Scotland's Future

Chapter 8 Environment, Rural Scotland, Energy and Resources

• Direct representation in Europe will allow an independent Scotland a full voice in negotiations affecting key Scottish sectors, including agriculture, fisheries and aquaculture, to reflect Scottish priorities and benefit rural and coastal communities
• In recent negotiations Scotland would, as an EU member state, have had the opportunity for substantial uplift in agriculture and rural development funding via the Common Agricultural Policy. An independent Scottish Government will be able to negotiate directly to ensure Scotland does not lose out in the future
• Fishing quotas will be retained in Scotland as a national asset for the benefit of future generations
• An independent Scotland will have the platform to champion action on climate change at the global level
• An independent Scottish Parliament will have the opportunity to enshrine protection of the environment in a written constitution, ensuring its protection for future generations
• The government of an independent Scotland will have the powers to properly prioritise the needs of rural Scotland in relation to telecommunications, postal services, fuel and energy policy
• The principles of stability and certainty this Scottish Government is committed to will guarantee new investment in energy: we have no plans to increase the overall tax burden on the oil industry and no changes will be made to the fiscal regime without consultation
• Under our proposals, a single GB-wide market for electricity and gas will continue, with the current market trading arrangements, provided that they meet Scottish requirements for energy security supply
• We propose to establish a Scottish Energy Fund to provide investment for future generations and to smooth receipts from oil revenues

Scotland is blessed with an abundance of natural resources that can bring prosperity and ensure our nation meets the global challenges of the 21st century, such as food and energy security, and climate change. Independence will provide the powers to ensure that everybody in our society enjoys the benefits of our natural resources and that these are harnessed in line with Scotland's needs and priorities.

Recent assessments of the cost of living in rural Scotland highlight the many issues that are currently reserved to Westminster where the approaches taken by Westminster governments are hindering rural development and making life challenging for families, communities and businesses in rural Scotland^[297].

Independence can empower our rural communities, and ensure that appropriate regulation of vital issues such as digital connectivity, postal and parcel deliveries, and energy reflects the needs of rural Scotland.

Agriculture

Why we need a new approach

Scotland's agriculture sector underpins the rural economy and our successful food and drink sector. Our farmers and crofters, in their stewardship of Scotland's land, contribute greatly to our natural heritage, and support our environment and successful tourism sector.

Scotland's diverse agriculture ranges from small crofting enterprises to large intensive livestock and arable farms. Agriculture is also comparatively more important to the Scottish economy than to the UK's as a whole, and it is distinctive. For instance, about 85 per cent of our land has "less favoured area" status compared with 15 per cent in England^[298]. Scotland is also home to more than one quarter of the UK's beef herd^[299].

However, Scotland's farmers and crofters have been repeatedly let down by Westminster governments which have failed to prioritise Scottish farming in domestic policies and, in European negotiations, and have argued and acted against Scotland's interests.

The record of UK representation of Scottish Agriculture in Europe

The interests of rural Scotland have been repeatedly traded off against other UK priorities in European Union (EU) negotiations where Scotland has no direct voice.

Successive Westminster governments have argued for a significant reduction in agricultural support payments, despite Scotland's already low share of funding and need for support given our geographical and climatic challenges. These payments are vital to ensure our farmers and crofters continue to produce food, deliver environmental benefits and sustain our rural communities.

As a result of Westminster not sharing Scottish priorities, Scotland has the third lowest average direct payment per hectare in Europe^[300]. Indeed, in the newly negotiated agricultural subsidies for 2014 to 2020 (Pillar 1 of the Common Agricultural Policy), Scotland will have a lower average rate per hectare than any other member state in Europe and than the rest of the UK^[301].

In November 2013, the Westminster Government chose to disadvantage Scotland further by deciding, despite cross-party opposition in the Scottish Parliament, to distribute across all the countries of the UK over €220 million of agricultural subsidy uplift, received from the EU to promote convergence.The uplift is a direct consequence of Scotland's lower payments, and should have been used to benefit Scottish farmers who have the lowest per hectare rates.

The position is similar when it comes to support for rural development. As part of the UK, Scotland currently receives the lowest average payment rate per hectare of rural development funding in Europe (under Pillar 2 of the Common Agricultural Policy)^[302]. This is because the Westminster Government does not prioritise this support in its negotiations in Europe, despite pressure from the Scottish Government to do so. The UK chose not to join 16 other countries in securing additional rural development funding. This could have provided vital funding for environmental schemes, rural facilities, food businesses and tourism projects, amongst others^[303].

Not only has Westminster failed to negotiate a better deal for Scotland, but our position is getting comparatively worse^[304]. This is something an independent Scottish Government can tackle directly as part of the next CAP negotiations, likely to commence around 2018.

There is also the prospect of agricultural support being cut completely if Scotland remains in the UK. Scotland faces the possibility of leaving the EU because of Westminster's planned in/out European referendum. If there is a vote to leave the EU, Scottish agriculture and our rural industries will no longer be part of the CAP and will be in the hands of a Westminster government with a stated policy of drastically reducing or even ending farm payments.

