A HUGE boost in oil and gas revenues could "accelerate" Scotland’s green revolution, an economist has said.
Graeme Blackett, of Biggar economics, said a surge in profits from the fossil fuel industry could have a positive impact on the Scottish economy and would be good news for independence supporters.
Bottom Line Scotland, a group which Blackett is a member of, said the oil and gas projections could transform the debate on the economics of independence.
It comes after the Institute for Fiscal Studies (IFS) think tank released its analysis of offshore oil and gas revenue forecasts.
The rise in energy prices along with new taxes has led to offshore revenues increasing 30-fold.
The IFS said they could reach £15 billion this year and peak at just under £21 billion in 2023.
This would make Scotland’s underlying deficit lower than the UK’s as a whole for the first time in a decade, though revenues are projected to decline further into the future.
Blackett, who was member of the Scottish Government Sustainable Growth Commission, said the Scottish economy could benefit from high oil and gas prices in a “significant way”.
He said: “These are good news for public finances. They are also welcome news for supporters of independence.
“However, they do not mean that an underlying deficit that might be inherited from the UK can be ignored.
“That’s still something that needs to be dealt with whether Scotland becomes independent or remains part of the UK.”
He said Scotland is expected to produce a quarter of the UK's tax on electricity generation despite being only 8% of its population.
Listen to Graeme Blackett of @BottomLineScot discussing the latest projections from @TheIFS and what they mean for Scottish independence on @BBCRadioScot’s Good Morning Scotland https://t.co/eTQFEWd0L6
— The Bottom Line Scotland (@BottomLineScot) December 2, 2022
Blackett said the forecasts are not only good for the Scottish economy in the short-term, they're a welcome sign for Scotland's transition to green energy.
He continued: “There’s already a transition taking place in the Scottish economy and it’s about to accelerate.
“That means that probably these projections are an underestimate. It’s probably even better than they say.
“That’s because we’re moving to a net-zero economy and we have in particular the renewable energy opportunity.
“So there will be hundreds of billions of pounds invested in Scottish waters in the next decade or two.
“And this is not in oil and gas, it’s in offshore wind. What’s underlying some of these numbers is the reason tax revenues are high is because oil and gas companies, and electricity companies, are making more profits than they were so those profits are taxed – quite substantially in the case of oil and gas.
“But the profits are left over, they are not taxed. They are being invested into renewable energy including offshore wind and Scottish waters so that will really accelerate the transition to a more sustainable economy.”
Blackett said while the windfall is a temporary boost it lays the foundation for a fundamental improvement in the economy.
“It’s a fantastic opportunity," he said. "This is already happening but it will accelerate the process.
"It happens in two ways. One is a direct way, because the growth of the renewable sector means these are companies that will pay taxes in the longer term.
“And also indirectly because an economy that is one of the first to transition to renewables will have a huge advantage so the long-term prospects are pretty good.”
IFS associate director David Phillips said: “Given most of these revenues will come from production in Scottish waters, this means that in 2023–24, Scotland’s underlying budget deficit will be similar to – and potentially even lower – than that of the UK for the first time in over a decade.
“That is a remarkable change from what we projected at the start of this year, prior to the big surge in oil and gas prices.”
🚨 My NEW @theIFS analysis of Scotland's underlying public finances, updating the figures post-Autumn Statement is out NOW. Headline: a much stronger picture over the next few years, but a large deficit is projected to return by 2nd half of 2020s.https://t.co/sSD1zxgjua pic.twitter.com/19JizfJ0RH
— David Phillips (@fiscalphillips) December 1, 2022
However, the IFS warned Scotland's deficit could be far higher than the rest of the UK's in the next five years.
It said: "We project Scotland’s deficit could equate to around £3000 per person in 2027–28, compared to around £1000 per person under the Office for Budget Responsibility's forecasts for the UK as a whole.
"This difference of £2000 per person is equivalent to around 4 – 5% of projected Scottish GDP in that year, and means a total underlying Scottish deficit of just under 7% of GDP (compared to just under 2½% forecast for the UK as a whole)."
