EET/S3/09/6/A
ECONOMY, ENERGY AND TOURISM COMMITTEE
AGENDA
6th Meeting, 2009 (Session 3)
Wednesday 25 February 2009
The Committee will meet at 9.30 am in Committee Room 6.
1. Determining and delivering Scotland's energy future (in private): The Committee will agree lines of questioning.
2. Determining and delivering Scotland's energy future Inquiry: The Committee will take evidence on changing consumer behaviour and reducing energy demand in the industrial and public sectors from—
Dr Jill Anable, Senior Lecturer in Transport, The Centre for Transport Research;
Phil Matthews, Senior Policy Advisor, Sustainable Development Commission Scotland;
Mrs Jennifer Macleod, West Alness Residents Association;
Jon Cape, Managing Director, Renew Services Ltd;
Madeleine Hallward, Head of Public Affairs, Energy Retail Association;
and then from—
Niall Stuart, Press and Government Affairs Manager, Scottish Council for Development and Industry;
Brendan Dick, Director, BT Scotland;
Michael Alexander, Head of Corporate Relations Scotland, Diageo;
Ken Richardson, Chemical Industry Association;
and then from—
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Angela Cullen, Director of Public Reporting (Central Government), Mark Roberts, Portfolio Manager (Central Government), and Susan Lovatt, Project Manager (Central Government), Audit Scotland.
3. Joint seminar with the Scottish Trades Union Congress: The Committee will discuss the recent seminar with the STUC and any follow-up actions, including the next 'hearing' on the state of the Scottish economy.
4. Decision on taking business in private: The Committee will decide whether its consideration of the lines of questioning on the Climate Change (Scotland) Bill at its meeting on 4 March should be taken in private.
Stephen Imrie Clerk to the Economy, Energy and Tourism Committee Room T3.40 The Scottish Parliament Edinburgh Tel: 0131 348 5207 Email: [email protected] EET/S3/09/6/A
The papers for this meeting are as follows—
Agenda item 1
Note by the clerk - Private paper EET/S3/09/6/1 (P)
Agenda item 2
Note by the clerk EET/S3/09/6/2
Audit Scotland Report and Summary "Improving energy EET/S3/09/6/3 efficiency"
Agenda item 3
Note by the clerk EET/S3/09/6/4
Proceedings of the 2nd EET Committee and STUC Seminar EET/S3/09/6/5 (Feb 09)
EET/S3/09/6/2
Economy, Energy and Tourism Committee
6th Meeting, 2009 (Session 3), Wednesday, 25 February, 2009
Changing consumer behaviour and reducing energy demand in the industrial and public sectors – written evidence
Background
1. The Committee has received an additional written evidence submission in relation to its energy inquiry from Renew Services Ltd. The submission is attached as the annexe to this paper.
2. Also attached in annexe are the original energy inquiry submissions made by the Energy Retail Association, the Scottish Council for Development and Industry (SCDI) and Diageo.
Recommendation
3. Members are asked to take the submission into account in their deliberations when questioning today’s witnesses.
Stephen Imrie Clerk to the Committee February 2009
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Supplementary evidence Renew Services Ltd
Renew co-operative energy services
Scottish Government draft renewable framework Response from Renew and submission of evidence
Introduction. Renew (Renew Services Ltd) is a co-operative energy services company established in Scotland and operating UK wide. Its purpose is to develop, fund and manage sustainable energy projects in the interests of the communities and customers which it serves as an energy services company accountable to those communities. We work with new build and existing properties, public and private sectors, housing and other energy users. We operate with four service components (the first of these operates on a full esco basis, with development work underway to apply the esco model also to the second and third component): Renew Local – local energy networks (district heating and CHP) Renew Micro - funding of microgeneration Renew Homes – new build low carbon homes Renew Wind - community This response is in three parts: (i) Outline of the co-op esco business model and its significance on helping meet Scotland’s renewable energy objectives (ii) Response to specific consultation questions (iii) For ease of reference, a copy of our response to the Scottish Climate Change Bill is included, as many points within that response remain pertinent to the current consultation. 1. Significance of Co-op esco model 1.1 In October 2008, Renew was invited to present to a symposium organised by the Scottish Building Standards section of Scottish Government. This section summarises a section of our presentation. 1.2 To convey the significance of the co-op esco model, we will examine a sequence of issues commencing with the economics of sustainable energy 1.3 Economics of sustainable energy. Sustainable energy options tend to be characterised by higher initial capital costs than more conventional options. Where they are economically viable, they will also pay for themselves - taking available grant into account – over their asset lives. Many purchasers, whether in the public or the private sector, are capital constrained and thus the option appraisal which they are obliged to undertake will often focus on capital cost rather than the best economic test which should be the whole life economics of options under consideration. 1.4 This leads on to the fundamental economic logic of the energy services company or esco model (there are other reasons for taking an esco approach as well as economic, often to do with available staff time and expertise). Under the esco model, a long term contractual relationship with the energy customers for any given project is established. This obliges the customers to buy energy services from the esco (or to buy from a third party which utilises
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and pays for the use of esco assets. On tyis basis, the esco is able to raise capital funding to help fund the initial costs of the project. 1.5 However, customers are often, not unreasonably, nervous about entering a long term contract with a private utility: how do they know they will be getting a good deal over the long term? The co-op esco addresses this barrier by a simple remedy: the esco is owned by its customers and is there to serve their interests. 1.6 Thus: (i) when stakeholders are considering energy project options and are presented with a sustainable energy option which has high capital costs but is otherwise attractive and, with available grant, has positive whole life economics (i.e. a positive net present value over its asset life), they have three main options: (a) find the extra capital (b) go for an option with lower upfront cost, even if it makes less economic and environmental sense; or (c) take an esco approach (ii) if they opt for ( c ), there are a further three main options: (a) Create their own esco: but this takes a lot of time and effort which they probably don’t have and gives limited or no scope for scale economies (b) Contract with a private esco: if their project is attractive to private escos and if they are happy that maximising shareholder value for the esco’s owners will, not unreasonably from the esco’s perspective, be the key priority (c) Contract with a co-operative esco such as Renew: on this basis, the key priority for the esco, whilst satisfying its mix of project funding partners, will be to maximise customer and community value 1.7 Examples: on the basis of the above rationale, Renew is working with a range of project partners on sustainable energy projects in Scotland. These involve renewable in most cases, but, for example for small projects or early phases, may be based on provision of gas CHP (which still provides large CO2 reductions against default options). The Cardenden Heat and Power project, currently in full development stage, will deliver an estimated 5000 tonnes of CO2 reduction in its phase 1 alone, which will also address issues of affordable warmth and in many cases fuel poverty for some 600 households. A proposed microgeneration programme working with both tenants and private householders in non-gas areas, which is under discussion at present with a local authority, would help address affordable warmth and fuel poverty for some 1500 households over a five year period and, by year five, reduce carbon dioxide emissions by some 10,000 tonnes per year. 1.8 Strategically, we believe that: (i) local energy, in all its forms, can play a large role in helping to deliver the Scottish Government’s renewable energy objectives. In Denmark, for example, local energy accounts for around 60% of the energy mix and its growth has played a big role in Denmark achieving some 70% economic
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growth in the last quarter of a century without a parallel growth in energy. Much of Denmark’s provision is from the co-op sector. (ii) the esco model generically can play a large role in helping to deliver a considerable shift towards local energy. (iii) The co-op esco model is well placed to take the lead in this growth. We intend to play a full part in driving this process forward and will be happy to provide more detail of the co-op esco model and of our projects.
2. Response to Consultation questions Achieving 20% of energy consumption for renewable sources Do consultees agree that we should aim at 20% to meet the 2020 target and that progress should be made in all three sectors of electricity, heat and transport? If not - why not? Yes. This is achievable provided that full leadership encouragement and facilitation is given with regard to new economic models such as that which we describe above1. This caveat applies also to many of the detailed points below.
2. Renewable electricity Are the expectations for each technology reasonable? Yes. The priority proposed for CHP technologies, particularly when linked to local energy networks, is particularly important. Central generation at large power station is very wasteful compared with medium sized new capacity where heat can be used through local networks and not wasted. Most new capacity should be in the latter form. Have the main constraints to development been identified? Bearing in mind the need for costs to be taken into account, are there further actions which need to be taken by relevant parties in order to release renewables potential? These are both discussed in section 4 below 3. Renewable Heat Do consultees agree that we should work towards a target of 11% for renewable heat? Yes What more could we or other parties so to encourage renewable heat deployment specifically with regard to: air quality, awareness raising, planning, and other areas? Increased generation of renewable heat may be set in a context of local energy networks or individual or small group microgeneration. Comments re the first are set out in section 4 below. With regard to microgeneration: (i) Retrofit: In suitable settings, there is a good economic case today for retrofit of heat pumps and pellet boilers (in both cases, these may be supplemented by solar thermal in appropriate cases) both in social and private housing in non-gas areas1, taking available grant into account. The findings of the Scottish Government’s Fuel
1 If gas prices continue to increase well ahead of inflation, notwithstanding short term dips, this positive economic case in whole asset life terms, is likely to also extend to gas areas well before 2020.
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Poverty Renewables Pilot reinforces this message. There is a good case for a co-op esco approach here since: a. Positive whole life economics can be shown b. The high upfront cost is a large barrier for both social landlords and homeowners c. The co-op esco model in particular can bring fresh capital funding whilst protecting householder interests The Scottish Government will thus have a crucial role to play for in due course example in: - Supporting early co-op esco projects in this area - Awareness raising of the co-op esco funding model (in due course, for example, once launched on a mass basis, in the proposed Information Pack) – both amongst social landlords and tenants and homeowners - Ensuring that the existing SCHRI grant is payable under this model and is available in sufficient quantity not to constitute a constraint on take up (ii) New homes: for larger scale new housing developments, local energy network based solutions will often be more appropriate, but for small developments, micro heat – combined with low energy homes - will often provide part of the optimal mix required to achieve zero carbon new homes by 2016. With the right UK financial incentives in place at the correct level (see below) and use of esco models (in our view, the co-op esco model is also best placed to protect new homeowner interests), then there is potential for this to be progressed without incurring more expenditure burdens on the new householder, the developer or the Scottish public purse.
Do consultees agree that renewable heat should be promoted through a regulatory incentive mechanism? Yes Do consultees consider that there are Scotland specific issues in the choice between a Renewable Heat Incentives and Renewable Heat Obligation? It would be simplest if Sctoand came within a common UK framework
4. Distributed Energy and Community Based Schemes How can distributed energy systems be promoted in Scotland? The first thing to stress is that distributed energy (district heating – dh - and CHP) should be seen as a substantial part of the new energy mix, both for existing and new housing. For existing homes, the Office of Climate Change has estimated that retrofit dh could be cost effective in between 21% and 26% of existing homes. Further work2 could serve to increase these figures. For new homes, taking the lower energy loads which should be planned for into account, local energy networks (gas CHP or biomass dh/CHP) will still often provide the best solution especially where they are of densities typical of the low to middle priced housing sectors and comprise, say, fifty or more homes. (Gas CHP may also be applicable with smaller new developments).
2 Such as that which we are undertaking to reduce network build costs and to share these with other revenue streams, in particular community fibre networks
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On the above basis, major and sustained policy leadership is required, as has been seen for example in Denmark, to establish dh/CHP as the expected norm in cases such as those above. Again the esco role, and in particular the co-op esco, will be central to making progress. Do you agree with the Scottish Government's proposed measures for maximising community benefit from renewables, including the production of guidance and the development of an improved grants scheme? What role can social landlords play in developing local renewable energy schemes and what is the best way of supporting and enabling this?
5. Bio-energy Do consultees agree that there is significant potential for developing bioenergy through wood and recyclable waste Is there anything more that can be done to encourage next generation bioenergy, including marine biomass?
6. Sustainable Transport How can we best incentivise renewable and low carbon transport in a sustainable and cost effective way in Scotland? What potential is there for the introduction of vehicles powered through the electricity grid in Scotland? What impact would the widespread introduction of these kinds of vehicles have on: Energy demand and carbon emissions Providing distributed storage capacity Smoothing levels of electricity demand on the grid? What factors might affect the scale and timing of these impacts? Over what timescales do you think electric vehicles could contribute to our renewable energy and carbon reduction targets and what could the Scottish Government do to accelerate the introduction of these vehicles in Scotland in a cost effective way?
6. Consents and Planning How can developers be encouraged to work closely with planning authorities and local communities to improve the quality of applications? Can more we done to develop joint working between central Government, planning authorities and statutory and non statutory consultees in pursuit of the Government's ambitions on renewable energy? Given the growing number of issues connected with aviation and radar and wind farm development, especially in Southern Scotland, is there scope for cooperation between developers and aviation interests to promote a regional solution to complement the overall UK approach?
7. Research, development and demonstration How can we promote a strategic approach to research and development of renewable energy so that Scotland capitalises on its current strengths and becomes a European and world leader? How can we make sure that partnerships with European and world bodies act to promote Scottish and wider interests in this area?
8. Supply chain and Skills
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How can Scottish industry seize the opportunities this renewed commitment to renewable energy at Scottish, UK and European level brings to develop a large and prosperous renewable energy sector making a significant contribution to sustainable economic growth in Scotland and providing a wide range of skilled jobs? What can be done in the short term to promote more effective collaboration in local sourcing and procurement?
3.Renew response to the Scottish Climate Change Bill: Submission of evidence 3.1 Introduction. Renew (Renew Services Ltd) is a co-operative energy services company established in Scotland and operating UK wide. Its purpose is to develop, fund and manage sustainable energy projects in the interests of the communities and customers which it serves as an energy services company accountable to those communities. Its founding members are Fife Council and Ore Valley and Cube Housing Associations. Most of our projects centre on local energy generation for housing and non-housing needs in a community setting (community energy). The Scottish Government’s Consultation on Proposals for a Scottish Climate Change Bill (January 2008) notes (para 2.10) that “the Government will…continue to collect evidence…to ensure that the proposed bill takes account of both what is needed and what is possible.” This submission is to provide such evidence, from Renew’s perspective, in the context of both the Consultation Document and the Sullivan Report (A Low Carbon Buildings Standard Strategy for Scotland (2007) which has been submitted to and is currently under consideration by Scottish Ministers. 3.2 References to Community Energy in these documents 3.3 Consultation on Proposals for a Scottish Climate Change Bill Section 4.55 notes the Scottish Government’s commitment to triple funding for community renewables and microgeneration by 2010/11 to £13.5m Community energy embraces both energy efficiency and local combined heat and power, both of which receive favourable references in Section 8 “Supporting Measures”. In 8.8, the paper states that “the Scottish Government will consider how the reduction of the carbon emissions associated with the generation of heat might contribute to our climate change targets, and whether measures might be necessary in the Bill.” Section 8.11 makes reference to the Low Carbon Buildings Standard Strategy for Scotland cited above and the potential for provisions in the Bill in respect of existing buildings. Section 8.16 notes the key role to be played by the public sector in reducing emissions. It is worth noting at this point that public sector partners are often key stakeholders in community energy initiatives. 3.4 Sullivan Report The Sullivan Report makes very supportive comments in respect of community energy. It states in Section 5 “Low Carbon Equipment” (p27):”It is important to ensure that local energy generation and
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renewable heat technologies can make a worthwhile and economic contribution to reductions of both energy demand and CO2 emissions and we have identified work that needs to be done. Such energy generation and local heat technology will be more efficient and effective if it is provided centrally to serve a large development, whether domestic or non-domestic, than if each individual building is required to do this on site…An important point is that community/district heating works best when the locality has been zoned for district heating only (e.g. as in the case of Copenhagen…). In particular we would wish to promote local energy centres in large developments, managed by Energy Service Companies that will use CHP equipment to deliver energy to a local network, avoiding the additional CO2 and transmission losses of national grid electricity.” Section 9 on Costings (p31) states a need for further analysis of impact on costs. “In particular there should be an investigation of the impact on affordable housing provided by both registered social landlords and the private sector and on certain types of non-domestic buildings…the modelling should consider the costs of local energy centres.” The latter comments are made in respect of non-domestic buildings, and to new buildings but in the light of the comments in Section 5, it would apply with equal force to domestic dwellings and to existing as well as new dwellings.
4 Renew evidence 4.1 Renew welcomes the above comments on community energy and offers the following overall observations. Before doing so, we would stress that Renew has started from a position which is neutral towards the technologies best equipped to secure the big shift towards sustainable energy now required. The observations below and the current focus of Renew on community energy arises from its assessment of the comparative economics of options currently available. 4.2 Summary of key points: • Community energy can play a very substantial part in achieving Scotland’s CO2 reduction targets and has several other benefits • This potential spans many retail energy market segments: new and existing buildings, residential and non-residential, public and private • To secure this potential does need joined up thinking and action, openness to new ways and a favourable policy climate • Using the Energy Services Company (esco) model is a key means of avoiding the extra capital costs involved falling on private developers, public agencies or private householders • The co-operative esco model, illustrated by Renew, provides an optimal basis for gaining energy customer acceptance of the long term relationships inherent in the esco model – the co- operative esco exists to serve the interests of its customers and the communities which it serves
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• We concur with the caution expressed by the Sullivan Report (Section 5) in respect of widespread adoption of microgeneration at the individual home level in today’s conditions • Recent rises in retail energy prices are likely to be part of a long term rising trend which will help the economics of community energy but make it yet more difficult to achieve Scotland’s goals of eradicating fuel poverty (with regard to the latter, see our response to Question 32 below).
These points are considered further below and in the appended Renew evidence submitted to BERR. That evidence is also relevant to the Scottish Government’s intent to collect evidence “to ensure that the proposed bill takes account of both what is needed and what is possible”. 4.3 Role and scope of community energy 4.3.1 The UK Government estimates that every 1,000 MWe of combined heat and power (CHP) capacity will save 0.76 million tons of carbon compared with conventional energy supply from boilers and fossil-fuel power stations3.In 2000 the Government set a new target to achieve at least 10,000 MWe of installed Good Quality CHP capacity by 2010. In support of this target, the Government has set a target to source at least 15% of electricity for use on the Government Estate from Good Quality CHP by 20104. The current BERR (department for Business Enterprise and Regulatory Reform) “Heat Call for Evidence” makes reference to estimates from the Office of Climate Change of potential for cost-effective adoption of community energy (as a means of reducing carbon emissions) in 22-26% of existing UK homes. As one illustration of the wide potential of community energy, the report “Powering Edinburgh Into the 21st Century”5 produced a credible scenario under which carbon emissions would be reduced by over 28% by 2025 by widespread use of (in their terminology) decentralised energy which would supply around one third of Edinburgh’s heat (31%) and power (33%) requirements by that date. The carbon emission reduction estimate above is conservative since most of the CHP utilised within the model was gas-fired rather than biomass. 4.3.2 Our own work on a variety of projects indicates good potential for community energy (including biomass with the right support regime in place), not just in new developments but also in existing communities including low rise high density housing. 4.3.3 As well as contributing substantially to carbon emission reduction, by affording scope for use of a variety of fuel sources
3 Source: CHPA 4 Source Defra http://www.defra.gov.uk/environment/climatechange/uk/energy/chp/index.htm 5 PB Power, November 2006 http://www.wwf.org.uk/filelibrary/pdf/pb_power_.pdf
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community energy can also add to energy security and to combating fuel poverty. 4.3.4 By way of an illustration, an example is given below, using very approximate figures, of the potential contribution of community energy in existing housing over the first two carbon budget periods. The illustration suggests scope to contribute around a 20% reduction in household energy carbon emissions in Scotland.
Illustration: potential carbon reduction contribution of community energy in existing housing over the first two carbon budget periods
(i) Scottish Housing Stock as at 2007: 2,427,0006 (ii) Scope to retrofit community energy: The UK Office of Climate Change has estimated the cost-effective potential for installation of district heating in existing homes as equating to 22-26% of current UK stock7 (iii) If this were to be a reasonable estimate, in the context of the coming decade, and were also to be broadly reflective of Scottish housing stock, it would equate to some 534000- 631000 homes, say 600,000 or just under 25% (see (v) below). (iv) Potential for CO2 emission reduction. Indicative projections from one of our own studies, concerning biomass CHP retrofit replacing individual gas boilers, shows potential for such projects to be carbon negative (i.e. in the case of certain biomass technologies, more energy is generated (at optimal project sizing) in total than is consumed with excess renewable electricity being exported to grid). If we were to assume carbon neutrality, this would indicate approx 6.3 tonnes per home saved8. Indicative figures from the implemented Aberdeen Heat and Power project9, with gas CHP replacing electric heating suggest, in that context, a reduction in the region of 3.25 tonnes/annum (936 tonnes for 288 homes). This differential is to be expected. However it should be noted that there is good scope for gas CHP to convert later to biomass, as AHP intends. Nevertheless, it may well be that some CHP would be in a location where a biomass installation is not feasible. If we take 5 tonnes/annum/home as a weighted average and if the households concerned had typical Scottish CO2 emissions from household energy, then retrofit CHP for 600,000 homes would equate to CO2 emission reductions of some 3m
6 See http://openscotland.gov.uk/Topics/Statistics/Browse/Housing-Regeneration/HSfS/KeyInfoTables
7 See paras 201-203 at the following link: http://www.berr.gov.uk/files/file43609.pdf 8 per capita emissions of 3 tonnes – see footnote 9 below - times 2.1 people per home (5.117 population as at 2006, 2.427m homes as at 2007)
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tonnes per year or around one fifth of household energy carbon emissions10. In addition, further CO2 emission reductions can also be expected from non-housing buildings which are included within these community energy projects. (v) As renewable technologies improve and scale economies accrue, and as gas and electricity prices rise, the proportion of homes for which retrofit community energy is suitable is likely to rise. Conservatively, if one quarter of homes within the OCC estimate were to receive retrofit community energy within the first two carbon budget periods (say 10 years out of about 40 years until 2050), this would equate to approx. 150,000 homes. (vi) Total CO2 emission reductions from this programme component after ten years would be c750,000 tonnes per annum. (vii) As has been the experience with Aberdeen Heat and Power, there is also potential for alleviation of fuel poverty through such a programme. (viii) The public sector cost of such a programme depends upon many factors including retail energy price trends, scale economies with renewable technologies and supply chains, obligations placed upon fossil fuel heat suppliers and business models for project delivery. On the co-operative esco model which we have developed, a majority of capital funding could be provided from private funding sources. At present, business viability, in the case of biomass CHP, will depend in most cases on continued availability of both ROCs and capital grants and/or other public/utility support from the CERT scheme or the feed-in tariff system funded by a levy on fossil fuel heat suppliers which is currently being considered by BERR. As market conditions evolve, the need for such public and/or private financial support is likely to diminish. 4.3.5 Strategic consideration of biomass supply: If the community energy potential illustrated above were to be met on a significant scale on a biomass-powered basis, close attention will need to be paid to biomass supply. In this regard, we repeat below an extract from our evidence provided to the BERR Heat Call for Evidence: “At a strategic level, there could well be extensive scope for use of biomass to serve renewable heat requirements by fuelling energy centres powering local energy networks providing combined heat and power at local level. At a Scottish level, for example, if this approach were used to meet the potential for district heating estimated by the OCC for existing homes (22-26% of stock) and for a significant proportion of non housing and new stock, then this could require the majority of the 7m tonnes annually which the Scottish Wood Fuel Task Force has estimated to be the potential biomass resource suitable to be utilised for bio energy
10 per capita emissions of 3 tonnes times 2.1 (people per home) times 2.427m homes i.e. 15.3m tonnes
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production. Alongside competition from existing biomass demand for all kinds of uses, two further large new potential sources of demand can be envisaged. Concerns at the sustainability of some biomass fuels for transport purposes have recently received a high profile and merit serious attention, and may give rise to interest in using part of the UK biomass potential for transport fuel purposes. Another large demand may come from new biomass-powered central power stations such as Lockerbie11 and scope for co-firing of existing coal power stations as is being considered in the case of Longannet. This last category obviously has a potential inverse linkage with decentralised energy: if decentralised energy were to be adopted on a significant scale, on a CHP basis, this would serve to reduce the demand for electricity from central power stations. But biomass powered central power stations would still only constitute one part of the overall central electricity production mix so a maximal biomass strategy, if desirable, could involve all of the above demands. It could also be the case that a few large contracts from, say, utilities for co-firing existing coal-burning power stations could dominate the biomass market and make it very difficult for biomass-powered renewable heat via local energy networks to reach significant scale, despite their capacity for considerable carbon efficiency above that of centralised energy.. Taking all of the above into account, we propose that a pro-active approach be taken by Government, with others, both to maximise the potential biomass for energy yield in a sustainable fashion, and without diminishing UK food crop potential, and to promote and protect the emergence of biomass-powered local energy networks on a significant scale.”
