2. Identifying vulnerable regions

This chapter identifies the regions most vulnerable to the transformation in the key manufacturing sectors in the transition to climate neutrality. The analysis is limited to regions in the 27 European Union (EU) member states (EU27), Iceland, Norway and the United Kingdom (UK), for which emissions data covered by the EU Emission Trading System (ETS) and sectoral regional employment data are available. ETS data and regional sectoral employment data are central to identifying vulnerable regions.

Vulnerable regions are identified by determining their employment and emissions in key manufacturing sectors that will need to undertake particularly profound transformations. The following section explains how the regions are identified in more detail. The chapter will then detail vulnerable regions by key sector. Regions are classified using the Nomenclature of Territorial Units for Statistics (NUTS system), which is the EU’s classification regions at different level of details.

Most EU economies only provide employment data at the two-digit Nomenclature of Economic Activities (NACE) level across large (NUTS 2) regions. To complement the employment analysis, emissions per capita in each sector across regions (NUTS 2) is used. Sectoral emissions can be computed at the three- and four-digit level as well as for small (NUTS 3) regions. As the analysis below argues, regions with both high employment shares and high emissions per capita in key manufacturing sectors are likely to be the most sensitive to the transition to climate neutrality. In the manufacturing of motor vehicles, emissions data do not serve to locate transformation challenges, as the most challenging transformations relate to the production of zero-emission vehicles rather than to the reduction of production emissions.

The identification of vulnerable regions is based on emissions per capita and shares of sectoral employment in total regional employment to assess the exposure of regional populations and workforces to the transitions sectors require to reach climate neutrality, regardless of size of region. However, the absolute amount of emissions and the total number of workers employed in a specific sector is also of interest to assess vulnerability. This information is therefore also provided below in the identification of vulnerable regions.

The analysis reveals that regions with large employment shares in the key manufacturing sectors identified in Chapter 1 are not always the same as those with high emissions per capita in these sectors. This may occur for several reasons:

  • Not all sector employment is to be found at production sites hosting the installations which generate the emissions. Whilst the impact of the carbon-neutral transition is likely to be felt across the firm, workers and locations directly engaged in establishments where the emissions occur are likely to be most vulnerable. They may hold occupations with specific skills that are not always be suited to the new climate-neutral technologies. By contrast, managers and accountants working in other establishments within the firm may find it easier to transfer their skills to other sectors, including those that will benefit from the green transition.

  • As demonstrated in the first chapter, there can be significant differences in the emissions intensities of three-digit NACE activities within two-digit activities. There can be significant differences in the distribution of employment across sub-sectors at the three-digit NACE level, with some regions more specialised in sub-sectors with lower emission intensities.

  • Regions may also differ in how much they have advanced in adopting less emissions-intensive production. If regions continue to invest in high-emission productions, they will be more at risk of stranded assets, amplifying employment risks. Across regions, industries may also produce with different labour intensities.

Employment data used in the report are sourced from Eurostat structural business statistics (Box 2.1). Emissions data are sourced from the EU ETS. EU ETS data do not identify the NACE sector of origin. One novel contribution of this publication is to attribute regional emissions to the key NACE manufacturing sectors by identifying the companies that own the installations as well as their main sector of activity (Box 2.1).

Employment shares across all key manufacturing sectors are high in Central and Eastern European regions (Figure 2.1). The automobile industry is the biggest employer and therefore dominates this spatial distribution of employment.

Table 2.1 shows the regions with high employment shares and high emissions per capita in at least one of the key manufacturing sectors. For example, Asturias has high employment shares only in basic metals production as well as higher related emissions per capita. Table 2.2 lists the employment and emissions thresholds that classify regions as vulnerable.

Recognising the importance of a more granular lens, the following sections analyse the vulnerability of regions to the transformations in each key manufacturing sector.

Most petroleum refineries will become obsolete as the EU moves towards climate neutrality. Regional employment shares in the manufacture of coke and refined petroleum products are low across the EU. There is little employment in coke production in the EU, so this sector will be referred to as oil refining. No large (NUTS 2) region employs more than 0.5% of workers in this sector. Still, in some regions, it can reach several thousands of workers. One outlier is Île-de-France with over 15 000 employees in 2017, but very low emissions, likely reflecting the presence of headquarters or other managerial functions in the Paris region, with managerial or administrative occupations.

