Scotland's fate as a rich independent nation is again being fought over with a battle raging over the risks of relying on North Sea oil. But in future, climate change will pose a far more serious challenge Share 110 inShare5 Email A North Sea oil rig North Sea oil is again becoming a major battle ground for supporters of Scottish independence Photograph: Ron Scott / Alamy/Alamy The key economic and political role that North Sea oil plays in the dispute over the viability of Scottish independence has again exploded into life, after the leak on Wednesday of a confidential Scottish cabinet briefing paper by finance secretary John Swinney. That paper, written at an undisclosed date early last summer and leaked to the anti-independence Better Together campaign, highlighted Swinney's warnings about the relatively higher risks to Scotland's future prosperity from unpredictable oil and gas revenues in future: oil prices and revenues are volatile, yet are crucial to the economics of independence. And so politically-crucial propaganda war is boiling into life: aware of the political damage this leak has caused, within coming days Alex Salmond's government will publish a much bolder, more optimistic assessment about Scotland's oil wealth, to counter allegations it is a diminishing, unreliable resource. But both sides in that war – both the pro- and anti-independence camps – are ignoring one essential component which will directly effect the future value of oil: the increasing impact of climate change on global politics and energy policy. Some experts believe climate policy will have a dramatic effect on oil prices. It was a message underlined by the world's most influential climate scientist, Dr Rajendra Pachauri, head of the United Nations' Intergovernmental panel on climate change, in Edinburgh last week. Swinney's paper repeated dour predictions from the Office of Budget Responsibility in March 2012 that oil revenues would fall steeply to £4.8bn (from £10bn in 2011-12). It points out how significant those revenues are to Scotland: under that scenario, oil taxes would be worth around 13% of Scotland's overall tax take by 2016-17, compared to about 1.5% for the UK as a whole. But that all depends on whether those predictions are accurate. And they frequently aren't. They fluctuate upwards and downwards. His briefing, written in spring 2012, pointed out that just in the previous 12 months, Scotland's "forecast cumulative net fiscal deficit" between 2011-12 and 2015-16 more than doubled to £28bn because of forecast revisions. So he warned his colleagues: This high level of volatility creates considerable uncertainty in projecting forward Scotland's fiscal position. And, as if to illustrate that even more clearly, those forecasts have again changed, for the better, as far as the independence movement is concerned. Scottish government officials now point out that Oil & Gas UK reckons oil receipts will be £3bn higher in 2017 than forecast last year. While Brent crude prices are now around $110 per barrel, by 2017, the UK's Department of Energy and Climate Change predicts they could hit $130 a barrel, while the latest OECD predictions put them higher, at an eye-watering, record $150 a barrel. But beyond 2017, the predictions get even trickier. At first minister's questions on Thursday, Salmond again trumpeted estimates from Oil and Gas UK that over the next 40 years, there was £1.5tn worth of oil and gas income still to be exploited, and implied that was all within Scottish waters. But that prediction, which is for all the UK's waters, is itself speculative and based on the most optimistic of its scenario, which range from 12 to 24 billion barrels of oil. And those scenarios are determined by prices and demand: only high demand and prices is likely to see oil companies take the risk to drill for hard to reach oil in marginal fields or the deepest waters of the Atlantic. What if those prices fall? What if demand falls? There are oil industry analysts predicting privately that this is precisely what could happen, because of climate change and the intensifying pressure for more urgent action to cut CO2 emissions. They privately advise that future oil prices and revenues are very vulnerable to future climate policy. And that question will become far more acute from 2020 onwards, a year already set as a threshold for much more serious action on climate. Some serious and influential analysts – including the International Energy Agency (in its World Energy Outlook 2012) - warn that if the world is to have a 50% chance of avoiding a global temperature rise above 2C, then only a third of the world's current and proven fossil fuel reserves can be used by 2050. To save the planet, the rest would be seen as "unburnable". That would cut oil consumption between 2020 and 2030 by 12%, and coal use by 30%. Particularly with much greater pressure for increased energy efficiency and much greater use of renewable power, after 2030, sales and production will fall further. Next year, just as Scotland is preparing to stage its referendum on independence, the UN's International Panel on Climate Change – the scientific body charged with mapping climate change and its impacts - will put forward a series of challenging new scenarios about what the world faces. In its fifth assessment report, it will offer a series of future pathways: some highly optimistic, such as utterly reshaping the global economy to see "negative" emissions – where CO2 levels are