Responses to consultation questions
Q 1. Should a Scottish target be based on carbon dioxide only or the basket of six greenhouse gases?
The 80% reduction target should be applied both to CO2 only and to the basket of six gases i.e. an 80% reduction in CO2 and an 80% reduction in CO2 equivalent. With ideal information, the latter is the most important measure. Given the 20% uncertainty (plus or minus) of data on the basket, as against 6% for CO2 alone, the ideal target (the basket of CO2 equivalents) should also be accompanied by a more reliable target for 80% reduction in CO2 alone.
Q 2. Should the Bill contain provisions to alter which gases are included, for example if the reliability of data for a particular gas improves or if science changes in the future about which gases cause climate change?
Yes
Q 3. The Scottish Government wishes to ensure that the Bill gives sufficient incentives to invest in energy efficiency and renewable electricity.
11 Albeit in that particular case, previously unharvested biomass resources have been utilised
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Should the targets be based on source emissions; an end-user inventory; or on individual targets for energy efficiency and renewable electricity? Do you have any other suggestions?
End User Inventory
Q 4. Do you agree that the Bill should allow the means of measuring the target to be changed through secondary legislation to reflect international developments or unforeseen consequences of the Bill?
Yes
Q 5. Should the emissions reduction target take account of the abatement effort made by companies under emissions trading schemes? If so, how?
There should be an 80% reduction target for non-EUETS activity and a discrete 80% reduction target for EUETS activity. In the latter case, securing the target may be more a matter of exercising its policy influence at UK and EU levels.
Q 6. Do you agree that international credits should be counted towards Scottish targets? Should there be limits on credits counted towards Scottish targets?
Yes, international credits should be counted towards Scottish targets. There should not be a limit on these aside from the principle of 'supplementarity', but there should be transparent reporting on the level of use.
Q 7. Should the Bill allow the level of the 2050 target to be changed through secondary legislation? If so, should this only be allowed on the basis of independent, expert advice, to reflect international developments or unforeseen consequences of the Bill? Should any changes to the target be limited to an increase in the target?
The target should be capable of being increased via secondary legislation. Any decrease should require further primary legislation.
Q 8. What factors should be taken into account when setting the level of budgets?
All the factors suggested in the Consultation Paper (para 6.5) are relevant to some degree. The key thing is to build and extend our understanding of both “what is needed and what is possible” – and to make these meet. The five year emissions budget making process should be the subject of substantial iteration with a wide range of stakeholders. This should start “top down” with the challenge. With around eight five year periods until 2050, each five year budget should target a minimum progress 8th of the journey towards the 80% target, but later periods may well become tougher: we should probably initially target a minimum of 8th of the journey
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with an aspiration of 6th of the journey (as these relate to the common baseline) for each of the first and second five year budgets. There should then follow a process of dialogue and challenge with stakeholders across housing (new and existing), transport and business/public sectors. Government should in part make and in part seek proposals in dialogue with each stakeholder group on the potential to deliver reductions in Years 1-5 and 6-10 and what would be required to deliver this potential. For example, for new housing, a planned programme, once finalised, towards zero carbon homes by, say, 2016, could feed directly into such a task. For existing housing, dialogue should be held with the housing and energy sectors (including energy services companies such as ourselves) and agencies promoting behavioural change (such as the Going Carbon Neutral movement) to arrive at genuine “stretch” targets accompanied by realistic action plans.
Q 9. How long should interim budget periods be?
Probably five years, which has the best international tie in. Each budget should be supported by detailed annual action plans. Scottish administrations should be held to account by their performance in delivering against these annual action plans.
Q 10. How many years in advance should emissions budget periods be set in order to provide sufficient time to develop infrastructure?
For most purposes a minimum of eight years in advance should be sufficient: i.e. initially the first two 5 year budgets would be set, then two years in to the first period, the third would be set – perhaps at first on an indicative basis. This may not be sufficient lead time for some very large investments, but these would either be within EUETS, as discussed above, or would be few enough to be the subject of negotiation and agreement with specific stakeholders.
Q 11. What should be the limit (in terms of absolute quantity or as a percentage of the budget period) on the amount of emissions which the Government can borrow from a following budget period?
Budgets should be based on a range from minimum target to aspiration as discussed above. Borrowing should only be in respect of quantities above the minimum.
Q 12. Should the Bill include an interim point target? If so, what year (or years) should it be for (2020, 2025, 2030, etc.)? How should the level be chosen?
No, but the combined target for the first two five year budget periods should be no less ambitious than the UK 2020 target.
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Q 14. Is a process of Parliamentary scrutiny the appropriate way of holding the Scottish Government to account if targets or budgets are not met?
Yes, supported by scrutiny by a range of informed stakeholders including the UK Committee on Climate Change, NGOs and businesses. As noted earlier, the annual report by Scottish Government should not solely be a statistical report on the state of emissions, but critically also a report of progress against published annual action plans. These must be linked to a strategy demonstrating how current and following budget period targets will be met by actions in each year. This, rather than short term emissions statistics, should be the primary subject of annual scrutiny.
Q 15. What should be the primary source of advice to the Scottish Government for setting emissions targets or budgets and why? Options include: the proposed UK Committee on Climate Change, a new Scottish Committee on Climate Change, an existing public body in Scotland, or the Scottish Government itself.
The UK Committee on Climate Change
Q 16. If it were to be an existing Scottish public body, which public body is most suited to carrying out this task and why? N/A Q 17-22
See 14 and 15 above.
Q 23. Should the Bill contain enabling powers to introduce a duty on certain parts of the public sector (i.e. local authorities and large public bodies) to take specified actions on climate change or other specified environmental issues? Why?
Q 24. What should such a duty (or duties) include?
Q 25. Should the Bill contain enabling powers to introduce statutory guidance for certain public sector bodies (i.e. local authorities and large public bodies) on specified climate change or other environmental measures? Why? Are there gaps in any existing guidance?
Q 26. What should this guidance include?
Our comments here are focussed on public sector facilitation of community energy as one key component in the response to climate change. Our response to the current BERR “Heat Call for Evidence” is appended to this response. A number of public sector roles are suggested below which are set in a wider context in our BERR response (Questions 25 and 30). Roles which local authorities (and other public sector bodies, especially regarding the second point below) could be given a duty to perform (supplemented by guidance as appropriate) with regard to community energy (locally generated heat and power):
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- Positive encouragement and policy promotion - Government and the public sector generally should be proactive with regard to its own estate and that built on its behalf, such as PPP buildings. Aside from small offices etc, many Government owned or used buildings have potential to serve as anchor energy customers around which a business case for developing local community energy networks could be assembled. Particularly where large public sector buildings (offices, schools, swimming pools etc) are near reasonably high density residential property a mutually beneficial balanced energy load can be assembled. - The use of planning and/or building standards powers to move new building towards zero carbon performance. This should include appropriate utilisation of community energy, as recommended by the Sullivan Report, alongside energy efficiency and appropriate use of microgeneration. Planning roles can also be used to encourage and not hinder co-location of balancing energy loads, such as residential and employment-related land use. This may involve some change in planning thinking, but could serve both to enhance the economics of community energy and encourage low carbon commuting patterns. - The use of landholdings can also be valuable. For example, the UK Budget Report 2008 proposes that all new homes built on central government land released through the surplus public sector land programme from April 2008 will reach a minimum of Level 3 of the Code for Sustainable Homes12. A wider approach could be taken in Scotland making a similar commitment in respect of all homes built on publicly owned land. - Government bodies, particularly local government, can be influential in bringing together and building commitment from relevant stakeholders such as developers, well beyond the formal role as planning authority In addition to the roles suggested above, we would support the introduction of scope for heat network providers to enjoy similar wayleave etc powers as can be enjoyed by other utility providers. Also, we note that the Sullivan Report (“A Low carbon Buildings Standards Strategy for Scotland “ 2007) remarks that “an important point is that community/district heating works best when the locality has been zoned for district heating only (e.g. as in the case of Copenhagen)”. We would support further investigation of the potential for applying this kind of approach in the UK. For example, once a district heating (or CHP) scheme has been established in a locality, it could be a requirement that new buildings or existing buildings undergoing major refurbishment or requiring renewal of their heating assets receive their heat from the DH network, provided that the property can be connected to the network at reasonable cost. This would probably require a regulated price cap on DH network prices and would certainly require a significant shift in ‘mindset’.
Q 27. Should the Bill contain enabling powers to create a requirement for certain public sector bodies (i.e. local authorities and large public bodies)
12 See para 6.73 http://www.hm-treasury.gov.uk/media/4/7/bud08_chapter6.pdf
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to make regular reports on specific measures they are taking to tackle climate change (whether mitigation or adaptation) or other environmental issues? Why? What should be included in such reports?
Yes. Action against the duties suggested above should be regularly reported. More generally, public sector bodies should contribute to the annual action plans to deliver the multi year carbon budgets suggested earlier and actual action against these plans should be annually reported.
Q 28. As a potential non-legislative measure, should current Best Value guidance be amended to take specific account of climate change mitigation and adaptation? If so, how should Best Value guidance be amended?
Yes. BV guidance should make explicit reference to an expectation that carbon reduction implications should be taken into account in assessment of best value. In particular, with respect to the procurement of energy to meet both heat and power requirements (and other utilities where these are provided under wider local “musco” – multi-utility services company - arrangements, guidance should facilitate and encourage procurement by public bodies from locally generated sources, where necessary as an exception to aggregated procurement of utilities on behalf of multiple public bodies. BV guidance could also support the public sector in leading by example in developing the energy services market, as suggested in the UK Budget Report 200813. Scottish Government BV Guidance should also take into account the work of the proposed UK Centre for Expertise in Sustainable Procurement14.
Q 29. Are there any amendments to existing legislation or any enabling powers needed to allow for variable charging (for example by local authorities) to incentivise action or eliminate perverse incentives?
Our main concern in this respect relates to electricity regulation. As has been widely noted, the “28 day” rule in respect of contract length for electricity customers needs to be removed for widespread adoption of CHP-based community energy to take place
Q 30. Are there any provisions to help Scotland adapt to the impacts of climate change which should be included in the Scottish Climate Change Bill?
There should be a strong legal presumption against new building in areas which climate change forecasts suggest will be susceptible to flooding
13 See para 6.57 in http://www.hm-treasury.gov.uk/media/4/7/bud08_chapter6.pdf
14 See para 6.62 in http://www.hm-treasury.gov.uk/media/4/7/bud08_chapter6.pdf
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Q 31. Should provisions within the Environmental Assessment (Scotland) Act 2005, be amended in order to provide clearer links with emissions reduction? If so, how should this be done?
Yes. Public plans, programmes and strategies should carry explicit links to climate budgets for relevant periods and the associated action plans which we suggest.
Q 32. What are the equalities implications of the measures in the proposals for the Scottish Climate Change Bill?
The biggest implication concerns low income households of all kinds, and elderly households (and special needs households with high energy costs) in particular. Global and UK energy market pressures and public measures to reduce carbon emissions are both likely to result in higher-than-inflation increases in retail energy prices over coming years. This will serve also to exacerbate fuel poverty and make the public policy objective of its elimination yet harder to achieve. In our work within low income communities, one of our explicit project objectives is to address fuel poverty via sustainable community energy. This may be achieved in part by replacing existing heat provision which has high running costs and in the medium to long term by offering access to efficient biomass powered community energy as an alternative to escalating costs of gas. Our own community consultation exercises have also highlighted public support for using revenues from profitable community energy projects, especially community wind, to help address fuel poverty.
Q 33. Is there any existing legislation within the competence of the Scottish Parliament (devolved) which needs to be amended so that appropriate action on climate change can be taken by sectors in society?
By international comparison, planning processes necessary to implement sustainable energy projects can by long and unwieldy. In the case of wind projects, it is understood that the Government wishes to see swift turn- rounds of planning applications. A similar consideration also applies to other renewable energy projects. The Government should consider giving further guidance, or amending legislation as appropriate to enable planning and other regulatory authorities to fast-track the consideration of sustainable energy projects and reduce requirements placed upon, and consequent development costs and timeframes for such projects.
Renew Services Ltd
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SUBMISSION FROM THE ENERGY RETAIL ASSOCIATION
Introduction
The Energy Retail Association (ERA), formed in 2003, represents Britain's electricity and gas suppliers in the domestic market in Great Britain. The ERA works closely with Government, NGOs, charities and other organisations in England, Scotland and Wales to ensure a coordinated approach to dealing with the key issues affecting our industry and the British consumer. All the main energy suppliers operating in the residential market in Great Britain are members of the association: British Gas, EDF Energy, npower, E.ON, ScottishPower and Scottish and Southern Energy.
The Managing Directors of these six companies make up the Board of the ERA, who work closely with the Chief Executive Dr Garry Felgate. The Board is chaired by Willie MacDiarmid, Managing Director, Energy Retail at ScottishPower.
In the five years of its existence the ERA has continually focused on finding ways to improve customers’ experiences with their electricity and gas suppliers. Much of the work we do is related to energy efficiency and supporting polices to tackle fuel poverty. An area of focus for the ERA is our pioneering work on smart metering, which has the potential to make significant progress in the fight against climate change.
Overview
The ERA wishes to make a general response to this inquiry, drawing the attention of the Economy, Energy and Tourism Committee to the potential offered by a national roll-out of smart meters. In particular, we feel that the issue of smart meters relates to the questions: • What type of future is needed in Scotland in terms of the production, distribution and more efficient use of energy, given the issues of price, security of supply and sustainable development? • How can demand for energy be reduced in Scotland?
Currently, consumers’ awareness of their energy usage remains low. The idea of energy consumption remains intangible, with customers and suppliers relying on estimated bills and meter reading visits to gauge how much electricity and gas is being consumed by a household. (Although devices are available to give customers readings on their electricity use, the information displayed is not 100% accurate, and they offer no information on gas use, which comprises the majority of most households’ consumption.) Without accurate consumption data, it is difficult to create consumer ‘pull’ around reducing energy use, and correspondingly to identify how savings could be made.
Energy companies are also aware that the current energy supply market is due to change fundamentally over the next ten years. As part of its strategy to tackle climate change, Government in Westminster is requiring companies, as
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part of their post 2011 supplier obligations, to turn around their operating models to one where they become profitable through encouraging customers to reduce their energy consumption. To comply with these obligations, we need to develop commercial incentives for producing and using less energy. This cannot be achieved without the enabling technology of smart meters. Until companies are able to pinpoint how, where and when energy is being used, we will not be able to work with customers to develop commercially viable, targeted and effective consumption reduction schemes.
Smart meters offer consumers and energy supply companies the means to measure each household’s overall energy consumption, and work with local or regional Governments to become more energy efficient.
What is a smart meter?
Smart meters are the next generation of electricity and gas meters. They will bring about the end of estimated bills and meter readings, and provide customers and energy suppliers with accurate information on the amount of electricity and gas being used. They will also provide the platform for the development of a much greater choice in energy tariffs and services for all homes.
Smart meters empower customers to make choices about how much energy they choose to use. Suppliers will install two-way communication systems that display accurate real-time information on energy use in the home to the consumer and back to the energy supplier. In addition, smart meters enable:
• Improved accuracy of forecasting energy demand at different times of the day
• Capability for selling energy back to the supplier which will facilitate microgeneration technology (e.g. solar panels or wind turbines)
• Automatic and actual meter readings that will bring an end to estimated bills
• The same electricity and gas meters to be used for all customers, whether they are pre-payment or credit
• Flexible tariffs that measure consumption over set time periods
Smart meters: facilitating distributed generation and reducing emissions
A roll-out of smart meters will greatly facilitate the use of domestic energy generation in Scotland. The presence of a smart meter at all properties would remove the constraints on microgeneration that are currently caused mainly by traditional legacy meters incapable of measuring export or supporting export tariff arrangements. Through facilitating microgeneration and
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encouraging energy efficiency, smart meters can thus make a real contribution to reducing greenhouse gases.
A national smart metering system would enable regional Governments and local authorities to work with energy supply companies and their constituents to cut energy consumption in their area. Armed with accurate data on local energy use, it is possible for regional plans to be developed, which relate to specific consumption patterns or opportunities afforded by a particular region.
An example would be the opportunities provided by smart meters, which have the capability to accurately measure "export" of electricity into the distribution networks when domestic generation exceeds consumption in the home. Accurately measuring export of energy from homes would support appropriate payment for that energy and encourage the promotion of domestic wind generation in coastal areas, or parts of Scotland where the generation potential is greatest. Smart meters will open up the possibility of local authorities and energy supply companies working together to encourage greater exploitation of the UK’s low-carbon energy sources, as well as measuring the impact that these steps have on regional and local consumption patterns.
Reduce demand through energy efficiency
It is also important to remember the part that industry-funded energy efficiency schemes play in reducing domestic energy demand. Currently, this is done through the Carbon Emissions Reduction Target (CERT), which is the successor to the Energy Efficiency Commitment (EEC), which ran between 2002 and 2008. The Electricity and Gas (Carbon Emissions Reduction) Order 2008 requires CERT to deliver overall lifetime carbon dioxide savings of 154 MtCO2 – equivalent to annual net savings of 4.2 MtCO2 by 2010 – and will require about £2.8bn of investment by energy suppliers in promoting carbon reduction measures.
These energy savings are met through measures such as offering cavity wall and loft insulation, using energy efficient boilers, appliances and light bulbs. In addition to the energy efficiency measures of the previous EEC, suppliers will be able to install microgeneration; biomass community heating and CHP; and offer other measures for reducing the consumption of supplied energy.
Currently the innovation element of the overall CERT budget is set at 8%. This remains a small percentage of the overall CERT target, which means the volumes are not sufficient to achieve a critical mass and therefore new technology cannot be installed cheaply in fuel poor homes. The percentage attributed to these options should be larger to justify the levels of investment required from industry to bring new products to market. There should also be more incentives for suppliers and consumers, so that the industry is not required to push new energy efficiency measures onto reluctant energy users.
CERT has been designed in an attempt to reduce carbon emissions as well as alleviate fuel poverty. It is our belief that having a single scheme to achieve
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two very different goals means that neither goal can be reached satisfactorily. The ERA and its members have lobbied consistently for two separate programmes – one for fuel poverty, and another to tackle carbon emissions reduction. This would mean that the schemes could be properly targeted and managed, with far greater success attained in both important areas.
If energy efficiency measures are to be used effectively to reduce demand, they should be detached from fuel poverty strategies. Suppliers should be able to offer subsidies to fuel poor homes but a market should be created in the able-to-pay sector e.g. energy services packages. In order that suppliers are able to offer innovative packages to customers, it is crucial that they have access to consumption data – a problem that can be solved with smart metering. Properly deployed energy efficiency measures and universal smart metering can together make significant reductions in domestic energy consumption.
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SUBMISSION FROM SCOTTISH COUNCIL FOR DEVELOPMENT AND INDUSTRY
Introduction
1. SCDI members welcome the inquiry on “Determining and Delivering Scotland’s Energy Future”. Energy is at present the top public policy priority for many in the Scottish economy. However, this inquiry is the latest in a plethora of inquiries, reviews and consultations in recent years. Discussions with SCDI members have revealed significant frustration that these are appearing more frequently and have an ever shorter shelf life, set out to determine the energy future but succeed neither in delivering short term action nor long term clarity, and often put the politics of the debate before the policy. The success of this inquiry report will be judged on whether action follows and on the durability of its influence. Committee members must be prepared to follow the evidence and agree positions which are independent of party policy.
2. The International Energy Agency (IEA) has said that world energy demand is predicted to increase by 55% between 2005 and 2030, with much of this growth in China and India. Demand will be overwhelmingly met by fossil fuels (84 per cent) and energy-related greenhouse gas emissions will rise by 57%. While debate on “peak oil” continues, the IEA has already said that the world “faces an unsustainable energy future if governments do not radically change their energy policies in the next 10 years.” The Stern Review of the Economics of Climate Change estimated that if there is no international action on climate change, the overall costs and risks will be equivalent to losing at least 5% of global GDP each year, now and forever. It said that the power sector around the world needs to be at least 60% decarbonised by 2050. The European Union (EU) has agreed to a binding target for the UK to generate 15% of its energy from renewable sources by 2020.
3. The best estimate by the Royal Society of Edinburgh of population and economic activity in Scotland predicts an increase, with a consequential expectation of a 50% increase in Scotland’s energy demand by 2050.15 Scotland will lose around 30% of its electricity generating capacity from large power stations in 10 years and around 70% in 20 years. Since privatisation, the margin in installed capacity relative to peak demand has reduced from about 30% to 20%. At UK level, one third of generation needs to be replaced in 10-15 years.
4. On current trends, there will be a growing gap between energy supply and demand in Scotland and the UK, and a growing global gap between greenhouse gas emissions and targets for stabilising the climate. There has been underinvestment in the energy industry over many decades. This will need to be redressed in the next 10-15 years
15 Inquiry into Energy Issues for Scotland, The Royal Society of Edinburgh, p.22
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to close these gaps. The scale of the challenge is without precedent – in mindset, skills, finance, raw materials and physical space. The opportunity for industry is that clean energy may be a $1 trillion market by 2030. But, for the UK, the challenge is also that no fully competitive power market anywhere has ever been tested under conditions of such rapid change in which affordability must be balanced with investment in future capacity.
5. The increasing cost of energy is a major concern to households and businesses. Scotland’s manufacturing industry is finding it increasingly hard to remain competitive. The high cost of energy, in addition to other cost pressures, and the upward trend in prices, is making continued investment in Scotland compared to other locations more difficult to justify for some companies. Higher input costs are also being passed onto consumers at the factory gate and fuelling inflation.
6. This challenge requires informed debate and agreement on action. SCDI has the following observations on the current energy debate within Scotland:
• Scotland is integrated into the UK energy market. The Scottish Parliament, UK Parliament and European Union all have responsibilities for energy and climate change policies. Energy is an internationally traded commodity and climate change is a global challenge. Scotland’s energy future needs to be determined and delivered within this context. • There is always much discussion of opportunities and threats. While there are many opportunities, the balance is towards threats to the economy and global environment. Policy-makers must prioritise risk management. • Security of supply, climate change and affordability are generally recognised in the global debate as the main challenges. But within Scotland, too little attention is paid to security of supply. For the Scottish economy, a key question is how to create stability and certainty over periods of 20 or 30 years. • All technological energy solutions have environmental drawbacks. Policy-makers need to balance those against their top priority of sustainable economic growth and the greatest global challenge of climate change. • The technological priority is those which will have the greatest global impact. These will be will the low carbon options: carbon capture, nuclear and renewables. Scotland has a comparative advantage in them all. • The differences between demonstration of new technology, small scale deployment and large scale deployment, and the lengthy timescales between each stage, should be understood and much more clearly stated.
7. In response to SCDI members’ concerns about the energy debate and the potential risk of an energy gap – which was also expressed at the
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National Economic Forum – SCDI has commissioned major independent research. This will address the issue of Scottish power generation between 2008 and 2020, the UK and EU contexts, and reach conclusions about the suitability and like effectiveness of Scottish energy and environmental policy goals and targets. SCDI will share the final report with the Committee when it is available towards the end of September. Some of the following recommendations are therefore provisional until this work is completed. In the meantime, to focus the dialogue and debate, SCDI is organising a major conference on Scotland’s energy future with expert speakers to which Committee members are invited.
Question 1: What type of future is needed in Scotland in terms of the production, distribution and more efficient use of energy, given the issues of price, security of supply and sustainable development?
8. In the context of these challenges, SCDI would set the following objectives:
• Security of Supply – Meeting the needs of sustainable economic growth (achieve Scottish Government Economic Strategy targets) as the UK becomes a net importer and global competition grows for depleting resources. • Decarbonising Supply – Meeting Scottish, UK and European renewable energy targets for 2020 and interim and 2050 Scottish and UK climate change targets. • Affordability of Supply – Maintain economic competitiveness and affordability for business and consumers (especially the fuel poor) in the post-cheap energy era. • Maximising Economic Benefit – Investment must turn innovation into successful manufacturing industries and support employment in the energy industry.
9. Energy efficiency should have the highest priority, but realistic assumptions on its impact on demand must be made. Behavioural change and the supporting investment needed will take a number years. Studies show that consumers have often spent money saved through energy efficiency on other energy-intensive activities and it remains to be seen if rising energy costs will have a long-term impact. So there is a need to reduce the link between energy-intensity and carbon-intensity in goods and activities. Smart metering will improve consumer information and may change habits. Higher and more rigorously enforced standards are needed for new houses, and sustained investment is needed in the existing building stock. Raising standards in Scotland to the level of those in Scandinavia and Germany could save 20% of domestic energy consumption. Energy saving light bulbs should become standard. New technology is being developed and piloted by Scottish companies to monitor energy waste in buildings and should become more widely available. Microgeneration should have an important role, with a collaborative rather than
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individual building approach increasingly taken. In Scotland, given its relative size, the public sector has a particular opportunity to show leadership. In the private sector over, energy efficiency will become a source of competitive advantage and profitability in a new way. Businesses will view higher carbon emissions as a reputational issue in the global marketplace with which many cannot afford to be associated. This is well illustrated by the success of the Carbon Disclosure Project.