The record of the Westminster Government on domestic agriculture policy

Scottish farming not only suffers from poor representation in Europe, but also from Westminster's failure to prioritise its interests in domestic policy in the areas where Westminster retains control.

For example, levy income from livestock reared in Scotland but slaughtered south of the border is used to promote beef, lamb and pork from elsewhere, not Scottish beef, lamb and pork.

The Westminster Government also has a poor record on responding to the needs of Scottish rural industries during times of crisis. For example, during spells of severe weather, or in relation to other animal welfare concerns, the UK Department of Transport required extensive and time-consuming lobbying by the industry and the Scottish Government before it agreed to relax rules on drivers' hours.

The Scotland we can create

With the powers of independence, and direct representation in Europe, we can secure and grow Scottish agriculture's place in our society and economy for the future. It is in our national interest that we retain the skills and capacity to produce food on our own land. Scotland's priorities will be reflected by the actions of our negotiators in Europe, greatly improving our opportunities for funding and to ensure that EU policies are tailored to Scottish circumstances. Ministers in an independent Scotland will also be able to ensure that every department of government works to support rural Scotland when required. In areas where we agree with the Westminster Government, Scotland will be its ally in agriculture negotiations, increasing our combined negotiating strength, both in terms of votes and representation at the negotiating table.

With independence, farmers and crofters will continue to receive CAP payments because the budget is already set until 2020. But, crucially, with independence Scotland will qualify for future member state funding increases.

The choices open to us

As an independent member state of the EU, Scotland will be able to promote directly our economic and social interests and protect our citizens by participating on equal terms with all other member states in EU affairs.

Scottish Ministers will also gain direct access to their counterparts in other member states through bilateral meetings, which Westminster currently does not allow for agriculture. As a member state we will have the authority to deal directly with all European institutions and be treated as an equal partner.

Common agricultural policy

Direct Farming Support (Pillar 1 of CAP): If Scotland had been independent when the latest CAP budget was being decided, we would have benefited from a principle that by 2020 no member state would receive less than an average of €196 per hectare. This would have brought Scotland an extra €1 billion between 2014 and 2020.

Rural Development Support (Pillar 2 of CAP): With independence, Scotland will be able to negotiate fairer allocations for rural development - similar to those achieved by many other member states. For example, despite having an area of agricultural land equal to around 25 per cent of that of the UK^[305], Ireland negotiated an allocation of almost €2 billion for rural development - almost 85 per cent of the total allocation for the UK^[306]. Finland negotiated a €600 million uplift^[307]. This demonstrates what independent countries similar in size to Scotland can achieve within EU negotiations when they are able to reflect their own needs and priorities.

Our priorities for action

The Scottish Government firmly believes that the only government capable of properly representing Scotland's interests in the EU decision-making process is a government elected by, and directly accountable to, the people of Scotland. If we form that government we will:

• provide a direct voice for Scotland's farmers in Europe, and Scotland's agriculture sector will be a priority for Scotland's engagement with the EU. In the next round of CAP negotiations, Scotland's interests will be directly represented. An independent Scotland can negotiate the best possible deal for Scotland's farmers, crofters and rural communities.
• use Scotland's farming levies to promote Scottish produce. With independence, all levies for livestock raised in Scotland can be used to promote Scottish agriculture, not the produce of our competitors.
• reduce the burden of European livestock regulations. We will argue that Europe's regulatory burden should be reduced in recognition of Scotland's good animal health record and disease-free status.
• support new entrants into agriculture. We will investigate how we can use fiscal measures to provide opportunities for new entrants to agriculture.

Fisheries

Why we need a new approach

The Scottish fishing industry has much to gain from independence. Supporting our fishing communities and seafood sector will always be a priority for Scottish governments.

In 2012, Scotland accounted for 87 per cent of the total value of UK landings of key stocks, representing 37 per cent of the Total Allowable Catch (TAC) of these stocks available to the EU^[308]. However, Scotland receives just 41 per cent of the European Fisheries Fund allocation to the UK, despite having a far higher share of both the UK sea fishery and aquaculture sectors. As a result of being a low priority for the UK in EU negotiations, Scotland receives just 1.1 per cent^[309] of European fisheries funding despite landing 7 per cent of the European Union's wild-caught fish^[310] and accounting for more than 12 per cent of EU aquaculture production^[311]. Scotland is the world's third largest salmon producer with 83 per cent of UK aquaculture production by volume^[312].

Our fishermen need a voice at the top table in Europe. Despite two thirds of the UK industry being based in Scotland, Scottish Ministers have not been allowed to speak on behalf of the UK in Europe, even on occasions where the interest is almost exclusively Scottish. This means that Scotland's representatives - who are closest to the needs of the Scottish fishing sector - are not able to ensure that their voice is properly heard.

Only independence can safeguard the future of Scotland's fishing communities and seafood sectors and prevent our fishing quotas - the industry's lifeblood - from being transferred outside Scotland or being top-sliced by the Westminster Government.

The Scotland we can create

The fishing industry has a strong heritage in Scotland, and continues to make a key contribution to our economy while supporting many fragile coastal communities.