actually cut, or the most pessimistic, where a business as usual scenario would see temperatures hitting 6C or more by 2100. The IPCC's mapping exercise will include detailed predictions about the regional effects of global warming: how some areas, low-lying Pacific islands or vulnerable coastal countries like Bangladesh, are already facing permanent inundation, or land-locked regions, such as Pakistani and Indian interiors, larger areas of Africa, face severe temperature rises. And with it will come challenging political questions for Salmond's parallel narratives that Scotland is simultaneously capable of relying on 40 years worth of untrammelled fossil fuels sales (its economy underpinned by putative £1.5tn oil and gas sales) while being a world leader on climate policy and renewable energy. Last October, the Guardian disclosed that that £1.5tn sales, based on 24 billion barrels of oil equivalent, would lead to the release of some 10 billion tonnes of CO2; Salmond responded that he knew oil producing nations had a "moral obligation" to deal with climate change. What he failed to do, however, was spelt out how both conclusions were compatible. The significance of that challenge was sketched out, carefully, by Dr Pachauri on a visit to Edinburgh's Heriot Watt university last week. In an interview with the Guardian, Pachauri made several central points: firstly, that mature oil economies needed to urgently begin planning the transition from fossil fuel dependency, and secondly, that the case of action will intensify, not lessen. The demands for a higher price on carbon – the costs to the environment from burning oil, gas and coal, will intensify. Asked about the impact of the fifth report's conclusions for fossil fuel producers like Scotland, Pachauri said this: It's for policy makers and the global community to decide what they want to do: it may very well be that some would say we need to do away with fossil fuels altogether as early as possible. Others may say well there has to be a very carefully orchestrated transition and you can't just stop using fossil fuels right away, because you've got infrastructure, you've got technologies which are totally dependent on fossil fuels. Whichever path is chosen, the fast or slow ones, Pachauri argues that every nation needs to begin its transition planning: within two years, the world needs to start cutting carbon emissions, if only to stop temperatures getting higher than 2.4C. The globe's current CO2 levels are at 395ppm. If it fails to take that immediate action, it will need to make deeper and faster cuts later, or face more significant economic, environment and political costs from worsening climates and more extreme weather events. Well I've made a statement before and I wouldn't hesitate to repeat it. I personally think that we've got to go below the 450 parts per million pathway. And why I'm saying this is we've said in the fourth assessment report that if you were to stabilise the temperature increase between 2C and 2.4C, that implies that firstly, if you were to do that at least cost, then CO2 emissions need to peak no later than 2015. That clearly gives you the pathway that you should be adopting right away. And secondly, even with a 2C or 2.4C increase, sea level rise in account of thermal expansion alone will be somewhere between 0.4 and 1.4m, okay, and that's only thermal expansion. If you add to that the melting of the bodies of ice across the globe, then of course it will be higher. That's clearly serious. That clearly means some island nations, some low lying coastal areas are going to be threatened, even with a 2C global increase. And that's something the global community has to keep in mind. Now, if you do, then what does that imply? That perhaps either we're able to adapt and manage in a way that this 2C sea level rise or we accept the fact that there are populations that will need to move out of the places where their parents, their grandparents bones are buried. Or we say, look, we've got to stop climate change well before the 2C level. Now these are choices which have to be dictated by a scientific assessment of where we're going. For an oil-rich country like Scotland, those questions could not be side-stepped. It's for the people of Scotland to decide what's best, in their own interests. I mean, we're all part of the global community and we also have to do things which are not purely in our narrow interests. We have to do things that are also in the global interest. Asked about the climate sceptics who repeatedly attack the IPCC (which Salmond is most definitely not), Pachauri has a broad message: We're living in a free world and people will interpret things in the way that perhaps suit them, perhaps that they've a predisposition for, but I think in the ultimate analysis, if sane voices were to look at truth for what it is then I think people will realise that what we're saying and what the scientific community globally is saying is something that you cannot ignore, and the longer you delay taking action on it, the more complex the challenge is going to become. Salmond and Swinney could look to Norway for inspiration on planning a low-carbon transition economy – it has unveiled tough carbon taxes on its own oil and very tough targets on energy efficiency for Norwegian vehicles and homes, and the best model for an oil nation taking tougher, more immediate action on climate. Pachauri is saying that avoiding this issue is no longer an option.

