Energising EU Cohesion: The Renewable Energy Transition Powers Up Lagging Regions

Climate neutrality and the energy sector

Energy is not only found everywhere in our modern life, but also serves as an indispensable prerequisite for virtually every economic activity. This predominant reliance on fossil fuels, such as coal, gas and petroleum, underscores the energy sector's critical role in achieving climate neutrality. Presently, a staggering 82 % of greenhouse gas emissions come from this sector, emphasizing the urgent need for intensifying the renewable energy transition to align with the European Union's ambitious goals outlined in the Green Deal. 

Since 2005, the share of renewable energy in Europe has more than doubled, soaring from 10 % to 22.1 % by 2020. Yet, to approach climate neutrality by 2050, another fourfold increase is required within the next 30 years. As an interim target, the RePowerEU initiative calls for 42.5 % (ideally, 45 %) of energy to be generated from renewable sources, which amounts to a doubling within the current decade.

The transition to renewable energy transcends the addition of solar panels and wind turbines. It initiates profound structural transformations in European economies. The expansion of renewables will run in parallel with reducing fossil fuel extraction. This translates to diminished value added and employment in sectors like petroleum engineering and increased activities in areas like the production and installation of solar panels.

Moreover, the ripple effects of this transformed energy landscape extend across all sectors, influencing pricing structures and impacting economic dynamics. Each region is marked by varying degrees of preparedness for the forthcoming challenges. These differences are rooted in distinct levels of economic development, influencing both the transformational needs and the fiscal capacity to adapt.

Regions at the core of Europe, including Germany, Austria, Northern Italy, and Scandinavia, demonstrate the highest levels of economic development denoted by GDP per capita (adjusted for power purchasing parities (PPP)). In contrast, regions in Central-Eastern Europe and Southern Europe exhibit comparatively lower levels. 

The carbon intensity prevalent in Central-Eastern and Southern European regions, both in the overall economy and specifically in the energy sector, suggests that an extended journey towards achieving sustainability lies ahead. These regions face the challenge of increasing the effort required to decarbonise. At the same time, many of these regions exhibit extended hours of sun each day and frequent, sustained winds, translating with other factors to a high potential for renewable energy production.

At first glance, it seems uncertain whether regions grappling with formidable transformation needs yet endowed with abundant renewable potential are reaping tangible benefits. Our study delves into the complexities of the energy transition, encompassing the phased-out use of fossil fuels in electricity generation, space heating and transportation. It extends to the expansion of renewable energy generation, strategic investments in energy storage and networks, and a nuanced understanding of the fluctuations in energy prices. In essence, the study offers a comprehensive perspective on regional economies, acknowledging the multifaceted nature of the renewable energy shift and its implications for future economic development and territorial cohesion in Europe.

Unlocking new horizons for rural regions in the renewable energy shift 

In the study, we meticulously calculated the economic ramifications arising from a full-fledged transition to renewable energy. Our analysis accounts for both the adverse effects stemming from the phased-out use of fossil energy and the positive outcomes derived from the expansion of renewable energy production. Additionally, we delve into the ripple effects, examining the indirect impacts on various economic sectors. 

While the overall impact on employment and value added in the European Union is minimal, with a marginal decline of -0.1 % and -0.3 %, respectively, the effect varies significantly across regions. By 2050, the renewable energy transition will affect European regions in their value added per capita by between -2,450 EUR and +1,570 EUR per capita and employment by between -2.1 % and +4.9 %.

Our findings underscore the fact that regions on the periphery are poised to reap substantial benefits. Notably, rural regions in central France, the peripheries in Eastern parts of Europe, and areas along the North Sea and Baltic coast are positioned to harness their abundant wind energy potential. Similarly, Mediterranean regions in Southern Italy, Greece and Spain can capitalise on their solar potential. In contrast, regions around the Alps and in the North face the likelihood of experiencing economic setbacks in the wake of the energy transition.  

The pivotal determinant of whether or not a region benefits lies in its economic structures and potential for renewable energy production. Particularly advantageous is the scenario for less developed rural regions, where industries stand to gain significantly from the transition to renewable energy. Furthermore, these regions possess a distinct advantage in leveraging renewable energy production, a flexibility less accessible to urban areas burdened by higher energy demands in absolute terms. This dynamic translates into elevated costs for urban regions relying on renewable sources for their energy systems. 

What does this mean for cohesion between European regions? 

The ramifications of the renewable energy transition extend to cohesion among European regions, painting a complex picture of regions gaining and regions losing. We find a clear relationship between the level of today’s economic prosperity and the size of the effects: The more developed a region is today, the smaller its gains. Thus, gains are highest for less developed regions, many of them rural. For the most developed regions, many of them metropolitan areas, our calculations show negative effects. This highlights a shifting landscape where traditionally leading urban regions may encounter challenges while lagging rural regions emerge as frontrunners in the renewable energy era.

In our model, 109 out of 213 (51 %) assessed regions exhibited better economic prosperity with less developed regions featuring prominently in this group. The average change in all regions in value added per capita is 10 EUR and in employment 0.3 %. This brings greater convergence across regions with a reduction in territorial inequality in Europe of about 1 % - a remarkable outcome in the pursuit of a sustainable and cohesive future. However, with the caveat that some more developed regions may have to deal with reduced economic prosperity.

Expanding the reach of cohesion policy for a seamless renewable energy transition 

The monumental shift towards renewable energy is reshaping the territorial dynamics across European regions, prompting a call for a broader and more adaptive approach from cohesion policy. As Europe's treaty-enshrined policy arsenal is aimed at mitigating territorial inequality, cohesion policy can play a pivotal role in addressing impending challenges in more developed urban regions and ensuring the realisation of positive outcomes in less developed rural regions. 

The evolving landscape demands a strategic expansion of the scope of cohesion policy, transcending traditional boundaries and encompassing all European regions. Tailoring support mechanisms to the different needs of different types of regions necessitates a nuanced and diversified policy instrument approach. 

In particular, less developed, predominantly rural regions stand to benefit if knowledge exchange, technical assistance, and – of course – tangible investments are guaranteed. By strategically aligning renewable energy funding with cohesion funds, investments can be elevated, fostering progress in both energy and cohesion policy. The essence lies in channelling funds to regions with the most pressing needs while concurrently safeguarding and enhancing the positive effects within these areas. Innovative concepts like Energy Communities emerge as powerful contributors to this objective, ensuring local stakeholders actively participate and reap benefits. 

Conversely, more developed urban regions confront unforeseen challenges that demand proactive management. The risk of compromising economic prosperity poses a potential threat to these regions’ commitment to the renewable energy transition. Sustaining their existing economic vibrancy is paramount for fostering upward convergence across the continent and garnering continued support for the transition. An expanded and well-crafted cohesion policy, armed with suitable instruments, emerges as a cornerstone in this endeavour.

While urban regions may not lack financial resources, they often grapple with the potential for renewable energy production. Bridging the gap between less developed rural regions boasting high technical potential and energy-demanding urban counterparts can yield mutually beneficial outcomes. Interreg’s underutilised Renewable Energy Partnerships exemplify such collaborations, showcasing urban areas benefitting from fossil-fuel-free energy while rural regions gain the much-needed certainty of substantial investments. 

The success of the European Green Deal transcends the rapid attainment of carbon neutrality; it necessitates preventing regions from slipping through the cracks in the process. Failing to do so not only jeopardises broader support for the Green Deal but also imperils both climate protection and European cohesion. Cohesion policy, with an expanded scope and adaptive strategies, emerges as the linchpin for ensuring a seamless and successful transition towards a sustainable future.