Indirect jobs in activities related to coal, peat and oil shale: A RHOMOLO-IO analysis on the EU regions

Mandras, Giovanni; Salotti, Simone Working Paper Indirect jobs in activities related to coal, peat and oil shale: A RHOMOLO-IO analysis on the EU regions JRC Working Papers on Territorial Modelling and Analysis, No. 11/2021 Provided in Cooperation with: Joint Research Centre (JRC), European Commission Suggested Citation: Mandras, Giovanni; Salotti, Simone (2021) : Indirect jobs in activities related to coal, peat and oil shale: A RHOMOLO-IO analysis on the EU regions, JRC Working Papers on Territorial Modelling and Analysis, No. 11/2021, European Commission, Joint Research Centre (JRC), Seville This Version is available at: https://hdl.handle.net/10419/265237 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Indirect jobs in activities related to coal, peat and oil shale: A RHOMOLO-IO analysis on the EU regions JRC Working Papers on Territorial Modelling and Analysis No 11/2021 Authors: Mandras, G. Salotti, S. Joint Research Centre 2021 JRC TECHNICAL REPORT This publication is a Technical report by the Joint Research Centre (JRC), the European Commission’s science and knowledge service. It aims to provide evidence-based scientific support to the European policymaking process. The scientific output expressed does not imply a policy position of the European Commission. Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use that might be made of this publication. For information on the methodology and quality underlying the data used in this publication for which the source is neither Eurostat nor other Commission services, users should contact the referenced source. The designations employed and the presentation of material on the maps do not imply the expression of any opinion whatsoever on the part of the European Union concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Contact information Name: Simone Salotti Address: Edificio Expo, C/Inca Garcilaso 3, 41092 Sevilla (Spain) Email: [email protected] Tel.: +34 954488406 EU Science Hub https://ec.europa.eu/jrc JRC127463 Seville: European Commission, 2021 © European Union, 2021 The reuse policy of the European Commission is implemented by the Commission Decision 2011/833/EU of 12 December 2011 on the reuse of Commission documents (OJ L 330, 14.12.2011, p. 39). Except otherwise noted, the reuse of this document is authorised under the Creative Commons Attribution 4.0 International (CC BY 4.0) licence (https://creativecommons.org/licenses/by/4.0/). This means that reuse is allowed provided appropriate credit is given and any changes are indicated. For any use or reproduction of photos or other material that is not owned by the EU, permission must be sought directly from the copyright holders. All content © European Union, 2021 (unless otherwise specified) How to cite this report: Mandras, G., and Salotti, S. (2021). Indirect jobs in activities related to coal, peat and oil shale: A RHOMOLO-IO analysis on the EU regions. JRC Working Papers on Territorial Modelling and Analysis No. 11/2021, European Commission, Seville, JRC127463. The JRC Working Papers on Territorial Modelling and Analysis are published under the supervision of Simone Salotti and Andrea Conte of JRC Seville, European Commission. This series mainly addresses the economic analysis related to the regional and territorial policies carried out in the European Union. The Working Papers of the series are mainly targeted to policy analysts and to the academic community and are to be considered as early-stage scientific papers containing relevant policy implications. They are meant to communicate to a broad audience preliminary research findings and to generate a debate and attract feedback for further improvements. Indirect jobs in activities related to coal, peat and oil shale: A RHOMOLO-IO analysis on the EU regions Giovanni Mandras and Simone Salotti European Commission, Joint Research Centre Abstract. The European Commission is working in order to ensure a smooth transition to cleaner forms of energy production away from fossil fuels in order to meet the EU objective of reaching climate neutrality by 2050. The Just Transition Mechanism was launched to manage this transition, under the European Green Deal. A key information needed to do that is the number of workers who will be impacted by the ongoing decarbonisation process. This technical report contains the RHOMOLO-IO estimates of the number of jobs indirectly related to the energy production industry of coal, peat, and oil shale. These activities directly employ more than 200,000 workers in the EU, and our results suggest that about 140,000 additional jobs are indirectly related to those. This is a significant number that should be considered by the policy makers dealing with the shift away from energy production with fossil fuels. JEL Codes: C67, E24. Keywords: region, growth, Rhomolo, indirect jobs, coal, input-output