With independence, for the first time, Scotland will have a direct say in European fisheries negotiations. An independent Scottish Government will have the power to always prioritise Scotland's needs. In areas where we have agreement with the Westminster Government, Scotland will be an ally in fisheries negotiations - increasing our combined negotiating strength both in terms of votes and representation at the negotiating table.

Independence will give Scotland's fishermen their own distinct voice in Europe, with Scotland participating at every level in the EU policy process.

As an independent member state of the EU, Scotland will be negotiating as one of the foremost and most respected fishing nations in Europe. This status will give Scotland the opportunity to take a leadership role in reforming the Common Fisheries Policy to deliver fisheries management at regional and member state level. This will involve negotiating management of fishing opportunities and securing funding for diversification of economic opportunities in our coastal communities.

The choices open to us

An independent Scotland will be able to negotiate directly for Scottish priorities without them being compromised in favour of wider UK objectives, bringing a new certainty for Scotland's fishing communities that their fishing rights will be protected. As an independent member state in our own right, Scotland can keep Scottish fishing quotas in Scotland.

Independence is not merely about completing the current powers of the Scottish Parliament in relation to Scotland's fisheries. It is about devoting our energies to playing a full and leading role in Europe as a key fishing nation, with the authority of being a member state rather than being limited to lobbying UK Ministers and European Commission officials.

Our priorities for action

If in power after the 2016 election we will:

• prioritise the needs of the Scottish fishing industry and aquaculture in European negotiations
• protect Scotland's fishing quotas, preventing fishing quota being permanently transferred outside Scotland and safeguarding Scotland's fishing rights for future generations
• use Scotland's fishing levies to promote Scottish seafood. In an independent Scotland the industry's levies will remain in Scotland to support the Scottish industry's objectives and priorities for our catching, onshore and wider seafood sectors

Food and drink

Why we need a new approach

Scotland's food and drink sector has been extremely successful in recent years. Despite the global recession, our exports^[313] are up 52 per cent since 2007^[314] and our £4 billion whisky industry exports 40 bottles overseas each and every second^[315]. Our food and drink sector turned over £13.1 billion in 2011^[316], breaking initial growth targets six years early.

As international demand for our produce continues to increase, the Scottish Government has already been working closely with industry to support sustainable growth and identify and secure access to new export markets. For example, growth in demand for Scottish farmed salmon across Asia is an important opportunity to strengthen the economies of fragile rural communities. Scotland's food and drink industry does an excellent job promoting the Scottish brand, but Scotland is constrained by the current constitutional settlement, which prevents it from directly engaging on a level footing with other countries.

The UK's planned in/out referendum on EU membership threatens our food and drink industry's current access to Europe's single market of 500 million citizens and 20 million businesses. There is also a real concern, particularly for the whisky industry, that if the Westminster Government takes Scotland out of the EU, we will lose the backing of the EU's trade negotiations with countries like India, the United States and China.

The Scotland we can create

Scotland's food and drink sector contributes 18 per cent of Scotland's overseas exports^[317], but less than 1.5 per cent of the overseas exports of the UK as a whole. There are therefore clear benefits to Scotland having more direct control over our own priorities.

Independence will boost Scotland's international profile, delivering new opportunities for food and drink exports, as well as attracting new visitors to our country to enjoy our produce. An independent Scotland will have the opportunity to promote itself effectively in the UK and domestic markets. Just as the rest of the UK is already a significant market for other food-exporting nations such as Ireland, so it will remain Scotland's biggest and closest market.

The choices open to us

Food and drink exports will continue to be a priority area for our international trade efforts. With independence and our own more effective overseas representation, we can promote our products to the world, and tackle barriers to trade that the Westminster Government does not prioritise, such as the export of Scotch beef to the growing markets of Asia. An independent Scotland will have the opportunity to market Scotland's food and drink on an integrated basis, rather than having some marketing bodies with a Scottish focus and others responsible for the UK.

An independent Scotland will be able to engage directly in the EU and participate in key negotiations surrounding third party trade agreements and access to international markets. As a member state we will have a say in any legislation that allowed the banning or restriction of Genetically Modified Crops.

Scotland is already well-regarded internationally for the quality of its food and drink. With independence, our profile can only rise and producers across the country will benefit as a result.

Our priorities for action

We plan to:

• promote food and drink overseas. Using Scotland's overseas representation we will extend promotion of the Scottish brand and our world-class produce. In addition, the global publicity generated by the independence process itself will be an important platform for our food and drink exports
• properly resource Export Certification, which can open new markets to Scottish produce. This work will be a priority for an independent Scottish Government
• use Scotland's levy to promote Scotland's produce. In an independent Scotland, income from our food sectors will be retained in Scotland to promote our produce, with opportunities to continue co-operation with the rest of the UK on research and other issues

Rural communities

Why we need a new approach

Scotland's rural and island communities are a significant and prominent part of our nation, culture and economy. Just over £32 billion was produced in the rural regions of Scotland in 2011, which is approximately 30 per cent of total output from the Scottish economy (excluding North Sea oil and gas)^[318]. Rural Scotland is a significant part of Scotland's economy as a whole and intrinsic to Scotland's identity, and to our appeal as a visitor destination.

