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The renewable energy transition can reduce economic disparities in Europe

Thomas Schwab / Jul 2024

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As Europe embarked on its ambitious journey towards climate neutrality, the renewable energy transition takes centre stage. The European Green Deal and the REPowerEU initiative outline a clear mandate: to elevate the share of renewable energy in the energy mix to at least 42.5% by 2030, aiming for 100% by 2050. This transition, while challenging, is a unique opportunity to address and reduce economic disparities across the continent.

Economic Opportunities and Challenges by the Green Energy Transition

The transition from fossil energy to renewable energy is not just an environmental imperative but also an economic one. Over 80% of greenhouse gas emissions stem from the energy sector which is present in virtually every economic activity. The move to green energy thus promises profound economic restructuring.

Industries tied to fossil energy production and distribution, such as mining and petroleum engineering, will scale down substantially, leading to job losses and decreased value-added. Other industries, like steel, will need to significantly alter their production processes, potentially facing economic setbacks.

However, the renewable energy sector is poised to generate substantial economic opportunities. This sector is expected to create jobs across its entire value chain—from manufacturing to installation, operation, and maintenance—stimulating economic activity in areas like wind turbine manufacturing and solar panel installation.

Varying Green Energy Potential and Carbon Intensity across Europe

The impacts of the green energy transition will vary across Europe, depending on regional economic structures. Regions reliant on fossil fuels, such as those with petroleum refining industries, will experience economic fallout, resulting in reduced value-added and employment. Conversely, regions that produce renewable energy facilities, like wind turbines or photovoltaic electronics, stand to benefit economically.

Regions in Europe differ in their carbon intensity. Factors such as economic structure and previous achievements in decarbonizing industries mean some regions have a longer journey towards meeting the Green Deal's goals. Rural regions, particularly in the East and South of Europe, tend to have higher carbon intensity compared to their urban counterparts, especially capital cities with a high share of service industries.

Renewable energy production is limited by technical potential, which varies by location due to differences, among others, in sunshine hours and wind strength. Rural regions in the South and East of Europe exhibit higher potential for renewable energy production compared to the core regions, presenting greater opportunities.

Empirical Evidence: New impetus for lagging rural regions

To understand the regional impacts of the renewable energy transition, we conducted a study titled "Energizing EU Cohesion". Using a sophisticated Multi-Regional Input-Output (MRIO) model, we forecasted the economic impacts of the transition, considering economic structures, carbon intensity, green energy potential, and socioeconomic regional characteristics.

We find that the overall economic performance in Europe will remain relatively stable due to the renewable energy transition. However, about half of the assessed regions will experience improved economic prosperity, signalling a reduction in territorial inequality by about 1%—a significant step for a single policy towards a more cohesive and sustainable Europe.

The study highlights that rural regions lagging today can expect substantial gains in economic prosperity and employment, with value-added per capita increases of up to 1,570 EUR and employment boosts of up to 4.9% by 2050. In contrast, more developed urban regions may face reductions in economic performance, with decreases in value-added per capita and employment by up to -2,450 EUR and -2.1%, respectively.

Cohesion Policy: Key to Unlocking Potential – and Prevent Harm

Our results indicate potential for greater cohesion in Europe. Empowering less developed regions with high renewable energy potential can serve as a catalyst for economic advancement. This requires substantial investment in knowledge transfer, technical support, and infrastructure development. For instance, creating energy communities where local stakeholders benefit directly from renewable energy projects can drive local economic growth and ensure value-added stays within the region.

For more developed urban regions, proactive management is necessary to mitigate potential economic drawbacks. Collaborative initiatives with rural regions to produce the renewable energy needed could be an answer. This has the potential to create win-win-scenarios with rural regions benefiting from investment certainty.

Cohesion policy must now encompass the complexities of the renewable energy transition, also supporting regions not currently on the policy radar. This approach is essential not only for achieving the goals of the European Green Deal but also for maintaining the economic unity of the EU. Cohesion policy should leverage synergies with energy policy to ensure that the benefits of the renewable energy transition are equitably distributed.

Achieving climate goals can go hand in hand with enhancing economic cohesion in Europe. An adapted Cohesion Policy can play a pivotal role in unlocking potential in lagging rural regions and preventing harm in leading urban regions.

 

This article is based on the recent study “Energising EU Cohesion” that can be downloaded here: https://www.doi.org/10.11586/2023040

The Bertelsmann Stiftung carries out further research on inequalities in Europe and Cohesion Policy. For more information see: www.bertelsmann-stiftung.de/europes-economy

 

Thomas Schwab

Thomas Schwab

July 2024

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