analysis. Executive Summary Coal accounts for about a fifth of total electricity production in the European Union (EU) and provides jobs to thousands of people in mines and power plants across various regions and Member States (MS). The importance of coal has steadily decreased since the 1990s and it will continue to do so in the future according to most existing decarbonisation scenarios compatible with the EU objective of reaching climate neutrality by 2050. The European Commission is working in order to ensure a smooth transition to cleaner forms of energy production. In 2017, the European Commission launched the initiative for coal regions in transition under the “Clean Energy for all Europeans” package with the aim of supporting the EU regions affected the most by the decline in the coal sector. This initiative led to the announcement in December 2019 of the European Green Deal and to the Just Transition Mechanism (JTM), which must ensure that the transition towards a climate-neutral economy happens in a fair way. The initiative for coal regions in transition was enlarged to oil shale and peat regions in 2020. Due to the EU climate neutrality objectives, traditional energy sectors that rely on the production and use of fossil fuels will shrink, with concomitant negative impacts on employment. Existing analyses have mostly concentrated on the coal related activities (see Alves Dias et al., 2018). This report updates those estimates and, in line with Kapetaki et al. (2021), it also includes peat and oil shale for energy use. In 2018, the number of people directly employed in coal mining and related activities was estimated to be around 200,000, mostly located in Poland, Germany, Czech Republic, Romania, and Bulgaria. About 75% of these jobs are in the mining sector, with 90 operative coal mines in 2018. The remaining 25% of the workforce was in the 179 EU coal-fired power plants accounting for a total capacity of 130 GW that is, about 20% of the electricity produced in the EU (in 2020, the numbers had changed already, with 166 power plants for a capacity of 112 GW). In most regions with coal mines, coal is used in the carbon-intensive sectors, with the iron and steel industry accounting for the vast majority of the total coal used. Estonia is the only EU MS hosting oil shale activities (with nearly 0.4% of the country working population directly employed in those activities), while peat-related activities exist in the following six MS: Finland, Sweden, Estonia, Ireland, Lithuania, and Latvia. More than 6,000 people are directly employed in peat-extraction activities, and more than 5,200 are directly employed in the oil shale industry. Peat is mainly used for heating purposes, and, in 2018, there were more than 200 peat-fired energy plants. The perspective of activities related to coal, peat and oil shale being shut down in the near future means that the workers involved in these activities will lose their jobs, with potentially dramatic consequences for their well-being and for the economic growth of their regions, depending on how the transition will play out. However, thinking only about the jobs directly involved in these activities could be misleading and could lead to underestimate the economic impact of decarbonisation. There are many workers whose jobs rely on the business generated by coal, peat, and oil shale, and it is plausible to assume that these (indirect) jobs will also be affected by the ongoing structural change of the energy sector. This technical report presents some estimates of the number of jobs indirectly related to the about 215,000 jobs directly involved in the coal, peat, and oil shale industries in the regions of the EU. The estimates are based on the RHOMOLO-IO model and suggest that 140,000 additional EU jobs rely on those industries due to linkages along the intraand inter-regional supply chains. The analysis also reveals a specific territorial distribution of these jobs across the NUTS 2 regions of the EU. 1 Indirect jobs in activities related to coal, peat and oil shale: A RHOMOLO-IO analysis on the EU regions Giovanni Mandras and Simone Salotti European Commission, Joint Research Centre 1 Introduction Coal accounts for about a fifth of total electricity production in the European Union (EU) and provides jobs to thousands of people in mines and power plants across various regions and Member States (MS). The importance of coal has steadily decreased since the 1990s and it will continue to do so in the future according to most existing decarbonisation scenarios compatible with the EU objective of reaching climate neutrality by 2050. The European Commission is aiming at insuring a smooth transition to cleaner forms of energy production. In 2017, the European Commission launched the initiative for coal regions in transition under the “Clean Energy for all Europeans” package with the aim of supporting the EU regions affected the most by the decline in the coal