Many of the functions necessary to the rural economy and the health of rural and island communities are currently administered by the Westminster Government, which means that insufficient weight is given to the needs of rural Scotland.

Successive Westminster governments have failed to deliver the economic opportunity that rural Scotland should expect. Too many of our communities remain marginalised. It is time for our natural wealth to work better for these communities and for people in all parts of our nation.

Other countries have taken a different approach. For example, in the early 2000s, while countries such as Sweden auctioned 3G telephony licences in a way that sought to maximise coverage across the country, the UK approach sought to promote "economic and efficient management and use of the spectrum". The result was a patchy network which left large parts of rural Scotland without coverage (see Chapter 9).

But it is not just the digital divide that is affecting development in rural Scotland. In the 1990s the Westminster Government opened up competition in the parcel sector without requiring private sector operators to deliver services to all parts of the UK. The result has been average mark-ups on standard delivery prices of 195 per cent in the Highlands and 508 per cent in the Scottish Islands^[319].

Scotland's rural areas also face higher average costs of car travel and road haulage, due to longer average travel times and relatively higher fuel prices. This increases the costs for goods and services and travel more generally.

The Scotland we can create

Scotland's rich natural resources are central to our identity as a country and as a people. They underpin the growth of a thriving rural economy, and the industries of tourism, farming, fishing, forestry and food and drink, as well as new opportunities in renewable energy.

This Government's vision for an independent Scotland is a nation where opportunity exists across all of Scotland: empowering communities; protecting the environment; and giving all our industries a stronger voice in the international decisions that affect them. We seek to create a Scotland where our people benefit from rural economic development, and where we reverse rural depopulation in those areas it continues to impact upon.

The choices open to us

With independence, future Scottish governments will be able to fully support Scotland's rural communities with all the functions of government and within the EU, rather than relying on Westminster, where priorities are often different.

With independence, this Scottish Government will have the opportunity to negotiate for additional allocations of European rural development funding to lift Scotland off the bottom of the EU league table. Sixteen countries were able to secure increases in rural development funding at the recent CAP negotiations. This demonstrates what independent countries, several of which are similar in size to Scotland, can achieve within EU negotiations when they are able to reflect their own needs and priorities.

With similar funding increases we could: invest in rural tourism and environmental protection; ensure more investment in broadband and renewables; and fund start-up assistance for young farmers.

Our priorities for action

Our plans include:

• postal delivery services and Royal Mail. With independence, the regulation of mail in Scotland will be in the hands of the Scottish Parliament, providing an opportunity to address the way the market functions to deliver fairer prices across all of Scotland in rural and remote areas, especially for parcel services. The Scottish Government disagrees with the recent privatisation of Royal Mail. It presents a threat to the Universal Service Obligation which is of vital importance to rural communities. This Scottish Government plans to bring the Royal Mail back into public ownership in an independent Scotland (see Chapter 9).
• rural broadband and mobile services. In an independent Scotland, the Scottish Government will have direct control over the way in which spectrum licences are issued, ensuring maximum availability of mobile telephony and broadband throughout Scotland as a whole, including our rural areas
• land and communities. The Scottish Government is already committed to empowering communities and local government. Our action around community renewables and land reform will empower communities by helping them acquire assets. This is a commitment that was strengthened by the First Minister's announcement in June 2013 of the Scottish Government's target of one million acres of Scotland's land in community ownership by 2020^[320]. Our reviews of land reform and tenant farming are part of building a fairer society for which independence is required: for example, taxation powers are needed to encourage land to be made available for new tenant farmers and address wider land reform
• island communities. The Scottish Government has recently established the Islands Areas Ministerial Working Group, to engage in discussions with Orkney, Shetland and Comhairle nan Eilean Siar about the opportunities that are important for these island communities in the context of the referendum and independence. We have committed to separate discussions with mainland councils with islands on any issues of interest. The Working Group is covering issues such as energy, the Crown Estate and transport. Under independence we plan to bring forward an Islands Act to implement the conclusions of this work
• the Crown Estate. The Crown Estate is currently administered by the Crown Estate Commissioners. In an independent Scotland, the Scottish Government plans that the Crown Estate will better support local economic development and provide wider community benefit in Scotland. In an independent Scotland, the current Scottish Government plans to review the management of the Crown Estate and consult on arrangements to enhance local control of assets, including greater autonomy for the islands and ownership of the foreshore and local harbours. We plan to introduce community benefits associated with Scotland's offshore renewable resource. This will deliver direct benefits for communities across Scotland of at least half of the sea bed leasing revenues and more in the islands
• rural development funding. We will seek to negotiate an uplift in CAP Pillar 2 funding for rural development to invest in our rural services and economy. Other countries have successfully negotiated substantial increases to their budgets, such as Ireland^[321], which, at almost €2 billion, has a budget more than four times Scotland's^[322]

Environment

Why we need a new approach

Scotland has a spectacular natural environment and rich biodiversity. The Scottish Government recognises that our natural assets underpin our economy and the health and wellbeing of our citizens and visitors.

Using independence to build a clean, green and nuclear-free nation, Scotland can be a beacon of environmentalism and sustainability.

