT
November 2009


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