sector. Among other things, this initiative led to the announcement in December 2019 of the European Green Deal. Under the latter, the Just Transition Mechanism (JTM) must ensure that the transition towards a climate-neutral economy happens in a fair way. The initiative for coal regions in transition was enlarged to oil shale and peat regions in 2020 and it is now a key building block of the European Green Deal. An intermediate target towards climate neutrality is the reduction of EU greenhouse gas emissions by at least 55 % by 2030, compared to 1990 levels. Achieving this objective will require a fundamental rebalancing of the existing energy system, moving toward accelerated phase-outs of polluting fossil fuels such as coal, oil shale, and peat, and developing more sustainable economic frameworks. Obviously, this may pose significant challenges for many regions. Traditional energy sectors that rely on the production and use of fossil fuels will shrink, with concomitant negative impacts on employment. Existing analyses have mostly concentrated on the coal related activities (see Alves Dias et al., 2018). In line with Kapetaki et al. (2021), this technical report also includes peat and oil shale for energy use. Among these fossil fuels, considering their current sector sizes and the 2 corresponding related employment, coal activities are likely to have the biggest impact in the short to medium term. As of the beginning of 2021, many EU MS have already announced plans to phase out coal. 11 out of 19 countries using coal and lignite for electricity production have a phase out plan. The lack of a plan for 8 MS means that some work is needed in order to ensure that the EU will be able to meet its commitments under the Paris agreement. In 2018, the number of workers directly employed in coal mining and related activities was estimated to be around 200,000, mostly located in Poland, Germany, Czech Republic, Romania, and Bulgaria. About 75% of these jobs are in the mining sector, with 90 operative coal mines in 2018. The remaining 25% of the workforce was in the 179 EU coal-fired power plants accounting for a total capacity of 130 GW that is, about 20% of the electricity produced in the EU (in 2020, the numbers had changed already, with 166 power plants for a capacity of 112 GW). In most regions with coal mines, coal is used in the carbon-intensive sectors, with the iron and steel industry accounting for the vast majority of the total coal used. Peat and oil shale are used to a lesser extent for energy than coal. For instance, the strong link between coal mines and power plants is more diluted in the value chain of fuel peat, since peat is also used for alternative uses (mainly agricultural), and shale is used in small plants which often also use other biomass. Estonia is the only EU MS hosting oil shale activities (with nearly 0.4% of the country working population directly employed in those activities), while peat-related activities exist in the following six MS: Finland, Sweden, Estonia, Ireland, Lithuania, and Latvia. More than 6,000 people are directly employed in peat-extraction activities, and more than 5,200 are directly employed in the oil shale industry. Peat is mainly used for heating purposes, and, in 2018, there were more than 200 peat-fired energy plants. The perspective of activities related to coal, peat and oil shale being shut down in the near future means that the workers involved in these activities will lose their jobs, with potentially dramatic consequences for their well-being as well as for the economic growth of their regions, depending on how the transition will play out. However, thinking only about the jobs directly involved in these activities could be misleading and could lead to underestimate the economic impact of decarbonisation. There are many workers whose jobs rely on the business generated by coal, peat, and oil shale, and it is plausible to assume that these (indirect) jobs will also be affected by the ongoing structural change of the energy sector. Since official data on the number of jobs indirectly related to coal activities do not exist, estimates can help to gauge the importance of this additional dimension when managing 3 the necessary transition towards decarbonisation. The present study reports the estimated number of indirect jobs obtained using the RHOMOLO-IO modelling framework (Mandras et al., 2019) which covers all the NUTS-2 regions of the EU27 and, for the purpose of this analysis, 14 economic sectors (the disaggregation of the coal-related sectors has been made using direct jobs data provided by DG ENER). The remainder of the report is organised as follows. In Section 2, we briefly illustrate the model and how it is used for the present analysis. Section 3 explains the data used for the estimates and contains the results on the indirect jobs in coal-related activities. Section 4 concentrates on the indirect jobs in the peat and oil shale-related activities. Section 5 concludes. 