The world-leading climate change legislation passed by the Scottish Parliament in 2009^[323] demonstrates Scotland's progressive approach to the protection of the environment, and makes Scotland a respected and valued player on the international stage. Indeed, Scotland has had the biggest cumulative fall in greenhouse gas emissions since 1990 (29.6 per cent) of the EU-15; higher than the average emissions reduction for the EU-27 (17.1 per cent), and the highest of the nations in the UK^[324].

In addition, our ground-breaking work championing Climate Justice, including setting up the world's first Climate Justice Fund, has received international praise including from highly respected figures such as Archbishop Desmond Tutu and former UN High Commissioner Mary Robinson.

However, Scotland is held back from championing action on climate change internationally as we have no direct voice in either the UN or the EU. Our unique position - as a developed nation with the highest ambition in this area - is thus missing from the international forums debating this crucial global issue.

Scotland's target of a reduction of greenhouse gas emissions of at least 42 per cent by 2020 compares to the UK's 34 per cent target, is more than double the EU's 20 per cent target, and, distinctively, also includes our share of international aviation and shipping emissions. We are committed to a minimum of 80 per cent emissions reduction by 2050 and our recent, second Report on Proposals and Policies^[325] sets out a strategy for Scotland to deliver a 57.8 per cent reduction in emissions by 2027.

The Scotland we can create

With independence, Scotland can play a crucial role in the international debate on climate change. With an independent seat in the EU, adding our voice to those of other nations with high ambitions on climate change, we can present evidence of effective action within Scotland and argue directly for our European neighbours and other developed nations to share Scotland's ambition of reducing greenhouse gas emissions. We can also show that other nations can share the economic benefits of making an early transition to a low carbon economy.

With experience of addressing global issues such as: climate change; restoring natural habitats; improving the quality of rivers and lochs; managing fragile marine areas; and minimising waste, Scotland has an important global contribution to make.

The choices open to us

An independent Scotland will have its own voice among important international institutions like the United Nations, the EU and EU energy forums, supporting further EU climate and energy targets to 2030. This Government supports a legally-binding EU greenhouse gas emissions reduction target for 2030 and reform of the EU Emissions Trading System to deliver greater pre-2020 ambition to cut emissions.

With independence, Scotland will be able to negotiate fairer EU funding allocations for rural development, with some of these funds targeted for environmental protection and accelerated delivery of our commitments on reducing greenhouse gas emissions.

Our priorities for action

If we form the government of an independent Scotland we will:

• seek to enshrine environmental protection in the constitution. With independence we will have the opportunity to enshrine protection of our environment in the proposed written constitution for Scotland
• show international leadership in tackling climate change. An independent Scotland will champion tackling climate change in international forums including the UN and the EU - encouraging and supporting others to share Scotland's ambition
• negotiate increased European funding for environmental protection. This Government will seek a better deal on Pillar 2 of the Common Agricultural Policy in the next CAP negotiations, allowing increased funding for environmental protection and emissions reduction measures

Scotland's energy market

Why we need a new approach

The operation of our energy market and its regulation is currently the responsibility of Westminster. Over many years, successive Westminster governments have lacked a coherent approach to energy. In a country of Scotland's energy wealth, it is unacceptable that consumers now face rising prices, increased fuel poverty and the risk that our renewable energy ambitions are not fulfilled.

A well-functioning energy market, delivering the best outcome for consumers in the long-term, is a prerequisite for a flourishing economy and society. By this standard, Westminster has failed. Underinvestment in energy generation over decades has led to a looming security of supply crisis. Spare generating capacity throughout the UK is now at its lowest level for a generation, and Ofgem forecasts that it will contract even further^[326].

The Westminster Government's proposals to reform the electricity market are intended to address these concerns, but they present major risks. Scotland's ability to provide for our own long-term energy requirements may be compromised - and our status as a provider of reliable supplies to the rest of the UK is now endangered.

This situation should not have transpired. Scotland's substantial energy resources and balanced generation mix can provide secure long-term supplies of energy at home and substantial cross-border exports, helping to maintain a comfortable generating capacity margin throughout the GB grid. Scotland's surplus energy can help to prevent energy shortages and price spikes across these islands.

The Scotland we can create

Scotland is already a net exporter of electricity, with huge recent growth in the deployment of renewable generation. Between January 2010 and April 2013, industry has announced £13.1 billion of investment with an associated 9,100 jobs^[327]. Currently, more wave and tidal power devices are being tested in the waters off Scotland than in any other country in the world, with Europe's largest tidal array having recently been consented in the Pentland Firth.

Independence for Scotland is the opportunity to maximise the benefits of our energy wealth, including:

• enhancing security of supply for Scottish consumers
• promoting decarbonisation of electricity generation, supporting Scotland's climate change ambitions, maintaining Scotland's non-nuclear stance, and delivering greater long-term stability in energy prices for consumers
• growing a thriving Scottish energy sector, specialising in areas of competitive advantage and creating new jobs
• tackling fuel poverty in Scotland more effectively, addressing the specific needs of Scottish consumers
• developing new models of community ownership and community benefit from energy generation and delivering real community empowerment

The choices open to us

Achieving security of supply for Scottish consumers will be the central priority for an independent Scotland. This Government proposes that, provided this is not jeopardised, Scotland will continue to participate in the GB-wide market for electricity and gas, reflecting the integrated transmission networks between Scotland and the rest of the UK. There is a common interest in sharing our energy resources with our neighbours: Scotland can continue to provide safe and secure supplies of electricity and gas and can assist the rest of the UK in meeting its renewable energy targets. Our continued participation in a single GB-wide energy market is also in line with the trend for increasing integration of energy markets across Europe.

