Renewable Energy 85 (2016) 610e619

Contents lists available at ScienceDirect

Renewable Energy

journal homepage: www.elsevier.com/locate/renene

Socio-economic impacts of a local bioenergy-based development strategy e The case of Pielinen Karelia,

* Olli Lehtonen a, Lasse Okkonen b, a Natural Resources Institute Finland, Rural Policy and Research, Helsinki, Finland b Karelia University of Applied Sciences, Energy and Environmental Technology, Joensuu, Finland article info abstract

Article history: The regional bioeconomy has great importance for generating socio-economic impacts, especially in Received 7 February 2014 sparsely populated resource peripheries. The benefits include increased employment and income and Received in revised form improved security of supply. In this study, the modified regional inputeoutput model of , 6 May 2015 Finland is applied for analysing the socio-economic impacts of a bioenergy-based local development Accepted 4 July 2015 strategy. The results indicate significant socio-economic benefits of a local development strategy based Available online 17 July 2015 on bioenergy. This benefit is corroborated by approximately 12 million euros in annual income impacts and 280 personnel working years in the district. New stimuli in a currently declining municipality could Keywords: Socio-economic impacts potentially break negative path dependency. New bioenergy and bioeconomic developments are Regional inputeoutput modelling promising solutions for the construction of place-based regional development in resource peripheries. Bioenergy © 2015 Elsevier Ltd. All rights reserved. Place-based development

