* North Sea oil, gas output shrinking
* Scotland has huge green energy potential, ambitions
* Ballot on independence set for 2014
* Companies not planning for independence
By Barbara Lewis and Sarah Young
BRUSSELS/LONDON, Nov 21 Scotland's bid for independence bets on meeting ambitious renewable energy goals as much as on the dwindling riches of North Sea oil and gas.
An estimated 90 percent of Britain's oil and gas is in Scottish territory, but output is dwindling fast and with it any prospect that it alone could make Scotland viable as an independent economy.
Last year production dropped 18 percent, its sharpest decline since peaking more than a decade ago.
It was a setback for a British government struggling to revive its economy.
But it poses a bigger threat to the smaller Scottish economy, with less to shelter it from sudden shifts in tax income, either from sinking output or falling oil prices.
Fergus Ewing, Scotland's energy minister, said the Scottish solution was to combine extracting as much of the remaining North Sea oil and gas as possible with levels of renewable ambition that outstrip EU-wide targets.
Scotland is aiming for 100 percent renewable electricity by the end of the decade and having green power to spare.
That is far more ambitious than the European Union as a whole. The EU aims to raise the share of renewables in the mix to 20 percent by 2020.
"We have a vision of an EU, integrated market with connections across the sea to Ireland, the Republic of Ireland, mainland Europe," Ewing told Reuters.
"We have got an iron will to proceed with this. We are not going to be deflected by what we would regard as a negative approach."
The Scottish Parliament has been investigating whether the country can achieve its renewable target.
Among 400 submissions to its enquiry, Scottish Power said the target was credible if supported by commitments from the British and Scottish governments.
Germany's E.ON said it believed meeting such goals posed a major challenge and would require a significant acceleration in the level of investment.
Renewable sources still require government subsidies to be viable, which Britain says it has been providing. Britain provided 1.29 billion pounds through renewable obligations certificates to support renewable energy in 2010-11, of which 134 million pounds went to Scotland.
EU funds can also help, provided EU member states agree development of Scottish renewables is sufficiently strategic.
BLESSED WITH RESOURCES
Scotland claims around a quarter of Europe's offshore wind and tidal energy potential.
If a ballot scheduled for 2014 leads to Scottish independence, the dividing line for its renewables territory would be the same as the division through the North Sea oil and gas province, lawyers said.
Haggling is possible, but there is little doubt Scotland commands the majority of Britain's oil and gas.
Ewing said Scotland would husband what remains of its hydrocarbon wealth, as well as shifting the focus to renewables.
He said the Scottish oil city Aberdeen would be developed not as a fossil fuel hub, but an international centre of energy knowledge.
Britain's short-sightedness had deterred investors, he said, and cited the government's third tax hike on oil and gas production in a decade in 2011.
"We're talking about economic opportunities on the scale of tens of billions, or we're talking about losing that revenue if we fail to maximise recovery by not creating the correct fiscal framework," Ewing said.
Almost a quarter of the corporation tax paid to Britain in the financial year 2011/12 - 11.2 billion pounds ($18 billion) - was on oil output, Oil & Gas UK said.
The figures are predicted to fall as production dwindles.
For Britain as a whole, the Office for Budget Responsibility expects oil and gas revenues to decline by more than 80 percent between 2011-12 and 2022-23.
Although Scotland says it would seek to provide a conducive tax regime, business is wary and says any fall in the oil price -- well above $100 a barrel for Brent - could drive desperate measures.
"It is by no means certain that the government of an independent Scotland would not behave in the same way as the UK Chancellor of the Exchequer," Iain McMillan, director of the CBI Scotland business lobbying organisation said.
Scotland's economy, which in 2011 was 10 percent of the size of Britain's, is more heavily reliant on oil revenues.
For 2010-11, oil revenues accounted for over 15 percent of Scotland's total revenues, compared with around 1.6 percent for Britain as a whole, Scottish government accounts said.
However small the share, Britain does not want to lose it. Asked about any carve up of the North Sea province, British officials said only that it was purely hypothetical.
"The UK Government is not preparing for independence - we are arguing the case that the UK and Scotland are stronger together," a spokesman for the Department of Energy and Climate Change said. He asked not to be named.
Oil and gas companies are also assuming business as usual. Firms which spoke to Reuters said they were just hoping for stability.
"The simple answer is (we're) not planning (for Scottish independence) but we'll see how events develop as to whether we need to plan," Royal Dutch Shell's Chief Financial Officer Simon Henry said.
"We would like to think that whatever the political developments, the government in question would reflect the need for a long-term, stable, attractive investment environment because volatility and change really encourages us to think about investing elsewhere."
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