Abstract Summary

As fuel and energy prices go through the roof and both oil and gas exploration companies and the energy utility companies announce record profits, Steve Arnott and Steve Mowat ask if the time has now come to put a stop to

‘Maybe it’s two jumpers instead of one’ – Jake Ulrich, managing director of Centrica, parent company of British Gas and Scottish Gas, prior to the announcement of the 35% increase in domestic fuel prices.

‘Jumpers! Naw, you need to put a balaclava on and go round and visit that bastard with a gun’

In the recent Glasgow East by-election Solidarity co-convenor Tommy Sheridan and Solidarity candidate Tricia McLeish tore up a giant cheque on the steps of Parkhead Forge for the benefit of the TV cameras. Although the item never made the news schedules, the point that was being made was a simple one – that for every year Scotland continues to be part of the Union every man, woman and child in Scotland is effectively writing a cheque for £2,431 to the Westminster Chancellor of the UK government.

That figure represents the per capita share of the 83% of oil and gas revenues that would come to Scotland on the basis of international law were it to become independent – an estimated £15 billion per annum at current oil and gas prices. Less than two weeks after that election British Gas, despite record profits, announced a 35% increase in prices for already struggling domestic consumers. Only a handful of weeks prior to the election many people throughout Scotland rolled their eyes in disbelief when they found out – courtesy of a workers’ strike over pension rights – that the private owners of the Grangemouth Refinery were making more than a million pounds in profit per day from that one operation alone (maintaining the pension scheme to the workers satisfaction cost roughly the same figure annually).

All of these figures show that the world remains an ill-divided place for working class Scots, particularly in relation to energy. The Thatcherite era of counter reform saw energy utilities and British Petroleum privatised at knock down prices. The post-Thatcher era saw New Labour enthusiastically embrace ‘the market’ and the profit motive. For many pensioners, low paid workers and single income families this winter the results will be unprecedented misery as they struggle to meet unprecedented heating bills.

More than two decades after the big privatisation drive of the eighties, Scots working folk would be perfectly entitled to ask two pertinent questions a) why are we the only country, apart from Nigeria, to discover oil and get poorer? And b) where the **** is that b*****d Sid now?

The answer is of course, that the Shareholder Sids (not ordinary people, but city fat cats), together with successive Westminster governments have conspired to carry out one of the biggest cons of all time – the great energy con.

Grangemouth Refinery: Private profits of hundreds of millions a year

This article is intended as a critical review of that energy con i.e. of privatisation in, and private ownership of, the energy industries of Scotland, and seeks to open up a broader discussion on how this could and should be replaced by public ownership and democratic control of our most vital industry. Current spiralling domestic energy costs combined with substantive first quarter profits for North Sea energy exploration companies outline a situation that is - glaringly - socially, economically and environmentally unsustainable. Current private ownership is stifling innovation and local initiative, as well as falling short on social justice and sustainable development.

Energy companies’ profits have risen by £2.3 billion in the past three years. Meanwhile tanker drivers at Shell recently had to strike for a fair increase in pension provision. The consumer watchdog Energy Watch reports this spring that the average national household gas bill has risen by 108.7% in five years – this before British Gas’ recent summer announcement of a 35% increase outlined above and the massive planned energy bill increases scheduled for this autumn. As New Labour’s love affair with the market delivers record profits for the boardrooms and record fuel poverty for the majority on low to middle incomes, comparisons with other countries such as Norway and Denmark show that increased public stakes in ownership and decision making produce a much better record in fair pricing, reasonable industry growth and investment in renewable energy sources.

The challenge now is to find practical proposals for bringing an increasing proportion of Scotland’s energy companies into public ownership for the redistribution of wealth, fair fuel pricing, social investment and increased investment in renewable energy production, within the context of an independent or fiscally autonomous Scotland.

It was recently reported that in the first three months of 2008 that “energy companies’ profits have risen by £2.3 billion in the past three years” (Daily Express, Monday April 21). Shareholders sucking up an ever greater proportion of the surplus generated by the economic activity of these industries is thus portrayed as a triumph of global corporate success.