10. SCDI welcomes the greater attention on heat and transport within this inquiry. Gas for heating and oil products for transport comprise about 65% of the UK’s primary energy demand. A key issue is security of supply. While the contribution of oil and gas to UK energy needs is likely to increase from three quarters to 80% by 2020, the UK is now a net importer of both and the current rate of investment in the North Sea would produce only 12% of projected demand by that year. However, Oil and Gas UK estimates that 40% of UK oil and gas needs in 2020 can be achieved with sustained investment.16 As the UK Renewables Advisory Board has acknowledged, decarbonising heat or transport before 2020 will be hard as the technology is many years from being available on a commercial scale. In the short-term, government must ensure access for affordable fuel, especially in rural areas, so people can access opportunities, and businesses get goods to market. In the future, decentralised power systems, use of waste heat, rail electrification and links between Carbon Capture and Storage (CCS) schemes and the transport network will be needed. It is important to note that some solutions will increase electricity demand.
11. With this in mind, SCDI would support a long-term approach which:
• Maximises the exploitation and responsible use of indigenous resources and existing technologies for sustainable economic benefit, while accelerating new technology development. • Deploys, alongside existing low carbon technologies, new energy technologies and infrastructure to harness more of Scotland’s natural and mineral resources to achieve higher sustainable economic growth and achieve climate change targets.
12. The future of electricity generation within Scotland is critical for economic growth and climate change, and, in SCDI’s views, is an immediate priority which the Committee should seek to influence. All of Scotland’s major power stations are scheduled to close by 2025 and schemes under construction or planned do not come near to replacing them. The potential for an electricity gap to open up from 2015 onwards is real, depending on demand patterns and plant closures towards the end of the next decade. The Scottish Government’s target to generate 50% of Scotland’s electricity from renewables is widely accepted and is essential to hit UK and EU targets. It can be achieved
16 2008 Economic Report, Oil and Gas UK, pp.38-40
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if barriers, including cost, are overcome. The UK Renewable Energy Strategy: Consultation estimates that a £100bn investment will be needed in renewables to achieve the target for 2020. Its initial projections show the costs to consumer and industrial electricity and gas bills from existing climate change policies, and the higher costs from increased deployment of renewable electricity, financial incentives for the renewable heat sector and the Renewable Transport Fuel Obligation.17 These are significant and need to be minimised. They are based on fossil fuel prices lower than at present and if the price turns out to be higher than the assumptions the percentage increase could be much lower. The Committee may want to look at the projected costs for each technology in more detail. In evidence to the UK Parliament’s Environmental Audit Committee, E.ON UK has suggested that if the UK needs around 40000MW renewable electricity to meet the EU renewable energy target, 36400MW of conventional supply will also be needed to ensure that winter peak demand can be met.18 So the key question is how to supply the other 50% of Scotland’s electricity needs, in particular a secure, clean and affordable base load.
13. A realistic scenario for 2020 and beyond would be peak demand for around 6.5GW. Wind capacity may be as high as 8GW and this may generate 3GW of clean energy on average. With particular weather patterns, however, generation from wind may be virtually nothing. Without complementary conventional supply, in those circumstances, over reliance on renewables would destabilise the entire system. There is therefore a need for about 4/5GW of conventional supply, given import and export capacity. Scotland also, at present, exports around 20% of its electricity generation on average to the rest of the UK market, which is a significant benefit to the economy. But this flow of electricity could, occasionally or more frequently, be reversed. It is therefore possible to envisage three potential scenarios for electricity generation and supply.
• Scotland continuing to meet own needs and exporting power – In addition to 50% from renewables, this would require at least three large power stations. • Scotland balancing its needs over the course of a year - Occasional supply from England, need for fewer new stations, but implications for economy and employment. • Scotland dependent on power generation in England - Balancing intermittent supply from renewables, but, again, with implications for economy and employment, and possible threat to the common UK electricity market which subsidising the growth in Scottish renewables.
14. In SCDI’s view, the first scenario is clearly preferable in meeting the objective of future energy production in Scotland, especially as large
17 UK Renewable Energy Strategy Consultation, Department for Business, Enterprise and Regulatory Reform, UK Government, pp.231-4, http://renewableconsultation.berr.gov.uk/consultation/consultation_summary 18 Carbon Capture and Storage, Environmental Audit Committee, House of Commons, pp.33-4
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amounts of import capacity from the rest of the UK are constrained and might destablise the system. The issue is then how this should be delivered. Fossil fuels offer flexibility of supply to balance the output from renewables, but they emit some carbon emissions. The UK will need new gas fired capacity, particularly in the short term, given its affordability, reliability and efficiency. However, costs are rising, the UK cannot afford to become overly dependant on imports for its power supply and its own valuable reserves need to be carefully managed. The world will be generating power from coal for decades to come and efficient coal-fired power generation will be needed. But the price is increasing. With biomass blending, significant reductions in CO2 emissions can be achieved. However, CCS is unproven at full scale and decisions on new coal-fired power generation cannot wait for it to be successfully demonstrated. If it does not work, the emissions from new coal fired power stations will be locked in for 30/40 years. About 26% of the electricity generated in Scotland was from nuclear in 2006, supplying the equivalent of about a third of Scotland’s electricity. It is the only proven low carbon conventional technology for base supply and the ability to diversify from fossil fuel prices. It is highly productive, but its output is less flexible. Therefore, SCDI supports a balanced energy mix in Scotland, with much higher supply from renewables and a backbone of new nuclear and lower carbon fossil fuels, which it believes is needed to ensure security and affordability of supply, and to reach climate change targets.
Question 2: How can this future be delivered in Scotland and how can we meet the various targets and obligations?
15. Probably the biggest single challenge facing the energy industry is recruiting and training sufficient skilled people to research and development, design, manufacture and construct everything which must be done. SCDI would support a comprehensive survey of labour and skills requirements in the energy sector. It believes this would show that the key priorities should be:
• Education/ Training - Increasing participation in science, technology, engineering and maths. Universities and colleges which offer quality courses in these subjects need to be given sufficient resources to meet the demand. Some colleges are turning away young people from technical subjects due to funding limitations. Retraining and upskilling the (generally ageing) workforce for existing and emerging technologies e.g. the training for plumbers, electricians and building professionals to become installers of micro-renewables is inadequate and does not meet demand. • Fresh Talent – Many graduates are now from overseas so the availability of work permits must meet demand. There is a need to improve connectivity and provide high quality, affordable housing supply for the North East and Highlands and Islands, to promote and facilitate these locations as attractive places to live and work in order to attract and retain high calibre, skilled professionals.
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• Collaboration – Providing government policy promotes them, all sectors can offer a full career to new graduates. Collaboration on skills utilisation and crossover would be mutually beneficial.
16. The other overarching challenge is planning which is currently a barrier rather than a stimulus to development. If this continues, companies developing existing and emerging technologies will invest in countries where there is a more supportive regime. The Planning Act 2006 and the National Planning Framework 2 (NPF2) are welcome, but legislative reform must lead to a more efficient system supporting wider policy objectives. Local authorities are updating their planning guidelines in response to the Scottish Government’s SPP6 policy guidelines on Renewable Energy and it is to be hoped that this will have a significant impact. Key priorities should be:
• Essential Infrastructure – The current average between planning application and completion of construction seems to be over ten years. The Beauly-Denny project is essential to replace ageing infrastructure and for renewables. NPF2 recognises the importance of the electricity grid, but the gas distribution network is also in need of investment, including the St Fergus Gas Terminal. The Scottish and UK Government need to work closely together on cross border infrastructure. • Nuclear – The Scottish Government should revisit and reverse its opposition to new nuclear power. • Culture Change – Government, the industry and NGOs must work together and inform the public on the infrastructure needed for future energy supply. • Resources – Planning departments must be able to increase their efficiency. • Targets – Targets for renewables approved by the planning system for all public bodies would be appropriate and increase certainty for developers which would encourage more local procurement. • Renewable Energy Zones – Designated zones for offshore and marine renewables developments would improve certainty for investors and National Grid, and would also help to reassure existing industries, protect natural habitats and speed deployment. Where local authorities have designated areas as suitable for onshore renewable energy developments, developers need to speak with the planning authority at an early stage to identify whether their proposals fit within them. • Getting the Balance Right and Government Leadership – There is a need for clarity on resolving conflicts between clean energy and natural heritage. SNH should be able to work with developers to advise how schemes could be compatible, rather than a simple “yes” or “no”. Scottish Government should demonstrate leadership and consistency in decision-making, not hide behind regulations. • Microgeneration – Scottish Government should at least achieve the level of permitted development for single and small scale granted in England.
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• Coal - ‘Presumption against’ new opencast sites threatens an indigenous supply. It should be subject to the same planning regime as other developments. • Coalbed Methane (CBM) – A rational planning framework is needed to enable careful but accelerated development of the resource. Planning consents applying to other utility companies should apply to CBM to enable gas and power derived from the gas to be transported to the main grid connections.
17. Higher energy prices can help to tackle climate change and act as a spur to energy efficiency. But government must ensure an appropriate balance and offer support which helps households, businesses and communities to adapt. Microrenewables can play a significant role in Scotland’s energy future. The Energy Savings Trust has estimated that this could potentially be as high as 30-40% of the UK’s total electricity demand by 2050. However, a recent study by the Carbon Trust and Met Office found that wind turbine technology can often be inefficient in urban and suburban environments. SCDI’s recommendations for energy efficiency and microgeneration are:
• Public Information – Everyone (including government, planners, consultants, media and the public) needs clearer information to increase awareness and improve advice, guidance and design. • Consumer Incentives – Information should be underpinned with rewards for early adoption to alleviate costs. There should be a review of funding mechanisms to ensure effective targeting and that consumers are not confused. • Building Stock – Higher standards for new property. Incentives for better insulation are the priority for existing stock e.g. amend Local Government Act to allow council tax rebates (as in England) and the UK Government should consider a reduction in stamp duty. The extension of the household loan scheme to SMEs is welcome, but there is a need to consider a much more ambitious scheme for all. • Smart-metering – Following the ongoing pilot, the roll-out must be mandated by the UK government for within 10 years from the passing of legislation. • Domestic Lighting – Energy saving light bulbs are now competitively priced so the Scottish and UK Governments should introduce legislation to prohibit conventional light bulbs. • Microgeneration – Increased funding is welcome, but still comparatively small. Grant schemes should have criteria for measuring the likely carbon savings (e.g. small wind turbines) to ensure they save reasonable amounts of CO2. More community and business collaboration should be encouraged through finance, clearer and more consistent advice, and planning reforms e.g. General Permitted Development Rights. SCDI would support feed-in tariffs at a level which is complementary to Renewables Obligation Certificates (ROCs) and does not undermine investor confidence in them. A feed-in tariff scheme could support an expansion of smaller scale and decentralised renewable electricity schemes including domestic microgeneration,
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onsite and community owned renewables. But there should be an upper capacity limit. • Public Sector Leadership - Public procurement can help to create a supply chain of new technology. It should move quickly from securing Energy Performance Certificates to planning improvements to its building stock to 2020. The Scottish Government should consider a National Indicator for the energy efficiency of public sector buildings as part of ‘Scotland Performs’. • Private Sector Leadership – All of Scotland’s priority sectors should have an energy efficiency and microgeneration strategy. The IT industry is taking steps to reduce the energy cost of manufacturing and the energy requirements to operate ICT equipment. • Emissions Trading Scheme – Utility companies have received a ‘carbon windfall’ from their allocations under Phases 1 and 2. Independent sector analysis shows most have already invested this suppressing prices or investment in new capacity. A blanket windfall tax is unfair and would discourage investment, not only in new generation capacity but would send a wider negative signal to the business community as a whole. It would be preferable for the Scottish/ UK Government through the Fuel Poverty Forum, to explore options for enhanced investment in energy efficiency, such as the Carbon Emissions Reduction Target scheme.
18. The primary fuel for heating in the domestic sector is gas which, as current concern over this winter demonstrates, will make it particularly susceptible to security and affordability of supply issues as the UK imports an increasing percentage of its needs. While new import facilities are sufficient until about 2015, the UK is now competing for supplies and LNG cargoes are more often than not diverted to inflated price destinations such as the Far East. Optimising the recovery of North Sea oil and gas is critical. Low carbon solutions for heat are some way off, but it is vital that there is greater focus on the sector. Key priorities are:
• Gas distribution network – There is a need for further investment. New storage facilities are being urgently constructed, but projections suggest that there will be a need for more after 2015. This will also support the development of CCS. • Liberalise Market – The Scottish and UK Government should keep up the pressure to break the link between oil and gas prices by ending the oil indexation in long-term contracts, and to liberalise the European energy market. • Renewable Heat Obligation – Scottish and UK Government should introduce incentives for renewable heat generation. These should be gradually introduced, technology neutral and not set at a level which leads to more fuel poverty. • Community Heat and Power (CHP – There is a need to promote greater community acceptance. Highly distributed power systems are opportunities for billions of pounds of investment in brownfield sites in Scottish cities, but will take time and mean changing social structures.
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In a more densely populated area or with a significant off-taker, CHP does not have to be renewable – even gas fired would bring about carbon reduction benefits. All future small thermal generating plants near population centres should have specific arrangements for the use of waste heat. Public procurement framework agreements should not exclude CHP simply because it will never be practicable in all of the country. Where it would otherwise be landfilled, waste incineration for heat energy is preferable. • Biomass – The recommendations of the Scottish Parliament’s biomass inquiry remain relevant. Scotland is well behind countries like Germany on agricultural waste to heat energy. The growing interest among farmers in the opportunity should therefore be further incentivised. • Heat Pumps – The installation of standard boilers in the central heating programme has been a missed opportunity. For installation by businesses, the Carbon Trust offers interest free loans over 4 years. Scottish Government should consider practicality and affordability of an extension of interest free loans to all households. The new accreditation scheme for installation introduced by the UK Government is causing fury in the Scottish industry because of the higher, multiple costs to installers, and additional bureaucracy. It is a discentive to getting involved in the industry, especially in rural areas. Following consultation with the industry, it should be replaced. • Biomethane – Injecting into gas network can reduce carbon intensity. It should be made at least as attractive to introduce it into the gas distribution system as to burn it on-site.
19. The scope for decarbonising transport fuel in the short to medium term appears limited, although there has been a welcome spurt in the number of conversions to LPG in the last six months. The demand for transport has been steadily increasing in recent years, but it can be limited or shifted to more environmentally friendly modes. Flexible working and home working can be promoted through better access to ICT and video conferencing, and workplace travel plans. BT’s fibre- based broadband will become available for up to 10 million UK homes by 2010 and is an opportunity for investment in Scotland. The planning system can be used to discourage locating new housing where commuting and access to services and amenities is only achievable by lengthy car journeys. But many journeys are necessary and Scotland’s economic competitiveness must be protected. Key priorities for transport are:
• Reducing Fuel Prices - Comparative statistics show that the UK has the highest prices for fuel in Europe, and most of this price is made up of duties. HM Treasury should immediately introduce a Fuel Duty Regulator. • Support Island Communities – Prices on the islands are exceptionally high. As motor vehicles are a necessity of daily life and motoring costs make up a higher percentage of disposable income, the
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UK Government should introduce a dispensation scheme, similar to those in other EU countries. • Demand Management – A UK-wide road pricing system, which replaces fuel duty, would reduce congestion and benefit many rural areas of Scotland. • First Generation Biofuels – The European Commission’s proposal for a Renewable Directive introducing specific target for transport sector of 10% by 2020 can only be met by using biofuels. Evidence has been presented this would reduce agricultural production for food and biodiversity in Europe and the developing world and increase food prices. More biofuels will be needed over time - and in Scotland biodiesel from the waste oil market or straight vegetable oil may offer particular environmental benefits - but the target needs to be reviewed and environmental safeguards introduced. • Second Generation Biofuels – The Scottish and UK Governments need to encourage more research and financially support non-crop based biofuels. The Scottish Association for Marine Science, based at Dunstaffnage Marine Laboratory, are investigating the potential and practicality of using micro- and macroalgae. • Electric and Fuel Cell Cars – A number of companies are planning to offer road-capable electric cars within a few years. Fuel cell cars are mainly unproven, costly and commercial production is many years away. One of the biggest obstacles is the lack of hydrogen fuelling stations and, as hydrogen is currently commonly produced from fossil fuels, overall carbon emissions may be higher than from a conventional engine. UK companies are testing new combustion engines which are 50% smaller than average and would use less fuel and produce fewer carbon emissions. • Rail Electrification - Only 39% of the UK rail network is electrified. New diesel trains emit at least double the carbon dioxide per mile of a standard electric train. The Scottish Government is committed to 350km of electrification and Network Rail has launched a feasibility study into five possible high-speed rail lines. SCDI hopes that, as seems possible, the UK Government will later this year reverse its opposition to electrification in the investment programme from 2014. According to the UK Government, high-speed rail increases energy consumption by 90% at top speeds. However, the environmental benefits compared to domestic air travel are still considerable and SCDI supports the Greengauge campaign for a UK high-speed rail network. • Ferries – The large vessels required for safe and comfortable travel on longer and exposed routes have high energy costs per passenger and rising fuel costs are having a serious impact on operators. Caledonian Maritime Assets Ltd estimates that a £200m investment is needed in new vessels over the next decade. Norway is currently allowing hydrogen-powered engines on vessels as part of a joint fuel system. New paint technology can reduce fuel use by 5%. SCDI believes that higher fuel efficiency and new engine technology must be priority considerations in procuring the new ships.
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• Air Travel – In response to a HM Treasury consultation, SCDI argues for a new aviation closely reflecting carbon emissions per aircraft type rather than the proposal for one based on Maximum Take Off Weight. The Highlands and Islands’ air services continue to warrant an exemption. • Internal Fuel Supply – The recent tanker and Grangemouth disputes showed the vulnerability of fuel distribution. 90% is through Grangemouth. As imports grow, logistics and contingency arrangements must be kept under review. There is a growing threat of closures of rural petrol stations, reducing competition and increasing prices. These lifelines for communities must be sustained and radical solutions found to support them. SCDI understands that, subject to a review, the Renewable Transport Fuel Obligation will lead to Bio Gasoline replacing conventional petrol next year. Due to its character it cannot be shipped from Grangemouth or stored at petrol stations without modifications which are outwith the resources of smaller operators, and it is likely that it will be too expensive to construct blending plants on the islands or even the Highlands. A green policy would therefore result in significantly increased carbon emissions from Grangemouth-based tankers travelling around the region.
20. A balanced mix is supported for electricity generation to meet the objectives of security, lower carbon and affordable energy, while maximising the economic benefit to Scotland by supplying its own needs and maintaining its export credentials. Isolationism will result in higher risks to supply or price. The trend in many developed and developing countries around the world is towards a similar conclusion. This underlines the validity of the case, but it also means that the global supply chains for gas, coal, wind and nuclear are all getting choked. SCDI’s independent energy study will ask how options for Scotland’s energy mix will affect affordability to retail, commercial and industrial users and place the economy against its main overseas competitors. Decisions on new large scale power stations should be made within the UK demand and cost context, but at present the UK electricity market is not sufficiently incentivising investment in new conventional plant.
21. Parts of the UK grid network are in real need of replacement and upgrading, not just to connect new sources of electricity generation, but because they are 30 to 40 years old. The UK is also planning 33GW of offshore wind by 2020 which will need to be connected. Modernisation should promote investment, the strategic development of renewables and the export of power to England and, in the longer-term, Europe. The grid’s character will have to change. A smart grid is needed to go with smart metering. As generation becomes less controllable, it will have to be more controllable. Customer load will have to adapt to supply capability, for example demand from electrical appliances could be remotely turned down at times of lower supply. There is also the potential for more decentralised networks. Key priorities are:
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• Beauly-Denny – The Select Committee on Innovation, Universities, Science and Skills estimated that 7684MW of wind power projects are waiting to be connected (although not all will come to pass).19 The project is essential for the islands and marine and the proposal is only practical and affordable way to proceed. Its completion will unlock the upgradeable potential of Beauly-Keith/ East Coast. The Committee should give it their unequivocal backing. • Essential Infrastructure – NPF2 and the UK Planning Bill are supported. • Onshore Regulatory Regime – The regime has served its purpose. It now needs to be more strategic, supporting transmission reinforcements, and considering the total costs to consumers now and in the future, including climate change. • Transmission Connections – Renewables projects can currently wait for 10 years for access to the grid. Grid access arrangements need to be improved and a more holistic approach taken to cost. SCDI welcomes recent moves by National Grid to reduce delays and its Transmission Access Rights proposals to more speedily connect projects before major transmission reinforcements are made. Network investment and growth in new renewables should happen in parallel and not in series. • Transmission Charging – The proposed introduction of zonal loss transmission charging in addition to Transmission Network Use of Supply charges will make it less attractive to export clean electricity from Scotland and harder to finance renewable energy projects in optimal, but peripheral locations. This seems completely contrary to Scottish and UK Government energy policy to address climate change. A fundamental review is needed of locational charging before any decisions are taken at UK or European level. The Kingsnorth controversy shows the potential difficulty of locating new generation close to the population centres in the south east. Capping for the islands is supported by SCDI and, at the very least, mainland Scotland should be made one zone. • Grandfather Rights – Clarity is needed on connecting new power stations. • Offshore Grids – The aim at present should be to get the vision correct, make licensing and regulating consistent with future development and build the case for investment. Studies by The Crown Estate on an east coast line between Shetland and south east England and by the Scottish Government for grid links to Ireland and to northern Europe are welcome. The concept of a European supergrid is supported in principle by SCDI, but this would be developed incrementally over 30 years, there are technical challenges to overcome and it would require billions of pounds of investment from the private sector. SCDI welcomes reports of talks led by Scottish Development International. The development of offshore grids increases the need to strengthen the onshore grid.
19 Fifth Report, Select Committee on Innovation, Universities, Science and Skills, www.publications.parliament.uk/pa/cmselect/cmdius/216/21609.htm
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• Storage Technologies – Greater intermittency of the power supply to the grid network will mean that the system needs constant balancing. Storage technologies would help address this variability and extra intermittent power could be used for electric and fossil hybrid vehicles. Pump storage is currently treated and charged as generation. It should be storage.
22. The contribution from oil and gas to meeting the UK’s energy needs is likely to increase before decreasing – up from three-quarters today to 80% by 2020. The UK Continental Shelf (UKCS) could still be meeting a substantial proportion of this demand in 2020 and beyond if investment can be increased. BERR’s mid-case view on reserves still to be recovered from the UKCS is 25bn boe20. With sustained investment it could still provide 40% of the UK’s oil and gas needs in 2020. However, the current rate of investment would produce only 12bn boe and 12% of the UK’s oil and gas in 2020. Whatever happens, it is recognised that UKCS production is declining and this means an increasing reliance on imports, especially of natural gas. Key priorities should be:
• Maximise UKCS output – Generating more investment for exploration, production and to sustain assets in a mature, high cost province which has to compete for mobile international investment. The general consent in the industry is that, in the medium term, the fiscal regime is unsustainable and a simplification and reduction of taxation is required. The Scottish Government and Parliament need to continue to make this case to the UK Government. • Unlock Difficult to Reach Reserves – The UK Government and industry need to agree on specific incentives to make this economical and on gas infrastructure which meets operators’ and UK strategic interests e.g. west of Shetland. • Anchor Global Supply Chain – A major implication for Scotland of reduced activity in the North Sea is the potential decline in investment and jobs. SCDI’s latest annual survey highlights the record sales from the Scottish oil and gas supply chain of £12.9bn in 2006/07. It is now active in around 100 countries.21 • Prepare to Import - Scotland’s geography and North Sea infrastructure should be advantageous in competing for imported supplies. • Decommissioning – This will require investment of an estimated £22bn. Scottish Enterprise and Highlands and Islands Enterprise are working with the Scottish supply chain on accessing opportunities.
