Europe’s economy is undergoing two significant transformations, known as the twin transition. On the one hand, the European Green Deal requires the economy to reach carbon neutrality by 2050. The Digital Decade, on the other hand, underlines the need to innovate to compete with the USA and China.

European regions are not equally prepared. In particular, our new study shows that the capabilities necessary for developing twin transition technologies are unequally distributed across EU regions. More developed regions possess significantly higher capabilities than transition and less developed regions.

While regions with more of the technological capabilities needed for the twin transition have higher potential for future economic prosperity, potential to create complex technologies also lies in transition regions.

These regions possess more possibilities to develop technologies for the green transition. Policymakers at the regional and EU level alike can leverage these potentials to bolster a green economy and at the same time promote economic cohesion.

Transition regions in Europe

Transition regions are characterized by a GDP per capita that falls between 75% and 100% of the EU average according to EU cohesion policy for the current period. On a NUTS-2 level, these regions are primarily clustered in France (21 of the 67 transition regions), Wallonia, East Germany, Czechia, the Spanish Atlantic and Mediterranean coasts, Finland and two of the Baltic states.

These regions tend to be a mix of urban and rural rather than predominantly metropolitan. Often, there is a lack of economic diversification, which can increase their dependence on certain industries.

The trade-off between high risk and low gains

Regions’ existing capabilities determine to a large extent which future technologies are easier to develop. The concept of technological relatedness used in our study describes how close the capabilities for developing a new technology are to a region’s current technological profile.

For instance, companies already utilizing electrolysis for metal production can expand their usage to include hydrogen. The less related a region’s capabilities are to a new technology, the riskier it is to develop it. In other words, relatedness can be seen as pertaining to the opportunity costs associated with developing new technologies.

To assess the regional potential for developing future technologies, both the relatedness of existing capabilities and the complexity of a technology are crucial factors to consider. The higher the complexity of a technology, the more challenging it becomes for others to replicate, allowing the region to leverage its comparative advantage effectively. Therefore, complexity represents the potential gains derived from technology development.

The ideal strategy for regions is to focus on highly related, highly complex technologies. This maximizes their potential economic gains while minimising the associated risks and investments. In reality, however, many regions face a trade-off between relatedness and complexity.

Transition regions especially, unlike less developed or more developed regions, lack high relatedness in complex digital technologies. Instead, they demonstrate a stronger focus on green technologies with lower complexity.

Consequently, transition regions often face a trade-off between risky investment in new complex digital technologies and more reliably building on existing capabilities in less–complex (and thereby less-rewarding) technologies.

Many transition regions have high relatedness to develop green technologies

Transition regions should avoid risks by focussing on strengths rather than striving for unreachable goals. Given high relatedness in green technologies, these should attract even more activity in transition regions.

Mapping the potential in green technologies, calculating the average relatedness in green technologies for each region reveals which strengths regions possess. The relative comparative advantages serve as a weight indicating how far specialization potential already exist in these technologies.

The regions with the highest relatedness in green technologies are Friesland (Netherlands), Yugozapaden (Bulgaria), and Etelä-Suomi (Finland), with each demonstrating different strengths in green sectors. Friesland and Yugozapaden are main hubs for renewable energy production, while Etelä-Suomi's green potential will be further explored below.

In contrast, regions such as Notio Aigaio (Greece), Bretagne (France), and Algarve (Portugal) exhibit the lowest relatedness. However, it is challenging to identify a definitive geographical pattern of high or low relatedness across regions.

Three examples to understand potential transformation tracks in green technologies

Green technologies are often associated with renewable energies. The two regions with the highest relatedness in green technologies (Friesland and Yugozapaden) show that the energy sector can be regionally decisive. Still, there are more pathways to becoming a hidden champion in green technologies. Here are three examples of possible approaches from Southern (Múrcia in Spain), Eastern (Jihovýchod in Czechia) and Northern Europe (Etelä-Suomi in Finland).

The Spanish region of Múrcia displays high potential in biofertilizers and biocides, sustainable packaging and recycling. Its agricultural profile is shaped by the past activities of a multinational agrichemical company and a private research centre for food products.

In addition, local authorities have set a strong green agenda. They promote green start-ups and implement energy saving measures with social responsibility, creating the necessary environment for positioning Múrcia as a pioneer in developing green capabilities.

Jihovýchod in Czechia stands out due to its specialization in nuclear energy production. Although, this technology remains the subject of controversy in the current debate. The Dukovany nuclear power plant, one of two in Czechia, is primarily responsible for the high relatedness in nuclear energy. Alongside this technology, Jihovýchod shows potential in other green technologies, particularly in biochemistry, concentrated at the Central European Institute of Technology in Brno.

The Etelä-Suomi region surrounding Helsinki demonstrates a high commitment to green transformation. The city of Turku actively participates in the circular cities network of local governments for sustainability and is following a roadmap towards a circular economy. Lahti was even named European Green Capital in 2021 and strives to achieve the ambitious goal of carbon neutrality by 2025.

Therefore, it is unsurprising that Etelä-Suomi has high relatedness in various green technologies such as bio fertilizers, recycling, waste management or alternative fuels. Lahti, for instance, hosts multiple projects promoting waste reduction and recycling, has a soil research centre and connects industry with climate-friendly solutions in a mobility cluster.

Transition regions should focus on their strengths to foster the green transition and catch up.

Despite the lack of sufficient capabilities in highly complex digital technologies and the resulting trade-off, there is potential for transition regions. Given their high relatedness in green technologies and backed by their urban-rural structure, these regions can leverage their advantages for low-risk and cost-effective specialization in green technologies. Transition regions can take the lead in technologies such as biocides, recycling, alternative fuels, and carbon-neutral energy production.

EU and regional policymakers should motivate local companies to capitalize on regional strengths and specialize in green technologies. Concentrated investment from both public and private actors, along with continuous knowledge building in these areas, can strengthen a medium-term comparative advantage. It is crucial for the EU to target investments (like the Integrated Territorial Investments) that are finely tuned to the specific needs of each region in green capability expansion.

While the focus on systematic regional specialisation is the lever for the rapid development of future technologies, continuous refinements and diversification can also increase the degree of complexity and, thus, the profitability of green technologies.

This is essential for Europe in two ways.

  • First, achieving the goals outlined in the European Green Deal requires strategically distributing capabilities among regions. It is not desirable for every region to specialize in the most complex technologies.
  • Second, transition regions can rely on their existing strengths and thereby maximize their chances to catch up – and thereby foster cohesion across European regions against the backdrop of the twin transition.

About the author

Bruno Augsburg worked as an intern at Bertelsmann Stiftung, where he supported the Europe’s Economy project (March to May 2023). Bruno studies development economics at the Georg-August-University Göttingen.

Read more on the green transition and EU Cohesion

Explore Our Study: Technological Capabilities and the Twin Transition in Europe

Two Birds with one Drone: How Technological Progress can Target the Twin Transition and Regional Cohesion (globaleurope.eu)

Digital and Green Transition Threatens to Widen the Gap between EU Regions

Cohesion Policy’s Blind Spot: Strong Regional Institutions are Crucial to Implementing Effective Growth Strategies on the Ground – Global & European Dynamics

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