1. Introduction regional differences in Finland between rural and urban areas. For example, the descriptive analysis about the balance of net migra- In the current phase of regional development in many sparsely tion and unemployment levels has indicated that net migration has populated European regions, economic stimuli are welcomed in not been able to equalise unemployment differences between rural settings [1e3]. Investing in the bioeconomy by offering jobs growing university regions and municipalities in the eastern and also “ties up” people in the sparsely populated regions with northern parts of Finland, resulting in persistent regional differ- persistent, negative net migration rates and increases the possi- ences in unemployment [9,10]. When the local workforce is not bilities for resource utilisation in the future [2]. From the particularly mobile, studies have shown that creating local job perspective of regional development, the bioeconomy is important opportunities appears to be the best way to increase employment as it can establish new production systems across stagnating rural among disadvantaged workers [11e13]; however, more research is regions whose populations are dispersed [4e7]. Increased in- needed to identify successful local development strategies, as well vestments and improved utilisation of resources could slow down as an assessment of the impacts on regions and their development the decline happening in extensive rural areas by providing jobs paths. One possibility is locally promoted entrepreneurship and and offering higher incomes, thereby helping to achieve a more small business development, which has proved to be promising in vital demographic structure and better provision of services. A rural and lagging regions [14,15]. Other studies have highlighted bioeconomy is well suited to peripheral areas because the in- the role of external shocks as a solution for prevailing negative lock- dustries entering new regions tend to relate to pre-existing in- in in rural regions [6,8,16]. dustries [8]. However, the socioeconomic impacts are widely The referred place-based argument suggests that development unknown as is the possibility of bioeconomic investments trans- strategies should, therefore, focus on mechanisms that build on forming negative areal development paths into positive ones. local capabilities and promote innovative ideas through the inter- The uneven development of regions has led to widespread action of local and general knowledge and endogenous and exog- enous actors in the design and delivery of public policies [17]. Place- appropriate development policy recognises that rural areas have different amenities and face different challenges [12,18e21]. Its * Corresponding author. starting point is that if a development policy fails to recognise these E-mail addresses: olli.lehtonen@luke.fi (O. Lehtonen), lasse.okkonen@karelia.fi changing local potentials, it makes a passive contribution to rural (L. Okkonen). http://dx.doi.org/10.1016/j.renene.2015.07.006 0960-1481/© 2015 Elsevier Ltd. All rights reserved. O. Lehtonen, L. Okkonen / Renewable Energy 85 (2016) 610e619 611 decline [22]. Rural areas have many assets that are highly valued Karelia. It is categorised as a resource periphery because its eco- within the contemporary global economy, such as access to re- nomic base is still dependent on the processing of local natural sources, natural amenities, a high quality of life, and inexpensive resources such as agriculture, forestry, mining, and the land [22]. However, studies evaluating the effectiveness and suc- manufacturing of wood and food products. The economic structure cess of local municipal development strategies, in terms of socio- of Pielinen Karelia is strongly dependent on primary and secondary economic conditions, are missing. industries as approximately 20% of the jobs are in primary in- The aim of this paper is to study the socioeconomic impacts dustries and 16% of the jobs are in secondary industries. In the related to place-based development strategy in the bioeconomy, Joensuu region the corresponding proportions are 5 and 17%, focusing on a large-scale biochar factory and its associated in- respectively [25]. The strengths of include the metal and dustries. The analysis focuses on the impacts of the development wood industries and the food product industry as well as the strategy on the incomes and employment in a small peripheral tourism industry around Pielinen and its attractions. Nurmes municipality in Pielinen Karelia, Finland. The analysed develop- is located approximately 125 km north of Joensuu, and it is char- ment strategy of the bioeconomy is an example of place-based acterised by declining employment and a high unemployment rate. policy, including local actors and the knowledge of industrial her- The negative development in Nurmes indicates that the local itage and processing, as well as global investments that support economy has not benefited from the growing Joensuu region where local natural resource utilisation with new technology. In this paper the number of jobs increased in the period 2007e2012 by 2102 we seek to answer what sort of impact does the income and jobs. No data are available regarding the connectedness of the employment development strategy have on the municipality and Pielinen Karelia economy to the Joensuu region, but international its sub-region, and what are the possibilities of the local develop- studies have shown that spill-over effects are geographically ment strategy changing the current paths of regional development limited and their potential extends 80 km from the centre [26], in the study area. With these questions we assess the success of the even though the impact and strength of spill-overs vary by industry development strategy and discuss its pros and cons. We focus our [27]. analysis on the municipality of Nurmes, which is a small traditional industrial town in the resource periphery challenged by the nega- 2.1. Regional development processes in the study region tive lock-in of local development. In the following chapters, we describe the development pro- The study region, Pielinen Karelia, is a typical example of a cesses and the development strategy of the study area. Next, we resource periphery confronting various simultaneously occurring present a technical description of the biochar factory and the in- development problems: depopulation, declining employment and vestment data and procedure for calculating the socioeconomic high unemployment. Depopulation has been severe in Pielinen impacts of the development strategy. We subsequently present the Karelia. Since 2000, the population has decreased by 16.5%, results of the analysis, and in the final section, we discuss the re- numbering 23,381 inhabitants in 2011. In the municipality of sults of the study and indicate their theoretical, methodological, Nurmes the population decrease was 14.5%, and the total popula- and practical implications. tion in 2011 was 8,359 inhabitants. Another negative feature of the dwindling population is that, simultaneously, the population is 2. Study area: sparsely populated peripheral region getting older. In Pielinen Karelia, due to selective out migration, the proportion of individuals older than 64 years, compared to the total The case study area is located in North Karelia one of 19 re- population, has increased since 2000 from 20.5 % to 29.4 % in 2013 gions in Finland with an approximate size two-thirds of that of [28]. The root of the negative out migration is the high local un- Belgium. North Karelia is located in a coniferous zone in the east- employment rates, which were higher than in the Joensuu region. ernmost part of the country; its resource assets are highly based on In 2011, the unemployment rates were 17.9% in Pielinen Karelia and forest resources as forests cover approximately 85% (1.5 mil. ha) of 16.9% in Nurmes, whereas in the Joensuu region, the unemploy- the land area. The annual cutting in 2011 for round wood was 4.766 ment rate was 14.0% [25]. The higher unemployment rates are also million m3, whereas the maximum sustainable cutting was 5.75 reflected in the lower income levels. In 2011, the average income of million m3, indicating that there are nearly 1 million m3 of unused Pielinen Karelia was 28,823 euros, which was 11.6% smaller than in forest resources in the region upon which to build new bio- the Joensuu region, where the average income was 32,607 euros. economic investments [23]. Pine (Pinus sylvestris) is the dominant The high unemployment rates reflect the problems of the tree. In addition, spruce (Picea abies) and birches (B. pendula and B. declining economy in Pielinen Karelia, which lost 108 jobs during pubescens) are common. Characterized by its abundant forest re- 2007e2012. The declining trajectory is related to the rationalisation sources North Karelia is an example of a resource-dependent NUTS of the primary industries in agriculture (166 jobs lost in the period 3-level region in northern Europe, increasingly supported by state- 2007e2012) and the maturation of traditional industries related to led innovation policy and various regional policy projects. It is also natural resource utilisation, such as the production of sawn timber an example of a single-nodal region where positive development and its refinement (192 jobs lost) [25,29]. Depopulation also seems has primarily concentrated around the growing Joensuu region. to be a reason for the decline of employment in some service in- Three quarters of the region's 165,000 inhabitants are concentrated dustries: construction (56 jobs lost), wholesale and retail trade (60 in the regional capital, Joensuu, and its vicinity. While the popu- jobs lost) and education (34 jobs lost) [25]. However, simulta- lation of Joensuu has grown to 75,000 inhabitants, all the other neously, some industries have grown. Most of this growth has been urban areas and rural municipalities outside Joensuu have lagged in the area of health and social work, which has increased the behind [2,24]. The growth of the Joensuu area is connected with its number of jobs as a result of an aging population (160 jobs gained). success, including the generation and attraction of enterprises, the Compared with the growing Joensuu region, the obstacles to pos- growth of the university and its spin-offs and globalisation im- itive development in Pielinen Karelia are related to a lack of an pulses experienced by industries. The regional centre is also sup- agglomeration of economies, no growth-exposed economic struc- ported by urban and innovation policies. Metal products are ture and few young and educated workers oriented to entrepre- manufactured in Joensuu, including, for example, forest machinery, neurship [29]. The replacement of jobs has been low because these locks and locking systems. local disadvantages have led to a low competitiveness, which does The municipality of Nurmes belongs to a sub-region of Pielinen not support the renewal of the economic structure. In statistical 612 O. Lehtonen, L. Okkonen / Renewable Energy 85 (2016) 610e619 simulations, Pielinen Karelia had comparable growth probabilities Development Centre (PIKES), which actively steers and fulfils the with the growing Joensuu region only when new jobs were based Pielinen Karelia area's development and regeneration. Despite the on natural amenities [29]. The employment statistics support the negative development path in the study area, the developers and simulation results as the number of jobs in Pielinen Karelia has municipality have made an effort to secure their future, develop the grown in forestry (72 jobs added) and in hotels and restaurants (57 existing economic base and found new potential sources and in- jobs added) [25]. dustries of growth. The aim of the local development centre, The simulation results of a previous study confirm that except together with the municipality of Nurmes, is to seek new possi- for the uneven development of North Karelia, the development of bilities to preserve the region's essential resources and its ability to Pielinen Karelia is dependent on the success of the local economy create healthy and stable communities, which would attract young [30]. The potential spread of effects from the growth of Joensuu are families and labour to the municipality to solve problems related to not directed at Pielinen Karelia because commuting to work in the depopulation. In some municipalities located within reasonable Joensuu region is not an economically viable option for people commuting distances from growth centres, as observed from the living in Nurmes [30]. The high commuting costs associated with development processes, this can mean a more passive development travelling large distances decreases the possibilities for working in strategy, as there are benefits from being located next to a growing the regional centre; thus, households tend to migrate closer to the municipality; but in some municipalities located in resource pe- Joensuu region to minimize the proportion of household incomes ripheries, such as Nurmes, an active development strategy is spent on housing and commuting costs. Therefore, the potential required due to local disadvantages. The strategic work is essential, spread effects from the growth of Joensuu do not efficiently reach for instance, to increase tax revenues in the municipality. In Nurmes or other areas in Pielinen Karelia (Fig. 1). They actually Finland, municipalities form an important geographical level change to backwash effects, which explains the negative popula- because they control many community services, such as schools, tion development in Nurmes. Net migration statistics support the health care, the water supply, and local streets. simulation results because 2007, the net migration between Pieli- In Pielinen Karelia, local business development strategies for nen Karelia and the Joensuu region has been negative; 1387 in- 2011e2013 and 2014e2017 were prepared in steering group habitants have moved from Pielinen Karelia to the Joensuu region meetings involving public authorities, business development [31]. Additionally, the commuting statistics support the interpre- companies, private enterprises and third sector representatives. tation because only 4% of Pielinen Karelia employees commute to The strategies identify nature and renewal as two main develop- work in the Joensuu region [32]. ment lines for resulting activities [33]. Nature includes the devel- opment of decentralised renewable energy solutions, a forest bioeconomy, the food industry and other sustainable rural in- 2.2. Development strategy of Pielinen Karelia and Nurmes dustries. The statement “everything out of wood” describes the development policy and resulting activities well, such as industrial The regional development processes emphasise that develop- investment projects in biochar and pyrolysis. The renewal category ment in Nurmes should be enforced locally. Therefore, local policy includes activities to improve the attractiveness of the region, such makers and developers have sought new sources of growth within as improving the local knowledge base and expertise in key areas of their communities based on place-based approaches. In the study business, the improvement of business development services and region, the local development is organised by the Pielinen Karelia