These latest figures are resonant of an almost identical corporate oil bonanza in 2001. During the first year of the decade oil companies complained of a regressive British tax regime and political instability destroying business, yet, as usual, profits rolled in. Indeed, the BBC reported at the time that “in the first three months of (2001), BP enjoyed profits of £2.86bn; Exxon Mobil reaped £3.49bn, while Shell netted £2.69bn.” (http://news.bbc.co.uk/1/hi/business/1167805.stm : 14/05/2008).

However during the profit bonanza of 2001 unleaded petrol prices threatened to rise from 84 pence per litre to over one pound per litre and haulers, farmers and motorists met around the country at sites like Thainstone Mart in North East Scotland to demand an end to fuel rises that were threatening their livelihood. A week of “go slow” action on the countries roads ensured demands for lower fuel prices. Prior to 9/11 and the disaster of the Iraq war, it was the first real test of the Labour Government under Tony Blair.

The instance of high fuel prices and record corporate profit is again repeated in 2008.

"Prices at the petrol pumps are now well over one pound per litre for unleaded petrol, and the profits for the oil giants thunder in stronger than ever. This is despite a business perception of supply chaos in the Middle East and ‘regressive’ taxation in Western Europe. On the contrary the British tax system was actually relaxed in 1993, with the abolition of Petroleum Revenue Tax (PRT), levied on income from oil and gas development – and to reduce the level of taxation on existing fields. This tax reduction earned Shell and ESSO an extra £1bn from the Brent field alone until 1996". (source: Cumbers 2003)

In 2001 hauliers, farmers and motorists felt the financial pain acutely. In 2008 rising fuel prices have also increased domestic fuel bills. The table below shows how domestic fuel bills have stacked up since 2003.

Table one: How Fuel Bills Have Risen Source: Consumer watchdog – Energywatch.

Not only has the rising cost of fuel for heating homes and cooking compounded the wider crisis in the economy caused by the credit crunch, it will cut across existing reforms to try to improve both fuel poverty and energy saving. A recent report from the Partnership for Energy Efficiency for Homes demands “millions of pounds to improve poorly insulated housing…to help cut fuel bills. It calls for £57 million investment to improve the 800,000 homes run by housing associations and local authorities, saving residents more than £14.4 million a year” (Daily Express, Mon April 21 p6:2008).

These two instances of energy price rises, in 2001 and presently in 2008, demonstrate that the corporate privatised domination of fuel production and sale is perpetuating inequality, poverty for the consumer and gross corporate profit.

In addition the recent strike action by Unite Union Shell tanker drivers in Scotland further highlighted that corporate profits made in the energy industry are not passed on to those who create and sustain that profit – the workers and consumers. As a result of strike action a fourteen percent increase in pension rights was won, only after 1 in 7 British petrol stations experienced shortages of fuel. Drivers across the industry as well as broad swathes of the public and Scotland’s Socialist Movement, Solidarity were firmly in favour of the Shell workers. What became clear however, in the course of this dispute were the vast profits being made from what should be a public industry and a public resource. Sustaining the existing pension arrangements for their workers was a fraction of the company’s annual profits. (http://www.theherald.co.uk/search/display.var.2345502.0.fresh_talks_over_tanker_drivers_strike_as_action_draws_to_a_close.php : 01/07/2008).

The issue of redistribution of energy wealth however, cannot be separated from the question of independence. If Scotland was to keep the 83% of current tax revenues allocated to Westminster allowed for in an independent Scotland according to the latest GERS report, at current average oil prices, Scotland could spend the following per annum

£2-3 billion to underwrite a publicly owned Scottish Housing, Land and Infrastructure Bank

£2-3 billion to research and development of renewable energy and non-carbon fuels

But only around a third of gross profit for North Sea Oil currently goes to the Exchequer in taxes and revenues, the rest is pure profit for the private companies involved in the exploitation of North Sea oil and gas. If these assets were publicly owned and democratically controlled in an independent socialist Scotland, that surplus profit would belong to the people of Scotland for them to redistribute or reinvest as they saw fit, so – depending on internal industry spending decisions - the figures quoted above for reinvestment to the common weal could double or triple.

