The energy sector in Scotland’s future

Gordon Hughes ()

Oxford Review of Economic Policy, 2014, vol. 30, issue 2, 374-391

Abstract: The energy sector accounts for 15–20 per cent of Scottish GDP. It is highly capital-intensive and maintaining production, especially of oil and gas, will absorb a large share of business investment over the next 5–10 years. The volatility of revenues from the sector means that an independent Scotland will face much greater difficulties in macro-economic management than as part of the UK. Attempting to fix its exchange rate, either to the pound sterling or the euro, without a system of compensating fiscal transfers will put the burden of adjustment on factor mobility and incomes. Scotland could use a sovereign wealth fund as a stabilizing instrument, but it is starting from a much worse position than Norway and would need to reduce current government spending to build up the fund. The prospects for exporting gas and electricity to the rest of the UK depend upon the terms of access to markets. It seems unlikely that integrated Great Britain markets will survive in their current form. Large exports will continue but the net terms of trade will probably be less favourable to Scotland than at present.

Date: 2014
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