Fig. 1. Proportion of housing and commuting cost as part of household income [29]. On average, households spend 30e40 % for housing and commuting, and they need 20% for basic living including food, health and communication. Thus, 80% is a rough economic limit for housing and commuting costs. O. Lehtonen, L. Okkonen / Renewable Energy 85 (2016) 610e619 613 the strategic planning of new tailored industrial areas. The devel- renewable energy solutions. opment strategy includes a number of development activities, both The background study for the Pitkam€ aki€ industrial area [35] public and private, and it acknowledges that industrial develop- presents the estimated raw material base for biochar and bio-oil ment is a driver of structural change in the process of economic production in Nurmes. The raw materials include both round development. wood (approximately 30%) and small-diameter energy wood from In our study area, the municipality of Nurmes, activities the thinnings (approximately 70%), with a diameter at breast height included those supported by the public European Agricultural Fund (dbh) varying between 2 and 28 cm [35]. Most of the raw material for Rural Development (EAFRD), co-financed project Pielinen Kar- (energy wood) can be considered as surplus to the current con- elia Bioenergy Networks and Flows (2011e2014), and European sumption, primarily in the municipal district heating. However, the Regional Development Fund (ERDF) projects Grow Green Nurmes round wood that is greater than 16 cm dbh has a competing market (2013e2014) and Industrial Symbioses (2015e2017). The first ac- in the pulp mills, the nearest of which is located in Uimaharju, tivity focused on the generation of new business in decentralised approximately 100 km south-east of Nurmes. According to [36] the renewables, such as farm-scale combined heat and power and raw material potential from Pielinen Karelia (Nurmes, and biogas. The second was a spin-off of the first: an industrial-area Valtimo) is approximately 150,000 m3 and the potential from North development project in the town of Nurmes to support the estab- Karelia is 350,000 m3. In addition, significant raw material poten- lishment of a large-scale biochar factory, nearby terminal opera- tials are identified from the neighbouring regions of Nothern Savo tions and processing industries. The development work continues (150,000 m3) and Kainuu, where the closure of a Kajaani paper mill in the Industrial Symbioses project including activities to support in 2008 reduced the use of round wood by approximately the development of new industrial areas. The public development 200,000 m3/a. The projected new demand is mostly based on the projects provide expertise and planning support for the private surplus of raw materials and compensates for the earlier reductions investments, which are forecasted to be approximately 40 million in pulp production capacity. Therefore, the resulting employment euros in the Nurmes area by 2016. In addition, the neighbouring and income impacts can be considered positive for the regional municipality of Lieksa has plans for similar development projects, development. such as a fast pyrolysis plant using forest industry by-products. In Nurmes, projects are based on both local advantages (such as 3. Data and methods for analysing the socioeconomic biomass resources and transportation connections) and attraction impacts of the municipal development strategy policies (available industrial sites, development funding and sup- port in planning processes) that seek new tax income and 3.1. Investments related to the development strategy employment. There is evidence that attraction policies often include considerable local development costs, and benefits can The development strategy data for the socio-economic impact flow outside the region [34]. In the planning phase, the risk of modelling were gathered directly from the companies preparing project failure and the associated costs of land-use planning and the investments in the area. The data include investment budgets applying permissions remains largely with the local authority. In specified in detail, organised by sectors. The investments are addition, stand-alone biorefineries can be vulnerable to market detailed, allowing for an estimate of the shares of local investments fluctuations, such as the price of fossil fuel oil or charcoal. In and investments outside the North Karelia region. In conventional Nurmes, risks are identified and reduced by utilising external operations, such as land and house construction, the local invest- regional development funds in planning, considering opportunities ment rate was approximately 80%, and in more advanced opera- for increased local ownership and contracting, and through novel tions (installations and production technologies) it was upgrading processes that result in intermediate products (biochar approximately 35%. These estimates came from the involved and fluids) suitable for multiple final material and energy products. companies and the authors. The companies also provided estimates In this study, we focus on the forthcoming investments in the on the annual use of raw materials and other primary purchases. Nurmes area to elucidate the potential socio-economic impacts of The annual turnovers were based on production volumes and es- the municipality's development strategy. timates by company representatives. The infrastructure investment data were provided by Nurmes' planning department. 2.3. Characteristics of the biochar industry in Nurmes Table 1 includes the estimated investments related to the municipal development strategy by industries and scenarios. The Renewable energy-related investments included in the analyses scenarios depict the impact of the different production volumes of focus primarily on the planned industrial area of Pitkam€ aki,€ Nurmes. the biochar factory based on 175,000 m3, 350,000 m3 and The biochar production plant will be based on a slow pyrolysis pro- 525,000 m3 of forest raw-material use. The total investments in the cess, with four steps of pyrolysis reactors and condensing units, and a construction phase vary between the scenarios from 11.183 to heating rate that increases from 110 Cto600C. The products are 12.290 million euros. The impacts of the annual production on the biochar (32% of dry matter), bio-oil and other distillates (30e32 % of regional economy are higher, as the increase in final demand varies dry matter) and non-condensing gases used as process energy [35]. between scenarios from 16.060 to 35.206 million euros (Table 1). When operating at full scale, the plant will use upto 550,000 m3 of energy solids and round wood annually and produce up to 100,000 3.2. Modified inputeoutput model for socio-economic impacts tons of biochar and 95,000 tons of liquid products. The factory in- cludes an integrated 2 MWe combined heat and power (chp) plant The socio-economic impacts related to the collected empirical based on woodchips producing process energy and also heat and investments were modelled with a modified regional inputeoutput power for the new industrial area. The industrial system includes a model, which is a useful tool for elucidating the structure of the wood fuel terminal delivering up to 50,000 m3 of woodchips, a rail economy in terms of the flows of goods and services and for ana- terminal and a wood material drying company. Investments also lysing the impacts of changes in final demand [37]. The publication include two decentralised small-scale systems outside the Pitkam€ aki€ of regional inputeoutput figures for 30 industries [38] made it industrial area: a farm-scale 140 kW (100 kW for heat and 40 kW for possible to evaluate the economic importance of the development power) chp-system based on woodchips and a locally manufactured strategy investments and their annual impacts on employment and wooden villa and cottages with energy efficient structures and incomes in the North Karelia region. The economic model is based 614 O. Lehtonen, L. Okkonen / Renewable Energy 85 (2016) 610e619