The taxation system has seemingly failed to encourage fair priced energy delivery whilst also neglecting development into renewable energy. Indeed Mackie notes that since 2002 “Government has…abolished the royalty and petroleum revenue tax on new tariff business…and introduced a supplement on exploration expenditure” (Mackie, 2005, p.255). Thus political encouragement is granted for further drilling exploration, and for the fullest possible extraction from existing North Sea fields such as the Forties. Huge oil profits continue to roll in almost none of which finds its way into developing renewable infrastructure. An ultimately expensive national dependency on fossil fuels continues whilst the perfectly realisable development of renewable alternatives remains relatively neglected in Scotland. Andy Cumbers, in his excellent 2003 paper Remaking the case for Public Ownership, is in agreement that the “UK sector of the North Sea has seen research and development expenditure fall dramatically in recent years as part of government aided cost reduction efforts” (Cumbers, 2003, p16).

Table two: R & D expenditure on energy as proportion of GDP for IEA countries in which figures were available 1998

It is necessary to appreciate that the system of corporate ownership of the energy supply industry stifles initiative and investment into renewable development and thus perpetuates the energy crisis, as the table shows. Cumbers points out that the OECD regularly chastises nations such as Norway, Demark and France for having overly regulated oil and gas industries, (Cumbers, 2003, p3) whilst the United Kingdom is held up as an example model of deregulation for the rest to follow. However, Denmark’s and Finland’s system of local ownership and democratic control of energy supply encourages research and development whilst allowing significant economic growth and employee participation. It is useful to make Scottish comparisons with other nations’ variety of public, local and private ownership of energy corporations.

Cumbers’ concurs with his statement in 2003 which has profound relevance for the continuing energy crisis in 2008; “privatisation policies pursued in the UK’s energy sector are not providing sustainable long-term solutions either for consumer interests or for energy production on a more environmentally friendly basis…it is also clear…that the present ownership structure of the energy industries is unlikely to deliver on key environmental targets, nor the social and community objectives that should be at the heart of energy policy.” (Cumbers, 2003, p17). Two cases in point include the recent decision by Scottish & Southern Energy and Scottish Gas to substantially increase prices for domestic use, and Shells recent decision to withdraw from the world’s largest wind farm project on the Thames.

Indeed the wind farm crisis was reported widely by the BBC; “A plan to build the world’s largest wind farm in the Thames Estuary looks uncertain after Shell said it wants to pull out of the project. Shell wants to sell its stake in the London Array (33%), scheme and said it planned to focus on wind power in the US. It said that US government incentives offered Shell competitive returns… The London array was to generate 1,000megawatts – enough to power a quarter of London’s homes”. (http://news.bbc.co.uk/1/hi/business/7377164.stm :14/05/2008). Certainly the same BBC report references environmental campaign group Friends of the Earth spokesperson stating that some of Shells £3.92bn profit from 2008 should be spent on renewable energy research and development.

British Petroleum (BP, now BP Amoco) and Shell reduced their spending on research and development (R&D) by £202 million between 1990 and 1996, and more recently BP Amoco cut its R&D budget by £102 million in the year to 1999. Clearly the results of these cuts are impacting the present situation. Of course this is exacerbated by such things as the price of Russian gas, and energy demands from India and China; necessary to lift many millions of their population out of poverty and into the post modern age. Certainly a burgeoning world population should be seen as an increased catalyst to improve R&D into renewable. This is especially significant with a finite resource of fossil fuels. The impact of decisions made in the privatised energy market certainly contributes to damaging the environment through increased burning of fossil fuels.

In Scotland there is an abundance of natural power that can be harnessed for energy use. This includes onshore and offshore wind power. Indeed the Department of Trade and Industries own research shows that on both the East and west coast of Shetland annual mean wind power density is over 1200kW/m2, where there are large areas of ocean at only 30-40 metres in depth. (DTI, 2004, p29). In particular; expanses of ocean East of Fife, Sutherland, and West of Uist are relatively shallow. Research into harnessing this energy could be a focus of R&D. This could perhaps include the use of existing semi submersible and wind turbine technology.