2 The RHOMOLO-IO model The RHOMOLO-IO model is based on a set of Input-Output (IO) tables containing data on sectorally disaggregated regional economic accounts for the whole EU. It is a snapshot of flows of products and services in the economy for a single year (in this case, 2013: see Thissen et al., 2019, for a description of the dataset used in this analysis, which also constitutes the main dataset used for the RHOMOLO model, see Lecca et al., 2018). IO tables were originally created to identify and disaggregate all the monetary flows between industries (inter-industry expenditure flows), between consumers and industries, and between industries and suppliers of factors in the economy (Leontief, 1941 and 1986; Miller and Blair, 2009). Under a number of assumptions, IO tables can be used in economic modelling exercises to study the potential output effects of exogenous changes in final demand. The IO modelling approach is commonly used to assess the economic benefits/losses induced by a given project or investment and it is a powerful tool to evaluate the impacts generated along the supply chains of the various sectors of the economy. A key output from IO analysis is the calculation of the so-called multipliers used to study the knock-on effects throughout the economy of a change in final demand. IO multipliers are indicative of how an increase (decrease) in final demand of one sector (which is the direct effect of the shock) entails expansionary (contractionary) effects on the output of intermediate sectors that, correspondingly, increase their demand for their own intermediates inputs. The activity generated by the sum of these demands for intermediate inputs is known as the indirect effect. In this analysis, with some transformations, multipliers can be related to changes in employment. In other words indirect job loss/increase can be calculated using direct jobs, which is what is done in the present analysis. 10 Figure 2. Distribution of indirect jobs in inter-regional supply chains Source: RHOMOLO-IO estimates. We complement the analysis by providing estimates on the potential loss in terms of value added and production associated to the EU de-carbonization process (coal only) by using the output and value added multipliers introduced in equation (6). Figure 3 shows the share of value added at risk which across all the EU regions ranges between 0 and -1.12%. As expected, higher losses are concentrated in those regions relying more on coal as a source of electricity production. Figure 4 shows a similar picture for output (production), in which the potential loss is slightly higher than that of value added, but with a similar regional pattern. 11 Figure 3. Regional value added at risk due to decarbonisation (coal only) Source: RHOMOLO-IO estimates. Figure 4. Regional output at risk due to decarbonization (coal only) Source: RHOMOLO-IO estimates. 12 Moving to a country-level perspective, Figure 5 shows the proportions of direct jobs and of intra-regional and inter-regional indirect ones. The country whose coal activities are responsible for the creation of the most indirect jobs appears to be Germany. According to our estimates, only 40% of its total coal-related workers are employed directly in the German coal industry. 26% of the total jobs are indirectly related to coal within the country, and 34% of the jobs are located outside Germany, indicating a significant degree of internationalisation of the German coal supply chain. These numbers differ substantially from those of Bulgaria and Poland, for instance, in which 70% and 74% of the total workers related to the domestic coal industry, respectively, are directly employed by the domestic coal industry. This reflects a productive structure which is considerably less open than the German one. Figure 5. Country-level proportions of coal-related direct and indirect jobs Source: DG ENER (direct employment) and RHOMOLO-IO estimates (indirect jobs). 4. Indirect jobs in peatand oil shale-related activities Table 2 reports the number of direct jobs in activities related to peat and oil shale in 2018 (source: DG ENER), and the number of indirect jobs estimated using the RHOMOLO-IO type-I multipliers. Similarly to Table 1 for coal, the last column provides a comparison between indirect jobs in coal-related activities and direct jobs as a ratio of 13 indirect over direct jobs. The indirect jobs are once again divided into domestic (intraregional) and non-domestic (inter-regional) ones. Table 2. Number of direct jobs, estimated indirect jobs within the region and in the rest of the EU, and indirect/direct jobs ratio (peat and oil shale activities) Region Direct Indirect domestic Indirect nondomestic Indirect / Direct Peat EE00 782 471 97 0.73 FI19 1800 1571 2129 2.06 FI1B 21 3 2 0.24 FI1C 358 44 31 0.21 FI1D 1926 256 86 0.18 IE05 107 40 18 0.54 IE06 219 74 38 0.51 LT01 6 1 0.4 0.32 LT02 32 28 4 1.00 LV 26 29 3 