Table 1 Investments of the municipal development strategy by industry (million V).

Industry Scenario A Scenario B Scenario C

Investments of starting phase Manufacture of machinery and equipment 1.610 2.123 2.637 Basic metals and metal products 0.091 0.091 0.091 Manufacture of office machinery and computers 0.080 0.120 0.160 Construction 5.815 5.815 5.815 Site preparation 3.123 3.123 3.123 Manufacture of wood and wood and cork products, except furniture, 0.149 0.149 0.149 and manufacture of articles from straw and plaiting materials Wholesale and retail trade 0.012 0.012 0.012 Electricity, gas and heat supply 0.302 0.302 0.302 Total investments 11.183 11.736 12.290 Annual increase in final demand Forestry and logging 6.139 10.899 16.339 Electricity, gas and heat supply 9.000 13.500 18.000 Manufacture of transport equipment 0.360 0.360 0.360 Coke, refined petroleum products, chemicals, chemical products, 0.461 0.461 0.461 rubber and plastic products Hotels and restaurants 0.100 0.100 0.100 Total 16.060 25.320 35.260

on regional statistics, but most of the socioeconomic impact is   1 concentrated on Nurmes. The regional inputeoutput model for x ¼ I A y; (2) North Karelia is constructed from the relevant inputeoutput sta- tistics [38]. The base year of the regional inputeoutput tables in where the term A is an n$n matrix of input coefficients for n in- Finland is 2002. The vectors for gross outputs and final demand in dustries; ðI AÞ 1 is known as the Leontief inverse; the vector y is the region in 2010 were updated from the Regional Accounting the final demand for the output of each industry; and x is the [39], whereas the input coefficients describe the economic struc- column vector of gross outputs for each industry. The revised input ture as it was in 2002. The employment data are also updated for coefficient matrix (A) for 2002 consists of 33 industries. 2010 [39]. The deployment of a Nurmes development strategy may have The regional inputeoutput table was revised by dividing the positive effects on the regional labour market by, first, introducing construction sector into two sectors: house construction and site direct employment and, second, by supporting related industries preparation, including energy and heat production as one sector and the employment therein (e.g., the forestry and local/regional and households as another sector in the table. The inputeoutput renewable energy technology providers, installers and service coefficients for site preparation were estimated using a simple providers) [46]. The multipliers used to estimate the income and location quotient (SLQ) technique [40]. Because it was difficult to employment impacts are so-called type II multipliers that measure acquire any exact data regarding biochar production processes, for direct, indirect and induced effects [47]. Direct impacts are the simplicity, we assumed that the production of biochar, apart from initial, immediate economic activities generated by the project or fuel, would result in other inputs of energy production that are development. Indirect impacts are changes in production, similar to those required by the already existing electricity, steam employment and income occurring in other businesses or in- and hot water supply industries. This may be a rough assumption, dustries in the region that supply inputs to the project industry. but the coefficients are the best-available estimates because the Induced impacts are the effects of household spending in the local production process has similarities with the burning of forest res- economy as the result of direct and indirect effects from economic idues, and the operation and maintenance costs would not be very activity. Because households are included in the model and are different from those of existing plants. Household consumption assumed to generate demand for regional products, the multipliers was already included in the regional inputeoutput table produced are higher and more comprehensive than the coefficients of a by Statistics Finland, and the household income row was calculated traditional inputeoutput model containing only industries without by taking the sum of wages, salaries and entrepreneur and capital households. In the results section, for simplicity, the presented incomes in each sector. Entrepreneur and capital incomes were indirect effects on employment and incomes include indirect and estimated from the databases of Statistics Finland [41] and the induced effects. Finnish Forest Research Institute [42]. Income transfers between households were estimated from national accounts [43]. Data on income transfers from outside the households were obtained from 4. Results: socio-economic impact of the development the Social Insurance Institution of Finland [44]. The process of strategy in Pielinen Karelia constructing the household row followed earlier studies [45]. Finally, a new input coefficient matrix, including the household 4.1. Development strategy impact on income consumption (hc) and income coefficient (hi) vectors and a scalar cross-term for transfers between households (h), was constituted The socioeconomic impacts related to the development strategy as were analysed in two stages: first, impacts of the investments and secondly, annual impacts of the new production. The income im-   pacts indicate how much household incomes would increase in the Ah region due to the development strategy. Table 2 presents the in- A ¼ c ; (1) hi h come impacts of investments by industries. The total impacts of the investments related to the strategy vary from 6.7 to 7.2 million and the augmented inputeoutput model was euros depending on the capacity of the biochar factory in scenarios O. Lehtonen, L. Okkonen / Renewable Energy 85 (2016) 610e619 615