A few large (NUTS 2) regions, spread across West, North and South Europe, have both relatively high employment shares and high emissions per capita in oil refining (Figures 2.2 and 2.3). These regions and their workers will likely be most vulnerable to the gradual phase-out of oil products. Moreover, their employment is concentrated in relatively few establishments. The regions with the highest absolute emissions covered by the EU ETS are in Germany, Italy, the Netherlands and Poland.

Transition risks of moving to climate neutrality are further concentrated in small (NUTS 3) regions (Annex Figure 2.A.1).

Regions with high employment shares in the manufacture of chemicals and chemical products are mostly in Central and Western Europe. In some cases, high employment in this sector overlaps with high employment in oil refining as they are often closely related. However, employment is much higher in the chemicals sector. Regions with high levels of employment in this sector employ several tens of thousands of workers. Once again, the Île-de-France region in France is an outlier with over 100 000 workers in this sector in 2018, likely also reflecting a headquarters effect, as Île-de-France has almost 3 000 establishments but only 3 emitting installations in chemical production.

Regions with the highest employment shares are located in Belgium, Germany and the Netherlands (Figure 2.4). Regions with high employment shares and high emissions per capita tend to overlap (Figure 2.5). The most emission-intensive sub-sector is the manufacture of basic chemicals, fertilisers and nitrogen compounds, plastics and synthetic rubber in primary forms (NACE 201), where transformation challenges are also likely to be particularly deep.

The emissions of the large (NUTS 2) regions with the highest employment shares and the highest level of emissions tend to be concentrated in just one small (NUTS 3) region (Annex Figure 2.A.2).

Many regions have thousands or even tens of thousands of workers in basic metals manufacturing, with Arnsberg, Germany, having over 50 000. Two sub-sectors stand out as particularly emissions-intensive and hard to abate, namely the manufacture of basic iron, steel and ferroalloys (NACE 241) and aluminium production (NACE 2442). Therefore, EU ETS emissions related to these two sub-sectors are shown.

Employment shares in the manufacture of basic metals can reach several percentage points. Regional employment shares in basic metals manufacturing exceed 1% in 26 large (NUTS 2) regions. Regions with higher shares are mainly in Central and Northern Europe, especially in the Czech Republic, Sweden and the UK (Figure 2.6).

Thirteen large (NUTS 2) regions have both an employment share in basic metals exceeding 1% and emissions per capita for steel and aluminium over 1 tCO2e per capita (Figure 2.7). They are spread across Austria, the Czech Republic, Finland, Germany, Italy, Poland, the Slovak Republic, Spain, Sweden and the UK, with a particular concentration in Central and Northern Europe. These regions may find it more challenging to move to climate neutrality as they need to convert current infrastructure, reskill or find employees with skills suitable to the production of green steel and aluminium.

In some large regions with high employment shares, emissions per capita in steel and aluminium production are relatively low, as is the case for Arnsberg. These regions could have jobs in less emission-intensive sub-sectors or employ workers in managerial or administrative tasks rather than in production processes. Conversely, a few large regions have high emissions from steel and aluminium plants but do not stand out on employment shares. Still, they may employ thousands of workers. As Box 2.2 illustrates for Sweden, data at the three-digit NACE level allow for the identification of employment in sectors where transformation challenges are likely to be less deep, such as in the production of tubes and pipes.

Both steel and aluminium production emissions are concentrated within their respective large (NUTS 2) regions. In both cases, large regions with the highest emissions have over 85% of their emissions in just 1 small region (Annex Figures 2.A.3 and 2.A.4).

The output of the manufacture of non-metallic mineral products is diverse. Cement production has been identified as particularly difficult to move to climate neutrality. Hence, employment in this sub-sector may be more at risk. While employment in cement production cannot be distinguished from other non-metallic mineral production in most countries, emissions from the EU ETS can identify regions producing cement, lime and plaster (NACE 235). Large (NUTS 2) regions with high employment shares in the manufacture of non-metallic mineral products are especially numerous in Central Europe (Figure 2.9). The regions with the highest shares are located in the Czech Republic, Germany, Poland and Portugal. However, high employment shares can also reflect employment in other sub-sectors.