23. Coal fired power stations will be in existence for at least another 40 years and the growth in China and India is now being matched elsewhere. The priority, therefore, is cleaning them up, not substituting
20 “Barrel of oil equivalent” which equates gas and other fossil with oil to enable comparisons 21 Survey of International Activity in the Oil and Gas Sector 2006/07, Scottish Council for Development and Industry
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them. Clean coal and CCS will be needed to get the UK and the world over the emerging electricity gap. The UK still has substantial reserves of coal for approximately another 200 years. CCS would have the greatest impact globally on carbon emission, but it is still unproven full- scale technology and, in the short-term, new capture-ready plants cannot be ruled out. Scotland is also at the forefront of developing coalbed methane in the UK and Underground Gasification. Key priorities are:
• Indigenous Coal – This should be promoted. Advantages over imports include security and affordability of supply, lower carbon emissions in transportation and local economic benefits. SCDI welcomes the recent supply agreement between Scottish Resources Group and ScottishPower. • Carbon Reduction – Clean coal technology, CCS and blending with biomass for co-firing can make coal fired generation more compatible with carbon reduction. Chinese coal plants are well ahead of the UK in abatement of CO2 by efficiency improvement. • CCS – All new coal plants should be capture ready. There is a need to accelerate the pace of demonstration, development and deployment. The aim should be CCS commercialisation from 2020. Consents to trial or apply technologies requires collaboration between the Scottish and UK Governments. The former should take a more active lead in developing joint work. One demonstrator project in the UK is insufficient. Incentives for CCS development, such as recycling of the CO2 Allowance Auction by HM Treasury, should be accelerated. Further incentives will be needed for commercialisation. • Scotland’s CCS Demonstrator Project – While it was disappointing that the Peterhead project, which SCDI backed, did not proceed, the Scottish Government should now get more firmly behind ScottishPower’s shortlisted proposal in the UK competition. • Enhanced oil recovery - Energy companies need appropriate legal and financial frameworks to stimulate deployment of these early projects. The UK Government should work with the industry to resolve issues around tax, incentives, licensing and regulation of gas storage in mature fields in the North Sea. BP is maintaining the Miller pipeline for potential future use. • Onshore Coalbed Methane – CBM contributes 8% to 10% of domestic gas in the US and is developing rapidly in Canada, Australia, India and China, and can become significant here, contributing new indigenous gas for decades to come. • Underground Coal Gasification – This could generate substantial electricity for around 50 years.
24. SCDI supports a balanced energy mix, including the option of new nuclear power stations, which is needed to secure sustainable economic growth in Scotland and for Scotland to play its full part in achieving global climate change obligations. The trend in modern economies, such as Finland, and among some leading environmentalists, is to the same conclusion. Uranium is sourced from
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stable countries, readily stored and there are substantial supplies. Emissions average around 15g of CO2 per kWh of electricity generated, which is about the same as wind. Between them Torness and Hunterston B power stations avoids the emission of about 8.5 million tonnes of carbon dioxide each year, which is equivalent to an 80% reduction in Scotland’s road transport. Clean electricity generation from nuclear provides base load and preserves UK gas reserves for purposes like secure and more affordable heating. Key points are:
• Planning Approval – Nuclear power needs to continue to play a central role in clean, affordable and reliable base load in medium to long term. Investment priorities will be determined by the market. The Scottish Government should urgently reconsider its position, commission independent evidence and international comparisons, and allow proposals to go through planning. • Competition for Investment – New nuclear power stations are each multi-billion investment opportunities. The new UK fleet could be worth £20bn to the supply chain and create 100,000 jobs.22 British Energy currently employs about 1000 people between its Torness and Hunterston B power stations plus about 100 contractors at both. Scotland should position itself to take advantage of this major investment. • Community Support – There is strong local support at existing sites for nuclear power, which has created irreplaceable highly-skilled jobs and economic benefits. • Investment in Existing Sites – Building on existing sites makes the most of exiting resources. • Long-term Waste Management – This has been technically and politically resolved by societies such as Finland. This demonstrates that it is by no means an insurmountable obstacle and that much of the political debate in Scotland has been about stalling decision-making. • Waste Storage Sites – There are investment opportunities for which Scottish local authorities, with their enhanced responsibilities, should be able to bid.
25. The UK Renewables Advisory Board’s latest report states that the UK’s 2020 target for renewable energy still achievable if barriers are overcome.23 Nearly half of this increased provision needs to come from bulk electricity. SCDI supports the Scottish Government’s target to generate 50% of Scotland’s electricity from renewables by 2020 as an essential contribution to EU renewable energy and climate change targets. With other technologies still in their infancy, nearly all of this will come from onshore and offshore wind, and biomass. But, for all the political rhetoric, Scotland still languishes around 21st out of 27 European countries for renewable energy. Key points are:
22 Speech to Unite Conference, Secretary of State for Business, Enterprise and Regulatory Reform, Rt Hon John Hutton MP, 26/03/2008 23 2020 VISION – How the UK can meet its target of 15% renewable energy, Renewable Advisory Board
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• Onshore Wind – Still has an important role to play. Government should be bold and set targets for the planning system and the public bodies involved. • Offshore Wind – Most critical for 2020 target. There is a need to make sure that offshore regulation works together in a co-ordinated way around the UK. Integration of the National Marine Plan into NPF2 will be welcome. Grid, transmission ownership and pricing regimes must also be resolved. • Geographical and Technological Diversity – The average load factor for onshore wind renewables varies between an estimated 26.9% of capacity and over 40% on the Northern Isles.24 In Scotland, the average is between 30 and 40%. A geographically diverse portfolio of wind and good mix of renewables can smooth the effect across the country. This needs to be supported in planning. • ROCs – The Renewables Obligation has been a success. However, there is a need to extend its duration beyond 2027, possibly by another 20 years. Otherwise, investment may falter between 2010 and 2015 then grind to a halt. • Manufacturing – Government has supported R&D, but there is still a lack of support for manufacturing, as is demonstrated by the business failure rate. Where investment has been made, the results, as with the recent disappointing announcement on the Vestas factory in Campbeltown, have often been disappointing. The Arnish Yard is still to receive an order from a Scottish project. Firm planning targets would encourage more local procurement by developers. Turbine manufacture is a key constraint to offshore wind and it is vital that the Scottish supply chain benefits from it and from marine. Public finance and support will be needed or Scotland will lose out again to other countries when it comes to production. • Funding – There is still £98m earmarked for renewable energy in Scotland sitting unspent in the Treasury’s Fossil Fuel Levy. Its rules must be changed. • Nigg - Given the circumstances surrounding its potential re- development and its links to developments in Scotland’s energy sector, the Nigg Fabrication Yard should also be considered as a nationally significant project in NPF2. • Island Generation – The load factor in the Northern Isles, Western Isles, the Highlands and Argyll and Bute is generally much higher than in other areas of the UK. Load factors can reach 40% in the Northern Isles. This supports the case for more island generation. This could involve capping the transmission charges and/ or higher banding of ROCs to fund infrastructure investment. • Smaller Schemes - Local authorities need to make faster progress in planning. • Community Windfarms – These models should be encouraged. Co- operatives, with priority for local people, bring long-term local benefits and help in planning.
24 Digest of UK Energy Statistics 2008, National Statistics
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• Investment Opportunity – Renewable energy is an opportunity for the Scottish financial services industry which is well-placed to benefit. The Renewables Advisory Board suggests a £100bn capital investment is expected by 2020. • Ports – Significant investment is needed to support the renewables industry.
26. There is still good potential for smaller scale hydro developments in Scotland.
27. There is massive potential in marine. Good progress is being made with the first commercial-scale operation of marine energy devices. However, the technologies are still at least five to 10 years away from scale commercial deployment and the priority is the step beyond single devices and test sites to a complete commercial scale deployment. The development of the industry is not helped by over-optimism from politicians or by claims from companies that they are already sourcing power from marine generation. The creation of EMEC was welcome and the Saltire Prize is a laudable attempt to leverage in private sector funding. The Scottish Government’s record elsewhere is mixed – its rhetoric must now be matched by delivery. Scotland still has a technical lead, but the Portuguese and Irish are trying to catch up and promoting local procurement. Key priorities are:
• Funding – The UK’s total planned investment pales next to the Danish investment in wind. Public funding largely has been spent on facilities. Similar funding to the Saltire Prize would go a long way towards some commercial deployments. The precedent would be the first round of UK wind projects. • Marine Supply Obligation (MSO)/ ROCs – SCDI is cautious about the banding of ROCs for emerging technologies. Investors like certainty, so changes to ROCs might be a disincentive. MSO has state aid clearance. Priority should be to get devices in the water. MSO is seen as the benchmark mechanism, but could be increased to reflect inflation in industry since it was costed in 2005. Any changes should not reduce or disrupt funding. • Other Incentives – The £40m UK Marine Renewables Deployment Fund is still unspent. The inflexibility in the application of the rules has not helped. If it was combined with the Scottish Government’s Wave and Tidal Support Scheme (WATES) and the Scottish Renewables Obligation (which is currently held by HM Treasury from Ofgem and should be spent to support renewables in Scotland) it could make a real difference to capital support for the early development of projects in Scotland. The new Scottish Government has not yet awarded WATES funding and more needed for demonstration and pre- commercial projects. • Connectivity to Grid – Key technical challenge. Scottish Government needs to invest more in research. A secure, economical cable supplier needed, but no manufacturer is left in the UK. The Scottish and UK
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Governments and Energy Technologies Institute should invest and work with the industry to agree a standard cable. • Planning – Need more early projects to maintain industry’s centre of gravity in Scotland. Npower and Wavegen have submitted plans for the first commercial wave power station at Siadar, Lewis. But SCDI understands that it will be a challenge to develop follow-up projects until the initial projects have been demonstrated at a reasonable scale. SCDI supports early designation of development zones to speed up deployment.
28. The continuing relevance of the recommendations of the Scottish Parliament’s Environment and Rural Affairs Committee’s biomass inquiry has been highlighted, as has its potential. This can also be seen by the announcement from Diageo of the largest single investment in renewable technology in the UK by a non-utility company, a proposed facility at its Cameronbridge distillery in Fife which will integrate convert co-products and residues from distillation into steam and electrical energy for use in the distilling process.
29. While not losing sight of the 10-15 year challenge, there is also a need to support research into technologies which may only be developed and commercially deployed further into the future. A proliferation of “centres of excellence” should be avoided. The Energy Technologies Institute and ITI Energy should lead work on these potential solutions with universities and the private sector. There is also a need for social research on behavioural change.
Question 3: What decisions need to be taken, by when and by whom to deliver of Scotland’s energy future?
30. SCDI does not believe that the current UK Government departmental structure is appropriate for a policy area of the strategic importance of energy. The importance of a joined-up approach by the Scottish and UK Governments has been emphasised and a more focused approach to UK energy policy should better support interaction with the devolved administrations. It believes that a single Department of Energy headed by a Secretary of State for Energy should be re-created.
31. Identifying a timeline for decisions is complicated by the fact that some are ongoing or need to be taken as soon as possible or will only start to have an impact many years in the future because of the long lead time on investment. The full range of SCDI’s recommendations is set out in answer to the Committee’s first two questions, but the following table summarises some of the key decisions:
Decision By When By Whom What Impact Initiate a debate During and Scottish Informed debate/ around following energy Parliament (with consensus Scotland’s energy inquiry UK Parliament) around 4 future objectives for
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energy and 3 potential scenarios for electricity Approve Beauly- Next year Scottish Completed in Denny scheme Government 2012 Pass NPF2 and Next year Scottish/ UK Unblock planning UK Planning Bill Governments and system, hit 2020 Parliaments renewables targets Introduce Following current UK/ Scottish Faster progress Renewable Heat UK renewables Governments on decarbonising Obligation consultation post 2015 Set policy Without delay Scottish Avoid danger of framework for Parliament/ UK electricity gap at conventional Government some point after supply to replace 2015 capacity Maximise UK oil Incentives for UK Government Meet 40% of UK and gas reserves marginal areas in oil and gas next Budget, reserves in 2020 reduce/ simply overall tax in medium term Approve one or Next year UK Government Project working preferably more from 2015, aim to CCS decarbonise demonstrator existing power projects from 2020 Establish offshore Following current Scottish Increase offshore regulatory regime UK renewables Government, UK wind massively consultation Government post-2015, make progress on marine Reform Following current UK Government Supporting new regulatory regime UK renewables strategic and Ofgem’s consultation infrastructure remit to reflect all over next 10-15 costs to years consumers Review Following current UK Government, Support transmission UK renewables Ofgem investment where charging regime consultation resources are most plentiful More funding for Following Scottish and UK Begin to deploy commercial Scottish and UK Government pre-2015, make deployment of renewables real progress marine consultations between 2015 and 2020 Support Scottish- Following Scottish Some immediate
42 EET/S3/09/6/2 based production Scottish Government local economic through funding, renewables benefits, new planning and consultation manufacturing procurement industries in offshore and marine post-2015 Higher building Introduce new Scottish 10-year standards, standards and Government, programme for improve energy incentives as construction existing stock efficiency of soon as possible industry existing stock Mandate smart Next year UK Government Roll-out for no metering later than 2019 Electrification of End of year UK Government Gradual UK rail network programme from 2014 Commission Immediately Scottish Influence study of skills Government, Curriculum for needs in the Skills Excellence, energy industry Development Universities Scotland Future Thinking Taskforce, Skills Development Scotland etc.
Gareth Williams Policy Manager – North Scottish Council for Development and Industry August 16th 2008
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SUBMISSION FROM DIAGEO
Economy, Energy and Tourism Committee - Determining and delivering Scotland's energy future
Diageo welcomes the inquiry on “Determining and Delivering Scotland’s Energy Future”. Energy is an important priority for Diageo. Scotland is the home of Scotch Whisky and therefore it is the home of a significant part of Diageo’s business. We produce over 30m cases of Scotch Whisky annually, making us the world’s single largest producer, and as global demand for our brands continues to grow, we have responded by investing £100m in expanding our whisky manufacturing capacity in Scotland.
Diageo also produces around 12m cases of white spirit brands in Scotland. As with our Scotch Whisky brands, the majority of these drinks are sold globally in over 180 markets, confirming Diageo as Scotland’s top manufacturing exporter. Diageo currently employs over 4,500 staff at around 50 sites throughout Scotland.
As members of the Scottish Council for Development and Industry we support and agree with the essence of the response to the consultation by SCDI however would add to the following points:
• Heat Renewables Obligation Certificates are an essential mechanism to the reduction of energy usage and greenhouse gases - currently the use of ROC's is a proven mechanism for the development of renewable energy projects producing electricity. Industries with high thermal loads (like distilling) need this mechanism to ensure good carbon reduction projects, which have a low payback, are incentivised to be developed.
• Additionally, there are significant amounts of waste heat within industry that could be utilised for district heating or by other business that is currently ejected, usually by consumption of electricity. Heat ROC's would provide the mechanism to cover the expense of connecting
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these systems. There can be significant social advantages in relation to rural fuel poverty particularly within distilling as waste heat could be utilised by local villages. However this is currently cost prohibitive and needs a mechanism to make best use of this resource.
• In relation to planning, the efficiency of processing applications needs additional resources in the from of professional planners to process planning applications in a timely manner, as the current systems appears to be under pressure with regards to larger planning applications for energy projects, particularly if they involve an environmental impact assessment. • A forum for initial assessment of projects by planning officers and statutory bodies should be established to allow developers to bring outline proposals. This would enable the developer to receive guidance on the likely areas of contention and receive advice on mitigation measures before the developer engaged in substantial development costs.
As the SCDI state, the success of this inquiry report will be judged on whether action follows and on the durability of its influence. We look forward to the opportunity to further contribute to the Committee’s work on this important issue.
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Economy, Energy and Tourism Committee
6th Meeting, 2009 (Session 3), Wednesday, 25th February 2009
Follow-up to the recent seminar with the STUC, including proposals for the next ‘hearing’ on the state of the Scottish economy
Background to the Committee’s seminar with the STUC
1. As part of its programme of engagement with the business community and with trades unions, the Committee has recently held its second annual seminar with the Scottish Trades Union Congress (STUC). This event was held on 10 February, 2009, in the Scottish Parliament. These seminars with the STUC are designed to complement the Business in the Parliament conference series, which is now set for its fifth such event on 18-19 June, 20091.
2. This year’s seminar with the STUC was entitled The Economic and Social Models in Ireland, Norway and Sweden – A Trade Union Perspective and was an opportunity for members of the Scottish Parliament and senior trade union officials to discuss the relative economic and social models in these states and compare economic performance. The programme for this year’s event is set out in the annexe to this paper.
3. The seminar was relatively well attended and has grown since the inaugural event held in 2008. Over 30 people attended on the day, including 6 MSPs and 21 senior trades union officials from a wide variety of trades unions and the STUC itself.
4. A transcript of the seminar has been produced and has been included as part of the proceedings of the event, which are being published separately and which have been circulated as part of the papers for today’s committee meeting. The proceedings will be added to the Committee’s homepage on the Scottish Parliament’s website.
5. Feedback from the STUC was positive in relation to the success of this year’s event.
Recommendations
6. Members of the Committee who attended are asked to provide feedback on their views on this year’s seminar. In addition, the Committee as a whole may like to consider what, if any, action they wish to take by way of follow-up. In particular, the Committee may like to consider:
• Agreeing that the seminar should be repeated in 2010 on a date to be agreed with the STUC and on a theme of mutual interest. Members may wish to make some suggestions at this stage;
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• Agreeing that the clerks should make arrangements for the 2010 event to be broadcast internally within the Parliament and online, and for a request to be made for the Official Report to provide a transcript of the seminar;
• Consider whether the seminar should be incorporated into a formal meeting of the Committee or run as an informal event;
• Consider ways to increase the number of MSPs in attendance at next year’s seminar.
‘Hearings’ on the state of the Scottish economy
7. Members have previously agreed that the Committee will – during the course of its intensive energy inquiry – seek to keep abreast of developments in relation to the state of the Scottish economy and the initiatives being undertaken by the Scottish and UK Governments, the EU and central banks etc., through organising a series of regular ‘hearings’.
8. The last such ‘hearing’ took place as part of a formal Committee meeting on 21 January, 2009, and focused on the issue of banking and the problems faced by SMEs in particular in accessing finance and working capital. The ‘hearing’ prior to this took place on 24 September, 2008, and concentrated on the scale of the ‘credit crunch’ and the developing situation in the banking sector.
9. As part of the feedback from the recent seminar with STUC, it has been suggested that the next such ‘hearing’ of the Committee should be organised in the coming weeks and focus on the issue of rising unemployment and the initiatives being taken forward by various governments to minimise job losses and assist those made redundant to find new employment.
10. Furthermore, the feedback from the STUC/Committee seminar has also included the suggestion that the Committee may wish to revisit the Scottish Government’s economic strategy and economic recovery plan by way of assessing whether further changes are required and seeking to understand what effect the various initiatives are having.
Recommendations
11. Members of the Committee are asked to consider:
• Whether they wish to organise the next ‘hearing’ of the Committee on the state of the economy along the lines suggested above and as part of a formal meeting of the Committee in March/April 2009;
• Whether to plan for part of a future meeting of the Committee, or through an informal meeting, to be focussed on revisiting the Scottish Government’s economic strategy and recovery plan as outlined above. Witnesses/participants could include
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representatives of the Scottish Government, business organisations, trades unions, academics (including the authors of the recent Universities Scotland report) etc.
12. Finally, members may also wish to note that, following the exchange of letters with the Governor of the Bank of England, the clerk is making arrangements to find a mutually convenient date for the Committee to meeting informally with the Bank’s Agent in Scotland.
Stephen Imrie Clerk to the Committee February 2009
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ANNEXE
STUC/EET COMMITTEE SEMINAR – 10 FEBRUARY, 2009
09.30 Arrival and registration
10.00 Welcome – Lewis Macdonald MSP, Economy, Energy and Tourism Committee.
10.05 Introduction from the STUC – Grahame Smith, General Secretary, STUC.
10.10 Case Study No 1 – presentation by Peter Bunting, Assistant General Secretary and Paul Sweeney, Economic Adviser, Irish Congress of Trade Unions.
10.40 Tea/coffee break.
10.55 Case Study No 2 – Stein Reegård, Chief Economist, Norwegian Confederation of Trade Unions.
11.25 Case Study No 3 – Erica Sjölander, Chief Economist, IF Metall, Sweden.
11.55 Open discussion session.
13.15 Close
Background information The Scottish Government’s Economic Strategy draws on the lessons and approaches of the small economies of Norway, Sweden and Ireland. The strategy established a new target framework which included matching the GDP growth rate of the small EU countries by 2017.
This seminar aims to look in depth at the historical and current performance in the economies of Ireland, Norway and Sweden and the value of the social partnership models between the public sector, employers and employees. Giving us the inside track are four leading players from the trades unions and high-profile employers. The event provides an opportunity for MSPs and trade union representatives to discuss such matters. The seminar is open to any MSP who wishes to attend, not just members of the Committee.
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PROCEEDINGS
Economy, Energy and Tourism Committee and Scottish Trades Union Congress
A Joint Seminar
“The Economic and Social Models in Ireland, Norway and Sweden: A Trade Union Perspective”
Tuesday 10 February 2009 The Scottish Parliament, Edinburgh, Scotland
Session 3
EET/S3/09/6/5
CONTENTS
AGENDA 1
KEYNOTE SPEAKERS BIOGRAPHIES 2
COPIES OF THE PRESENTATIONS 4
Ireland 4 Norway 12 Sweden 17
TRANSCRIPT 24
EET/S3/09/6/5 AGENDA
09.30 Arrival and registration
10.00 Welcome – Lewis Macdonald MSP, Member of the Economy, Energy and Tourism Committee.
10.05 Introduction from the STUC – Grahame Smith, General Secretary, STUC.
10.10 Case Study No 1 – presentation by Peter Bunting, Assistant General Secretary and Paul Sweeney, Economic Adviser, Irish Congress of Trade Unions.
10.40 Tea/coffee break.
10.55 Case Study No 2 – Stein Reegård, Chief Economist, Norwegian Confederation of Trade Unions.
11.25 Case Study No 3 – Erica Sjölander, Chief Economist, IF Metall, Sweden.
11.55 Open discussion session.
13.15 Close
1 EET/S3/09/6/5 KEYNOTE SPEAKERS BIOGRAPHIES
Peter Bunting, Assistant General Secretary of the Irish Congress of Trade Unions Peter has the responsibility of co-ordinating and developing the Trade Union Movement in Northern Ireland as well responsibility for industrial relations in the Republic of Ireland. The Irish Congress of Trade Unions (ICTU) is the single umbrella organisation for trade unions on the island of Ireland. The Northern Ireland Committee (NIC) of the ICTU is the representative body for approximately 36 trade unions with 220,000 members across Northern Ireland. Peter also co-ordinates the work of NIC.ICTU Belfast office which includes eight staff members who support a variety of trade union initiatives.
The trade union movement plays an active role in the social and development life in Northern Ireland. For example, as well as a number of community initiatives, Peter is involved in the following organisations: The Board of Northern Ireland Transport Holding Company; The Management Committee of Counteract (Anti-Intimidation Unit); The Management Committee of Belfast Unemployed Resource Centre; Belfast City Council Good Relations Committee; Economic Development Forum; and Concordia (Social Partnership Alliance).
A native of Belfast, Peter has been an active trade unionist since 1972. Prior to his appointment to Congress, Peter served as General Secretary of the National Bus and Rail Union in the Republic of Ireland. Peter held every representative position within this trade union from shop steward to General President. He holds a BA (Hons) from the Faculty of Business, Economic and Social Science, Trinity College, Dublin.
Paul Sweeney, Economic Advisor, Irish Congress of Trade Unions. Paul has a BA Mod. and M. Litt. in economics from Trinity College, Dublin and is a tax inspector.
He is a Council member of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland and a member of the National Statistics Board. He has been a member of the Competition and Mergers Review Group, the first Company Law Review Group, the Advisory Group on Public Private Partnerships, the Tourism Task Force and the Expert Working Group on Tax Credits.
He was a member of the OECD team which wrote the Review of Belfast in 2008, under the LEED programme. He was a member the board of the ESB, 1996-2001 and was an ESOT director of a telecoms engineering company. He conceived and developed the first employee share scheme i.e. ESOP in a state company – Aer Lingus in 1994 and has been involved in several others. He was a financial advisor in the privatisation of Aer Lingus.
His fifth book, Ireland’s Economic Success, was launched by the Taoiseach in 2008. He had several chapters in books and has written numerous articles on economics and business.
2 EET/S3/09/6/5 Stein Reegård, Chief Economist, Norwegian Confederation of Trade Unions. Stein has a Degree in Economics from the University of Oslo. He is currently the Chief Economist at the Norwegian Confederation of Trade Unions and a member of the ETUC. He also sits on various committees within the OECD and the ILO.
Between 1990 and 1991, Stein was the State Secretary in Ministry of Industry in Norway and, between 1986 and 1989, held a similar role in the Ministry of Administration and Consumer Affairs.
Stein has held a wide variety of advisory posts in government including in the areas of regulatory reform, competition law and industrial competitiveness.
Erica Sjölander, Chief Economist, IF Metall, Sweden Erica is a member of LO (1.6 million members) – the Swedish Trade Union Confederation – which comprises 15 different national unions of blue-collar workers in both private and public sector, for example, IF Metall. IF Metall is a 2006 merger between the Swedish Industrial Workers' Union and the Swedish Metalworkers' Union. IF Metall is a national union with regional branches and local clubs at the workplace/company level.