Table 2 Income impacts of investments by industries (million euros).

Industry Income impacts of investments

Scenario A Scenario B Scenario C

Manufacture of machinery and equipment 0.378 0.483 0.588 Basic metals and metal products 0.248 0.259 0.270 Construction 2.035 2.0038 2.041 Site preparation 1.186 1.187 1.187 Manufacture of wood and wood and cork products, except furniture, 0.172 0.173 0.174 and the manufacture of articles from straw and plaiting materials Wholesale and retail trade 0.322 0.335 0.347 Hotels and restaurants 0.062 0.065 0.068 Transport 0.371 0.387 0.403 Real estate and other business activities, rental of machinery and 0.213 0.224 0.235 equipment, personal and household goods, and research and development Households 0.715 0.746 0.777 Other industries 0.985 1.022 1.058 Region total 6.693 6.923 7.152

A, B and C. The income impacts created by industries are the 4.2. Development strategy impact on employment highest in construction, which has a total impact of 2.0 million euros, or approximately 29% of the investments' income impacts. The total impacts on employment from the investments related The income impact of site preparation is 1.2 million euros, which to the strategy vary between 155, 160, and 166 jobs, depending represents the second largest impact on the regional economy. primarily on the construction volume of the biochar factory (sce- Altogether, construction and site preparation represent approxi- nario A, B and C, respectively) (Table 4). These small differences mately 46% of the total income. Smaller income impacts are between scenarios indicate that most of the biochar factory in- directed to supported industries such as households and the vestments flow outside the study region. This leakage consists of manufacture of machinery and equipment, transport and whole- pyrolysis reactors and related advanced technologies. However, sale and retail trade (Table 2). these technologies are available from the companies located in Table 3 presents the total annual income impacts of the devel- Varkaus, a peripheral industrial town located approximately opment strategy. Depending on the production scenarios of biochar 200 km from Nurmes. The leakage can be reduced if the local small- production in the electricity, gas and heat supply industry (i.e., the and medium-size enterprises, and their cluster in metal products use of local raw forest materials), the total income impacts vary manufacturing, is competitive. Local companies could produce between 5.3 and 12.1 million euros (Table 3). The total impacts smaller items within the factory investment, such as transportation show that the annual impacts of production might be higher than containers, metal frames and conveyors. The annual impacts of the the impacts of the construction phase. The highest impact, 2.2 to operation are more local as they depend mostly on the use of local 5.8 million euros, is generated from forestry as a result of the forest biomass. intensive use of local forest resources in biochar production. Among In the investment phase the number of jobs created by in- the scenarios, the share of the forestry and logging industry varies dustries is the highest in construction, which has a total impact of between 41 and 48% of the total impacts. The income impacts of the 43 jobs, representing approximately 28% of the total employment other industries, except for biochar production and households, impact of investments. The employment impact of site preparation remain considerably low (Table 3). In households, the increase from is 25 jobs, representing the second largest impact on the regional 0.7 to 1.5 million euros corresponds to 12e10% of the total income economy. Altogether, site preparation and construction represent impacts of the region. The household impacts come from stumpage approximately 43% of the total number of created jobs. Smaller earnings and the compensation of employees. In North Karelia, 52% employment impacts are directed to supported industries in of the forest are owned by households [22]. In biochar production, wholesale and retail trade (approximately 13 jobs), the manufac- the impacts are 11 to 10 % of the total income impact values. ture of machinery and equipment (8 or 9 jobs), real estate (9 or 10 jobs) and basic metals and metal products (5 or 6 jobs) (Table 4).

Table 3 Annual income impacts of the scenarios by industries (million euros).

Industry Annual income impacts

Scenario A Scenario B Scenario C

Forestry and logging 2.203 3.903 5.843 Coke, refined petroleum products, chemicals, chemical 0.172 0.191 0.211 products, rubber and plastic products Hotels and restaurants 0.089 0.124 0.128 Electricity, gas and heat supply 0.578 0.869 1.159 Manufacture of transport equipment 0.058 0.059 0.060 Wholesale and retail trade 0.193 0.309 0.433 Transport 0.362 0.556 0.756 Real estate and other business activities, rental of machinery 0.171 0.258 0.347 and equipment, personal and household goods, research and development Households 0.660 1.068 1.511 Other industries 0.812 1.246 1.695 Region total 5.302 8.585 12.147 616 O. Lehtonen, L. Okkonen / Renewable Energy 85 (2016) 610e619

Table 4 Employment impacts of investments by industries (number of jobs).