In Italy, employment in cement production can be distinguished from employment in non-metallic minerals (Box 2.3). The example of Italy shows that high cement-related emissions per capita combined with high employment in non-metallic minerals can provide some indication of which regions face more cement-related transformation challenges.

Beyond Italy, there are several large (NUTS 2) regions with employment in non-metallic minerals above 1% and where at least half of emissions in the sector are cement-related. These are located in Austria, Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Hungary and Poland. Many of these large regions have high emissions per capita in cement production (Figure 2.10). Some particularly large (NUTS 2) regions with low emissions per capita and employment shares still stand out for high absolute cement-related emissions and employ thousands of workers, especially in Germany and Spain.

As in other key manufacturing sectors, cement-related activity is further concentrated within small (NUTS 3) regions (Annex Figure 2.A.5). For example, in the large region Opole, Poland, all cement-related emissions are emitted in the small region Opolski. Hence, this Polish community may be especially vulnerable to employment losses.

Among the key sectors, emissions are relatively low in the manufacture of paper and paper products. Even so, the transformations needed are still great in the manufacture of pulp, paper and paperboard (NACE 171), which is the most emissions intensive. Therefore, emissions from this sub-sector are considered.

While employment shares exceed 1% in only a few large (NUTS 2) regions, regional employment can still reach thousands of workers (Figure 2.12). Large regions with higher employment shares in the manufacture of paper and paper products are mostly in Northern Europe. Swedish regions lead the sector. Their high employment shares rely on a relatively small number of establishments.

Regions with high employment shares and high emissions per capita are mainly located in Finland and Sweden (Figure 2.13). Few other sectors have such consistent overlap in regions scoring high on both. Finnish regions also have among the highest absolute emissions.

Regional employment shares in the manufacturing of motor vehicles, trailers and semi-trailers (NACE 29) across the EU are the highest among the key sectors. Almost a third of EU large (NUTS 2) regions have a regional employment share greater than 1% in this sector, indicating that a great share of regions and their workers will be at risk.

The regions that have high employment shares are mainly concentrated in Central and Eastern Europe (Figure 2.14). Four large regions, employing over 300 000 workers combined, in the Czech Republic, Germany, Hungary and Romania have regional employment shares greater than 7%. Regions with the highest employment shares in the EU do not report data for three-digit vehicle manufacturing sub-sectors. Box 2.5 focuses on Romania, where more than half of large (NUTS 2) regions have employment shares above the EU average.

Some large (NUTS 2) regions are more dependent on fewer establishments. For example, while the Central Bohemian region in the Czech Republic has a similar number of workers compared to West Romania, it has more than double the number of establishments. Central Bohemia may be better able to absorb firm-specific employment shocks when a single establishment closes.

Transformation challenges in this sector do not mainly relate to emissions, so emissions are not shown. Moreover, only 52% of sectoral emissions are represented in the EU ETS, as many installations fall below the threshold to be included in the EU ETS. Île-de-France, France, and Stuttgart, Germany, have the highest and second-highest absolute employment respectively. There may be a stronger headquarters effect in Paris, where workers may have more transferable skills.

References

[1] EC (2021), European Emissions Trading System (ETS) – Calculations on the Regional Employment Impact of ETS Installations, Publications Office of the European Union, European Commission, https://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/reg_impact_ets_installations_en.pdf.

[2] Fuentes, A., J. Noels and V. Ventricelli (forthcoming), “Regional Industrial Transitions to Climate Neutrality: Identifying vulnerable regions”, OECD Regional Development Policy Papers, OECD, Paris.

[3] Swedish Energy Agency (2021), Energy in Sweden 2021 - An Overview, https://energimyndigheten.a-w2m.se/Home.mvc?ResourceId=198022.

[4] Transport & Environment (2015), Reasons to Change the Zero-rated Criteria for Biomass in the EU ETS, BirdLife, European Environmental Bureau and Transport & Environment, https://www.transportenvironment.org/wp-content/uploads/2021/07/2015%2001%20biomass%20ets_rating_FINAL.pdf.

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