A Green Europe: Regional Strengths and Weaknesses and the Green Transition

This is the third in our three-part series on the future of European cohesion that looks at the resources, potential and vulnerabilities of European regions and at how the EU can better use its policies and funds to strengthen cohesion in turbulent times. In part one, we discussed how Europe is in the middle of a Twin Transition and the challenges that poses for European cohesion. In part two, we argued that the EU is facing up squarely to the challenges of the digital transition. Yet, the likely uneven territorial impact remains both under-examined and insufficiently catered for.

In this third part, we look at the green transition. The shift to net zero is center stage on the EU’s political agenda. But the bigger challenge is yet to come, as predictions point to large disparities in who precisely stands to win and lose from the impending transition. Smart analysis of key indicators will be key to developing the right policies, which in turn can boost opportunities and mitigate risks for all regions across Europe alike.

European Green Deal – more green transition needed to stay on target

The European Green Deal is one of the most important policy priorities of the European Union and the current Commission under President Ursula von der Leyen. Following the goals of the Paris climate accords, the EU aims to reduce greenhouse gas emissions to net-zero by 2050 (with an interim target of a 55% reduction in greenhouse gas emissions by 2030), decouple economic growth from environmental degradation and provide regions the resources to mitigate potential negative economic effects of decarbonization. Europe is already lagging behind in achieving these goals.

To get back on track, the European Commission proposed the Fitfor55 package in July 2021, which includes further reductions of carbon allowances for EU businesses in the Emissions Trading System, a review of the renewables directive and increasing energy efficiency targets.

On top of the need to accelerate the pace of decarbonization and increase renewable energy to meet Green Deal targets, Russia’s invasion of Ukraine has added another dimension to EU energy policy. At the EU level, the newly launched REPowerEU 2030 plan aims to cut Russian gas use in Europe well before 2030. The European Commission intends that two-thirds of that cut will be completed in the coming year by finding alternative natural gas sources, reducing energy usage and filling gas reserves. Phasing out Russian gas, oil and coal over a short time span will place additional pressure on Europe’s energy transition goals.

Linking the European green transition and cohesion

The increased scale and pace of the green transition will impact European regions differently, depending on their geography and economic character. Identifying which regions face a difficult green transition and are vulnerable to the rising negative impacts of climate change and which regions have (yet uncovered) potential in greening their local economy fast will be vital to understanding how Europe’s economy as a whole will adjust. It will also tell us something about the path that European cohesion can take.

The green transition comes at a time when economic convergence in the EU has been improving, but regional disparities remain. According to the European Commission’s 8^th Cohesion Report released in February 2022, capital and metropolitan regions in the EU are leading the way in GDP growth, while less developed regions, predominantly in the south but also in central Europe, have stagnated or declined economically. Unemployment disparities have not recovered to pre-2008 levels, and the skills concentration in cities still skews economic growth potential away from rural areas (see also our previous blog on this).

How to identify European regions at risk and with those with potential in the green transition…

An important indicator of a region’s level of readiness for the green transition is per capita CO₂ emissions. Factors that contribute to a region’s per capita CO₂ level include the composition of economic activity, the energy efficiency of their buildings and the share of renewables. The map below shows it is not just population-dense urban and industrial areas that are top CO₂ emitters. CO₂ intensive regions (relative to population) are spread out across the EU, from southern Portugal to northern Greece and Estonia.

CO₂ emissions from fossil fuels per head (in tons), EU NUTS-2 regions, 2018

Policies designed to tackle CO₂ emissions at the EU level exist –they, in turn, however, have follow-on effects that impact regions across Europe differently. For instance, the carbon border adjustment mechanism (CBAM), designed to prevent European companies from relocating production to countries with less stringent emission standards, places a heavy burden on energy-intensive manufacturing sectors, the people they employ, and lower-income households.

Projections suggest that this will occur in that “social disparities are likely to increase not only within EU member states but also between them, and especially between the EU’s eastern and western member states,” thus adding a further layer of complexity to the links between the Green Transition and cohesion in Europe.

While current levels of CO₂ emissions indicate a region’s difficulty adjusting to a net-zero future, other indicators show which regions are vulnerable to the effects of climate change itself. A development that is both separate but connected to the Green transition, notably in that the latter is ideally implemented to prevent the onset of the former. Climate change will lead to desertification and rising sea levels.

It will also lead to more extreme weather occurrences, such as droughts and floods. One recent example of such an event that made international headlines is the floods in Germany and Belgium in July 2021 caused by a major rainfall. These floods cost the lives of 240 people and caused over €38 billion in damage.