Erica studied economics and political science at Uppsala University and received a master’s degree in economics 1994. She have been employed as a researcher /economist at the research department at Svenska Metall since 1995 (IF Metall 2006). She was on leave of absence during 2000-2001 and 2003, when she was working as a political advisor at the Prime Minister’s office.
Erica has written several research reports during her time at Metall/IF Metall. Some more recent examples of her work have concentrated on the EU and the enlargement, the euro and monetary union, globalisation and the effects on industry. She also works on issues of wage formation, international policy, economic policy and forecasting.
3 EET/S3/09/6/5 COPIES OF THE PRESENTATIONS
IRELAND
Social Partnership
Economic Performance in 1980’s was appalling - job losses and falling real incomes Tiger Phase, 1994-2000. Domestic Boom 2001 – 2008 Collapse 2008 - 2010 Reasons for Ireland’s Economic Success
Celtic Tiger Performance Sustained High Growth Booming Exports - BOP Surpluses Massive job growth - labour shortages Large Budget surpluses And Massive Investment -EU and NDP High FDI
Job Creation in Ireland 1987- 2008
IRISH JOBS MACHINE '87-08 Almost Doubled Under Social Partnership.
2,200,000
2,000,000 K 1,800,000
1,600,000
1,400,000 TOTAL AT WOR AT TOTAL 1,200,000
1,000,000
05 1987 1989 1991 1993 1995 1997 1999 2001 2003 20 2007
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The Reasons For The Celtic Tiger’s Success
External Reasons The External Environment EU Funds Foreign Direct Investment The Revolution in Communications
The Reason For the Celtic Tigers Success
Domestic Reasons Fiscal reform and a Stable Economic Environment A Structural Revolution The Demographic Dividend Consensus – Social Partnership
Domestic Reasons Cont...
Public Enterprise - Commercialised & Privatised by agreement Institutional Change Cultural Confidence Building The Educated Workforce New Forms of Work Organisation
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European Union’s Role
Funds were important Timing was vital EU Systems of distribution were good But the access to EU market was more important than the EU Funds - Social, Cohesion and Structural.
The Tiger Phase – A Golden Era
The Celtic Tiger phase of growth was always temporary – catch up. It was never going to last at that pace of growth. Europe played a vital role in the Celtic Tiger phase. Growth lifted Ireland on to a modern plane
Emigration to Immigration and back to Emigration
Foreign: 16 per cent of all Workers ie 335,000 at work in 2007 of total of 2.1m 36% in catering hotels;17% construction & industry: 15% in finance & business services From 1 or 2% 7 years ago 72,000 net immigration in 2006, 67,000 last year Few imigrants this year. Net outflow of 27-34,000 in 2009
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World Downturn
We face worst crisis since 1930s. But our understanding of economics is better and we are better prepared. Anglo-American model of Capitalism may be replaced – “shareholder value” While it is unclear by what model/s, the world is a different place.
Ireland, Before Crisis
Interest rates, set by ECB were too low Banks behaved badly – lending furiously Financial Regulator was fast asleep Govt. pursued strongly pro-cyclical policies Cut taxes in Celtic Tiger Boom and gave large tax subsidies to property investors (€2.4bn) allowed Financial Regulator & banks’ to misbehave Govt. boosted the Property Boom-Bust Government blew the gains of the Boom
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The World is a Different Place
There are hard lessons to be learned Government is back in market, as a main actor. Bailouts not complete Some banks, financials etc. will fail Many businesses will fail, including some good firms Financial Regulators are waking up Governments will cooperate internationally on tighter regulation and market rule-making
Conclusion 1 - Celtic Tiger
Celtic Tiger period - Golden Era But step change in economic fortune. Huge growth in jobs incomes change in attitudes FDI, Europe and Social Partnership were 3 major factors.
Conclusion 2 –Partnership
Household incomes rose 116% (87-’00) Real after-tax industrial earnings up 80% in 20 years 1987 to 2007 But incomes and wealth disparity expanded Public services very poor - in a far richer economy Role of Social Partnership highly recognised Without it, much worse inequality But its future? And of European Social Model?
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OUTLOOK
European Social Model is under threat Single-minded Drive to Single Market EU Leaders out of touch with people. Rejection on Lisbon Treaty in Ireland demonstrates this. Trade Unions under pressure. – cannot have Social Partnership with weakened unions eg Supreme Court Ryanair Judgment.
ends
My Presentation.
System of Industrial Relations. The ICTU Union Membership and Collective Bargaining Coverage Social Partnership and Collective Bargaining. Dispute Resolution Mechanisms.
The System of Industrial Relations in The Republic of Ireland
System of industrial relations is largely voluntary. Irish Constitution, provides for “free association and dis-association”. Neither employers or unions legally compelled to engage in collective bargaining. Despite the legal situation collective bargaining widely practised with a high trade union profile.
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The ICTU, Union Membership and Collective Bargaining.
The Irish Congress of Trade Unions is the single Trade Union confederation on the island of Ireland. 51 unions currently affiliated representing over 850,000 workers. Some unions outside of the Congress. Strong growth in Trade Union membership in Republic of Ireland with an increase of 13% since 2000. Decline in density which stands at 37%. Despite decline in density wages still largely determined by reference to collective bargaining agreements.
The ICTU, Union Membership and Collective Bargaining (cont)
For example, large sectors of the economy, such as construction have conditions of employment determined by legally binding collective agreements. While at the same time some employers in construction may refuse to recognise trade unions. National Wage agreements largely followed by non union employers in the private sector. Some evidence that in the past employers have paid above the terms of the agreement to avoid unionisation.
Social Partnership and Collective Bargaining
Social Partnership system has operated since 1987. Form of social dialogue but not a system of co- determination. Operated around the development of Social Partnership agreements, negotiated periodically. The Partners – Government, Unions, Employers, Farmers and Community and Voluntary Pillar. A pay agreement is the core of each social partnership agreement.
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Social Partnership and Collective Bargaining
Pay agreement negotiated by, ICTU, Private sector employer and Government as an employer. Individual unions consult with their members to determine that unions attitude to the agreement. ICTU has a key role in the process of ratification. Even if agreement is ratified its implementation must be negotiated in individual employments. Individual employers can claim in-ability to pay.
Dispute Resolution Mechanism.
Strong State Support for Industrial Relations and for Dispute Resolution Mechanisms. LRC Stakeholders represented on board Conciliation Service Rights Commissioner Service Mediation Service Advisory Service Labour Court Industrial Relations Court of Last Resort. Numerous Roles including registering of agreements.
Dispute Resolution Mechanism. Employment Appeals Tribunal Forum for the vindication of breach’s of individual statutory employment rights. Issues such as dismissal, hoildays, payment of wages which arise from employment rights legislation. National Implementation Body (NIB) High Level Group, Unions. Employers and Government Guardian of National Agreements Does not seek to settle disputes, but recommends procedures that should be followed.
11 EET/S3/09/6/5 NORWAY
American Nordic Public sector 30% 50% Tax level 30% 50%
Trade union degree 10-15% 50-90%
Labour market regulation Low High
Employment protection 0 Medium Bargaining coverage 15-20% 70-90% Labour representation in enterprises 0 1/3
American Nordic Public sector 30% 50% Tax level 30% 50% Public sector dominance In education Low High In health care Low High Unemployment pay 1/3 2/3 Legal sick pay 0 3/4 Labour market regulation Low High Legal holidays pay 0 4-5 weeks Employment protection 0 Medium Bargaining coverage 15-20% 70-90% Labour representation in enterprices 0 1/3
Here we see the big importance of the state in health care
The public share of total spending on health
100 % 90 % 80 % 87% 84% 82% 70 % 60 % 62% 50 % 40 % 46% 30 % 20 % 10 % 0 % Norway UK Sweden Russia USA Data source: OECD Health Data, UNDP for Russia
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High state transfers to parental leave
Parental leave in weeks 2005/2006
70 60 50 40 30 20 10 0 UK Italy USA Spain France Poland Finland Sweden Norway Denmark Germany Netherlands Data source: OECD Family Database
FACILITATES CONCENSUS POLICY as an example:
Organizing a strong oil and gas sector and a prudent government spending rule • Direct government ownership (1/3) and dominant ownership of Statoil and Hydro and tax on resource rent secure 80 % of net cash flow to the government • Government income 15 % of GDP, more than 80 % saved in Government Pension Fund, now with ac capital like 100 pct of GDP (USD 400 bill).
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Much about coordinating mecanisms
• High union density and bargaining coverage • Moderate trade union rivalisation
In collective bargaining:
• Parallel terms of agreements (two years) • Parallel expiry dates • Tripartite committee on economic data • Strong position of state mediator •Labour court • Compulsory arbitration
Avoid too many federations, like in Norway
New confederation
1998
YS 1977
AF 1975-2002
LO 1899
CORDINATING STRENGTH
Membership Money (fee 2 % of wage and deductable) Strong federational level (binding the national unions)
Employers federation Political friends
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Tripartite cooperation, most extensive under left parties Government
A Negotiations between social partners and with government on economic policy and social issues
B On a daily basis in policy making and administration through representation in governing bodies
C Joint commitee LO og Labour party, 5-10 members including the two presidents meets every second Monday
Employment rate (16-64) 2006 80
75 77 75 75 76 70 72 72 73 69 70 65 67 68 66 60
55 55 50
45
40 UK USA Japan EU-15 Ireland Poland Norway Finland Sweden Denmark Germany Netherlands New Zealand
Source: OECDs Employment Outlook 2007
Labour productivity i 2005 USA=100 GDP per hour worked, purchasing power adjusted 120
110 100 104 106 100 94 80 85 88 88 80 82 72 60 59 40 39 20
0 UK USA Japan Ireland Poland Finland Canada Denmark Germany Norway ** Euro-zone Netherlands New Zealand New ** Norway adjusted for ”overproductivity” in oil production, Source: OECD
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Small and highly organised Population mill. Union density
SWE 9 DEN 5 1/2 80 - 90% FIN 5 ICE 1/3 NOR 4 1/2 55%
GER 80 25%
挪威全国总工会 A mixed economy
Br anc h Share of Shar e of Do mi nant GDP total owner shi p Agr i c ul t ur e empl oyment Pr i v at e Forestry 1 ½ 3 ¼ " Fi sher i es " Ol i and gas 22 ½ 1 ¼ Gover nment Other industy 15 18 ¼ -manuf act ur i ng 9 11 ½ Pr i v at e Ser v i c es 61 77 -Wholesaleand retail 7 ½ 15 Pr i v at e Heal t h ans soci al wor k 8 17 publ i c - Educat i on 4 8 " - Tr anspor t 7 8 mixed - Fi nanci al 3 2 “
American model Nordic model Productivity 100 100 Hourly wage, average 100 100 Lowest wage level 30 60 Top wage 20 000 1 000 Working hours 125 100 Income per cap 125 100
Poverty 20 % 5 % In prison 1,5 % 0,1 %
16 EET/S3/09/6/5 SWEDEN
The Swedish Economic and Social Model A trade union perspective
1) Main features of the Model
2) The role of social partners
3) Performance of Swedish economy
4) Challenges for the Swedish Model
5) Strategy of trade unions
6) Current crisis
The Swedish Social and Economic Model
Capitalism and high taxes
Profitable industries and strong trade unions
Flourishing private sector and a high quality public sector
Equity and efficiency
The bumblebee is flying!
The Swedish labour market model
The foundation is the active labour market policy
Wage policy of solidarity
Collective wage bargaining at central level
Extensive general welfare systems
Pooling risks and embracing free international trade
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The Swedish labour market model in the 21st century Embracing globalisation and sharing risks
Swedish flexicurity model
• Fair terms in times of change and heavy restructuring
• Reliable social bridges
Collective risk sharing and a safety net
• Enhances a favourable attitude towards globalisation and competition
• Political support for openness to new technology, free international trade and domestic competition
Protect people – Not jobs
Swedish welfare system
A comprehensive welfare system • Loss of income principle • Ceiling on the benefit schemes • Unemployment benefit
Childcare and preschool for all children • supports a high participation rate of women
High taxes
Redistribution over life and between individuals
Today's role of social partners in the Swedish model
One of the strongest trade union movements
• High rate of unionisation but this has recently declined somewhat
Still strong position of labour unions and employers associations
Separation of tasks between social partners and state
Collective bargaining is the core issue
• Each national union makes their own agreement
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Policy priorities for the Swedish trade union movement
Full employment and high real wage
Wage development in line with western Europe
Skills development
More and better jobs
Gender equality
Industrial Agreement 1997 The Cooperation Agreement on Industrial Development and Wage Formation
The agreement consists of two major parts:
• Framework for the wage negotiation procedure
• Foundation for social partners cooperation
Promote industrial development, profitability and competitiveness to reach high employment and wage increases
The result has been a more stable and successful development of Swedish wage formation compared to the decades before
GDP growth in selected countries 2002-2006, average annual change, %
Finland 3
Sweden 3
US 2,9
UK 2,5
Norway 2,2
Denmark 1,9
Euro area 1,5
France 1,5
Netherlands 1,3
Germany 0,9
Source: National Institute of Economic Research; Eurostat; OECD
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Employment rate % of population 15-64 years
80 EU27 Euro area Germany Sweden United Kingdom United States
75
70
65
60
55 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Eurostat
Real wage increase in manufacturing 1998-2007, average annual change, %
Finland 2,9
Norway 2,7
UK 2,4
Sweden 2,2
Ireland 1,9
France 1,4
Belgium 1,1
Germany 1,0
Austria 1,0
Denmark 0,9
Spain 0,8
Portugal 0,8
Italy 0,7
Switzerland 0,5
Netherlands 0,3
Source: US Department of Labor
Swedish productivity performance Average annual increase of labour productivity
7 Business sector Manufacturing industry Construction Business services 6
5
4
3
2
1
0 1981-1997 1998-2007 -1
Source: National Institute of Economic Research; Statistics Sweden
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Productivity growth in manufacturing 2000-2004, average annual change, %
Korea 6,9%
Sweden 6,2%
US 5,9%
Japan 5,0%
Norway 4,2%
UK 3,8%
Germany 3,1%
France 2,5%
Denmark 2,0%
Canada 1,8%
Source: US Department of Labor
Total expenditure on R&D 2006, % of GDP
Sweden 3,7
Finland 3,5
Japan 3,4
Korea 3,2
Switzerland 2,9
Iceland 2,8
US 2,6
Germany 2,5
Denmark 2,4
UK 1,8
Source: OECD in figures 2008
Swedish foreign trade dependence Export and import, % of GDP
60 Export of goods and services Import of goods and services 55
50
45
40
35
30
25
20
0 1 2 3 4 2 3 0 1 2 3 4 5 6 7 8 8 8 8 8 0 0 0 0 0 0 987 988 989 990 991 99 99 995 996 997 998 999 00 00 19 19 19 19 19 1985 1986 1 1 1 1 1 1 1 1994 1 1 1 1 1 2 2 20 20 20 20 20 20
Source: Statistics Sweden
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Challenges today Will Sweden be part of the Nordic model in 10 years time?
Globalisation
Demography
EU-law implemented in Swedish context
Political changes in Sweden
• Current Government seem to aim at UK model – but may end up with the continental European style
• Re-orientation of active labour market policies, tax cuts and reform of unemployment insurance
Structural change in a globalised economy 3 problems to solve…
Productivity level
How can trade unions contribute to growth and productivity in existing and new companies?
Wage/profit-level How can we make the labour force able to How can we uphold the wage-level reach the necessary in view of low-wage competition? productivity level?
A trade union strategy to meet the challenges
Collective agreement and social protection
Industrial Skills development development and renewal Macroeconomic of the environment labour force
International cooperation and trade union solidarity
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How is Sweden coping with the current crisis?
Coming from a strong position
Manufacturing industry hit hard
Active Central bank – interest rate cuts and financial sector support
Reluctance to act from Government beside banking programs – few discretionary fiscal policy actions – so far…
Trade unions and political opposition demands more policy actions
23 EET/S3/09/6/5 TRANSCRIPT
24 49 10 FEBRUARY 2009 50
Economy, Energy and Tourism not here yet will be able to join us soon. Committee and Scottish Trades Before we begin, I am obliged to make a few housekeeping comments. No fire alarm exercise is Union Congress Joint Seminar scheduled for today. That is good news, because the alarm is extremely loud and intrusive. If you Tuesday 10 February 2009 hear it, you will know that it is for real. In the event of an evacuation, we should leave the building as [LEWIS MACDONALD opened the meeting at 10:03] rapidly as possible and assemble outside Our Dynamic Earth. Toilet facilities are located just across the The Economic and Social Models corridor. For ladies and gents, a wheelchair- in Ireland, Norway and Sweden: accessible toilet is just around the corner, to the A Trade Union Perspective left of the door out of this room. I ask everyone to switch off mobile phones and Lewis Macdonald (Aberdeen Central) (Lab): BlackBerrys. The sound system here is sensitive, Good morning. It is a particular pleasure for me to and will pick up any electronic interference. Part of welcome you to this morning’s seminar on behalf the reason for using the sound system today is of the Economy, Energy and Tourism Committee that the Parliament’s official report staff will of the Scottish Parliament. This is the second joint produce a detailed note of today’s proceedings seminar that we have held with the Scottish with the assistance of a recording. Trades Union Congress and it gives us an As I said at the outset, this meeting is held jointly opportunity to build on the success of last year’s by our committee and the STUC. I therefore invite event. I hope that these seminars become a Grahame Smith, the general secretary of the permanent series, because such meetings are STUC, to take over. very much in line with the committee’s focus on the real economy and the issues that affect people Grahame Smith (Scottish Trades Union within that economy. Congress): I thank the committee for agreeing to work with us on this, the second seminar that we The focus today is on the social and economic have organised together. Last year’s seminar was policies of other countries in the north of Europe, about productivity in the Scottish workforce and and we have guest speakers from Norway, also involved the Education, Lifelong Learning and Sweden and the Republic of Ireland who will make Culture Committee. It highlighted a number of presentations. The inspiration for the subject of issues that were important to unions and to the today’s event comes from what we have heard wider Scottish economy and which continued to be about the so-called arc of prosperity and the of interest throughout the course of the year. parallels between economic development in Scotland and Great Britain, and in other northern As Lewis Macdonald said, the economic European countries. Our speakers will help us to environment then was significantly different to that get a good perspective on that. which we face now, but some of the messages that came out of that event are as relevant now as Since we agreed today’s topic, the world they were then—perhaps even more so. economic situation has changed yet further and Particularly important is the message that has become yet more challenging for everyone economic policy must focus on the workplace, on who is involved in the economies of their issues around training and skills and on work countries. That should mean that there will be an organisation and job redesign so that we can even sharper focus to some of the contributions retain jobs in these difficult times, as well as than there would have been a month ago, which ensuring that workers and companies are able to can only be helpful. take full advantage of the economic upturn when it We have a few parliamentary colleagues with us eventually comes. today. Marilyn Livingstone and Dave Thompson It is notable that, for example, the Scottish are members of the Economy, Energy and manufacturing advisory service, which we profiled Tourism Committee and, respectively, represent at last year’s conference, has had a significant the Labour Party and the Scottish National Party, increase in its budget, in recognition of the support and John Park is Labour’s shadow minister for the that it has given to companies to support economy. We are expecting one or two other organisational changes in their workforces. The MSPs to join us during the course of the morning. issues that we discussed last year have been very As you might know, some of our transport much to the fore in the work that we have been infrastructure is facing significant challenges this undertaking, along with the Scottish Government morning and one or two people are having and others, on skills utilisation and on finding ways difficulties getting here. I hope that those who are of creating a workplace environment in which
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51 10 FEBRUARY 2009 52 workers have the opportunity to use their skills to When Bertie Ahern, who is no longer the best effect. So, last year’s event was valuable and Taoiseach, launched the book, we were full of influenced our work and that of others throughout optimism. Happily for me, I said twice at the end of the year. I am sure that today’s event will have a the book that Ireland’s future looked good unless similar impact. there was an international collapse. It was fortunate that I wrote that, but I really did not As Lewis Macdonald said, today’s topic was expect what has happened to happen. Of course, chosen because there has been much talk in the we have also had problems of our own making at past 18 months about what is going on in the arc home. of prosperity countries. It was also chosen because we have been concerned for some time I want to talk a bit about social partnership. about the quality of the economic debate in Obviously, we had a really bad time in the 1980s. Scotland, which needs to be more mature and At the time, I worked for the Irish Transport and evidence based. Lewis Macdonald said that recent General Workers Union, which was a big union—it events have put policies in the arc of prosperity is now called the Services, Industrial, Professional countries under much greater scrutiny. However, and Technical Union, or SIPTU. We got a social even before that happened, we thought that we partnership in 1987. The real boom—the Celtic needed to take a much deeper look at what was tiger phase—lasted from 1994 to 2000 inclusive, going on in those countries to find out whether which were amazing years. Since then, we have there were any lessons that we could learn in had a domestic boom, which everyone worth their Scotland from a trade union perspective. We are salt knew could not last, although we did not think pleased to have secured the committee’s support that it would collapse until 2011. Every day we to do that and to have such high-quality want to change what has been said. participants from our sister trade union In the Celtic tiger phase, all the economic organisations at today’s event. fundamentals were fantastic. There were great We have much to learn from our colleagues, and foreign investments and there was a huge growth I hope that they learn something from us. Later in in jobs. The slide in front of us shows that the year, we intend to publish a discussion paper employment doubled in 20 years; I do not know that picks up on some of the issues that will whether the number of people at work in any other emerge today in order to generate more debate countries doubled. By the way, incomes for about the sort of Scotland that we want to live and average workers also doubled in the period. If all work in and the policy framework and practices that is considered together, what happened was that we need now and for the future. We look quite something. How the mighty can fall. forward to hearing what our colleagues have to My book is not out of date on the reasons for say and to debating some important issues. Ireland’s success, because it includes interviews Lewis Macdonald: Thank you very much, with a number of people, including Bertie Ahern; Grahame. That was a helpful introduction. Joe Macri, who was the head of Microsoft Ireland and now works for Microsoft Europe; David Begg, I have great pleasure in inviting Paul Sweeney who, as the general secretary of the Irish and Peter Bunting from the Irish Congress of Congress of Trade Unions, is my boss; Peter Trade Unions to make the first presentation. The Sutherland, who is the chair of BP and Goldman ICTU organises and operates across the whole of Sachs International and a former European Union Ireland, of course, and it will have useful and commissioner; and Frances Ruane of the interesting perspectives to offer us. Peter Bunting Economic and Social Research Institute. I asked is its assistant general secretary and Paul them why Ireland was successful and the book Sweeney is its economic adviser. I am sure that gives their reasons for its success. I brought they have a good deal of insight to offer us. everything together so that we could see in one Paul Sweeney (Irish Congress of Trade chapter why the success happened. I will flash Unions): I will start off and then hand over to through the reasons on the screen, as delegates Peter Bunting. have copies of my presentation that they can read. My presentation is based on a book that I wrote called “Ireland’s Economic Success: Reasons and 10:15 Lessons”, which was launched on 13 February I want to speak about the role of Europe and 2008 by Bertie Ahern, who was then the European funds. Like many people in Ireland, I Taoiseach—the Prime Minister—of Ireland. It has read the British papers. My favourite television been published in Scotland by Dunedin Academic programme is “Newsnight” on BBC2. However, a Press. I could rewrite that book under the title, lot of the stuff that is said about Ireland’s success “Ireland’s Economic Success and Sudden Failure”. is wrong. It is said that euro slush made Ireland We can talk about that later; things really have successful. European money definitely helped–it collapsed. came at the right time—and the conditions that
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Europe imposed on our civil servants and local We walked out of those talks. authorities were important in making them The whole Anglo-American model of capitalism, disciplined. They also had to have committees that including the way in which the banks have been included trade unionists and local people to deal run in the States, Britain and Ireland, must be with where money would be spent. That all helped. questioned. I am quite depressed as a result of The timing was important, but the real key to talking to the Irish Government, because it still success in Ireland, which I did not like accepting believes that the world is the same place that it as a trade unionist and a socialist, was the market was and that we will go back to the old ways once in Europe. I read a learned paper about that, we recover. That frightens me. which was produced by a number a people at the ESRI. It was evidence based and had to be The green line on the graph that you can see on accepted. Our market, which mainly relied on the screen represents Ireland—it shows how our Britain, opened up to the massive European gross domestic product has collapsed. The figures market and foreign companies wanted to get in. are from the International Monetary Fund. We are They came to Ireland mainly because it is English all in trouble, but the collapse in Ireland is quite speaking. Of course most of them also came to striking in comparison to other countries. I am not Britain, but many came to Ireland, perhaps sure about the line’s final upward slant—given the because it is less Eurosceptic than Britain. The changes since the graph was produced, I think market in Europe was the real driver and there that we can remove that little positive bit at the was a pull effect for direct foreign investments. end. I have always said that the Celtic tiger phase This slide, about what was happening before the was a golden era that historians will look back on crisis, explains my view—which I am happy to and describe in the same way that we describe the argue and discuss today—on why the collapse Ireland of the saints and scholars in medieval occurred. Interest rates in 2001 or thereabouts times. We look back and say that those years were too low: about 4 per cent lower than they were wonderful. However, the Celtic tiger phase would have been if we had had our own was not going to last. It was a catch up. Our currency—we can discuss the issue of being in the wages are still rising faster than wages in Europe euro. The banks behaved badly: they lent like are, and employers give us stick about that, but drunken sailors. Anyone with no income could, that is part of the catch up. The Celtic tiger phase through self-certification, get a 30-year mortgage lifted Ireland’s economy on to a more modern to not only buy a house, but furnish it and buy a plane, which is important when talking about the car and a foreign holiday as well. That is what a lot future. Once the Irish economy gets out of the of people did. deep hole that it is in, it will be well placed to recover fast—if we do things right. The regulator was fast asleep. He has just resigned, with a massive pension and all that The next slide is about immigration. We went sickening stuff. The department of finance, which from almost no foreign workers in Ireland to 16 per should have been watching the regulator, was also cent in 2007. Some 36 per cent of those were fast asleep. There are lessons from that, but they involved in catering and hotel work. A lot of are not being learned. The Minister for Finance at immigrants are leaving, but some are still around. that time was Charlie McCreevy, whom we have At one stage, 90 per cent of all net new jobs were now sent to Europe to do damage internationally. going to foreigners; in other words, Irish people did He vigorously pursued pro-cyclical policies, and he not need the new jobs that we were creating. cut taxes, which were already low in Ireland. I Much of our boom and collapse was related to should perhaps not say this as a trade unionist, construction. We were creating jobs for Poles and but the average worker in Ireland pays the lowest building houses for them to live in. The situation income taxes in the world outside Korea and was quite unsustainable. Some people say that Mexico, and employers pay the lowest social the outward migration figure will be 50,000 net, insurance contributions. The tax wedge is which is what we had in the bad years of the therefore very low, which means that, for an 1950s. employer, the cost of employing a person is quite low. I was going to say something about what we are facing, but you have heard it before, and you do Charlie McCreevy cut taxes during the boom, not want me to depress you. I think that we are but he also gave massive subsidies to investors in better prepared than we were in the 1930s, property and the construction industry, which was although I sometimes wonder about that. We have already booming—it then boomed even more. It just been renegotiating the social partnership with came to account for 25 per cent of GDP, which the Government—in other words, it has just was mad—that is about twice the average figure reneged on it and decided to cut public servants’ for even a booming economy. The sector wages by between 3 and 10 per cent; the average employed about 12 per cent of workers, which was is 7.5 per cent gross or around 5 per cent after tax. about twice the figure that it should be. The banks