Another source of renewable power, tidal power, also has potential for energy supply. The world’s first ever commercially available tidal power machine – Pelamis - has been operating in the Pentland firth, Orkney through developing existing oil and gas industry technology; according to recent reports in the Scotsman News.

“Scotland’s drive to develop new sources of renewable energy took a leap forward yesterday as the first tidal-power-driven electricity was connected to the national grid…the turbine device was installed off the island of Eday in Orkney two years ago…it is expected to pave the way for a huge tidal-power development next year in the Channel Islands”.

The news of such significant research and development is welcome. However there are no reports that such technology developed in Scotland is to be applied for use in Scotland. This is despite Department for Trade and Industry (DTI) commissioned research identifying the south western corner of Mull as having similar tidal power to that off the coast of Southern Orkney. (DTI, 2004, p24).

The third sustainable source of power; wave, is abundant around Scotland. A DTI wave resource assessment shows significant Annual Wave Power on the east and west coast of Scotland; from Orkney and Cruden Bay stretching into the North Sea. Cape Wrath, The Butt of Lewis and the Little Minch in the North and West also have high wave energy. Not to mention Colonsay in the South West that is subject to15-20 kW/m of annual wave power. (DTI, 2004, p30).

Wave power at Cruden Bay in Aberdeenshire

One other potential energy solution is the future use of hydrogen as a fuel, as its production does not emit carbon dioxide and is therefore potentially environmentally neutral. Lindblad of The Uppsala University, Sweden states that hydrogen used in fuel cells “generates electricity and will drive cars, buses as well heat our homes. Today hydrogen is produced from fossil fuels (however) it can also be produced from renewable resources such as photosynthetic micro organisms (algae).” (Miyake et al, 2004, p75). The suggestion for the production of hydrogen consists of gathering it as a product of photosynthesis from algae cultures. P.C. Hallenbeck from the University of Montreal points out that “hydrogen production by biological systems has long been known and studied…hydrogen production by micro algae has been studied since the mid 1940s” (Miyake et al, 2004, p93). Challenges remain to be overcome regarding the efficiency of environmentally neutral hydrogen production. However it is beyond doubt that cyanobacteria are among the idea candidates for this production as they have minimal nutritional requirements. They thrive on air (carbon dioxide, nitrogen), water, mineral salts and natural light.

However – as a pragmatic Dundonian might say “talk is cheap but it takes money to buy drink”. What is clear that the private energy industry will prioritise shareholder profit before the necessary level of strategic investment required to make a socialist Scotland a world leader in renewable energy production, despite our massive natural resources.

Capitalism is stifling innovation through lack of funding to research and development. That is why Solidarity calls for a proportion of our existing oil wealth to be used to set up a public owned and accountable renewable energy corporation and for the Scottish Government to develop a ten year strategic plan with the aim of making all of Scotland’s electricity come from renewable sources within a generation

It is a challenge for the socialist movement to seize the initiative on energy policy in Scotland. In recent years energy policy has been decided by a tiny handful of directors and shareholders – supported by successive pro-market governments whose response to the threat of climate change has bordered on the Neroesque. Together these few individuals direct their business in a manner which is failing us on sustainable growth, fair prices and democratic accountability.

Properly managed and publicly owned energy industries in Scotland could meet the triple challenge of redistribution of energy wealth and ending fuel poverty, investment in the transfer to renewables, and provide significant funds from the profits of such publicly owned companies to allow a future Scottish independent government to invest significant sums steadily in Scottish infrastructure

In order develop a discussion on the possibility of public ownership a starting point could be to develop proposals set out in previous work. There is not the space in this essay to set out a comprehensive restructuring plan. However it is possible to begin developing ideas and introducing concepts from previous work. Andy Cumbers 2003 paper on remaking the case for public ownership offers tantalising suggestions and encourages thought on the issue. The following figure provides one possible framework for a working system of public ownership of the energy industry within Scotland.