Industry Employment impacts of investments

Scenario A Scenario B Scenario C

Manufacture of machinery and equipment 9.6 12.2 14.9 Basic metals and metal products 6.5 6.8 7.1 Construction 43.5 43.5 43.5 Site preparation 25.3 25.3 25.3 Manufacture of wood and wood and cork products, except 4.0 4.0 4.0 furniture, and the manufacture of articles from straw and plaiting materials Wholesale and retail trade 13.7 14.2 14.7 Hotels and restaurants 3.0 3.1 3.2 Transport 6.7 6.9 7.3 Real estate and other business activities, rental of machinery 9.0 9.5 10.0 and equipment, personal and household goods, and research and development Other industries 33.6 34.9 36.2 Region total 155.2 160.9 166.7

The variations in the annual employment impacts of the regional employment path in Nurmes (Fig. 2) and, therefore, development strategy are larger than the same variation between especially with scenario C's development strategy, the impacts the investments scenarios. Most of the annual impacts are appear to offer the possibility of breaking the negative dependency concentrated on forestry and logging because of the extensive use on local development as employment impacts shift the employ- of local forest resources in biochar production (Table 5). The total ment curve above the 95% confidence interval. This implies that annual increase in jobs is approximately 126e280, accounting for increases in the number of jobs significantly differs from the past as approximately 4e10 % of the total employment in Nurmes in 2011. the employment level increases to approximately the same level The largest employment impact is on forestry (Table 5). If biochar that it was in 1994 in Nurmes when the Finnish economy was production uses 175 000 m3 of raw forest materials, the employ- experiencing an economic recession. In addition, scenario B almost ment impact on forestry is 46 jobs (scenario A), and if the increase exceeds the confidence intervals (Fig. 2). The remarkable impact of of raw forest materials uses 550,000 m3, 123 jobs would be these two scenarios can be illustrated by the fact that in both of the generated (scenario C). The second largest impact is on charcoal scenarios the employment level raises above the level in 1997, production (electricity, gas and heat supply), which creates 20 to 40 indicating that the employment level is higher than 18 years ago. jobs depending on the production volume (Table 5). In summary, In the sub-region of Pielinen Karelia, employment losses have biochar production and forestry will together create 52e58 % of the been more serious since 1994. Employment has decreased by 17.4%, total employment impact. Other considerable industries are which accounts for 1652 jobs. With respect to this decline, the wholesale and retail trade, and transport and real estate, all of employment impacts are more moderate as employment increased which would add approximately 10e12 new jobs (Table 5). These to approximately the same level that it was in 2005 (Fig. 2). A industries are those that appear to be most closely linked with comparison of the lines of Nurmes and Pielinen Karelia reveals that, forestry and biochar production in the regional economy. locally, the efficient development strategy can break the negative dependency of employment; but in a larger geographical context, 4.3. Employment impact compared to regional development paths the roots of negative development are so deep that more local in- vestments and new development activities around the sub-region One possibility to evaluate the impact of the development are needed to break the negative development path of the region. strategy is to compare predicted annual changes with past trends Otherwise, the negative development in employment caused by fi by using time series analysis. Fig. 2 shows the observed negative economic restructuring ef ciently hides the positive employment path of employment in Nurmes and Pielinen Karelia in 1994e2011 impacts of the development strategy. and also the predicted levels with 95% confidence intervals for the years 2012e2016 (dashed line). The figure also includes a trend- 5. Conclusions based estimate added to the annual employment impacts of sce- narios A, B and C (bolded line). The interpretation of Fig. 2 shows Our case study demonstrated that the positive development in that the annual employment impacts are able to change the resource peripheries can be supported by a local development

Table 5 Annual employment impacts of the scenarios by industries (number of jobs).

Industry Annual employment impacts

Scenario A Scenario B Scenario C

Forestry and logging 46.7 82.7 123.8 Coke, refined petroleum products, chemicals, chemical 3.0 3.4 3.7 products, rubber and plastic products Hotels and restaurants 4.3 6.0 6.2 Electricity, gas and heat supply 20.0 30.0 40.0 Manufacture of transport equipment 2.8 2.9 2.9 Wholesale and retail trade 8.1 13.1 18.3 Transport 6.5 10.0 13.6 Real estate and other business activities, rental of machinery 7.2 10.9 14.7 and equipment, personal and household goods, and research and development Other industries 52.2 42.2 55.6 Region total 126.3 201.3 281.2 O. Lehtonen, L. Okkonen / Renewable Energy 85 (2016) 610e619 617

Fig. 2. Employment paths in Pielinen Karelia and Nurmes 1994e2016. Years 2012, 2013 and 2014 are estimates based on the trends fitted using the ARIMA (autoregressive in- tegrated moving average) (4,0,1) model. Year 2015 includes the estimated employment level from year 2014 summed with the employment impacts of the investments. Year 2016 includes the estimated employment from 2014 summed with the employment impacts of the annual production. The dashed line is based on model estimates for 2012e2016, and the bolded line shows the impact of the municipal development strategy. The grey area represents the space between a 95% confidence interval of the time series estimates.