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55 10 FEBRUARY 2009 56 were misbehaving, and the whole thing was going Unions): My presentation is about the social to come down. The American contagion was process of solving industrial relations disputes and spreading, but no one expected—I did not improving relationships with employees. The expect—what eventually happened. This time last existence of a refined dispute resolution year, when Bertie Ahern was launching my book, I mechanism has been crucial to all social was smiling away happily, thinking that things partnerships and to the success of the economy, were going to be good, that my kids were going to and Paul Sweeney is right to talk about social get jobs and all that stuff—and, by God, it has dialogue. bust. There is an interesting point that might be raised I have an analogy. I always said that there was a during the question-and-answer session—I know property boom, but I hoped, with my fingers that Alex Salmond was exercised by it, as were crossed, that it would be like having a slow some of the capitalist people in Northern Ireland puncture on your bike: you might just get home. under our devolved Administration. They really Unfortunately, however, we are stuck out in the believed that the magic bullet for creating the snow. Celtic tiger was the corporation tax rate of 12.5 per cent. It is not, and it was not: there was a 10 per The Irish Government, through its own policies cent manufacturing tax for 40 years from the and greatly assisted by George Bush, blew the 1950s to the 1980s, and it did not add one job to boom. That is the story. There are hard lessons to the Republic of Ireland. be learned. As you know, the Government is back in the marketplace as the main actor. The bail outs To create jobs, taxation should be reduced only are not complete, and some banks will fail— if it is criteria based. In other words, you develop although they are not going to, thanks to the tax innovative products and increase jobs and payer. We have been asked in Government to exports, and you link that with and benchmark it take a hit of £16.5 billion over a five-year plan— against economic success and contributions to while at the same time giving £7 billion to bail out growing the economy. People in Northern Ireland the banks. That is hard for us as trade unionists to did not want to do that because, if the devolved take, although we know that the banks have to be Administration had introduced some form of bailed out. Many businesses—including good corporation tax that was lower than in the rest of firms—are failing because of a lack of credit. The the UK, it could not guarantee that the benefits of financial regulators are waking up, and I hope that that reduction would go back into the Northern Governments will co-operate internationally, as Ireland economy as opposed to somebody’s back that is really important. pocket. I advise you of that because it is crucial—I know that there is a big debate in Scotland about In conclusion, it was a golden era, and a step corporation tax, but its use did not create the change in our economic fortunes. There was a Celtic tiger. great improvement in jobs and incomes, and people became more confident. The major factors The system of industrial relations has been were foreign investment, membership of the crucial to the success of the social partnership. In European Union and the social partnership— my presentation, I will deal with union which is now being tested, as Peter Bunting will membership, the social partnership and collective discuss. bargaining, and dispute resolution mechanisms. There are good-news stories in relation to a Unlike in Great Britain and, certainly, Northern number of issues. People say that Irish society is Ireland, participation in our system of industrial quite unequal, which shows that the trades unions relations is 95 to 99 per cent voluntary. There is have been unsuccessful in social partnership. not a system of industrial tribunals that have Sometimes we think that social dialogue would be become a nest egg for legal people to avail a better name. We do not run the Government or themselves of goods and money. If a worker is not make the decisions—we negotiate. Inequality organised, they do not get justice or resolve would be worse if we were not in there. anything in those tribunals. We wonder about the European social model. It The Irish constitution, surprisingly enough, is under threat. It seems to us that that is why Irish provides for freedom of association—and people rejected the Lisbon treaty—they are simply therefore, freedom to disassociate. There is no mistrustful of Europe, which seems only to want to right to collective bargaining in the Republic of pursue the market. It is not interested in the social Ireland: although workers have the right to join a dimension. We are under pressure, as Peter trade union, employers equally have the right not Bunting will tell you—judgments in the supreme to recognise a trade union. That has always been court have gone against trade unions. a crucial issue in our talks since 1987, and we have never succeeded in achieving the right to I will pass over to Peter. collective bargaining, despite all the pluses of what Peter Bunting (Irish Congress of Trade is termed social bargaining. We do not even have
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57 10 FEBRUARY 2009 58 the British model of the industrial court. The the United Kingdom, and a similar problem is employers and unions are not legally compelled to percolating into places outside the major urban engage in collective bargaining but, despite the areas of the Republic of Ireland, where breaches legal situation, collective bargaining has been of the registered employment agreement are widely practised in all sectors throughout the taking place. There is also a case before the country. labour court that is seeking to dismantle the REA. Unlike some of our friends in Europe, we have We are facing difficult times in many senses only one confederation on the island: the Irish and, as Paul Sweeney said, the question is Congress of Trade Unions. We have whether social partnership is a thing of the past. A approximately 51 affiliated trade unions, which huge debate is going on about whether, in this the represent more than 850,000 workers on the global economic downturn, it is worth continuing island. About 230,000 of those are in Northern with social partnership after 20 years. The Ireland, out of a workforce of about 438,000 employers, Government and trade unions all have permanent nine-to-fivers. In the Republic of to make that call. The national wage agreements Ireland, the numbers have gone up this year. We have been followed by employers in the private collect our affiliation fees in January, and we hope sector. to hit a figure of around 638,000 members of trade The social partnership has operated since 1987. unions affiliated to the congress. As Paul Sweeney said, it is a form of social We are successful in that sense, and the figures dialogue and not a system of determination. We are contrary to the information about density in the have had six three-year agreements: the Scottish Parliament information centre briefing. If “Programme for National Recovery”; the we add the other people who are not actually “Programme for Competitiveness and Work”; the affiliated to the congress, we have something in “Programme for Economic and Social Progress”; the region of 680,000 members of trade unions or “Partnership 2000”; “Sustaining Progress”; and organised labour across the Republic of Ireland. “Towards 2016: Ten-Year Framework Social That is out of a workforce of approximately 2 Partnership Agreement 2006-2015”. That is all of million, but if we extrapolate to cover the self- them, and I get full marks for remembering them. employed and so on, the density is 36 or 37 per The major partners are the Government, trade cent. unions, employers, farmers and the community and voluntary pillar. A pay agreement is at the 10:30 core of each agreement, but there have been There has been strong growth in the trade union other social conditions, such as the number of movement in the Republic of Ireland since 2000, affordable houses to be built during the period of but it has not kept pace with the growth in the agreement or the number of additional and employment in which, during the fantastic phase special needs teachers to be put into schools. that Paul Sweeney spoke about, we created Some of our colleagues have already seen the 900,000 jobs. That is fascinating in the context of quite weighty documents. the Republic of Ireland. Before 1987 and the social While the agreements can deliver on pay over partnership, we were exporting 50,000 young the three-year period, the difficulty has always educated people a year. Traditionally and been with the delivery of the social conditions. historically, we were an emigrant nation—the Three years is not really an adequate or realistic navvies built the roads and railways of GB—but amount of time in which to achieve such there was a sea change after 1987. developments, so we moved away from that Despite the density, wages were still period for “Towards 2016” and set a more determined. Even companies that were not pragmatic 10-year period for achieving the social organised and would not recognise trade unions parameters. followed the pay agreement from the social The pay agreements have been negotiated by partnership arrangements. ICTU, the Construction Industry Federation and Other large sectors of our economy, such as the Irish Business and Employers Confederation, construction, have what are termed legally binding which represents the business community. The collective agreements, which are registered small-business employers have not been at the employment agreements. There is a huge range of table but, as a major employer, Government has those in construction, hairdressing, security and so had a huge say in determining wages. on. One of our difficulties is that those agreements For each agreement, individual unions have now face a challenge from the employer consulted their members, and every member of federations, which are asking whether the unions every trade union has had a secret ballot on represent a minority. Harry Frew will be well aware whether to vote in favour of the agreement. Then a of the bogus self-employed situation throughout special delegated conference has been convened
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59 10 FEBRUARY 2009 60 and, as long as the majority of delegates have side conference, but the plaintiff and defendant voted in favour of ratification, the agreement has are gone within 40 minutes. The rights been implemented. Some trade unions have commissioner then issues a recommendation, traditionally opposed the agreements—the old within which are two paragraphs containing the Transport and General Workers Union, now Unite, plaintiff’s side, two of the defendant’s side, and a could be guaranteed to vote against them every one-paragraph determination. Again, that is time—but the majority of the unions have voted for accepted in about 90 per cent of cases, although them and an agreement has never been rejected. there is also a right of appeal to the labour court. In a sense, there have been test cases, and it is As well as that, we have a mediation service and important to mention them. Individual employers an advisory service. The advisory service was have the right to plead inability to pay, and under designed for times when there was a constant our industrial relations system there is an agreed referee to the conciliation service or the labour number of assessors—accountants or other court, such as a transport or manufacturing similar professionals. If a company pleads inability company. The service would go out to deal with to pay, it is obliged to open its books to an that particular company, investigate why industrial assessor, who then adjudicates on whether it is relations are so bad and come up with capable of paying. Ninety-eight per cent of the recommendations for improving them so that the assessor’s determinations have been accepted by employment relationship could be put back on an the employer or trade union. If a company is even keel. judged not to be able to pay, a period of time is The labour court is seen as the court of last allowed and, at some stage, payment is made resort. It is more formal but, again, there is no retrospectively. legal representation. It has the harp of Ireland and I emphasise the fact that the industrial relations you have to stand up when the court begins, but dispute resolution process has been refined—it that is all. The independent chair has two wing- has run throughout and underpinned all the pay people who represent the employers and the trade agreements. There has also been strong state unions. Again, even though it is not binding, the support for our industrial relations and dispute labour court’s recommendation has been resolution mechanisms. We have the Labour honoured in excess of 90 per cent of cases. Relations Commission, and Peter McLoone, the The system has been refined. We were losing general secretary of IMPACT, and I represent the up to a million person-days to industrial disputes in trade union movement on its board. It also has two the early 1980s, but last year the figure was down members from the business community, two to 6,000. There has been a continual downward independents and a chief executive. trend in the number of disputes, strikes and so on. We also have a conciliation service and a rights Perhaps everyone has become more mature and commissioner service, which are crucial. The move away from an adversarial approach. We conciliation service is about more than one might argue all sorts of things as to why the employee, and there are a number of conciliation changes have taken place. We could even argue officers. In my previous life as the general that the changes have been bad for the trade secretary of the National Bus and Rail Union, we union movement. If things are as bad as they are always had the same conciliation officer. Over a now, if partnerships are breaking down, and if we period of years, we built up a relationship—he are returning to adversarial relationships with knew the industry inside out and could conciliate employers, we have to ask whether we still have from an informed point of view. He also knew all the expertise to lead disputes, negotiate pay the players, how they acted, how their psychology claims and so on. There are all sorts of ways of moved them and so on, so he was worth a ton of looking at the situation, which I am sure some gold in resolving disputes before they ever trade unions may jump on. happened and reaching a determination that both We have an Employment Appeals Tribunal—the sides could live with. EAT—whose basis lies in dismissal cases. Very The rights commissioner service is probably the few people ever get there, however, and people most crucial for individuals. Commissioners are need the wherewithal to employ a legal normally nominated. We have approximately 14 at representative, if necessary, if they do not have a the moment—seven from the business community trade union representative with them. Then, lo and and seven from the trade union movement—and behold, we have the national implementation they are experts in human resources or industrial body. It primarily consists of the head of the civil relations or whatever you want to call it. service and his assistant, the general secretary of ICTU and one of his staff, and the director general Commissioners deal with individual cases. No of the employers body. The NIB will sit at times of legal people are involved, but they use the grave situations, such as the one that arose with Industrial Relations Act 1969. The rights Aer Lingus. It will issue not a recommendation but commissioner makes the case and perhaps has a
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61 10 FEBRUARY 2009 62 a pathway for how the situation is to be resolved, 10:45 and it might nominate people to investigate and Lewis Macdonald: Thank you very much, report back. Peter. Those were two excellent presentations, The more layers that appear over a period of which raise questions about the bigger picture of time, the more people play to the gallery and want the Irish economy and its successes and to use all those layers. In many senses, that can challenges, which Paul Sweeney described in be a negative approach. Paul Sweeney will such detail, and about the roles of the trade union probably agree with me that NIB has become movement and social partnership mechanisms, overused. which Peter Bunting described equally clearly. Paul Sweeney: Yes, absolutely. I invite questions or contributions. When you make your comments or ask your questions, I ask Peter Bunting: People think that they do not you to start by identifying who you are and, where need to settle at the forum where they are and appropriate, which organisation you represent. instead decide to depend on the next stage. That is for the benefit of the record and for the Having all the structures might be a good thing, benefit of Paul and Peter in responding to you. but they can sometimes just stave off the day of reckoning and decision making. I should point out that Chris Harvie, another Economy, Energy and Tourism Committee Turning to employment rights, we used to have member, has joined us since we began our only 19 inspectors who would visit employers to proceedings. Who will ask the first question or check whether people were conforming to make the first comment on what we have heard minimum wage and other relevant employment from our colleagues? rights legislation. That was around 1998; now there are 90 inspectors. Again, as a result of the Christopher Harvie (Mid Scotland and Fife) social partnership, we have a new institution, (SNP): Could a latecomer make an interjection called the National Employment Rights Authority— and ask a question at this point? NERA. It was set up by the civil service, but it I remember talking to Joseph Lee, my master in might be argued that it is doing the work of the all matters of national history, about 10 years ago, trade union movement. We need to be careful on the subject of the boom that was then starting what we wish for sometimes—people who are not in the Irish economy. He put a great deal of it otherwise organised might approach NERA, rather down to the demography of Ireland. The average than the trade union movement, for advice on and age was about 32, which meant that it would be a an advocate for their rights. further 30 years before anyone went into As Paul Sweeney rightly pointed out, we have hospital—that is possibly a rather crude way of been under savage attack for attempting to putting it. The situation is quite different in organise Ryanair. A Supreme Court decision was Scotland, which has a much older demography. required in the case of some of our people who Does that have an impact on the present were attempting to organise the pilots with our situation? friend, Michael O’Leary—probably the most anti- Peter Bunting: It has certainly had an influence. union person in Ireland since William Martin When we reached full employment, rather than Murphy in 1913. The Supreme Court decision more emigration there was a huge return of young went against the trade union. educated people who had the experience of The constitution is problematic when it comes to working in America, the City of London or securing the right to collective bargaining, and we wherever. They brought their expertise back to our have also been hindered by the European Court of country. Justice rulings on the Laval and Viking cases. Paul In many senses, Ireland went from being an Sweeney has referred to the Lisbon treaty, and it archaic, old-fashioned society to modernity in an presents a problem, too. Despite all the good instant. That happened through education, through things that have emanated from social partnership, the loss of control of the Catholic Church, through we are no further towards getting the right to the travelling that young people had done and collective bargaining. That could be viewed as a through our introduction into Europe. The Irish are failure. very good Europeans. Our civil servants have The only way that we can make the desired percolated to every nook and cranny in Strasbourg change to the constitution is to have a referendum. and Brussels. Whatever we might say about the Do we have the confidence to push for a drinking, the craic, the blarney and whatever, it is referendum on the right to collective bargaining? fair to say that those civil servants built up such a Would we win it? That is a huge test case, and it is network of friends—a network where there was exercising the minds of many people at the funding—that they could bring home the bacon, to moment. put it crudely.
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There were a range of contributions to the gentleman said that they are all off to do other changes. We moved away from a dependency on things, such as driving taxis. He talked about the agriculture and into a new society—Paul Sweeney flight of skills from some sectors. Is that happening might wish to comment further—but sociological in Ireland? If so, how are you dealing with it? What reasons also contributed to the rise of the Celtic are you doing about youngsters who are in training tiger. and who might be in a vulnerable position? Paul Sweeney: Peter Bunting is dead right Peter Bunting: We all accept that, in modern about that. On the slide that is now showing, there society, Mary and Johnny do not want Sammy and is a mention of the demographic dividend. I would Sheila to be trained traditionally—as they were— include that as a factor, although my view of it is as carpenters or whatever. We place a huge different from Peter’s. It is just a different emphasis on education and on moving into emphasis and not a disagreement—we can have professions. A huge difference on that issue exists one of those later. in society in Northern Ireland between the Catholic population and the Protestant population. After the Pope’s visit, Irish people stopped having children, and the dependency ratio— In the Republic, FÁS—the Irish Training and [Laughter.] It is actually true. There was that Employment Authority—has moved into extending condom thing that we had in Ireland, where you and paying for apprenticeships if an apprentice is had to be married to use contraceptives—that about to lose their apprenticeship in its final year, bizarre Catholic stuff. Anyway, we had a very high so those people will continue to be paid and dependency ratio for every one person at work. trained. After whenever it was that the Pope visited—it was I will make another point on the loss of skills. To 1989, I think— boost our construction industry, we had a huge Peter Bunting: It was 1979. influx of skilled east European people, as I am sure Scotland did. Were it not for them, a huge Paul Sweeney: Was it? With the number of amount of construction work would not have taken people coming into the workforce, the number of place in the Republic of Ireland. dependents—older and, particularly, younger— declined, so we had a much healthier It is strange that we did not latch on to demographic shape. Before, it was waist shaped, workplace learning as quickly as everywhere else with a lot of old people and a lot of young people; did—the Irish congress is way behind the TUC afterwards, it attained a more normal shape and and the STUC in moving into that. Last week, we everyone had a higher standard of income. negotiated €3.8 million from FÁS to initiate workplace learning, which we hope will become a As I mentioned earlier, and as was shown on an major feature. We are copying what has gone on earlier slide, the incomes for average workers in Scotland and in the rest of GB. In many senses, doubled. Household incomes went up by even we are behind what other people have done on more. Before, there might have been three people that. unemployed; afterwards, there were two or three people at work, which meant that the household Another conversation on the islands, which income rose. As far as demography is concerned, involves Grahame Smith and me, is the council of it was a benign circle and a lot of good things the isles—it sort of relates to strand 3 of the Good happened together. Friday agreement—whereby the TUC and the Welsh, Scottish and Irish trade union congresses Peter Bunting: Other people would cite 1990, meet. I was intrigued to watch how you guys are when Ireland reached the quarter finals of the all moving towards new green low-carbon skills, so world cup in Italy. There was a huge surge then— that when the upturn comes, you will be in there. “How wonderful we all are!” We are learning from that and promoting such Lewis Macdonald: We will come on to the skills in Northern Ireland and the Republic of electricity industry later, I am sure. Ireland. Marilyn Livingstone (Kirkcaldy) (Lab): In the In many senses, we are behind where Scotland current crisis, people are losing their jobs— is. That is because having full employment—which particularly in the construction industry. How are we had for many years—made people forget the Irish Government and trade unions working about all the skills and forget to prepare for what together to keep skills in industries? We are was coming round the corner. We have been slow concerned about young apprentices who are coming out of the blocks. Having said that, we are losing their jobs and about how we will keep the way ahead of the blocks on research and trainers to train people for any upturn. The development and on promoting PhDs, for committee has heard evidence from the example, in which the Government has invested construction industry that quite a lot of people in hugely. A commitment has been made to put that industry in this country are in their 50s; one much money into that, because the Irish
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65 10 FEBRUARY 2009 66 economy’s success depends on how high up the medium enterprises of fewer than 10 people. You value chain it can get. Putting down roots in will have a substantial group of such enterprises in research and development might mean that at Scotland, as well. In the Republic of Ireland, the least some foreign direct investment companies cost of going through industrial tribunals for two or do not move. three years, and employing solicitors or barristers, is eliminated. Another important point relates to regional education colleges or institutes of technology— I do not think that scale is the problem, because whatever they are called. A perfect example you can have as many divisions of the labour comes from Waterford, where pharmaceutical court, and as many rights commissioners, as you companies and others had clustered. Educational feel necessary. Over time, expertise and institutions in that area discussed with the knowledge build up. Trust comes along with that. management of those companies the skills that Whatever you do, and whatever pilots you set up, they would need in the future and changed you have to give time for the trust to build up. curricula to meet the companies’ needs. That Trust is the most crucial of the ingredients—more flexibility was very positive, but it was at a different than the voluntarism. There has to be trust, so that skills level from the traditional skills level. On when a determination is reached, it is accepted, traditional skills, we were way behind everyone rather than being appealed against somewhere else. else. Paul Sweeney: There is a tripartite body called John Park (Mid Scotland and Fife) (Lab): Both the future skills group. Many years ago, the group Peter Bunting and Paul Sweeney have mentioned met and told the Government that the computer taxation: Peter spoke about corporation tax and industry was about to take off. Funnily enough, the Paul spoke about individual taxation. I was Government actually acted on the group’s report, particularly interested in Paul’s slide suggesting and created a lot of places in universities. We that the Government blew the gains of the boom, really gained from that when the tech boom came. and I wondered whether that was related to the taxation system of the time. If you look back now, About 18 months ago, the group produced a what would you say the Government should have report for 2020. This probably applies to every done with corporation tax, business tax and country, but the report said that there would be personal tax? quite a lot of unemployment among unskilled people at the bottom, and a shortage at the top. The report said that we would have to train people, 11:00 and that recommendation is being acted on. Paul Sweeney: McCreevy cut what were The tripartite group does important research and already fairly low taxes. On the ICTU website we considers where jobs will come from. It has been have a pamphlet called remarkably successful. It is not talked about a lot, “Tax Cuts did not create the Celtic Tiger”. but I am very impressed by it. When we produced that pamphlet, a number of Dave Thompson (Highlands and Islands) years ago, I thought that the right wing would (SNP): I was fascinated by Peter Bunting’s attack it. Happily, Mary Harney’s party—the description of the formalised dispute resolution Progressive Democrats—has disappeared or is mechanism. It is sophisticated, although, from about to dissolve. However, she is still Minister for your comments, it also has pluses and minuses. Health and Children. She was on the radio saying That sort of system might work well in a smaller that tax cuts caused the tiger. Once the tiger came country such as Ireland, but it might not work so and we had twice as many people at work and well in the United Kingdom, where we might find it much greater economic activity, we had loads of difficult to pull together the far greater number of money coming in. There were pictures in the Irish organisations. Or would that not be a problem for Times and the Irish Independent of civil servants us? in the Department of Finance looking startled Peter Bunting: I do not think that it would be a because all this money had flowed into the coffers. problem for you. I work in Northern Ireland, with They were saying, “What will we do with the your system, and in the Republic of Ireland, with money? My God, we underestimated it.” Charlie the voluntarist system. In the Republic, agencies McCreevy said, “As a good neoliberal, I’ll give it trust and accept determinations far more than is back to the people who paid.” He cut the taxes. the case in Northern Ireland; resolutions—for Taxes were cut from an average of 25 per cent of individual disputes or collective disputes—are far workers’ gross wages down to 15 per cent and more expeditious in the Republic, where there are then down further to 11 per cent. That is the also no significant legal fees to either party. average effective rate, which is very low. In Northern Ireland, about 95 per cent of If McCreevy had not cut tax, we would have a economic activity is conducted by small and big pile of money for today; we would not have to
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67 10 FEBRUARY 2009 68 try to cut public servants’ wages. Much more Paul Sweeney: I have one last point to make important—economists will appreciate this—he about the absolute cause of our crisis in Ireland, was throwing petrol on the boom, with tax cuts for which is in public finances. Ireland’s debt: GDP individuals, businesses and so on, when perhaps ratio in net debt terms is very low at just about 17 he should have been raising taxes. He would have per cent, but according to EU rules, the gross found that difficult, but it would have dampened debt, which is what you measure, is 40 per cent— the boom. Together with the loose credit policy, it it was only 27 per cent. The country’s balance was a recipe for disaster, but none of us sheet is in fairly good nick, but a yawning gap has anticipated how much of a disaster it would be. appeared between revenue and spending. I could talk to you for ever about the corporation Public spending has gone up a bit, but our tax. I was on the committee that recommended the problem has been the collapse in the revenue. low 12.5 per cent—obviously, I was a dissenting The reason for the collapse is that, under voice on that. The nominal rate had been 50 per McCreevy, taxes on corporates and individuals cent. It was about 40 per cent when our committee were lowered, and the Government began to rely sat. We spent five years debating it with a mix of on mainly one-off taxes on the booming people. I thought that 12.5 per cent was too low construction industry. When construction and that 18 to 20 per cent would have worked. I collapsed, revenue collapsed. That is our problem. happened to see the internal financial papers—I There is a yawning gap between revenue and should not have done—and saw that the spending because of that overnight collapse of Department of Finance was of like mind. about one fifth of our tax base. It was mad stuff. We economists should have spotted it; some of us I have a tax background, so I can bore you to did, but we were not listened to. death with the subject. As Peter Bunting said, we had zero tax on exported profits, but then we had Dave Thompson: Is there a difference between 10 per cent from 1981 until the 12.5 per cent came what happens in Northern Ireland and what in only in 2001. happens in the Republic as a result of the different tax powers? Ireland has the full panoply of tax On tax, we got in there early. The low tax rate powers to use to benefit the economy, whereas has definitely helped us. There is huge transfer Northern Ireland, like our Scottish devolved pricing by multinationals; they are locating profits Government, has no tax powers. in Ireland that are not made there. We should say “Thank you very much” to everyone else, because Peter Bunting: You have 3 per cent leeway. that reduces our overall tax base. Coca-Cola, Dave Thompson: We can put income tax up or Microsoft and Intel all locate huge profits in Ireland down by 3 per cent, but it would be a difficult to avail themselves of the low 12.5 per cent. power to use. It is only a single tool. There are lots Other countries are reducing their rates. I was at of other measures that could be taken—you a corporation tax seminar at the Department of mentioned quite a number of them. I imagine that Finance with people from the Organisation for it would be a huge advantage to have a full Economic Co-operation and Development and the toolbox rather than a toolbox with one tool in it. head of direct taxes in the European Union. We That must be reflected in what happens in had a good discussion and the case was made Northern Ireland. that we could not last on a low rate of corporation Peter Bunting: I am not getting involved in tax. As far as Scotland is concerned, it is too late. whether Scotland should be independent. A low rate of corporation tax might give you some advantage if you got it, but Sir David Varney from Lewis Macdonald: Very wise. the Treasury and Northern Ireland have said, “You’re not getting it. We’re not breaking up the Peter Bunting: I have enough trouble with the union.” I think that you are too late, anyway. It issue in Ireland. helped us—I did not used to think that—mainly Harry Frew (UCATT): You mentioned because of the single market and going into construction, on which I have a few questions. Europe from 1992, but the competitive advantage Marilyn Livingstone spoke about apprentices. Can that it gives is waning each day. you give us an indication of how many apprenticeships there are in Ireland? What impact Peter Bunting: If all of us around the table are did migrant labour have on the recruitment of going to be very truthful with one another, I can apprentices? How did you deal with issues such say that the trade unions were complicit in the as the bogus self-employed, which you referred to reduced taxation. There was a degree of earlier? complicity until we realised that we needed to halt the reduction and put up taxes. At the very Peter Bunting: Oh my God! A guy called beginning of the social partnership, there was the Fergus Whelan should be answering all those trade-off of a reduction in taxes for moderate questions. If I had known that you would be here, I wages. could have availed myself of the answers.