However, as a substantial supplier to the rest of the UK, an independent Scotland will require a far greater degree of oversight of the market arrangements for energy and firmer safeguards over Scottish energy security. The Scottish Government plans to establish an Energy Partnership with the Westminster Government, ensuring that we jointly steer the approach to the energy market and that Scotland's long-term interests are better served. An independent Scotland can ensure that there are market incentives to deliver a mix of generation, as set out in the Scottish Government's Electricity Generation Policy Statement^[328], combining renewable and thermal forms of generation. Through this partnership, the Scottish Government will ensure that new investment in Scottish generation is not compromised by the Westminster Government's proposals to overhaul the structure of the electricity market and enter into expensive, long-term contracts for new nuclear generation.

Under these proposals, the current market trading arrangements for electricity and gas will continue, with the aim of maintaining a competitive market for energy throughout these islands. This meets the legitimate expectation of consumers, suppliers and generators of energy across Scotland and the rest of the UK.

This Government proposes that a single Transmission Operator will continue to balance supply and demand across Scotland and the rest of the UK.

Following independence, Scottish renewable energy will continue to represent the most cost-effective means for the rest of the UK to meet its renewable ambitions. The continuation of a system of shared support for renewables and capital costs of transmission among consumers in Scotland and the rest of the UK is a reasonable consideration for meeting the UK's ongoing green commitments. Regardless of its source, Scottish generation is now essential to ensuring the lights stay on across these islands: without Scottish generation and Scottish renewable energy, the spare capacity margin across the GB grid would already be in negative figures.

The characteristics of Scotland's energy generation, supply and use are unique in their geography and peripheral nature - requiring a distinctive regulatory regime. An independent Scotland will designate a new independent National Regulatory Authority for Energy, operating in co-operation with the electricity and gas market regulator in the rest of the UK. This model of regulatory co-operation is in line with the increasing levels of co-operation throughout Europe.

An independent Scotland will be an important voice in EU institutions in support of greater levels of integration and interconnection. This will require stronger representation in Europe.

With independence, control of offshore licensing and leases will create new opportunities to deliver community benefits from offshore development while giving due regard to the diverse marine environment.

Our priorities for action

Energy bills

Recent energy price increases highlight more than ever the need to use all the powers available to us to help people with their energy bills. An independent Scotland will be free to design a new means of funding and delivering energy efficiency improvements to Scottish homes that is fairer and better suited to our needs.

The current Westminster scheme to address fuel poverty and improve energy efficiency is operated through energy companies. The costs of programmes like the Energy Company Obligation (ECO) and Warm Homes Discount are met by householders through their energy bills irrespective of income.

We plan to transfer responsibility for these measures from energy companies to the Scottish Government - and to meet the costs from central resources. By passing on these cost reductions to their consumers, energy companies will be able to reduce bills by around five per cent, or approximately £70 every year.

This change will be made at an appropriate point to ensure continuity of work for Scottish businesses in the energy efficiency provider sector and for households and landlords arranging for improvement works.

Under these proposals, we will retain the statutory target to eradicate fuel poverty. The reduction of emissions from housing would also continue to play a key role in meeting our climate change targets.

This Scottish Government will also continue the overall levels of support for ECO and the Warm Homes Discount.

The urgent need to reduce the cost of energy for consumers is now an active area of debate and discussion. The Scottish Government will remain responsive to any further proposals that may emerge from Westminster over the coming months.

Energy Regulation

Regulation of energy was considered in the Scottish Government's paper Economic and Competition Regulation in an Independent Scotland^[329]. Following independence, this Government plans to simplify the regulatory landscape to one that is more appropriate for a country of Scotland's size, bringing together economic regulatory functions in the vital sectors of communications, energy, transport, and water into one combined economic regulator. Consumers will benefit from having a more powerful regulator acting on their behalf, with strong powers to ensure that markets are working efficiently in Scotland. Industry will benefit from dealing with fewer regulatory bodies and from greater stability and consistency in regulatory decisions.

The energy arm of the Scottish regulator could, in principle, be based at the Scottish offices of Ofgem. It will work in partnership with the energy regulator in England and Wales in a model of shared regulation of the integrated GB-wide market. The Scottish Government's Expert Commission on Energy Regulation^[330] is currently assessing evidence on models of co-operation between regulators and national governments under these arrangements - it will report to the Scottish Government in spring 2014.

Under the Government's proposals, the Scottish regulator will ensure that the regulation of energy delivers reliable supply, a fair outcome for Scottish consumers, the continued decarbonisation of energy generation, and the conditions for the continued sustainable growth of the energy industry in Scotland. This model rests upon open and competitive energy markets, and the adequate supply of energy to meet demand and deliver a comfortable capacity margin.

