In this government commission, Growth Analysis has analysed the regional conditions and potential for environment-driven business development. The regional conditions and potential have been analysed both on the basis of the development that has occurred, but also based on the future potential that exists from a number of different scenarios. The main focus has been on analysing the regional conditions, but often in comparison with other regional, national and international trends.
Our main conclusion is that employment in environmental companies has developed at the same rate of growth as Sweden’s total employment (on average 1 per cent per year during the period 2003-2014). During this period there have been some comprehensive changes in employment in the industry aggregates. In the environmental sector, the industry aggregate Manufacturing and Mining has seen a marked loss (14 per cent), while industry aggregates 4 (Water, Waste, Sewage and Recycling) and 5 (Services) have seen the most positive development. There are many new environmental companies in the service industries. It is also clear that these general trends are becoming increasingly regionally concentrated. In absolute terms it is Stockholm, Skåne and Västra Götaland counties that have a great deal of the working population in the environmental sector and we can see that much of the positive change in employment can be linked to these three counties.
Analysis of export development in the environmental sector shows that this has been weaker than Sweden’s total export increase during the years 2003-2014 (the environmental sector showed an increase of 4.1 per cent per year compared with 4.4 per cent per year for Sweden as a whole). What is interesting in this regard is that it is Stockholm County that is lowering the average for the entire environmental sector. It is large in absolute terms, but has had a rather weak export increase compared with many other counties. Primarily it is the other two metropolitan counties, Skåne and Västra Götaland, that are both large in absolute terms and have shown strong export growth above the national average. From an export perspective, we can also see strong growth by Östergötland and Jönköping counties. The northern region has seen surprisingly weak growth, with the exception of Västernorrland, where exports increased by 6.6 per cent per year, although from a rather low level.
One important factor that explains regional differences in exports is the industry structure itself. In its analyses, Growth Analysis has taken this into account and analysed the regions’ exports on the basis of what might be expected with regard to the industry structure itself. The results show that of the metropolitan counties it is Västra Götaland and Skåne that have over-performed, while Stockholm county has gone from over-performing in 2003 to under-performing in 2014. It can also be seen that most counties have under-performed in such a perspective. This appears to indicate future regional potential that has not been fully exploited, where strong regional industry structures have not shown the ability to utilise and exploit the potential that exists in relation to their industry structure and what might be expected to be exported in the environmental field. If export development in the environmental sector is analysed on the basis of industry changes it can be seen that industry aggregates 4 (Water, Waste, Sewage and Recycling) and 5 (Services) have increased much faster than the average and together accounted for 48 per cent of the environmental sector’s exports, while industry aggregate Manufacturing and Mining has lost its export dominance, from 57 per cent in 2003 to 47 per cent in 2014. Thus, we see the same general development patterns for exports as for employment in the environmental sector.
If we compare these national and regional trends in the environmental sector with that of Europe (EU-28), it can be seen that the environmental economy is developing strongly - more strongly than the economy of Europe as a whole. Such a comparison does not show Sweden to be especially prominent in the environmental sector. Swedish environmental companies have not developed particularly well in relation to other environmental companies in EU-28. At the European level, employment in environmental companies increased by 50 per cent during the period 2003-2013, while the increase in employment in Swedish environmental companies was only 12 per cent during the same period. From a European perspective, it seems that Sweden is under-performing somewhat in environment-driven business development. Growth Analysis has shown that Sweden should have been able to perform better than has been the case previously, which in turn indicates a certain unexploited potential in environment-driven business development. We should also bear in mind that the environmental sector still represents a very small proportion of the total economy, i.e. 1.5 per cent of total employment and 2 per cent of total exports. Thus, positive changes will not have a very great influence on general growth and the economy as a whole under present conditions.
The nature of the growth in the environmental sector and for environmental companies has generally been more structured and concentrated than that of other private businesses. This is due to environment-driven growth having been relatively regionally concentrated and related to groups of companies. Independent environmental companies have seen weaker development and their significance for environment-driven growth has been marginal. From patent statistics, we can see that for Sweden the environmental field is an important innovation field, a trend that began in the 1990s and has continued consistently throughout the 2000s. In rough terms, environment-related patent applications represent about 10 per cent of all patent applications. The patents are related to a great extent to limiting effects on the climate, i.e. patents related to renewable energy sources, new fuels, new technologies for storing energy, new technologies in transport and building etc. Sweden has seen quite wide-ranging industrially oriented patent activity, with a certain focus on new technological solutions in the transport industry and new information and communication solutions in building. Growth Analysis has investigated regional innovation potential and the results show that, from the point of view of environmental technology and export potential, this potential is largely concentrated in Skåne, Stockholm and Västra Götaland counties. Primarily it is the more mature environmental technology companies, which are developing incremental innovations in both products and systems, that represent the greater proportion in these counties. In general terms, the results show that 41 per cent of the environmental technology companies surveyed have a high degree of innovation. 68 per cent of these environmental technology companies with a high degree of innovation also export. This indicates an interesting potential for environment-driven business development.