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Grahame Smith: Send him a letter. A number of migrant workers were exploited. There was a displacement policy in some Peter Bunting: I will get him to answer those industries, where indigenous labour was displaced questions. by lower-paid migrant workers who had worse As regards the Celtic tiger and full employment, conditions. That happened in the construction many people from Northern Ireland were first into sector in the west and in rural areas of the the fray. Northern Ireland workers—who, Republic of Ireland, and there is some evidence incidentally, are really the bogus self-employed on that it happened in places such as Galway. It the island, in many senses—were a safety valve. I would not have happened in major urban areas live in Dublin, but when I am in Northern Ireland, I because of the strength of the trade union. I am live in a small village and it is amazing the number sorry, but that is the most information that I can of small builders who come up to me and say, give you. “Jaysus, boy, I never knew that I had to join a Lewis Macdonald: Marilyn Livingstone has a trade union.” They would not be let on the sites in very quick final question. Anyone who has a Dublin without joining a trade union. In programme in front of them will know that we are construction, the trade union was very strong and running miles behind because of the quality of the helped to unionise a lot of people. discussion. After Marilyn’s question, we will break There is a difficulty with apprenticeships in for coffee and there will be a chance for general. People are reluctant to take on colleagues to pursue some of the tax issues that I apprentices; that is particularly true when it comes know they wanted to raise. to the bogus self-employed and the subcontracting Marilyn Livingstone: Peter Bunting said that situation. I know more about the position in apprentices had to pay for their own insurance. Northern Ireland than I do about what is What is the level of Government support for happening in the Republic, which Fergus Whelan employers who take on apprentices? deals with. There is a huge problem with apprenticeships in Northern Ireland, primarily Peter Bunting: As far as I am aware, I do not because everything is subcontracted. The biggest think that there is any. contractor in Northern Ireland probably employs Lewis Macdonald: There is no equivalent of the fewer than 30 people. Every time a contract is apprentice support that we have in this country. awarded, the work is all subcontracted. We will take a short break and will resume at 20 The other difficulty is that small builders do not past 11. have the wherewithal, particularly when it comes to insurance cover. I advocate that they should get together in a group and set up a group insurance 11:11 scheme, or that UCATT or some other Meeting suspended. organisation should unionise them and do that for them. You may find that suggestion scatty or hare- brained, but it would be a way of ensuring that 11:21 apprentices are taken on. There is a lot of On resuming— anecdotal evidence of small builders saying to potential apprentices that they will take them on as Lewis Macdonald: Thank you all for coming long as they can find £2,000 or £3,000 to get back so promptly. Our next two presentations themselves insured with, which the builders say relate to Scandinavia and the social and economic that they cannot afford. In general, young models of Norway and Sweden. Stein Reegård, apprentices come from working-class families and who is chief economist for LO—the Norwegian have opted out of school early, so they do not Confederation of Trade Unions—will make a have £2,000 or £3,000 with which to get presentation on the Nordic model for a Scottish themselves insured. That problem has led to a fall- perspective. off in apprenticeships. Stein Reegård (Norwegian Confederation of It would be unfair to say that migrant workers Trade Unions): Thank you for inviting me to this had any impact on the situation because anyone very interesting event. I will say a little about the who wanted to have a job in the construction Norwegian system in terms of economic policy sector could have got one. I realise that you are and labour market institutions. I will not talk much asking whether the influx of migrant workers about how to deal with the present crisis, although inhibited the recruitment of apprentices in lieu of the Scandinavian countries seem to be in better full-time employees; it might well have done, shape to meet that turbulent situation. That might although I am not sure what empirical evidence I be because we do not have such an could produce to substantiate such an argument. I overdeveloped financial sector as in the US and will find the information that you have asked for UK. Our strong public sector and extensive social and get one of my colleagues to write to you. security system add to our macroeconomic
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71 10 FEBRUARY 2009 72 stability. All our countries have had quite a strong high public dominance in education and in health fiscal policy over past years, during which they care. The total expenditure for those areas have built up funds to meet such a situation. That amounts to about half of public sector expenditure. is particularly true of Norway, with its big revenue State dominance in financing and even in carrying from the oil sector. out the services is more or less 100 per cent in Nordic countries. That is an important, distinct I will explain the system in broad figures by aspect of the Nordic model. We also have more taking the two extremes among the developed developed social security systems. As indicated in countries, which are the American system and the the table, Nordic unemployment pay is perhaps Nordic model. Those two systems are on either twice the level of that in the US and we have a side of the centre in terms of how their economies very high level of sick pay. and labour markets are structured. In international forums such as the International Monetary Fund, The third slide is about the state’s share of there has been some competition between the two spending on health care. We can see that the UK models, although the majority of people have situation is close to the Nordic one whereby the tended, at least until recently, to advocate the state pays for most of the health care, whereas the American model and to warn against some state has a much lower share of spending on structures of the Nordic model. health care in the US. As indicated on the slide, the size of the public The fourth slide shows another sort of transfer to sector and tax levels in the Nordic countries tend households that is a distinct Nordic speciality: the to be close to 50 per cent of gross domestic high state contribution to paid parental leave. All product. Norway is at the lower end of the scale the Nordic countries are at the top end of the scale just now and the Swedes and the Danes are at the for parental leave and all other countries have top of the scale, but we tend to be close to 50 per substantially lower figures. Paid parental leave is cent. Tax levels must be more or less the same important for female participation in the labour percentage of GDP as the size of the public sector market, as you know. The handout indicates that in order to finance public expenditure. Therefore, a the rate of female employment is highest in the distinct aspect of the Nordic model is higher taxes Nordic countries—much higher than it is on the and a bigger public sector than in all other European continent, with the UK lying somewhere countries. in between. That explains to some extent why we need high taxes and where the money goes. Another important difference is the role of the trade unions. As you will know, trade unions are quite weak in the United States, which has a union 11:30 density of perhaps only 10 to 15 per cent, whereas How we organise the labour market is perhaps there is a density of 50 to 90 per cent in the Nordic the issue on which I will place the most emphasis. countries. That used to be the case in Sweden There are important Nordic similarities in many and Denmark, but it is declining a little because of respects, one of which is identified in the slide, on the right-wing Governments’ efforts. However, the relationship between labour market co- Nordic union density is still very high in an ordination and income differences. We heard from international context. the Irish Congress of Trade Unions about one Nordic countries are in the middle as regards approach. There are different mechanisms for labour market regulation. We do not have the kind labour market co-ordination; there are many of extreme labour market regulations that are mechanisms that can make people place more found in southern Europe, but ours are still more emphasis on co-operation and consensus in extensive than in the US model. We are in the negotiations than on conflict and competition. On middle for employment protection, so we are not the right of the slide are shown the countries that the strictest for that. The percentage range for our have the highest degree of labour market co- bargaining coverage is more or less the same as ordination; the countries on the left, which include that for our trade union density, although it is a the United States, are at the other end of the little bigger because collective agreements cover scale. The people who created the graph placed even non-unionised workers in enterprises. The the UK quite a long way to the left. Nordic figure for labour representation in Labour market co-ordination is correlated with enterprises is currently one third. I will not go into income distribution in the graph. The countries that the detail because people can see it in the are located to the left and at the top have low handout that has been provided. levels of labour market co-ordination and a high The second slide has more or less the same degree of inequality, whereas the countries that table as the first one, but it goes into more detail are placed lower down and to the right are on how the public sector uses all its money. The characterised by strong labour market co- most important difference between the Nordic ordination mechanisms and lower inequality. model and the American system is that we have There is more equity in terms of income—I do not
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73 10 FEBRUARY 2009 74 remember whether that refers to wages or to a UK has an advantage in respect of moderate trade broader concept of income. union rivalry, because in Norway there are three or four national confederations. The figures that are Therefore, the story is that labour market co- given in the Scottish Parliament information centre ordination tends to reduce inequality and make it briefing are just for our organisation and do not easier to co-operate efficiently and reach include the other federations. My organisation is of consensus, which perhaps compensates for the course the most important one, but others add to negative consequences that people might say the trade union density in Norway, which is about come from high taxes. Labour market co- 55 per cent. My organisation has a little more than ordination is part of a broader co-operative half of the membership, but we dominate because approach to the economy, whereby various we are in all sectors and we are the biggest in aspects balance the possible negative impact of most places. It does not make very much quite high taxation. difference but, to build a negotiating society, it is We can create mechanisms whereby co- an advantage not to have too much competition ordination is predominant in the labour market. between unions and professions and so on. Many mechanisms could be taken into account, On collective bargaining, in Norway we have and I will give a Norwegian example of consensus- parallel terms of agreements, so every wage building co-ordination. agreement expires at the same time of the year. As you know, we have had a large income from The agreement is usually for two years. The the oil sector. We are at the other side of the parallel expiry dates make co-ordination easier. border from Scotland and we have had a lot of We have public or state institutions that serve revenue from oil. The state has controlled almost that system. Those have some parallel with the everything and has used national companies to Prime Minister’s office in the UK system and with develop it. We have 80 per cent taxation on the office of the Irish leader—I forget the Irish income in the oil sector—that is in addition to the name. state’s revenue as an owner. That has created a big income for the state, but part of the story is Peter Bunting: The Taoiseach. that we have succeeded in saving most of the Stein Reegård: Those institutions prepare for money. I mention this as an example of an the economic policy processes and for collective approach based on consensus building and policy bargaining by building consensus, or at least by co-ordination. The public see that the state is supporting the basis for achieving consensus. building up big funds, but we still have more or less the highest taxes in the world, and many We have a state mediator, who has a strong people ask how that is possible. However, when position. That means that if there is no solution or you take people on board, you legitimate such a conclusion to a collective agreement, there is restrictive fiscal policy, which is now a very good compulsory mediation. He—the state mediator is policy to have in the financial crisis. usually a he—has a strong position in applying guidelines from the biggest settlement to the next The most important reason for saving all that one and so on. The state mediator supports that money has been to protect the traditional co-ordination. manufacturing sector, because if we had used all the money, we would have looked like Saudi We have a labour court to solve disputes in Arabia or Kuwait, with no industry except for oil, collective bargaining. The Parliament can also because of the high costs that would have been decide on compulsory arbitration if there is no created. That is the most important idea behind resolution of a collective bargaining round even the policy, but it is also important in helping us to after such mediation. That happens seldom resist financial turbulence and to respond to nowadays, but arbitration has been used in the oil demographic developments—like most other sector, where there are competing unions. After an European countries, we have an ageing society LO union concluded an agreement, a competing with a growing need for care, pensions and so on. union tried to get even more afterwards, but that I mention the policy because it is a result of was not possible because of arbitration. consensus building and an example of an economic policy that is based more on negotiation One problem in Norway is that we have a lot of and co-operation than on purely market federations. LO was founded in 1899. An mechanisms. indication of the similarities in the Scandinavian countries is that our federation has the same I will talk about the co-ordinating mechanisms name as the Swedish and Danish federations, and I will say more about how the trade unions which were founded at about the same time. In work and what kind of system there is. To have Norway, LO was founded in 1899; the Swedish LO the co-ordinating mechanism, it is an advantage to and Danish LO were founded one year before, in have high union density—if there are no members 1898. That illustrates the parallel tradition in the in the trade unions, it is not easy to negotiate. The Scandinavian countries. However, other different
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75 10 FEBRUARY 2009 76 confederations have come up. Many of them have Our final presentation is by Erica Sjölander, who not lasted for such a long time, but they have is the chief economist of IF Metall, a Swedish lasted long enough to present some challenge to trade union. I ask her to give her presentation, us, as the biggest federation. after which we will discuss both presentations and wider lessons. I am trying to respect the time limit—the chair will thank for me that—so let me conclude with a Erica Sjölander (IF Metall, Sweden): Thank few words on what I observe to be the important you for inviting me to this interesting seminar. differences between the Norwegian or Nordic Stein Reegård has mentioned many system and the UK system. In addition to characteristics of the Nordic and Scandinavian membership levels, perhaps the most important model. I will fill in gaps and talk more about difference is the position of the central federation. Sweden’s economic and social model. I plan to In our countries, strong powers are given to the cover six headlines, but I do not know how much centre or confederation level, which means that time I will have to go into detail. the federation and the trade unions need The first slide shows one way to characterise resources. The trade union fee in Norway—it is Sweden. We have capitalism and high taxes. We more or less the same in other Nordic countries— have profitable industries and strong trade unions. is about 2 per cent of salary, which is quite a lot of We have a flourishing private sector and a high- money. Most of that goes to the union at local and quality public sector. It could be said that we have national level, but quite a lot goes to the federation equity and efficiency. At the turn of the century, level. Our federation has more or less the same the former Social Democratic Government used number of staff as the Trades Union Congress in the expression, “The bumble-bee is flying.” Like Britain, although the TUC’s membership is eight the bumble-bee, which should not be able to fly times higher. We have only 800,000 or 900,000 because of its aerodynamics, the Swedish members, whereas the TUC has 6 or 7 million economy has worked and is working, although it members, but the resources are more or less the should not be able to function so well. same at the federation level. From a trade union perspective, what makes that combination successful? The social and 11:45 economic model has two main cornerstones. How We in Norway still have the capacity to bind the labour market functions is of course important. other national unions, so every strike must, at The foundation of the labour market model is the least formally, be approved by the collective at the active labour market policy that was introduced in federation level. Of course, that makes co- the 1950s. The purpose of that policy is to help ordinating efforts easier. The unions are still part people find new jobs and move to new regions, of every national agreement and are still allowed occupations and, perhaps, professions when they to negotiate developments at least every two get dislocated. years. That is a little more decentralised now in the other Nordic countries. Our arrangement may Another part of that model is the wage policy of involve problems—those are part of my solidarity. In the first decades—the 1950s, 1960s mandate—but it is an asset to co-ordinating and 1970s—we pursued a policy of giving higher efforts. wage increases to those with the lowest wages to even out wage differentials. We went a long way To have the co-ordinating negotiation, we need towards achieving that, so the wage differential in the employers and the employers federation, to Sweden was small at the beginning of the 1980s. have someone to negotiate with. We must also The policy was then developed: we now say that have political friends—we need a Government that we want equal wages for equivalent work. In the is friendly to tripartism in negotiations. past decade, the policy has been to have uniform One way to encourage members to pay is to wage increases to control inflation, limit local wage have a tax deduction for the membership fee. We drift and enhance productivity in companies. have argued for that, and the Government has The third part of the model was collective supported our argument that the trade union fee bargaining at the central level. That has also been should be tax deductible. developed and we now have sector wage I have used up my time for that brief bargaining, but there is still central inter-industry introduction. As I said, the handout contains more co-ordination—there is still co-ordination between details. I will also send the STUC a paper that sectors, but the sectors themselves do the wage provides a little more information on the bargaining. Because of that co-ordination we can Norwegian institutions. Thank you. take into account the fact that overly high wage claims can threaten macroeconomic stability. Lewis Macdonald: I thank Stein Reegård for his informative presentation. Those are the three parts of the labour market model. Gradually, over the years, it was
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77 10 FEBRUARY 2009 78 complemented by extensive general welfare come back to the changes that the Government systems, as well as generous unemployment has made. benefit and unemployment insurance schemes. One other important aspect of our welfare The Swedish trade unions had responsibility for system is the fact that it provides extensive child operating those insurance schemes, which has care and pre-school care for all children. That strengthened the trade unions. supports the high level of participation in the Our labour market institutions are the strong labour market of women in Sweden. The child labour unions, the strong employer associations, care fee is low—there is a flat rate for everybody— the wage co-ordination, the generous benefits and which enables more women to take up the prominent role of the active labour market employment. policy. That allows us to pool the risks. We also None of that can be done without a high level of have a long tradition of embracing free taxes. We need a high level of taxes to finance our international trade. welfare state; however, those taxes can also How does the model look today? We want to support growth. It could be said that taxes are embrace globalisation and share the risks. always economically harmful in one sense, but Globalisation has brought a new dimension to the those negative effects can be mitigated if public structural changes in the economy. Our model has spending supports employment and growth and if been developed and new elements have the entitlements in the transfer systems are linked complemented it, but the foundations are still to labour market attachment. there. The welfare system is very much a redistribution We now talk about the Swedish flexicurity over a lifetime. There is also an element of model. The European Union flexicurity discussion redistribution between individuals, but most of it has focused on the Danish model, but the takes place over a person’s own lifetime. People Swedish model is almost the same. We have contribute to the system when they are in labour market rules that provide fair terms in times employment, but they get a lot of things back of change and restructuring and what we call when they are young and again when they are old. reliable social bridges. That is a competitive What is the social partners’ role in that model? advantage for us. The social bridges are lifelong We have one of the strongest trade union learning—that people get several chances to get movements in the world. We have a high rate of an education during their life—adjustment unionisation. Last year, about 70 per cent of all insurance and reintroduction to working life via employees in Sweden were members of trade active labour market policies. unions, and 90 per cent of workers were covered That safety net enhances the Swedish by collective agreements. We have three central population’s favourable attitude towards trade union organisations in Sweden. The first is globalisation and competition, and it has led to LO, for blue-collar workers. I come from one of the political support for openness to new technology, national unions that is part of LO. The second is free trade and domestic competition. From a trade TCO, for white-collar workers and professional union perspective, we have a positive view of employees. The third is SACO, which organises structural adjustment as long as the model can the academics. Together, those organisations protect people. That is key. have about 3.2 million members from the Swedish trade union movement. I will say a few words about the welfare system. It is a comprehensive system that includes transfers to households and publicly provided 12:00 social services, all financed by taxes. My union, IF Metall, has around 400,000 Fundamental to the system is the loss of income members. In principle, all the blue-collar workers principle, which means that the benefit is linked to in one workplace belong to the same union. the person’s actual loss of income. For example, if However, in manufacturing companies such as someone is on sick leave they get 80 per cent of Volvo there is also one union for the white collar their income while they are at home. There is, workers and one union for the academics. Most of however, a ceiling on the scheme so that the the time, there are three different national unions system offers a lower level of compensation to in such companies. someone on a higher income. LO has a long tradition of co-operating with the I have already mentioned the fact that Social Democratic Party. Metall—as we were unemployment benefit is run by the trade unions. It called—was the metal workers union that formed is financed by the state and by an individual fee. It that party back in the 19th century, so we have was a generous benefit, but that has been very strong links to it. Today, there are no formal changed by the incumbent Government. I will links between us, but the personal links are very strong. For instance, the chairman of LO is also in
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79 10 FEBRUARY 2009 80 the leadership of the Social Democratic Party. We On the work that relates to the industrial feel that such co-operation is important in agreement, besides the collective agreement on influencing politics to the benefit of our members. wages that is reached every three years there are permanent joint working groups of trade unionists We strive to have a clear separation of tasks, so and employers, which consider issues such as that the social partners take care of the wage energy and climate change, R and D—we have formation and the state is not involved. Most of the made many proposals to the Government on things that are decided around the labour market that—and education and vocational training. The are decided through collective agreements building of that network with our counterparts has between the social partners, not by legislation. It is been of great value to us. The approach is the not always like that, but we try to uphold that opposite of the approach that was taken in the separation. We think that it is important that the 1980s and in the 1990s until 1997, when there state does not intervene in the wage bargaining was almost trench warfare between the parties. process, for example. Now, we talk to each other and develop policies Collective bargaining is a core issue for us. We mutually. We are developing a culture of make our own agreement in every national union. collaboration, which is demonstrated by the fact We also have long, three-year periods for that there have been almost no conflicts in agreements, which helps to make the labour manufacturing since the industrial agreement was market stable. The market has had very stable reached. Of course, I am talking only about the development in the past decade. manufacturing sector in Sweden. In other parts of the labour market there is not such strong co- The priorities that are on the Swedish trade operation. In some sectors there are problems and union movement’s agenda are not strange. Full conflicts. employment and high real wages are priority number 1. We have also said that we want wage The picture of development in Sweden during development to be in line with western Europe. the past decade is much better than it was in We want to be as competitive as our most previous decades. In the 1970s and 1980s and important competitors and to develop in line with until the crisis in the 1990s, GDP growth in them. I already mentioned skills development. On Sweden was low, but it has reached 3 per cent. structural change, it is crucial that when people The only policy that we used was devaluation of are laid off they get skills development as part of the krona every time our competitiveness was an active labour market policy. It is important that threatened—that was what we did from the 1970s there are more and better jobs. Last but not least until the 1990s. However, after the deep crisis at is gender equality. We want to get rid of the the beginning of the 1990s, we made many remaining wage differentials relating to gender. structural and policy changes to the economy. For Overcoming that is a priority for the trade union example, the financial market was deregulated movement. and we became members of the European Union and got access to the internal market. We I come from the manufacturing industry. There deregulated the energy and communications was an important institutional change in Swedish sectors and we reformed taxation, to broaden the wage formation with the industrial agreement that tax base and substantially lower tax rates. was decided in 1997, which is called the co- operation agreement on industrial development The employment rate is another success for us. and wage formation. The agreement crosses the We have returned to employment rates that we traditional Swedish boundary between the blue- had before the crisis in the 1990s. For women, we collar unions and the white-collar unions. All trade have a high employment rate of 76 per cent, and unions and all employers organisations in the in the older part of the labour market, about 70 per manufacturing sector are part of the agreement. It cent of people who are over 55 are employed. consists of two major parts. First, it provides a However, the results among the young are not as framework for how we carry out wage negotiation. good—only 40 per cent of under-25s are Secondly, it lays the foundations for co-operation employed, which is a problem. between the social partners in the manufacturing From the perspective of the trade unions, the industry. The purpose of the agreement is to decade since we signed the industrial agreement promote industrial development, capability and has brought great success and real wage competitiveness and to achieve higher increases. Of course, other countries have been employment and wages. The result so far has as successful, for instance Germany, which is been more stable and successful development of perhaps the main competitor for Swedish Swedish wage formation than was the case in manufacturing industries. However, there was previous decades. We have had higher real wage much better development in Swedish increases and the manufacturing industry in manufacturing workers’ wages during the decade Sweden has been stronger since 1997. 1998 to 2007.
