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Positive effects on regional economies through investments in renewable energy

2021-11-15 Santtu Karhinen

Economic recovery after the COVID-19 crisis creates new opportunities to implement the required investments in renewable energy to mitigate climate change. Recovery funds will be directed towards households and companies as well as municipalities who need financial support in the implementation of emission reductions.

In the climate efforts of municipalities, solutions in renewable energy play a central role. The quick development of technologies in renewable energy has facilitated the emission reduction work of municipalities. While the costs of technical solutions have decreased, their properties also have also improved.

One of the main drivers of development has been the increased demand for low-carbon forms of energy production created by climate change mitigation efforts. Due to the budget constraints of municipalities, it is especially important to produce unbiased information on the most cost-efficient measures of emission reduction. The investments should be implemented systematically so as to also get the most significant emission reduction result at the same time.

Renewable energy is an investment in the future

From a financial standpoint, investments in renewable energy are investments that achieve relatively risk-free returns well into the future. The economic savings and returns from investments could improve the provision of services or reduce municipal tax rates.

For instance, the Hinku municipality Ii has showcased the income and savings created through measures to reduce emissions. From the perspective of the municipality residents, it can be hard to discern effects on the municipality’s economy due to not experiencing the alternative development path without investments in renewable energy. Communication plays an important role in spreading this information.

In addition to immediate savings and income, efforts should also be made to include indirect positive economic impacts reflected in the wider regional economy in profitability assessments for investments in renewable energy. Solar panel, air source heat pump or ground source heat pump procurements create jobs in cases where the installation work can be purchased from within the municipality. Earthworks and electrical work required for investments in wind power are mainly purchased from the vicinity of the project area, which creates added value and jobs in the region. Significant real-estate tax revenue is also linked to investments in wind power. The investments can also create new businesses, which increases tax revenue from corporate and income taxes for the municipality.

How efficiently do investments create jobs and reduce emissions?

The Canemure project assessed the direct and indirect effects on employment from making the investments required to implement new renewable energy sources in the region as well as the emission reduction potential of renewable energy. The study looked at all the potential of ground and air heat source heat pumps, solar power and wind power across all Mainland Finland regions. Weather conditions and regional economy structures between different regions were inspected. For example, the radiation conditions are more favourable in the south and regional economy impacts are typically bigger in regions that are more diverse in terms of economic structure.

From the viewpoint of emission reductions and impacts on regional economies, one of the renewable energy options was highlighted above the others: ground source heat pumps for oil-heated sites. Moving away from oil-heating and moving to electricity and forms of heating that make use of free energy is a smart choice both from the financial and emission reduction perspectives.

Wind power investments can also achieve substantial benefits for municipal economy and reduce greenhouse gas emissions. However, solar power is not a particularly efficient solution to reduce emissions due to its production focusing on the summer season, when electricity production emissions are low already.

Development work is needed to account for fluctuations in regional economy and life cycle environmental impacts

In assessing investments, it should be remembered that investments made in certain sectors can exclude national economy investments elsewhere. The effects on employment calculated in the Canemure project’s study detail the gross employment impacts of implementing renewable energy, the calculation of which does not account for displacement effects on other sectors of economy.

The research focused on employment effects at the time of the investment as well as emission reductions following implementation. However, all types of economic activities, including implementing investments in renewable energy, produce greenhouse gas emissions. The calculation of life cycle emissions is therefore important in drawing conclusion on the net emission reductions from renewable energy. As emission reduction goals are global, information is needed also on emissions related to imported goods.

In the years to come, environmental expansions will be developed for the Canemure project’s regional economy model, which will enable even more diverse assessment of environmental impacts.

Santtu Karhinen, Researcher, Finnish Environment Institute

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