How strong are the foundations for a green recovery? (by Michael Smith & Lyndsey Vipond)

Benchmarking the pre COVID-19 green economy across LEPs and Combined Authorities in England uncovers some hidden depths - but also large disparities that could inform rebalancing priorities.

In 2019, the UK became the world’s first major economy to enshrine its contribution to reducing global carbon emissions in law, by committing to become Net Zero by 2050. More recently as the COVID-19 pandemic has challenged the world, there have been calls for the UK to launch a green recovery to lead the economy out of recession and build back better.

As part of Accelar’s work to help accelerate clean growth opportunities, in partnership with kMatrix, we have explored the pre COVID-19 status of the green economy across England.  The green economy covers a wide range of economic activities associated with low carbon (including renewable energy) and environmental goods and services – also referred to as the Low Carbon Environmental Goods and Services (LCEGS) sector. It includes both where activity in the green economy is readily visible as a core focus of each company, as well as uncovering those contributing to the green economy via supply chains.

By using LCEGS data alongside official population data we have created a green economy sales per capita benchmark for 2018-19 for each Local Enterprise Partnership (LEP) area in England.  This enables a direct comparison to be made about the relative scale of this economic activity in each LEP area.  It is hoped that this analysis of 2018/19 data can also serve as a proxy for the pre COVID-19 green economy and contribute some insights that help to guide and shape opportunities for local employment and growth as part of a green recovery. 

Explore the sales per capita benchmark for each LEP by using the interactive map (Figure 1). Hover over the map to see more detail, expanding it to full screen by clicking the arrows in the corner. You can zoom in on the map to see the LEPs with a smaller sales per capita figure, with the larger bubbles representing LEPs with larger sales per capita.

Figure 1: Mapped Green Economy Sales per Capita for English LEPs

Rebalancing opportunities through green growth

The green economy benchmark indicates that the south east, including London, and the pan-Pennines area of northern England have the largest green economies per capita.  As shown in Figures 1 and 2, the top ten LEPs/combined authorities by sales of LCEGS per capita are in these areas. The top five local economies all achieved around £7,000 green economy sales per capita or more, compared to an average of less than £2,000 for the other 34 areas.  In Figure 1, the areas highlighted in gold are the metro mayor city-regions with a combined authority – however it appears there is no overall correlation between having a combined authority and having a larger LCEGS sector per capita.

Overall, London has the highest total sales of LCEGS, but this is accounted for by its larger economy and accompanying population size. Manchester and Leeds, however, have notably higher LCEGS sales per capita despite having lower total sales. This highlights the potential for post-industrial cities to lead the way in growing their green economies, tapping into the digital economy (i.e. the third industrial revolution). For example, Manchester benefits from the Oxford Road Corridor Innovation District, a hotspot for the testing of low carbon energy and mobility solutions through its recent participation in the EU-funded Triangulum Project[1]. This is reflected in analysis by the Business Growth Hub which highlighted that, in 2015/16, the highest total sales of LCEGS in Manchester was in alternative fuels, building technologies and alternative fuel vehicles[2]. Leeds also attracts support in its low carbon energy sector through the LEP’s leading Energy Accelerator, designed to help low carbon and energy efficiency projects get off the ground where there is a lack of capacity, expertise, and funding[3]. It will enable at least £120 million of capital investment in four main sectors including energy efficiency retrofits, renewable energy, street lighting upgrades and district heating networks.

Harnessing efforts into accelerating the LCEGS economy can help areas with a rich industrial past such as Birmingham to revolutionise growth [Photo by Dan Brown]

Other major cities in manufacturing heartlands such as Birmingham, Liverpool and Sheffield have historically had notably lower LCEGS sales per capita when compared with Manchester and Leeds which, pre COVID-19, had the strongest green economies outside of the south east of England.  This suggests that these city-regions, amongst other areas, have significant LCEGS per capita “headroom” i.e. potential to focus on growth within the green sector to rebalance their economies.