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There was a shift up in productivity in that of Employees Act 1999. The EU free-movement decade compared with the decades before the provision supersedes national collective industrial agreement. Of course, several factors lie agreements, according to the European Court of behind that shift, but the technical progress and Justice. successful development of the Swedish telecommunications and information technology sectors were very important in that regard. 12:15 The trade unions also think that the political Sweden’s productivity growth in manufacturing changes in Sweden are a challenge to our model. is among the highest in the world. Similarly, Since 2006, we have had a conservative or right- Sweden is among the countries that invest most in wing coalition in government, following 12 years of expenditure on R and D. Almost 4 per cent of the Social Democratic Party being in government. Sweden’s GDP is spent on R and D—about 1 per The changes that the current Government is cent is state funded and the rest is covered by the making seem to be aiming at a United Kingdom world-leading companies in Sweden, which invest model—the Government wants to make the labour a lot in research. As you will know, Sweden has market more flexible and weaken the trade many such companies. We could even say that, unions—but we feel that, instead, it may end up given our population, we have a disproportionate with a more continental European model, because number of them. The outcome of all those factors there will be demands for more legislation on the for Sweden supports the view that our social and labour market and saving jobs will become more economic model has been consistent with having of a priority than helping the people. a good business climate. The Government has hugely reoriented the The next slide presents a graph of Swedish active labour market policy. It has cut it down a lot dependence on foreign trade and shows the and weakened the measures in it. It has also development of exports and imports as a made extensive cuts to several different taxes and percentage of GDP. We can see that our foreign reformed unemployment insurance. That has trade has expanded very fast since the beginning widened inequality in Sweden, because the people of the 1990s. Even before then, Sweden was who are employed get the tax cuts and those who always quite dependent on foreign trade and are unemployed, retired or sick get lower exports. compensation from the social security system. What are our challenges today? This may be a My time is nearly over, so I will skip the next provocative question: will Sweden be part of the slide, which is about how trade unions should act Nordic model in 10 years? We feel that there are in a globalised economy and hold on to our model many tough challenges, one of which is, of course, of high productivity and a high real wage in view of globalisation. As I said, globalisation provides a the global competition with low-wage economies. new dimension for our structural change, because Instead, I will talk about the five policy areas that it confronts our national model and policy. we discuss when we consider how we can Companies can move from country to country, so address the challenges. The first is to get the it is not easy to have the same policy that we had macroeconomic environment in order. Sweden’s when we started the current model. The effects of strong public finances have given us a competitive globalisation are becoming more and more advantage since we sorted out the problems powerful. In addition, we are very dependent on following the crisis in the 1990s. international developments, which we need to cope with in order to be successful in the future. The collective agreement on social protection is Globalisation can also undermine the financing of another area. We want to keep the social bridges our welfare state, because of the increased that I talked about earlier. They must stay. We pressure from tax competition and so on. must also work with our core business—the collective agreement. Industrial development and Demography is the other big challenge for us, renewal are also important. We must handle because the employment rate is increasing too global competition and have a well-developed slowly, which puts pressure on the welfare state. industrial policy. The skills development of the The rise in the dependency ratio will create more labour force is also vital. pressure to increase spending and have higher taxes. The last policy area that we discuss is the importance of international co-operation and trade The free mobility of companies and the labour union solidarity between countries. That refers to force in the EU 27 will affect our labour market solidarity with fellow trade unions in developing model. As you will know, the Laval case is the countries and social dialogue within the European most concrete example in that respect. We must Union. European works councils’ co-operation is find ways to implement EU law in the Swedish important. Capital is global, so trade unions also context. For example, there is a big discussion in Sweden about how to change our Foreign Posting
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83 10 FEBRUARY 2009 84 must act globally and avoid relocation blackmail, we can learn from a Scottish or British or whatever you call it. perspective, please feel free to do so as well. Finally, I will say something about the current Christopher Harvie: I wish to raise some crisis. We come from a strong position. We have general points about statistics that we have not had macroeconomic stability and, as I described, discussed. I am thinking in particular about the wage formation has been in order. So far, the percentage of the economy that relates to manufacturing industry has been hit hard in the manufacturing, an issue that seems to me to be crisis. We have had massive lay-offs in the past far more important than people in Britain have few months, up to the level of the crisis in the judged it to be. Our service economy is enormous, 1990s, especially in the automotive industry. We but I have seen a statistic that suggests that the expect unemployment in my trade union to go manufacturing labour force in Scotland is now less from 4 per cent to more than 10 per cent— than 10 per cent of the total. Manufacturing perhaps 12 per cent—this year. probably represents about 16 per cent of GDP, but the employment figure is as low as 10 per cent. The manufacturing industry is the first to be hit, along with the financial sector, but we expect other A different element comes into play in Norway: parts of the economy to be hit, too. Sweden’s the size of the primary production sector is growth and GDP are expected to fall this year, and affected by the country’s oil wealth. Sweden public finances are also expected to deteriorate. seems to be similar to Germany, where the The crisis has been creeping up on us, but it will proportion of people employed in manufacturing is be full blown within a year. considerable. I assume that Ireland is somewhere between the Scottish and Swedish levels. We also Some policy action has been taken to try to have to distinguish between high-value-added cope. Our central bank has been active since the services, which feed greatly into manufacturing start of the crisis—cutting interest rates and processes, and low-value-added services, such as supporting the financial sector—but the the hamburger-flipping element. Government has been reluctant to do anything. There are automatic stabilisers in the budget, and I suspect that both Scotland and Ireland have a the Government has done something for the problem with the size of the black economy, banks, but there has not been much else. whereas both Norway and Sweden will have less of a problem. In Scotland the black economy is On the trade union side, and on the side of the pretty large, I think. In the committee last year, we political opposition, we demand more action by heard about a preliminary study of it by Scotland’s way of fiscal policies. For example, the Futures Forum. Government should give extra money to the municipalities and should invest in infrastructure, Another consideration is the level of part-time and we want more emergency loans for the work and its relation to general poverty levels. In manufacturing industry. In addition, there should Britain about 25 per cent of our workforce is in be time-limited education and training for part-time work, whereas in Germany the figure is employees so that they do not have to be laid off. about 15 per cent. Germany has a relatively low That should be paid for by the state and the level of poverty of around 10 per cent, whereas companies together. the British have a relatively high level of poverty of around 20 per cent. There seems to be a I am sorry that I have been talking for so long, relationship there. The statistical elements vary but I had a lot to say. Thank you for listening. between countries and will affect labour Lewis Macdonald: Thank you very much, organisation as well as market responses. Erica—that was very instructive. You have given Lewis Macdonald: We will take one or two us a full description of the position in Sweden. other comments and then ask if any of the Over the past hour, we have been given a good panellists wants to come back. outline of the Nordic model of trade union relations Dave Thompson: The EU and membership of and of social and economic planning and the EU has been mentioned several times. It programmes. The model is different from both the would be interesting to get the different British and the Irish model. perspectives of Stein Reegård and Erica Sjölander I will open up the discussion as widely as on how important membership of the EU and— colleagues wish. If you have points for either Stein more important—access to the European market Reegård or Erica Sjölander on what you have are to their economies. heard about the Norwegian and Swedish Lewis Macdonald: Stein Reegård’s position experience, please raise them. However, if you and the Norwegian perspective are different from wish to pick up on points from our earlier those of the other countries represented round the discussions or to discuss the wider lessons that table. It would be interesting to put the emphasis on the latter part of Dave Thompson’s question
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85 10 FEBRUARY 2009 86 and address access to European markets rather conclusion, which is perhaps not accurate. You do than just the relevance or otherwise of not seem to have such problems. In your membership of the European Union. countries, is investment in child care seen as a way of investing in children that has positive social Stein Reegård: I do not think that the situation consequences? in Norway is that different. I regard the Nordic countries, or at least the Scandinavians, as similar—there is the same scepticism towards the 12:30 south, the big cities and things like that. That Erica Sjölander: I will explain how we have scepticism is strongest in Norway, and Sweden is addressed gender equality and the wage second; the Danes are the least sceptical, but they differentials in the most recent rounds of collective have also had discussions on referendums. agreement. In the manufacturing sector, we will The Swedes are a little more continental say that we want a 3 per cent wage increase, for because they have more export-oriented example, which is followed by co-ordination within industries, whereas we have more fisheries and LO. In the last two rounds, we have said that such like. The feeling is the same, but the scale is women in the sectors in which there are most a little different. Erica Sjölander may know more women working and who are on lower wages about this issue, but I think that the yes vote in the should get more. We have a policy of asking for an referendum in Sweden was helped by its timing. extra 1 per cent for them every year. That is one The feeling in Scotland towards the south of the way of tackling gender equality. That approach is UK is perhaps the same: the issues are distance taken across the sectors, but it creates a lot of and industrial structure. tension between sectors—the process is not as easy as it sounds. Erica Sjölander: I agree. The referendum in Sweden was held in 1994, when we were just However, one could say that it has been a starting to come out of a very deep crisis. The success. For example, the wages of people who Swedish people were aware of the crisis and that are represented by the Swedish Municipal something had to be done, which is why we got a Workers Union have come a bit closer to wages in yes vote. We might not have got a yes vote at a the manufacturing sector as a result of that later stage. approach. Many female municipal workers work part time. That is also the case in the private It is important for us, because of our service sector. Legislation that would give people dependence on exports, to have full access to the a right to a full-time job has been discussed, but it internal market. That is one reason why my union did not come through and following the election of supported the campaign for Sweden to join the the new Government, that will not happen. Part- euro, although we did not succeed in that time employment has been a problem. referendum as there is a lot of scepticism in Sweden. Now, because of the Laval case and the On child care, some people in Sweden think that fact that the European Court of Justice can come we should not leave our children somewhere else in and decide how we do our collective and that we should take care of them ourselves. agreements, there is a new round of scepticism As has been said, however, we have invested among trade unionists. heavily in pre-school provision—we have many pre-school teachers and many people who work in Mary Senior (Scottish Trades Union child care—so it is not such a big topic of debate. Congress): I was impressed by the focus on Everyone trusts the system and believes that the gender equality, which came across as a key children have a good time in pre-school education. priority for your trade unions. How are you In addition, such provision amounts to investment addressing the gender pay gap in Sweden? I in children’s education from the age of two. wondered whether that ties in with Christopher Harvie’s points about the link between part-time Lewis Macdonald: Does Stein want to give a work and poverty, given that in the UK the majority Norwegian angle on that? of people in part-time work are women and the Stein Reegård: On the equality agenda, we pay gap is significantly higher—about 34 per have gone through more or less the same cent—for women who work part time. exercises that Sweden has gone through. I also want to ask about female participation in Membership of my federation is now split 50:50 the labour market and the provision of child care. between men and women because we are bigger What social consequences has such female in the public sector. Our organisation is different participation had? Last week, a survey came out in from the equivalent Swedish and Danish the UK that was fairly critical of women—or that organisations in that we cover all professions and suggested, at least, that women’s participation in all groups, although in one sense we are less the labour market has had a detrimental effect on successful, in that we have lower membership. We children and so on. That is a deeply worrying represent both public and private sector workers.
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The situation is the same with regard to Stephen Boyd (Scottish Trades Union kindergarten provision. The Swedes were ahead Congress): Stein and Erica will be aware that one of us, but we have caught up and there is now of the consequences of last year’s financial crisis more or less full coverage. There is no longer is that the UK Government now has substantial much opposition to kindergarten provision. A lot of stakes in a number of UK banks—including nearly research proves that it is good for children to go to 80 per cent of the Royal Bank of Scotland—but kindergarten early, especially those who are still seems to be unable to exert effective control members of the weakest groups, such as over the banks’ activities. That relates to a long- immigrants. The political parties no longer discuss standing prejudice against public ownership of the the issue much. banks in the UK. Some questions were asked about statistics. It is interesting that Stein referred in his Manufacturing levels in Sweden are higher than presentation to state ownership of Norway’s very they are in Norway and are closer to the levels in successful energy companies. We are also all Germany. The same is true of Finland. The share aware that the Swedish state-owned utility, in Norway and Denmark is a little lower, but in Vattenfall, was this week stalking Scottish and Norway that is replaced by the oil sector and the Southern Energy plc—one of our biggest and most export incomes that it generates. Sweden has a successful private companies. How have you been longer tradition of big companies, whereas able to sustain state ownership of your very employment in Norway has been based more on successful and globally competitive firms? Is there fisheries, shipping and the raw material industry. currently pressure to privatise those firms? If so, where is that pressure coming from and what do The statistics on part-time work show that part- you see happening in the next few years? time workers account for 25 per cent of the labour force in Britain. In Norway, the figure is 20 per cent Lewis Macdonald: Those are also important and in Sweden it is 15 per cent. The percentage of questions. the female work force who are in part-time work in Stein Reegård: There is still quite a lot of state Britain is 40 per cent. In Norway, the figure is 30 ownership in Norway, even in the banking sector. per cent and in Sweden it is 20 per cent. During the last crisis, we took over the banks to Therefore, part-time work is significant in Norway prevent bankruptcy, although our politicians do not and is regarded as being an important challenge in love state ownership. It is a risky business and we terms of gender issues. can be exposed to criticism, so they do not like to Marilyn Livingstone: How have you managed do it. However, we argue that Norway is a small to break down the stereotype of women being country, so if the state does not own our employed only in certain sectors? What work has companies, they will be taken by foreigners. been undertaken and what success have you had There is strong support for state ownership in in attracting women into non-traditional fields? the energy sector, even if the Conservatives try to Lewis Macdonald: That is a good question. play it down. The sector is regarded as a valuable From an Aberdeen perspective, I was aware that public resource, so support for that is still strong. women were working offshore in the Norwegian oil However, there is no drive to expand state sector about five years before that happened in ownership in the banking sector. At the moment, the British sector. That is an example of a non- our bank package is not going to direct ownership; traditional area of employment for women. The it is more like a hybrid. That is because the banks wider question is about what has been successful are not that far down. If the state took direct in breaking down the barriers. ownership, that would be regarded as a signal of weakness. However, there is a big package that Stein Reegård: The labour market in Norway is establishes some new institutions in the financial still divided in gender terms. It has been very hard sector. In Norway, politicians are not scared of to change that. using the state, but they do not love doing so. Erica Sjölander: It is the same in Sweden, and Lewis Macdonald: In your presentation, you it is a big problem. We in the manufacturing sector said that there is one third direct Government go into schools and try to interest girls in becoming ownership of the oil industry. In addition, Statoil engineers. We try to make it attractive for them to and Norsk Hydro must own large proportions. Are choose an education that is not traditional, but it is they not also controlled by the Government? hard to get results. Stein Reegård: The Government has majority Lewis Macdonald: It is still an issue in both ownership of them. countries. Lewis Macdonald: So altogether perhaps two Are there any other questions or comments from thirds of the oil industry is controlled by around the table on the issues that we have Government. discussed this morning?
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Stein Reegård: That is true of the revenue, at Northern Ireland, primarily because of the conflict least. It may also be true of the resources. and the structure of economic activity there, which consists mainly of small and medium-sized Erica Sjölander: The current Swedish enterprises. Government is trying to sell off many of the companies that we own. The former Social Every year since it was introduced in Northern Democratic Government did not have a clear Ireland there has been 65 per cent non- policy on what the state should and should not compliance with the minimum wage among those own; for example, it sold the stock exchange, who have been visited by compliance officers. If which is part of the infrastructure of the economy, time and resources were available to roll out but held on to the successful mining company compliance checks across the rest of the private because it provides the state with a lot of revenue. sector, you would probably be in a state of A policy that identifies which companies are abhorrence about what is really going on. crucial for the country is lacking, but we should However, much of that is due to having a black have such a policy and stick to it. If the state owns economy, weak welfare and a weak private sector. other companies, it should have other reasons for doing so. The current Government wants to sell a lot of companies, but is holding back because it 12:45 will not get a good price in the current crisis. Also, along the land border, there is a long tradition of smuggling whatever goods have a Lewis Macdonald: I take it that public price differential, whether that be diesel, pigs or— ownership is not a significant part of the economy as was the case during the war—butter and so on. under the Irish model. I think that the black economy comes down to how Paul Sweeney: It is still a factor. I have done a our society is constructed. Flexicurity is a lot of work on the subject. Around 1980, public wonderful model. Even when we get down to ownership accounted for about 18 per cent of considering issues such as redundancy, flexicurity investment and was quite important. However, the is totally different as it is not about giving people a Government has privatised many companies. The lump sum to run off somewhere else. Flexicurity is privatisation in 1999 of Telecom Éireann is now a different, innovative social model that is about seen as a disaster, even by right-wingers. When social solidarity, which is what we should all aspire the company was state owned, it invested heavily to. I do not how we will ever achieve that, but it is in broadband and had no debt. After it was floated certainly an aspiration of the Irish Congress of on the stock exchange, George Soros and Sir Trade Unions. Anthony O’Reilly, who owns The Independent, In Ireland, we have had a huge debate about took it over. Together with the workers—the whether to be like Boston or Berlin. As Paul employee share ownership trust—they asset- Sweeney mentioned earlier, a small party in the stripped and sucked the good out of the company. Government seemed to have an unfair advantage Today it is a shell; I think that it is owned by in dragging us, in an economically neo-liberal Babcock & Brown of Australia, but it keeps manner, far more towards Boston than should changing hands. The company is not investing in have been aspired to by any society that seeks to broadband. Everyone recognises that that look after as many as possible and that seeks to privatisation has been a disaster. be rooted in equality. We have just more or less nationalised the The fact that Northern Ireland has a huge black whole banking sector. Previously there were state- economy is clear from the statistics. I cannot quote owned banks, but they were very small. The statistics for the Republic of Ireland, but I assume electricity and gas companies are fully state that full employment in the republic means that owned, and there is no intention to sell them. The there was very little of that. At one stage, there same applies to public transport, water and was a big black economy in the construction various other companies, which are recognised as industry, under what was called the lump system. being well run and generate substantial profit for That was eradicated in the Republic of Ireland by the state. However, in recent years employment in requiring every worker to have a tax certificate—a state companies has dropped from 80,000 to just T43 or whatever it is—without which they cannot 40,000. The companies have also become much go on to a building site. That form makes them tax more efficient, it must be said. They were not compliant. perfectly efficient before. In Northern Ireland, the situation is that we have Peter Bunting: Christopher Harvie raised the about 1.1 million people of employable age—that issue of the black economy. I assume that the is, aged between 16 and 60 or 65—of which about black economy in the Nordic countries is small 730,000 are employed. Extrapolating from that compared with that here and in Ireland because of figure, we have 120,000 to 130,000 who are self- the way in which society is constructed in those employed and 150,000 who are part-time countries. There is a huge black economy in
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91 10 FEBRUARY 2009 92 employed. That brings the number of nine-to- issues that have arisen today will continue to fivers—people in full-time employment—down to exercise our minds in the period ahead. around 430,000. We then get into one of the What has come across today is that alternative wonders or mysteries of life, which is that only in economic and social models can be successful— the region of 39,000 people are unemployed. If whether you define success in terms of that makes people scratch their head thinking productivity levels, income inequality or about poor old Thatcher massaging the figures, employment levels. Success is down to a number that is because 540,000 people of working age are of factors. Too often, there has been a tendency to deemed to be economically inactive. Only 430,000 point to one factor or another, such as tax or oil or 438,000 people are actually in full-time revenues, as the key contributor to the success of employment. We are a basket case—the Republic the Irish model, as was, or the Nordic model. of Ireland is totally different—but within the social construct that we have, the black economy will I turn to the key factors and what we in Scotland thrive. One assumes that the black economy will and the UK can learn from them. Economic not thrive under a flexicurity model. diversity is one factor, and the role of public ownership is another, although the attention that it Lewis Macdonald: We are under pressure of should have received in relation to the UK time, so perhaps Grahame Smith will say a couple economy has been downgraded. Peter Bunting of words in closing. On behalf of the Economy, mentioned social solidarity, which is crucial, and Energy and Tourism Committee, I thank everyone we need to build on that. There is also the for their time and for contributing to the seminar. important role that trade unions play in a range of There will be opportunities to make a few more ways, such as tackling income inequality or comments over lunch. gender discrimination. The unions have a key role Dave Thompson: I want to raise a practical in society that it is our function to promote. point about the status of the seminar. This has As we said at the outset, we will prepare a been a fascinating and excellent morning, but it discussion paper arising from today’s event. has been brought to my attention that the seminar Stephen Boyd remarked on how easy that will be, has not been recorded so people outwith the room given the quality of the presentations. I thank the could not tune in to watch the debate on the web. presenters—Paul Sweeney, Erica Sjölander, Stein It would have been excellent if that could have Reegård and Peter Bunting—for their been made possible. I am also unsure about the presentations and for their responses to questions. public access status of the seminar. Perhaps we can think about public access for any future Finally, I thank the clerks to the committee: Gail seminars. Grant, Katy Orr, Janet Anderson and Stephen Imrie—who I know is not here—as well as Lewis Macdonald: That is a fair point. It is Stephen Boyd from the STUC, who was important to note that all our proceedings this responsible for working with the clerks to put morning have been recorded and will be together today’s event. I hope that we can repeat published. We undertook to do that from the outset this type of event because, from our point of view, and I think that the STUC is a partner in making it is extremely important. I know from talking to that happen. From the point of view of the committee members after last year’s event that Economy, Energy and Tourism Committee, the they thought that it was important and worth while seminar has certainly been a successful and I hope that members who attended today’s undertaking that I think we will want to build on in event will have found it similarly useful. future years. Lewis Macdonald: I thank the STUC for There is a buffet lunch outside. We have to working actively with the committee and its clerks vacate this room, so we will have to finish our to make today’s event happen and for the report lunch and further conversation by half past 1, that it will prepare on the basis of the good because one of the committees will be taking presentations that we heard. I echo Grahame evidence in here this afternoon. In fact, I will be Smith’s thanks to all those who made back in the room before I know it to take part in presentations today for coming to Edinburgh to that evidence session. share their knowledge and experience with us. I invite Grahame Smith to say a few words from Meeting closed at 12:53. the STUC’s perspective. Grahame Smith: I thank Lewis Macdonald and the committee for enabling this event to happen today. As I said in my introductory remarks, the joint seminar that we held last year has been of recurring interest. I am sure that some of the
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