Inspire Policy Making with Territorial Evidence POLICY BRIEF Structural change in coal phase-out regions Policy Brief // Structural change in coal phase-out regions Recent debates on the just transition to a decar- investments and productive investments, as bonised economy have tasked policy-makers well as business incubation and consultancy for and academics alike with reconciling the differ- firm creation and development. We argue that ent angles of the ‘just’ epithet. We turn attention these three types of JTF actions are crucial, as to the place-invariant challenge that can be they are likely to influence parameters that best expected across all regional economies, albeit explain the variance in the structural change to different extents. The decarbonised economy potential of coal-dependent regions. All other commitments will bring about a paradigm shift actions are likely to be pursued all across in coal-dependent and arguably coal-independ- Europe within or beyond the JTF, with a compa- ent regions alike. However, regions have differ- rable positive moderating effect on economic ent levels of potential to embark on this para- diversification. We suggest that the increasingly digm. In other words, regions have different practised Entrepreneurial Discovery Process levels of potential to induce structural change (EDP) should be established as a JTF govern- because of the different levels of dependency ance and implementation mechanism in coal on incumbent industries, which may exacerbate phase-out regions. The principles of this pro- the socioeconomic implications of such a para- cess, which is associated with regional smart digm shift. We plug in ESPON territorial evi- specialisation, are equally applicable in a pro- dence that will be useful for informed decisions cess of collaborative navigation towards the on actions under the Just Transition Fund (JTF) most favourable corridor out of an economic related to research and development (R&D) path dependency. KEY POLICY QUESTIONS AND ANSWERS What is the most meaningful application field of the JTF, and consultancy for firm creation and development. The given that EU industrial decarbonisation is estimated to trajectory of these type of actions can be delineated and require an annual investment of up to EUR 300 billion per governed by a continuous EDP. year? What is the social-benefit-maximising intensity and mix of All proposed JTF actions dedicated to economic revitalisa- these actions? tion, social support and land restoration are expected to Take into account territorial parameters approximating the have a positive marginal effect on structural change regional entrepreneurial and knowledge stocks to derive potential. However, the JTF can serve as a purposive an adequate balance of related actions, respecting the instrument for designing, governing and implementing entrepreneurial and knowledge stock maturity. The need Territorial Just Transition Plans, and applying a strategic for a balance is two-dimensional: (1) the magnitude of mission-oriented acquisition of funds. R&D capital investments and inbound open innovation Which types of JTF actions are likely to influence parame- versus the regional Innovation Commons; and (2) meas- ters that best explain the variance in structural change ures reducing entrepreneurial risk versus measures reduc- potential? ing entrepreneurial uncertainty. These would be the actions related to R&D investments, productive investments, as well as business incubation 2 ESPON // espon.eu Policy Brief // Structural change in coal phase-out regions 1. Policy context The prospective Just Transition Fund (JTF) is to be the evidence for policy questions that have not been first of three pillars that constitute the Just Transition addressed as yet. These relate to the efficient use of JTF Mechanism (JTM), the others being a dedicated scheme resources, potential links with other funding streams and under InvestEU and a public sector loan facility managed the design of interventions based on territorial parame- by the EIB Group. In Article 1 of the proposal for a JTF ters relating to the knowledge and entrepreneurial stock regulation, the European Commission (2020, p. 13) in coal-dependent localities. defines the JTF as an instrument ‘to provide support to The brief seeks to reconcile the different angles of the territories facing serious socio-economic challenges ‘just’ epithet. Coal phase-out resonates differently in dif- deriving from the transition process towards a cli- ferent territorial realities. Coal-dependent regions per- mate-neutral economy of the Union by 2050’. ceive a redistribution of social benefits while marginal In a briefing requested by the European Parliament’s economic damage is inflicted upon a few regions. Colli