Scotland's fate as a rich independent nation is again being fought over with a battle raging over the risks of relying on North Sea oil. But in future, climate change will pose a far more serious challenge
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North Sea oil is again becoming a major battle ground for supporters of Scottish independence Photograph: Ron Scott / Alamy/Alamy


The key economic and political role that North Sea oil plays in the dispute over the viability of Scottish independence has again exploded into life, after the leak on Wednesday of a confidential Scottish cabinet briefing paper by finance secretary John Swinney.

That paper, written at an undisclosed date early last summer and leaked to the anti-independence Better Together campaign, highlighted Swinney's warnings about the relatively higher risks to Scotland's future prosperity from unpredictable oil and gas revenues in future: oil prices and revenues are volatile, yet are crucial to the economics of independence.

And so politically-crucial propaganda war is boiling into life: aware of the political damage this leak has caused, within coming days Alex Salmond's government will publish a much bolder, more optimistic assessment about Scotland's oil wealth, to counter allegations it is a diminishing, unreliable resource.

But both sides in that war – both the pro- and anti-independence camps – are ignoring one essential component which will directly effect the future value of oil: the increasing impact of climate change on global politics and energy policy.

Some experts believe climate policy will have a dramatic effect on oil prices. It was a message underlined by the world's most influential climate scientist, Dr Rajendra Pachauri, head of the United Nations' Intergovernmental panel on climate change, in Edinburgh last week.

Swinney's paper repeated dour predictions from the Office of Budget Responsibility in March 2012 that oil revenues would fall steeply to £4.8bn (from £10bn in 2011-12). It points out how significant those revenues are to Scotland: under that scenario, oil taxes would be worth around 13% of Scotland's overall tax take by 2016-17, compared to about 1.5% for the UK as a whole.

But that all depends on whether those predictions are accurate. And they frequently aren't. They fluctuate upwards and downwards.

His briefing, written in spring 2012, pointed out that just in the previous 12 months, Scotland's "forecast cumulative net fiscal deficit" between 2011-12 and 2015-16 more than doubled to £28bn because of forecast revisions.

So he warned his colleagues:


This high level of volatility creates considerable uncertainty in projecting forward Scotland's fiscal position.

And, as if to illustrate that even more clearly, those forecasts have again changed, for the better, as far as the independence movement is concerned. Scottish government officials now point out that Oil & Gas UK reckons oil receipts will be £3bn higher in 2017 than forecast last year.

While Brent crude prices are now around $110 per barrel, by 2017, the UK's Department of Energy and Climate Change predicts they could hit $130 a barrel, while the latest OECD predictions put them higher, at an eye-watering, record $150 a barrel.

But beyond 2017, the predictions get even trickier. At first minister's questions on Thursday, Salmond again trumpeted estimates from Oil and Gas UK that over the next 40 years, there was £1.5tn worth of oil and gas income still to be exploited, and implied that was all within Scottish waters.

But that prediction, which is for all the UK's waters, is itself speculative and based on the most optimistic of its scenario, which range from 12 to 24 billion barrels of oil. And those scenarios are determined by prices and demand: only high demand and prices is likely to see oil companies take the risk to drill for hard to reach oil in marginal fields or the deepest waters of the Atlantic.

What if those prices fall? What if demand falls?

There are oil industry analysts predicting privately that this is precisely what could happen, because of climate change and the intensifying pressure for more urgent action to cut CO2 emissions. They privately advise that future oil prices and revenues are very vulnerable to future climate policy. And that question will become far more acute from 2020 onwards, a year already set as a threshold for much more serious action on climate.

Some serious and influential analysts – including the International Energy Agency (in its World Energy Outlook 2012) - warn that if the world is to have a 50% chance of avoiding a global temperature rise above 2C, then only a third of the world's current and proven fossil fuel reserves can be used by 2050. To save the planet, the rest would be seen as "unburnable".

That would cut oil consumption between 2020 and 2030 by 12%, and coal use by 30%. Particularly with much greater pressure for increased energy efficiency and much greater use of renewable power, after 2030, sales and production will fall further.

Next year, just as Scotland is preparing to stage its referendum on independence, the UN's International Panel on Climate Change – the scientific body charged with mapping climate change and its impacts - will put forward a series of challenging new scenarios about what the world faces.