Renewable energy and reducing energy demand

Scotland's energy future, in common with the rest of the world, lies in renewable energy. It is the responsibility of countries that have benefited from the production of hydrocarbons to lead the way in investing in a low carbon future. In the long term, renewable energy represents a safer, more cost-effective means of electricity generation than the expensive nuclear plants that the Westminster Government favours. The transition to renewable energy reduces our dependence on carbon-intensive fuels, and brings long-term stability to energy prices for consumers.

As part of the planned Energy Partnership, the Scottish and Westminster Governments will have a shared objective to increase the deployment of renewable generation, requiring the continued support of consumers throughout these islands, as renewable energy competes with more established, higher carbon, forms of generation. The planned continuation of a GB-wide market will ensure that Scotland's renewable energy resources continue to support the low carbon ambitions of the rest of the UK - supplied at the cost-effective prices that Scottish renewables can offer.

Following independence, this Government will also introduce a leasing system for offshore and foreshore renewables, designed to increase investment and production while benefiting local communities, particularly in our island areas, replacing the Crown Estate Commissioners. We will continue to support research and development on renewables and low carbon technologies.

Measures on energy production will be complemented by incentives for greater energy efficiency, through minimising energy demand and reducing energy bills, and through water efficiency, material and resource efficiency, reducing wastes and increasing productivity.

Oil and gas

Why we need a new approach

Successive Westminster Governments have failed to provide effective stewardship of Scotland's oil and gas resources. Operators place a premium on operating under a stable and predictable tax regime so that the post-tax returns from investments can be appropriately evaluated. In recent years, the UK North Sea fiscal regime has not provided this certainty, and investment in the oil and gas sector has suffered. Over the past decade there have been 16 substantive changes to the fiscal regime. These frequent changes, often without prior consultation, have earned the UK a reputation for fiscal instability, inhibiting new investment, decreasing the life-span of some fields and damaging the Scottish economy.

Sir Ian Wood commented on the issue of fiscal instability within the interim report to his UKCS Maximising Recovery Review, saying that "clear views were expressed that fiscal instability has been a significant factor in basin under-performance". We welcome this report, which also makes clear that the current structure of having the regulatory body situated within the Department for Energy and Climate Change, is "no longer adequate to meet the challenges of managing an increasingly complex basin". The evidence gathered by Sir Ian showed unanimously that the existing regulator is "significantly under-resourced and under-powered"^[331].

The Westminster Government has also cut funding and staffing for the Coastguard, an essential public service which helps to protect those who work offshore.

Westminster governments have also failed to re-invest the proceeds of the North Sea to provide a long-term benefit to future generations. Stabilisation funds and sovereign wealth funds are common among oil and gas producing countries, with the UK being a notable exception^[332]. Norway's oil fund, for example, was established in 1990 and is now worth around £470 billion, equivalent to £90,000 per head in Norway, making it the largest sovereign wealth fund in the world. In contrast, successive Westminster governments have accumulated debts which are now worth in excess of £1 trillion.

The Scotland we can create

The oil and gas sector has been a major part of the economy of Scotland since the 1970s. Oil and gas production is estimated to have contributed around £22 billion to Scottish GDP in 2012^[333]. Through the success of the last five decades, Aberdeen has become an international oil and gas centre of excellence, home to an industry that is leading the world in many areas, supported by strong academic research in Scotland's universities. In 2013, oil and gas was the largest single sector in the FTSE 100 Index of leading companies^[334], and a sector in which Scottish firms are leading global players.

Scotland now has a second opportunity to steward our oil and gas assets for the benefit of the nation, as well as supporting the growth of an industry that in many areas is the best in the world.

Overall, Scotland has the vast bulk of the UK's offshore oil and gas reserves, which are estimated to have a wholesale value of £1.5 trillion. Record investment in 2013 points to a bright and lengthy future for oil and gas production in Scotland. As well as the substantial reserves in the North Sea, there are now major developments taking place to the west of Scotland, especially west of Shetland^[335]. Scotland is estimated to have the largest conventional oil reserves in the EU - around 60 per cent of the EU total. Scotland is also estimated to have the second largest volume of proven gas reserves in the EU after the Netherlands^[336].

For the sake of future generations living and bringing up their families in Scotland, we must not lose out on the opportunity that these remaining reserves provide.

The choices open to us

With independence, Scotland will have full responsibility for our oil and gas reserves. An independent Scotland will aim to maximise the safe production of oil and gas from the fields off Scotland's shores, with a stable and predictable fiscal regime.

With independence, we can ensure that the huge wealth generated by Scotland's natural resources benefits all of our people. An independent Scotland could also use our position as a major hydrocarbon producer to drive the most ambitious low carbon economic transformation of any country.

Scotland also has many natural competitive advantages for the development of carbon capture and storage (CCS). The North Sea is a natural storage hub for vast volumes of carbon dioxide. There is also the potential to make use of the existing infrastructure from the oil and gas industry, and there are a range of commercial opportunities to capture carbon in the central belt of Scotland. Only independence provides Scotland with the autonomy to make the necessary strategic investments that will support the growth of CCS.

