Energy policy has become an increasingly hot topic with the recent publication of both the European Union's third energy package and the UK Government's energy bill.

The Scottish Government, not wanting to be outdone by its counterparts in Westminster and Brussels, has been ploughing its own furrow, developing a renewable energy target of 50% by 2020.The existence of that Scottish target begs the question – what is the legal basis for a Scottish energy policy?

The Scotland Act 1998 established the powers of the Scottish Parliament and Government. Essentially, the Scottish Government can act in any area that is not 'reserved' to Westminster (i.e. listed as a reserved item in the Scotland Act).
 
In relation to energy, there are a number of such specific reservations to Westminster, including the generation of electricity. This does not, however, mean that Scottish ministers cannot influence energy policy; they can do but only in a more indirect fashion. This can be confusing.

Because the Scottish economy does not operate in neat legal silos of 'reserved' and 'not reserved' matters, actions taken by the Scottish ministers or the Scottish Parliament in areas that are not reserved may have an impact on the development of UK Government policy in those that are. For example, Scottish ministers potentially have the ability to shape the direction of energy generation by using the Scottish planning system to prevent further nuclear development in Scotland. In a renewable energy context, the proposed marine and climate change bills provide opportunities for Scottish ministers to prescribe rules in non-reserved areas that, nevertheless, make the development of renewable energy more attractive in Scotland. Therefore, using areas of devolved power can allow the Scottish Government to ensure its preferred policies are pursued.

The Scotland Act anticipates the possibility of such interference and creates a tolerance within which Scottish ministers can legitimately act. In broad terms, provided the purpose of the relevant action or legislation is to deal with non-reserved policy areas, then it will be lawful, irrespective of any interference with reserved policy areas. Where such interference is tolerable within the meaning of the Scotland Act then the action or legislation will be regarded as falling within 'devolved competence' (i.e. the Scottish Parliament has the power to do it).

So what is the process by which any questions around this issue can be resolved? There are a number of routes available. At the legislative level, there are three main routes prescribed by the Scotland Act: First, the sponsoring Scottish minister and presiding officer of the Scottish Parliament must confirm that, in their opinion, any bill before the Parliament is within devolved competence. Second, even if such opinions are given, the UK Government can make a referral to the Judicial Committee of the Privy Council for a definitive ruling on whether a bill is within devolved competence. Finally, where a bill actually modifies the law relating to reserved matters (e.g. the rules of company or insolvency law), then the UK Government can veto it where it reasonably believes the bill will have an adverse impact on the operation of such law. Similar routes exist in relation to ministerial action.

Of course, there are other routes for dealing with disputed questions not prescribed by the Scotland Act. In an extreme situation, for instance, the UK Parliament could always intervene to modify the Scotland Act. Additionally, it is possible for those affected by ministerial action or acts of the Scottish Parliament to challenge them directly in the ordinary courts, e.g., on the grounds that they fall outside devolved competence.

It is also worth noting that the Scotland Act provides for additional functions or powers to be bestowed by Westminster and when the Scottish Ministers are acting on the basis of those other transfers it won't necessarily matter if their action relates to a 'reserved' area. The powers given to the Scottish Ministers under the Electricity Act 1989 is an example of this. That UK Act is the basis for the 'ROC' system that awards valuable certificates to (and so subsidies) producers of renewable electricity. The Scottish Minsters have been given powers under that Act to prescribe particularly Scottish rules about when the certificates can be awarded. As the Scottish Government have recognised, those powers could be used to encourage Scottish renewable development. 

However, some of the main practical barriers to the development of renewable power, such as the availability of grid capacity, remain controlled by London. Commercially, the electricity market into which renewable generators sell is a GB one and it is that market that dictates the value (of the subsidy) that renewable certificates provide. This also means that the idea of Scotland exporting 20% of the electricity it generates is not one which that the legal framework would recognise.

There have already been significant new areas of devolution since the Scotland Act, most notably aspects of rail policy. The Scottish Government's National Conversation recognises the practical constraints around a Scottish energy policy and suggests that is of one the policy areas that are well suited for further devolution of power. In particular, it notes the complexity that can be caused by dual regulation in this area and argues that a more effective and coherent policy could be developed if Scotland were given its own fiscal levers. Naturally any change to the GB energy market would have to very carefully thought through but Gordon Brown's recent statement that after 10 years of devolution, there was a very strong case for reviewing the powers currently devolved to the Scottish Parliament emphasises current opportunities for extra powers, perhaps relating to energy, coming the way of Holyrood.

Scotland can have its own energy policy but as things stand it has limited legal tools to implement that policy. The new draft European renewables directive looks to encourage a European energy market and may lead to regions such as Scotland becoming much more active in developing renewable generation so the time is ripe for a review of Scotland's energy powers.

Gordon Downie is partner specialising in energy and public law at UK law firm Shepherd and Wedderburn.
0131-473 5162

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