In an earlier blog Industrial regions on the way to climate neutrality? we show that some regions need to do a lot more “heavier lifting” than others to reach climate neutrality. This is particularly true for regions with activities in key manufacturing sectors that are especially difficult to make climate neutral.
With the right investment, the path to net zero will be a net positive – improving well-being and the local environment. When hydrogen replaces coal in making steel from iron ore, fine particle pollution diminishes. More intelligent, sparing use of cars, especially in cities can reduce congestion, air pollution, accidents and noise, as well as energy and raw materials use.
But impacts are unequally distributed across space. Many of these regions needing to do the “heavier lifting” are those with the least resources to make the required transformations. Their economies are often weaker and less resilient. A just transition will require national policy makers to target and support these places before it is too late.
Regional job challenges
The impact of the transformations for climate neutrality on the reallocation of jobs across sectors and the distribution of wages is smaller than for the digital transition. Even so, jobs in key manufacturing sectors in which the “heavy lifting” will occur, are important to these regional economies: they keep unemployment low and often pay much better than other jobs in the region. In Zeeland, Netherlands, workers in the chemical sector earn more than double the average wage in the region.
The most exposed regions are often poor. In Europe, GDP per capita and wages in the most exposed regions are up to 38% lower than national averages. Many of the exposed regions also have weaker digital infrastructure, high numbers of households at risk of poverty, and a less well-educated population. In the region of Peloponnese, Greece, wages are 20% lower than the Greek average.
While the industrial jobs with the biggest transformation challenges generally pay better than many other jobs in the most exposed regions, in some of them workers on these jobs are still on low pay compared to national standards, such as in non-metallic minerals manufacturing (which includes cement production) in Italy’s Center region. In North-East Italy around 75% of workers in basic metals manufacturing are in low-skill occupations. This makes it harder for them to learn new skills. Developing those skills also requires support in regions such as Moravia-Silesia in the Czech Republic or the Polish Central region where young workers in these sectors tend to be on temporary contracts. Temporary contracts reduce appetite of firms to invest in training.
In many of these regions, firms are also more vulnerable. Firms producing steel in Saarland, Germany, are less productive than in other European regions, which may make it more difficult to integrate new technologies and to generate funds for the major investment that is needed.
The regions most exposed to transformations in key manufacturing industries are often economically weak
Share of exposed regions which over or underperform, relative to the national average, on selected economic indicators.
A helping hand?
The regions that have particularly challenging transformations on the way to climate neutrality are often those with the least resources. National policy makers need to channel funds – and build capacity – to support them and find solutions. And they must step up action now.
Andrés Fuentes Hutfilter is senior economist in the OECD and head of the Regional Outlook and Environmental Economics unit in the Economic Analysis, Data and Statistics Division of the Centre for Entrepreneurship (CFE), SMEs, Regions and Cities in the OECD. He has lead the work on the 2021 OECD Regional Outlook and works on territorial aspects of reaching net zero greenhouse gas emissions by 2050 in OECD countries and their economic analysis. Before joining CFE he worked in its Economics Department. He holds a DPhil in Economics from Oxford University.
Valentina Ventricelli is a former Junior Policy Analyst in the Economic Analysis, Data and Statistics Division in the OECD Centre for Entrepreneurship, SMEs, Regions and Cities. Her work with the OECD focuses on environmental transitions to climate neutrality at a regional and local level. She holds a Master in Economics and Policy of Energy and the Environment from UCL.