Our priorities for action

An Expert Commission has been established to consider an appropriate fiscal and regulatory regime for oil and gas in an independent Scotland. The Expert Commission is considering options for the implementation of the key principles set out in the Scottish Government's paper Maximising the return from Oil and Gas in an Independent Scotland^[337]. The Expert Commission will publish its report in spring 2014.

The Scottish Government welcomes the contribution that Sir Ian Wood's interim report makes to the debate. Particularly welcome is the proposal to create a new regulator. This will provide the necessary skills, knowledge and authority to ensure that we maximise the potential of the wealth of resources remaining. The Scottish Government's Expert Commission will consider Sir Ian Wood's report in full.

Health and safety

Safety in the oil and gas industry is of paramount importance. The Scottish Government will work with all interested parties to ensure safety is further enhanced, building on the existing health and safety regime to develop a modern, rigorous and well-funded Scottish regime. This will include working with all agencies to ensure that safety remains the first priority for those who service the oil and gas industry. Increasingly, the spread of best practice on safety is itself an area of commercial growth. Scottish businesses lead in many aspects of safe practices worldwide - the Scottish approach to health and safety will enhance this export strength.

There will be a presumption in favour of adopting all existing aspects of current health and safety standards. Scotland will also have a well-resourced coastguard to protect and save lives.

Fiscal and regulatory certainty

The taxation regime for oil and gas extraction is an important factor in maximising investment and production. It is in Scotland's interests to develop an oil and gas tax regime that balances revenues, environmental objectives, and incentives for continued development and exploration.

With independence, this Government will develop a tax regime with three overarching aims:

• to support and incentivise production
• to provide long-term stability and certainty, including a commitment to formal consultation on future reforms
• to provide efficient fiscal incentives that encourage exploration and help maximise economic recovery rates

The Scottish fiscal regime will recognise factors central to offshore operations, including:

• exploration periods with long time-lags and significant up-front costs
• highly capital-intensive development requirements
• significant geological, technical and economic risks
• sophisticated business structures and specialised technology
• costs of decommissioning

Encouraging exploration activity will be a key objective. In Norway, for example, measures to reimburse the tax value of exploration costs for companies not in a tax-paying position have contributed to a substantial increase in the number of exploration licences awarded in Norwegian waters.

We have no plans to increase the overall tax burden on the industry on independence, and are clear that no changes will be made to the fiscal regime without consultation.

The current licensing and regulatory regimes in operation will continue, and existing energy licences will continue to be in force in an independent Scotland. This will provide operators and investors with certainty about the fiscal and regulatory regime on independence, whilst ensuring that the industry continues to make a fair and proper contribution to Scotland's public finances.

Decommissioning

The Scottish Government is committed to providing certainty and stability on the long-term treatment of decommissioning tax relief. It will continue to engage with the industry on future reforms.

Post-independence decommissioning relief will be provided in the manner and at the rate currently provided through the current fiscal regime.

Responsibility for decommissioning tax relief will be the subject of a negotiation between the Westminster and Scottish Governments. Successive Westminster governments have accrued around £300 billion in tax receipts (2012/13 prices) from oil and gas production. The Scottish Government will seek a commensurate contribution to meeting the costs of decommissioning from Westminster.

However, the outcome of these negotiations will have no impact on the value of relief received by operators. The Scottish Government will also seek to maximise the economic benefits to Scotland of the decommissioning process, including maximising the substantial opportunities for our supply chain overseas.

Scottish Energy Fund

This Government will make the creation of a Scottish Energy Fund an early priority. If we form the government of an independent Scotland we will invest revenues from oil and gas production for two purposes:

• to provide investment for future generations from a natural resource that can only be extracted once
• to provide income that can smooth receipts from oil revenues, recognising that these vary from year to year (as all tax receipts do)

Stabilisation funds and sovereign wealth funds are common among oil and gas producing countries, with the UK being a notable exception. The Fiscal Commission's report on savings and stabilisation funds for Scotland^[338] concluded that there is clear merit in Scotland establishing both a short-term stabilisation fund and a long-term savings fund on independence.

Immediately following independence, we will establish a stabilisation fund to manage year on year changes in oil and gas tax revenue. To embed the fund into the management of the public finances of an independent Scotland, we will plan Scotland's public finances and borrowing requirement on the basis of a cautious forecast for oil and gas revenue, transferring any surplus to the stabilisation fund, and withdrawing resources should out-turn oil and gas receipts come in below forecasts. The mechanisms for forecasting oil and gas revenue, and the role of the fund in managing public finances, will be transparent and credible and subject to independent scrutiny.

A long-term savings fund will invest a proportion of the wealth from Scottish oil and gas production in financial assets. The fund's operation will be a key factor in the management of Scottish public finances, helping to lock in a strategy of prudent financial management, and strengthening Scotland's credibility in international financial markets.

Investments into the savings fund will not require Scotland to be in budget surplus, but will be started once Scotland's overall budget deficit is reduced to below the level of long-run economic growth and when debt is on a downward trajectory. The Scottish Government proposes to start making modest investments into the savings fund when the Scottish economy has achieved this position. The Office of Budget Responsibility has forecast that the UK will reach this point around 2017/18.