strategy when these peripheries take advantage of the absolute notably limited opportunities to benefit from the agglomeration advantages derived from natural resources and amenities by economies of centres and their competitive environments with concentrating on local, highly competitive production factors. The spread effects, implying that their economic development should development strategy highlights the potential new implementa- be constructed and supported locally. tion of “new initial” advantages, for example, in the green economy, This study demonstrated that there is a need for local knowl- emphasising a new way of utilising natural resources. Therefore, edge about the industrial traditions, resources, actors and cooper- the locational conditions of these types of economic activities ation partners, but success also requires external technology and should receive more attention in regional policy and planning, with capital to implement a development strategy. For instance, in this a framework of place-based practices that ensures the participation study, the modern biochar production technologies are developed of a committee of local actors and the inclusion of unique types of in the technology centres of the knowledge-based bioeconomy, but possibilities that each town or location offers [12,13]. The positive the industry is optimally located close to the forest biomass stocks, development has to be constructed locally and differentially in supporting the views of distributed economics [4,5]. Upgrading peripheral areas, as they are often weakly connected with growing enhances energy density, reduces transport and handling costs, and regional centres and have various locational disadvantages. In allows further upgrading for different materials and energy prod- addition, the distant areas have, in sparsely populated areas, ucts. Upgrading can be developed in industrial symbiosis with the 618 O. Lehtonen, L. Okkonen / Renewable Energy 85 (2016) 610e619 production plant, if there are required factors for knowledge- (2005) 981e991. intensive production. [6] M. Tonts, N. Argent, P. Plummer, Evolutionary perspectives on rural Australia, Geogr. Res. 50 (2012) 291e303. The dependency of a renewal of the local economy from the [7] M. Tonts, P. Plummer, N. Argent, Path dependence, resilience and the evolu- external actors in the resource periphery was evident from the fact tion of new rural economies: perspectives from rural Western Australia, e that a high proportion of the development strategy's investments J. Rural Stud. 36 (2014) 362 375. [8] F. Neffke, M. Henning, R. Boschma, How do regions diversify over time? In- leaked outside the region. The results proved that the growth in dustry relatedness and the development of new growth paths in regions, resource peripheries cannot exist only in the endogenous starting Econ. Geogr. 87 (2011) 237e265. € points as regions have many development disadvantages and [9] O. Lehtonen, M. Tykkylainen, Regional formations and pulse of migration in Finland, 1980e2006, Terra 121 (2009) 119e137. structural problems but also a dependence on the imported tech- [10] O. Lehtonen, M. Tykkylainen,€ Self-reinforcing spatial clusters of migration and nologies. However, most of the socioeconomic impacts of produc- socio-economic conditions in Finland in 1998e2006, J. Rural Stud. 26 (2010) tion are directed and induced in the local economy; therefore, the 361e373. [11] M. Partridge, D.S. Rickman, Place-based policy and rural poverty: insights intensive use of local resources with new technology can create from the urban spatial mismatch literature, Camb. J. Reg. Econ. Soc. 1 (2008) growth in the resource periphery and diversify the economic 131e156. structure. The development strategy would generate approxi- [12] R.M. Blank, Poverty, policy, and place: how poverty and policies to alleviate mately 12 million euros in annual income in the region, and the poverty are shaped by local characteristics, Int. Reg. Sci. Rev. 28 (2005) 441e464. annual employment impacts varied between 126 and 281 jobs, [13] M. Betz, M. Partridge, Country road take me home: migration patterns in depending on the volume of biochar production. appalachian America and place-based policy, Int. Reg. Sci. Rev. 36 (2013) e At the local level, the estimated socioeconomic impacts of the 267 295. [14] S. Goetz, A. Rupasingha, Determinants of growth in non-farm proprietor development strategy were significant as they can positively redi- densities in the US, 1990e2000, Small Bus. Econ. 32 (2009) 425e438. rect the development trajectories of employment and break the [15] H. Stephens, M. Partridge, Do entrepreneurs enhance economic growth in e 95% confidence interval of the trend estimates in the future. Thus, lagging regions? Growth Change 42 (2011) 431 465. fi [16] H. Bathelt, J.S. Boggs, Towards a reconceptualization of regional development the local development strategy in Nurmes, focusing diversi cation paths: is Leipzig's media cluster a continuation of or a rupture with the past? into a new and related industry, was able to put an end to the Econ. Geogr. 79 (2003) 265e293. negative development path that had persisted since the mid-1990s. [17] D. Rodrik, Growth strategies, in: P. Aghion, S.N. Durlauf (Eds.), Handbook of Economic Growth, Elsevier Academic Press, North Holland, 2005, pp. Without new investments and upgrades in industrial production, 967e1014. the resource periphery would suffer negative regional lock-in with [18] F. Barca, P. McCann, A. Rodriguez-Pose, The case for regional development increasing depopulation, declining employment and increasing intervention: place-based versus place-neutral approaches, J. Reg. Sci. 52 fi (2012) 134e152. unemployment. This lock-in does not inhibit new paths but de nes [19] G. Hewings, New goals for new rural policies, Int. Reg. Sci. Rev. 24 (2001) opportunities and limits possibilities for new paths, keeping the 146e160. negative path in the region alive [6,7]. [20] E.G. Irwin, A.M. Isserman, M. Kilkenny, M. Partridge, A century of research on e This paper showed that the modelling of socio-economic im- rural development and regional issues, Am. J. Agric. Econ. 92 (2010) 522 553. [21] M. Kilkenny, Urban/regional economics and rural development, J. Reg. Sci. 50 pacts of bioenergy solutions at the local level is challenging because (2010) 449e470. of the aggregated regional model and its sensitivity. Therefore, the [22] S. Markey, G. Halseth, D. Manson, Challenging the inevitability of rural presented results of the socioeconomic impacts concerning the decline: advancing the policy of place in northern British Columbia, J. Rural Stud. 24 (2008) 409e421. development strategy are indicative. However, the results offered [23] FFRI (Finnish Forest Research Institute), Finnish Statistical Yearbooks of estimates for regional planners and confirmed that new local Forestry, Finnish Forest Research Institute, Helsinki, 2012. € bioeconomic-related strategies are noteworthy in supporting the [24] O. Lehtonen, M. Tykkylainen, Spatial divergence in living standards during an economic growth phase in the periphery: a case study of North Karelia, Fennia development of the earlier industrial towns in sparsely populated 189 (2011) 47e62. regions. The strategy has the potential to succeed because in- [25] Official Statistics of Finland (OSF): Regional Account (e-publication). Statistics vestments in the bioeconomy relate to pre-existing forest in- Finland: Helsinki. (referred: 15.12.2014). Access method: http://www. tilastokeskus.fi/til/altp/index_en.html. dustries in the region [8]. The revitalisation and enhancement of a [26] L. Anselin, A. Varga, Z. Arcs, Local geographical spillovers between university region's industrial base on the forest industry could change the research and high technology innovations, J. Urban Econ. 42 (1997) 422e448. direction of the industrial trajectory in Nurmes and, therefore, the [27] L. Anselin, A. Varga, Z. Arcs, Geographical spillovers and university research: a spatial econometric perspective, Growth Change 31 (2003) 501e515. development of the resource dominant industrial town could also [28] Official Statistics of Finland (OSF): Population structure (e-publication). Sta- change its direction. tistics Finland: Helsinki. (referred: 16.12.2014). Access method: http://www. stat.fi/til/vaerak/index_en.html. [29] O. Lehtonen, M. Tykkylainen,€ Spatial processes of job growth in Eastern Acknowledgements Finland, 1994e2003, Terra 124 (2012) 85e105. [30] O. Lehtonen, O. Wuori, T. Muilu, Comparing the extend of the spread effects: This study is co-financed by the European Agricultural Fund for rural-urban commuting in the Finnish working regions, J. Geogr. Inf. System 7 (2015) 29e42. Rural Development, EAFRD project (111.2), Pielinen Karelia Bio- [31] Official Statistics of Finland (OSF): Migration (e-publication). Statistics energy Networks and Flows (2011e2014). Finland: Helsinki. (referred: 15.12.2014). Access method: http://www. tilastokeskus.fi/til/muutl/tau_en.html. [32] Official Statistics of Finland (OSF): Employment (e-publication). Statistics References Finland: Helsinki. (referred: 15.12.2014). Access method: http://www. tilastokeskus.fi/til/tyokay/index_en.html. € [1] M. Whitley, A. Zervos, M. Timmer, F. Butera, Meeting the Targets and Putting [33] Pielisen Karjalan kehittamiskeskus, Pielisen Karjalan Elinkeinostrategia Renewables to Work, Directorate General for Energy and Transport, Energy 2014e2017, Nurmes, 2010 (referred 10.3.2015). Access method: http://www. for Sustainable Development, Corsham, 2004. pikes.fi/. [2] O. Lehtonen, M. Tykkylainen,€ The emerging shortage of labour in forestry in a [34] N. Leigh, E.J. Blakely, Planning Local Economic Development. Theory and remote coniferous region: a brake on the massive use of biofuels, in: Practice, fifth ed., Sage Publications, USA, 2013. € € K. Andersson, E. Eklund, M. Lehtola, P. Salmi (Eds.), Beyond the RuraleUrban [35] Grow Green Nurmes, Nurmeksen bioteollisuushankkeen ymparistovaikutus- Divide, Emerald, Bingley, 2008, pp. 25e55. ten arviointiohjelma, 2014 (referred 10.3.2015) Access method: http://www. [3] L. Okkonen, From exogenous to endogenous development in Scottish forestry: nurmes.fi/yva-ohjelma. the feasibility of small-scale wood energy enterprise, J. Environ. Plan. Manag. [36] A. Saatsi, J. Ylinen, N. Huikuri, L. Okkonen, R. Prinz, Biojalostamon sijoittu- 51 (2008) 221e232. misselvitys Nurmekseen (Biorefinery location plan for nurmes), in: N. Huikuri, [4] A. Johansson, P. Kisch, M. Mirata, Distributed economiesda new engine for L. Okkonen (Eds.), Bioenergiaa Pielisen Karjalaan. Pielisen Karjalan bio- innovation, J. Clean. Prod. 13 (2005) 971e979. energiaverkostot ja-virrat osana Pohjois-Karjalan energiaomavaraisuutta- [5] M. Mirata, H. Nilsson, J. Kuisma, Production systems aligned with distributed hankkeen vuosiraportti 2012, Pohjois-Karjalan ammattikorkeakoulu, Joensuu, economies: examples from energy and biomass sectors, J. Clean. Prod. 13 2012. O. Lehtonen, L. Okkonen / Renewable Energy 85 (2016) 610e619 619