Committee on Regional Development, Cameron et al. (2020) warns of the opposite view. Particularly regions (2020, p. 3) regroup the proposed types of actions eligible that have long embraced industrial decarbonisation are under the JTF as follows1: concerned about the increasing marginal damage through coal-related activities, where environmental costs are ▪ economic revitalisation: (a) productive investments in externalized from the incumbent industries. Financial small and medium-sized enterprises (SMEs), including allocations to remedy the market failure may be misper- start-ups, leading to economic diversification and ceived as a reward for regions that delay decarbonisation reconversion; (b) investments in the creation of new efforts (Colli, 2020). It is, therefore, important to prevent a firms, including through business incubators and con- positive feedback loop and turn the attention to a place-in- sulting services; (c) investments in research and inno- variant challenge that can be expected across all regional vation activities and fostering the transfer of advanced economies, albeit to different extents. The decarbonised technologies; (d) investments in the deployment of economy commitments will bring about a paradigm shift technology and infrastructures for affordable clean in coal-dependent and arguably coal-independent regions energy, and in greenhouse gas emission reduction, alike. Regions have different potentials to embark on the energy efficiency and renewable energy; (e) invest- new paradigm, however. In other words, regions have ments in digitalisation and digital connectivity; (g) different potentials to induce structural change, caused investments in enhancing the circular economy, includ- by the different levels of dependency on incumbent indus- ing through waste prevention, reduction, resource effi- tries (Neffke et al. 2018), which may exacerbate the ciency, reuse, repair and recycling; socio-economic implications of such paradigm shift. ▪ social support: (h) upskilling and reskilling of workers; (i) job-search assistance to jobseekers; (j) active inclu- sion of jobseekers; Figure 1 Policy context and focus ▪ land restoration: (f) investments in regeneration and decontamination of sites, land restoration and repur- posing projects. Econ The proposal for a JTF regulation identifies 108 European omic diversification K regions with coal infrastructure and nearly 237,000 nowledge and skills related jobs. Coal regions are among those particularly coal vulnerable as their regional economic ecosystems are Just Transition Fund phase-out historically linked with coal extraction and power genera- tion. This brief synthesizes extant literature, recent research and policy advice in relation to structural change Just Tran sition Mechanism in coal phase-out regions and plugs in ESPON territorial Europ ean Green Deal 1 The proposed types of actions were amended by the European Parliament as communicated in the report of the Committee on Regional Development (European Parliament, 2020). Policy context Policy focus ESPON // espon.eu 3 Policy Brief // Structural change in coal phase-out regions 2. Which regions are most affected? Map 1 Coal-related employment Malta Liechtenstein Reykjavík ! Share of direct employment in coal mines and power plants and indirect employment in coal-related activities in relation to total employment (%) Canarias (ES) Guadeloupe (FR) 0.003 - 0.26 Helsinki ! Tallinn 0.26 - 0.70 Oslo ! ! Stockholm ! 0.70 - 1.77 Guyane (FR) Martinique (FR) Riga 1.77 - 5.17 ! 5.17 - 13.67 København Vilnius ! ! Minsk ! no data Dublin ! Mayotte (FR) Réunion (FR) ! Warszawa ! Berlin Direct employment in coal mines and power plants ! Amsterdam London and indirect inter- and intra-regional employment ! Bruxelles/Brussel in coal-related activities ! ! Praha Luxembourg Açores (PT) Madeira (PT) ! 140 000 Paris coal mines ! Kishinev Wien ! ! ! Budapest power plants Bratislava! Vaduz 30 000 Bern ! intra-regional coal-related ! Ljubljana ! Zagreb 5 000 ! Bucuresti inter-regional coal-related ! ! Beograd ! Sarajevo Sofiya Prishtina ! ! Podgorica ! Skopje Ankara ! ! ! Roma ! Tirana Madrid Regional level: NUTS 2 (2013) ! Lisboa Origin of data: JRC, 2018; ESPON, 2020; ! ESTAT GISCO for administrative boundaries ! Athinai ! Nicosia ! Valletta 500 km Alves Dias et al. (2018) estimate that the regions that will subregions of Katowicki, Bytomski, Gliwicki, Rybnicki, be most affected by 2030 are located in Poland, Germany, Sosnowiecki and Tyski and Lesser Poland’s subregion of the Czech Republic and Bulgaria. By 2025, the Polish Oświęcimski; the district of Sokolov in Karlovy Vary and voivodeships of Śląskie (Silesia) and Małopolskie (Lesser districts in Lausitz and the governmental district of Köln. Poland), the Czech