1.25 SE11 40 22 17 0.97 SE12 325 211 197 1.26 SE21 80 46 42 1.10 SE22 8 5 4 1.12 SE23 20 10 6 0.83 SE31 92 38 34 0.78 SE32 146 65 59 0.85 SE33 325 139 87 0.70 TOTAL 6313 3053 2856 0.94 Oil shale EE00 5243 2400 510 0.66 Source: DG ENER (direct jobs) and RHOMOLO-IO simulations (indirect jobs). In 2018, slightly more than 6,000 jobs were directly related to the peat and oil shale industry for energy use in the EU. About 4,100 of them were located in the regions of Finland, constituting 65% of the total EU workforce. As for the rest of the employees, more than 1,000 workers were in Sweden, and roughly the same number were located in Estonia, Ireland, Lithuania, and Latvia. As for oil shale, all the EU workers directly employed in oil shale activities for energy use, more than 5,200 people were located in Estonia. According to the RHOMOLO-IO estimates, the EU peat industry was responsible for the creation of almost 6,000 EU jobs along its supply chain, and the oil shale one for almost 3,000 more. The estimated regional ratios between indirect and direct jobs vary significantly less than in the case of the coal analysis. The unweighted average of the ratios is equal to 0.8, while the weighted one is equal to 0.9. Not surprisingly, most 14 regional values are close to those two values. The most notable outlier is the FI1D region (the region with the highest number of workers directly employed in the peat industry) for which the estimated ratio is below 0.2. Of the three industries studied in this analysis, that of peat appears to be the more integrated in both the domestic and the international supply chains, since it presents an indirect/direct jobs ratio about 50% higher than that of the coal and oil shale industries (0.94 vs 0.64 and 0.66, respectively). Similarly to Figure 5 for the coal-activities, Figure 6 shows the regional proportions of peat-related direct and indirect jobs, the latter divided between intra-regional and interregional ones. Interestingly, three out of four Finnish regions (FL1B, FL1C, FL1D), are characterised by a share of direct jobs above 80% of the total (direct plus indirect). Together with the regions of Lithuania and Latvia, they are among the regions responsible for the creation of the smallest proportion of inter-regional indirect jobs (less than 8%). On the other hand, another Finnish region, FL19, seems to have a productive structure very open to trade, given that 39% of the jobs directly and indirectly related to its peat industry are located outside the region itself. Figure 6. Contribution (%) of direct and indirect (intra and Inter) jobs in peat-related activities Source: DG ENER (direct employment) and RHOMOLO-IO estimates (indirect jobs). 15 5. Conclusions The European Commission is working to ensure a smooth transition away from the use of fossil fuels for energy production in order to support the EU objective of reaching climate neutrality by 2050. One important instrument for that is the JTM, under the umbrella of the European Green Deal, which provides targeted support to help mobilise at least €150 billion over the period 2021-2027 in the most affected regions hosting relevant activities related to coal, peat, and oil shale for energy use. These traditional energy sectors that rely on the production and use of fossil fuels will shrink, with concomitant negative socio-economic impacts. It is important to understand how many jobs are related to the activities that will cease in the near future in order to fully appreciate the potential impact of the transition in terms of employment. This technical report presents some estimates of the number of jobs indirectly related to the about 215,000 jobs directly involved in the coal, peat, and oil shale industries in the regions of the EU. The estimates are based on the RHOMOLO-IO model and suggest that 140,000 additional EU jobs rely on those industries due to linkages along the intraand inter-regional supply chains. The analysis also reveals a specific territorial distribution of these jobs across the NUTS 2 regions of the EU. The estimates indicate that, although the shift away from coal would affect the whole EU, some regions are particularly at risk in terms of employment vulnerability. This suggests the need for territorial-specific policies aimed at supporting workers in their search for alternative occupations during and after the transition away from coal activities. As for any modelling outcome, the numbers reported here should be interpreted with care as they inevitably result from a number of assumptions. For example, this is a static analysis which denies any potential dynamic aspects such as reaction and adaptation to the move away from fossil fuels. As a consequence, the numbers reported here may overstate the number of jobs at risk due to the transition, as workers can adapt and find alternative occupations as these ones progressively disappear. 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