[37] W. Leontief, Inputeoutput Economics, Oxford University Press, New York, [43] Statistics Finland, Annual National Accounts, Helsinki, 2007 (referred 1966. 10.3.2015). Access method: http://www.stat.fi/. [38] Statistics Finland, Regional Inputeoutput Tables, Description of Statistics, [44] P. Laine, Social Security Benefits for Households in North Karelia, Unpublished Helsinki, 2006 (referred 10.3.2015). Access method: http://www.stat.fi/. statistics, 2007. [39] Statistics Finland, Regional Accounts of Production and Employment, Helsinki, [45] T. Rimler, M. Kurttila, M. Pesonen, K. Koljonen, Economic impacts of alter- 2013 (referred 10.3.2015). Access method: http://www.stat.fi/. native timber cutting scenarios in Finland: an inputeoutput analysis, For. [40] W. Schaffer, K. Chu, Nonsurvey techniques for constructing regional interin- Policy Econ. 1 (2000) 301e313. dustry models, Pap. Proc. Reg. Sci. Assoc. 23 (1969) 83e101. [46] J. Domac, K. Richards, S. Risovic, Socio-economic drivers in implementing [41] Statistics Finland, Regional Household Accounts, Helsinki, 2007 (referred bioenergy projects, Biomass Bioenergy 28 (2005) 97e106. 10.3.2015). Access method: http://www.stat.fi/. [47] R. Miller, P. Blair, Inputeoutput Analysis. Foundations and Extensions, Pren- [42] Finnish Statistical Yearbook of Forestry 2007, Finnish Forest Research Insti- tice-Hall, Englewood Cliffs, 1985. tute; Vammalan Kirjapaino, Vammala, 2007.