Figure1: Proposed Structure of Scottish Energy Sector Adapted from Cumbers, 2003, p42

The figure above is a system of diverse public ownership. Flexibility and participation are important elements within the system set out above. The challenge of steering the energy industries towards innovation, democracy, social responsibility for workers and consumers is inevitably complex. Perhaps Scotland’s share of the £2.3 billion annual corporate windfall could be spent on dedicating four fully publicly owned bodies. On the other end of the scale, perhaps LEGC’s could be funded from the abolition of Scottish enterprise. According to the Solidarity manifesto of 2006, the abolition of Scottish Enterprise would save £500 million annually. This could provide stimulus for renewable energy development as well as long term jobs and training.

Of course, it would be important to ensure democratic control over these new public bodies. We would suggest that in the case of the four major parent public bodies that the directing boards are composed on the following basis – one-third ministerial appointees from the elected government of the day, one third directly elected by the Scottish public as a whole, and one third elected by the workers in the industry. For the smaller local energy bodies, which could include local private sector elements, a similar structure could be adapted, with one third local authority appointees, one third from workers and participants, and a third directly elected from the communities which each LEGC served.

We are not naive about what we are proposing here. First and foremost such a radical shift in the ownership, control and priorities of energy production would meet with the most trenchant opposition from the vested interests who benefit from the current status quo – the profiteering shareholders of the big oil, gas and utility companies and the unionist Westminster exchequer.

Current European law would also place formidable obstacles in the path of public ownership.

Our proposals are predicated on Scotland becoming an independent nation, then achieving a left/green consensus on public and local common ownership of our energy resources within a new and sovereign Scottish Parliament, and then securing the public and worker support and participation necessary to push such changes through, potentially in the teeth of international neo-liberal opposition.

These historical tasks are huge, but faced with the reality of global warming, unsustainable and punitive fuel prices, an underdeveloped social infrastructure, and the gross levels of material and cultural inequality that still exist in 21^st century Scotland, they assume the character of historical necessity.

Used progressively, Scotland’s oil wealth could make our nation a beacon across the world for social justice, equality, education and the new environmentalism. For decades we have watched it squandered as a Westminster resource; used first by the Tories to finance mass unemployment in the eighties and the switch from a manufacturing to a service economy under Thatcher; then by New Labour to finance illegal foreign wars and pamper the wealthy with tax cuts. We have watched as privatised utility shareholders have grown fat on their bloated profits at our expense; watched the balance sheets of the big oil and gas companies grow bigger as ordinary people struggle to heat their homes or fill their car with petrol. Above all we have watched in vain waiting – at the behest of Greens, Nationalists and Labour – for the wonderful ‘market’ to provide the switch to renewable energy generation that we and the world now so desperately require.

Scotland’s massive natural energy resources should be both our common resource and our common wealth. The great energy con perpetrated upon our people over the last four decades and the failure of our mainstream politicians to stand up to it is one of the most shaming scandals of the modern era. This generation of the left in Scotland should make righting that wrong its great moral and economic crusade.

CUMBERS, ANDREW. Remaking the case for Public Ownership: A Critical Review of Privatisation and a Proposal for Democratic Control of Scotland’s Energy Resources. University of Glasgow, March 2003.

MIYAKE, JUN; IGARASHI, YASUO; ROGNER, MATTHIAS (eds). Biohydrogen III, Renewable Energy System by Biological Solar Energy Conversion. Elsevier 2004.

NEWS.SCOTSMAN.COM Renewables Revolution as first tidal-power turbine comes on stream for National Grid, 2008. [WWW]

THE HERALD Fresh Talks Over Tanker Drivers’ Strike Action Draws to a Close, 2008. [WWW]

START OF YEAR	GAS	ELECTRICITY
2003	£310	£244
2004	£354	£252
2005	£397	£274
2006	£477	£313
2007	£641	£387
2008	£557	£366
CURRENT	£646	£412
% INCREASE FROM 03	108.7%	69%

COUNTRY	R & D EXPENDITURE AS % OF GDP
Japan	0.84
Finland	0.76
Switzerland	0.53
France	0.41
Canada	0.28
Denmark	0.27
United Kingdom	0.05