The green economy’s hidden depths

Figure 2: Green Economy Sales per Capita Ranked by English LEPs

Using our benchmark, the Enterprise M3 area comprising most of Hampshire and West Surrey achieved more than £11,000 green economy sales per capita in 2018/19 - the highest of all the LEPs/combined authorities. Enterprise M3 has emphasised its commitment to become a leader in clean economic growth and sustainable, low carbon energy which is demonstrated through its 9.8% share in the overall UK LCEGS sector[4].  Of that, 75% of total LCEGS sales are accounted for by non-core (supply chain) activities, particularly in alternative fuels, building technologies and alternative fuel vehicles. This highlights the “hidden depths” of LCEGS activity, with Enterprise M3 being particularly strong in supply chain activities that are not necessarily an obvious part of the green economy (e.g. component design and engineering).

There is great potential for further diversification and growth of the LCEGS sector in Enterprise M3, building upon the strong engineering capabilities and other supply chain opportunities. This demonstrates how other LEPs and combined authorities might also seek to pinpoint and grow the green economy through businesses that might not see themselves as relating strongly to LCEGS but that are able to grow via niches in the supply chain.

Collaboration may also offer opportunities for green growth at scale.  For example, the neighbouring Coast to Capital and South East LEPs are ranked second and third against our LCEGS sales per capita benchmark and have partnered with Enterprise M3 to release the South2East Energy Strategy. This local energy strategy outlines a shared vision for the tri-LEP region to have a leading role in sustainable energy production and support investments which contribute to enhancing the low carbon economy. A portfolio of projects is set out, requiring an estimated total investment of £14.8 billion.

Elsewhere, Cornwall and Scilly LEP had one of the lowest sales per capita in 2018/19 and there is considerable potential for the LEP to expand the population’s involvement in the green economy, for example in relation to the abundance of natural capital and renewable energy. In 2019, 37% of Cornwall’s energy demand was met by renewable sources, up from 6% in 2009 and higher than the national average of 33% in 2018[5].

Marrying climate and environmental goals with the short-term recovery

Having plotted the green economy per capita benchmark above, it is also timely to revisit the benefits of focusing growth in that direction. Increasing low carbon investment is widely recognised as key to tackling climate change and the many associated impacts at the scale and speed required.  More immediately though, a fair and broad-based economic recovery is a top priority moving into 2021 in the aftermath of the COVID-19 pandemic. There is much published as to how green growth can be more resilient, one such piece evidencing the performance of clean power investment versus its’ fossil fuel peers[1]. The growth in ‘green-collar’ jobs is also strongly linked to improving energy efficiency, conserving natural resources and helping to restore habitats. Interestingly, the green economy has a different export market to many other sectors, with only one of the top 12 UK export partner countries being in the EU[2], making it potentially more resilient to the UK’s exit from the EU. Whilst this also brings challenges in the funding landscape, there may be opportunities for domestic and inward investment to pick up this shortfall and benefit from this growth.

As an additional perspective on the benchmark, Figure 3 plots the green economy per capita against the gross-disposable household income (GDHI)[3]. Correlation does not necessarily mean causation, however the graph below makes an interesting case when looking to review relationships between economic/ income growth and the green economy.

Figure 3: Gross Disposable Household Income per English LEP Area in Comparison to the Green Economy Per Capita[*]

Dynamics for the future of the green economy 

The green economy is constantly evolving and changing shape through innovation and as it becomes a mainstream consideration for all industries and businesses.  This may make benchmarking challenging but indicates the expanding market opportunities in the green economy.  Our work in areas such as the circular economy, green finance, and natural capital are particularly ripe for further attention in analysing and supporting growth in the green economy.

The impact of the green economy on economic growth could be explored further by looking at Gross Value Added as an indicator of economic output. In addition to this, there is scope for a review of the green economy as a proportion of total economic activity for each LEP, allowing for direct comparison.

There are of course many further locally specific insights and conclusions that can be drawn from the data by analysing the green economy “taxonomies” in greater depth, harnessing the data for the post COVID-19 world and working with the green economy data alongside other datasets. A coordinated approach will be required for exploiting the green opportunities as a vehicle for economic growth. More in depth analysis of this data could help to pinpoint the specific opportunities and unlock the green growth potential across the UK.

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[1] Oxford Road Corridor

[2] Business Growth Hub report

[3] Leeds City Region Energy Accelerator

[4] Local Industrial Strategy – Defining our Approach

[5]Cornwall and Scilly Industrial Strategy

[6] Imperial College, Clean Energy

[7] London Low Carbon market snapshot, 2019

[8] ONS GDHI Data, 2018

[*] Data for Northamptonshire LEP GDHI was not available from the ONS at the time of publication