In making projections from this historical development, Growth Analysis has analysed what effects on employment might be expected in the environmental sector, assuming that the trend that was identified for the period 2003-2014 continues. The projection is for the period up to 2040 and the results show that the pattern of regional concentration will continue. Employment in the environmental sector would increase from just over 70,000 to 79,000. This means annual growth of 0.4 per cent, which can be compared with total national employment increasing by 0.5 per cent per year until 2040. A projection of trends shows a relatively modest development in the environmental sector, and the question is what initiatives are needed to break out of this trend and speed up growth in environment-driven business development?
There are a number of basic factors that influence and stimulate the environmental sector’s ability to compete and to get its products onto the market. Access to risk capital and favourable relative prices are significant and we know that it has been more difficult for environment-driven business development to recover in Sweden and in other countries after the financial crisis of 2008. We can also see that at present the relative prices are not especially favourable for the environmental sector. The government can influence both demand and supply with various types of initiative to stimulate environment-driven business development at both national and regional level. In general terms, Sweden has chosen a middle path compared with other countries when it comes to using adjusting measures to stimulate the demand side. In this study, Growth Analysis has performed a number of counterfactual analyses in order to test what effects we would see on the development of the environmental sector, both nationally and regionally, if we attempted to further stimulate demand by influencing relative prices between fossil and non-fossil fuels with the aid of different tax increases on mineral oil products.
Two steps have been calculated. In the first step, the effects of doubling the tax on carbon dioxide are calculated. The other step analyses how much the tax would need to be increased by in order to achieve the targets of the All Party Committee on Environmental Objectives (Miljömålsberedningen). The problem with the model is that it cannot estimate the positive effects of reduced emissions but only the increased costs and negative effects on production and consumption in different industries and different regions based on today’s production technology. If a clear alternative could be found to mineral oil, that is to say a competitive substitute for producing biofuel from forest materials, we could produce completely different results. At regional level, such a technology could generate completely different patterns of how the regions are affected in terms of production and welfare. Regardless of these limitations, it can be interesting to demonstrate the regional costs that are associated with demand-driven action based on the present technological limitations.
The results of these estimates and counterfactual analyses show that this type of action can lead to relatively high costs for some industries and regions if there are no clear replacement alternatives. In terms of welfare it is mainly Upper Norrland that sees the most negative effects, while Stockholm comes out best. The metropolitan counties cope with a change of this type relatively well, while the effects are harder for other counties. In many ways, this type of demand-driven action can be effective for stimulating environment-driven business development, but since the environmental sector represents a relatively limited part of the total economy, this type of action can lead to relatively great regional effects if continued for a lengthy period.
There are however other forms of demand-stimulating initiatives that are now performed within the framework of the current structural fund period. These demand-stimulating initiatives take the form of information and promotion initiatives. The EU structural fund capital is an important source of finance for public initiatives for environment-driven business development. In this assignment, Growth Analysis has been charged with establishing how such initiatives could be evaluated at a later stage, with the focus on their results and effects. This also includes analysing and assessing the conditions for evaluating results and effects based on present conditions. In previous evaluation reports, Growth Analysis has put forward a number of general problems in connection with the evaluability of structural fund projects. Some have been rectified but not all. The positive thing is that the Swedish Agency for Economic and Regional Growth is collecting the companies’ corporate registration numbers, which will make it easier to monitor and evaluate the effects of the initiatives on the actual target groups. The negative thing is that the project descriptions are far too imperfect. It is difficult to assess what is the main point and what is of secondary importance and what is actually being done. This means that in many cases the type of initiative that is being performed and how much focus there is on this initiative is unclear.
The consequence is that it is difficult to group and evaluate the initiatives themselves and to learn from them. The level of concretisation of these project descriptions must therefore be improved. We also lack a transparent and easily accessed system for completed evaluations and access to them on the web. For the purpose of future evaluation of initiatives aimed at environment-driven business development in the structural fund programmes, Growth Analysis has mapped out in rough terms the distribution of financing between different environmental initiatives. The major socioeconomic benefit in many of these environmental initiatives is of course reducing carbon dioxide emissions, but in Growth Analysis’ opinion our focus will not be on evaluating the size of emission reductions that these projects lead to, but rather on evaluating the effects on the companies. These represent the main target group from a growth perspective.
The results of our review indicate that large environmental initiatives in these structural fund programmes are aimed at making the companies’ production processes more efficient and more sustainable. Within this framework, many demand-stimulating initiatives are performed in the form of various kinds of promotional measures aimed at companies. In this, Growth Analysis’ focus will be on evaluating how many of these companies convert their production and what effects this has on the companies. Depending on the results, the reasons can then be analysed, primarily from a learning perspective. The other aspect that Growth Analysis will evaluate is the supply-oriented initiatives that are specifically aimed at supporting the companies’ product development in the field of the environment. We will primarily evaluate these initiatives on the basis of their degree of innovation, impact on the market and commercialisation. However we shall need to do this together with Vinnova and the Swedish Energy Agency. At present, Growth Analysis wishes to emphasise the importance of being able to improve the evaluability of the projects by means of the Swedish Agency for Economic and Regional Growth increasing the focus on project descriptions and specifically concretising the projects’ target groups and planned measures in dialogue with the project owners.
Environment-driven business development