Projected GDP loss due to flooding is one indicator that can convey the looming threat to life, property, and economic activity in a region. Flooding events are becoming more common overall, but the threat is not distributed evenly across EU regions. Coastal areas and regions around major rivers like the Danube, the Rhine or the Rhone stand out.

Projected economic damage due to flooding under the 3-degree warming scenario for 2100, EU NUTS-2 regions

The above indicators help identify which regions face particular pressures in the green transition, putting their long-term economic development at greater risk. To complete the picture of how regions will be affected by the green transition and the impact it has on overall cohesion, it is also necessary to recognize regions’ geographical and economic potential to thrive in a green Europe.

For example, renewable energy can provide new employment opportunities for a region. More importantly, after the initial investment, it can lower production costs for businesses (of which energy is often a substantial part), giving those regions a comparative advantage in the long run.

A 2019 study estimated the potential for energy autarchy at the municipal level through the construction of new wind and solar farms and energy infrastructure to store and carry electricity locally. The authors found that only 5% of the area, containing 25% of Europe’s population, lacks the potential to be energy independent (red areas on the map below).

The map shows a divide between densely populated urban areas that do not have the potential for electricity independence, and less densely populated, mostly rural areas, where there is a large potential for energy independence through renewables. Of course, not all regions must be in and of themselves energy independent. There is potential for rural areas near cities to contribute to the urban energy supply via connected electricity grids.

Europe’s renewable energy potential: Only a minority of European municipalities – covering 5 % of the land area and containing 25% of Europe’s population – cannot achieve renewable electricity autarchy.

Note: The map shows the estimated potential for local electricity supply autarchy in Europe, assuming that just 10% of unused land could be used for wind and solar power, but no farmland or protected land. The model also assumes that 100% of eligible rooftops could be used for solar power. Municipalities that cannot achieve electricity autarchy through renewable energy sources are marked in red. Areas with the potential for autarchy are green. The map includes non-EU countries like Switzerland, the UK, Norway, Bosnia and Herzegovina, Albania, Montenegro, Serbia, and North Macedonia.

… and where EU policy, particularly cohesion policy, can make an impact

The indicators highlighted in this article are the beginning of a broader understanding of how the green transition can present different layered challenges and opportunities to regions across the EU. Ensuring that the green transition does not remain in the remit of already economically advanced and innovative regions and thus fosters more divergence within Europe will require identifying what policies are viable and beneficial for different kinds of regions.

For example, rural coal regions in Europe are currently reliant on mining and coal-fired power plants for their economic output. They will need policies and resources to mitigate unemployment caused by the coal phase-out and assist in the deployment of renewable energy. Urban regions and cities, on the other hand, might need policies and resources to expand electrified public transport or energy efficiency improvements to buildings.

At the EU level, the Green Deal and EU cohesion policy are already linked. The Commission has earmarked recovery funds for the green transition, with the goal of using more than 25% of its 2021-2027 budget to achieve green targets. A large portion of that will be channeled through cohesion policy, with 30% of the European Regional Development Fund’s €226 billion and 37% of the Cohesion Fund’s €48 billion promised for green goals. The Just Transition Fund – housed under the InvestEU heading – is another fund dedicated to supporting regions economically that are negatively impacted by decarbonization.

The identification of regional strengths and weaknesses and policy adjustments to compensate for the impact of the green transition will be the key task for regional, national, and EU policymakers in the years to come. It is a daunting task, to be sure, but a vital one, as the success of the EU’s ambitious climate goals hangs in the balance.

This article is the third of a series of articles on the future of Europe’s cohesion. Stay tuned for our upcoming posts on the opportunities and challenges for regional economic development and cohesion arising from the Twin Transition.

About the Bertelsmann Stiftung’s work on cohesion in Europe’s economy

Jake Benford, Nathan Crist, Sabine Feige, Katharina Gnath, and Thomas Schwab are the team that drives forward the Bertelsmann Stiftung’s work on Europe’s economy.

They investigate which economic, social and territorial disparities matter for Europe. They analyze how structural changes that come with decarbonizing and digitizing Europe will affect its economy and its cohesion. This will include identifying the resources, potentials, but also the vulnerabilities of European regions. And they develop proposals on how to strengthen the EU single market and how the EU can better use its policies and resources to strengthen cohesion across Europe.

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Read the rest of the series.

Green, Smart and Fair: Rethinking European Cohesion in an Era of Structural Change

A Smart Europe: Digitalization and Regional Economic Development