In its fifth assessment report, it will offer a series of future pathways: some highly optimistic, such as utterly reshaping the global economy to see "negative" emissions – where CO2 levels are actually cut, or the most pessimistic, where a business as usual scenario would see temperatures hitting 6C or more by 2100.

The IPCC's mapping exercise will include detailed predictions about the regional effects of global warming: how some areas, low-lying Pacific islands or vulnerable coastal countries like Bangladesh, are already facing permanent inundation, or land-locked regions, such as Pakistani and Indian interiors, larger areas of Africa, face severe temperature rises.

And with it will come challenging political questions for Salmond's parallel narratives that Scotland is simultaneously capable of relying on 40 years worth of untrammelled fossil fuels sales (its economy underpinned by putative £1.5tn oil and gas sales) while being a world leader on climate policy and renewable energy.

Last October, the Guardian disclosed that that £1.5tn sales, based on 24 billion barrels of oil equivalent, would lead to the release of some 10 billion tonnes of CO2; Salmond responded that he knew oil producing nations had a "moral obligation" to deal with climate change. What he failed to do, however, was spelt out how both conclusions were compatible.

The significance of that challenge was sketched out, carefully, by Dr Pachauri on a visit to Edinburgh's Heriot Watt university last week.

In an interview with the Guardian, Pachauri made several central points: firstly, that mature oil economies needed to urgently begin planning the transition from fossil fuel dependency, and secondly, that the case of action will intensify, not lessen.

The demands for a higher price on carbon – the costs to the environment from burning oil, gas and coal, will intensify. Asked about the impact of the fifth report's conclusions for fossil fuel producers like Scotland, Pachauri said this:


It's for policy makers and the global community to decide what they want to do: it may very well be that some would say we need to do away with fossil fuels altogether as early as possible.

Others may say well there has to be a very carefully orchestrated transition and you can't just stop using fossil fuels right away, because you've got infrastructure, you've got technologies which are totally dependent on fossil fuels.

Whichever path is chosen, the fast or slow ones, Pachauri argues that every nation needs to begin its transition planning: within two years, the world needs to start cutting carbon emissions, if only to stop temperatures getting higher than 2.4C.

The globe's current CO2 levels are at 395ppm. If it fails to take that immediate action, it will need to make deeper and faster cuts later, or face more significant economic, environment and political costs from worsening climates and more extreme weather events.


Well I've made a statement before and I wouldn't hesitate to repeat it. I personally think that we've got to go below the 450 parts per million pathway. And why I'm saying this is we've said in the fourth assessment report that if you were to stabilise the temperature increase between 2C and 2.4C, that implies that firstly, if you were to do that at least cost, then CO2 emissions need to peak no later than 2015.

That clearly gives you the pathway that you should be adopting right away. And secondly, even with a 2C or 2.4C increase, sea level rise in account of thermal expansion alone will be somewhere between 0.4 and 1.4m, okay, and that's only thermal expansion. If you add to that the melting of the bodies of ice across the globe, then of course it will be higher.

That's clearly serious. That clearly means some island nations, some low lying coastal areas are going to be threatened, even with a 2C global increase. And that's something the global community has to keep in mind.

Now, if you do, then what does that imply? That perhaps either we're able to adapt and manage in a way that this 2C sea level rise or we accept the fact that there are populations that will need to move out of the places where their parents, their grandparents bones are buried.

Or we say, look, we've got to stop climate change well before the 2C level. Now these are choices which have to be dictated by a scientific assessment of where we're going.

For an oil-rich country like Scotland, those questions could not be side-stepped.


It's for the people of Scotland to decide what's best, in their own interests. I mean, we're all part of the global community and we also have to do things which are not purely in our narrow interests. We have to do things that are also in the global interest.

Asked about the climate sceptics who repeatedly attack the IPCC (which Salmond is most definitely not), Pachauri has a broad message:


We're living in a free world and people will interpret things in the way that perhaps suit them, perhaps that they've a predisposition for, but I think in the ultimate analysis, if sane voices were to look at truth for what it is then I think people will realise that what we're saying and what the scientific community globally is saying is something that you cannot ignore, and the longer you delay taking action on it, the more complex the challenge is going to become.

Salmond and Swinney could look to Norway for inspiration on planning a low-carbon transition economy – it has unveiled tough carbon taxes on its own oil and very tough targets on energy efficiency for Norwegian vehicles and homes, and the best model for an oil nation taking tougher, more immediate action on climate. Pachauri is saying that avoiding this issue is no longer an option.