By Gloria Cicerone, Sebastian Losacker and Raquel Ortega-Argilés
Regions are currently facing a “twin transition”, involving a shift towards more environmentally friendly economies alongside the digitalisation of economic activities.
Take the UK’s National Grid Electricity System Operator (ESO). To face the green challenge of integrating renewable energy sources like wind farms whilst minimising environmental impact, the ESO has embraced digital solutions like Artificial Intelligence (AI) and big data analytics.[1] This enables the integration of renewables while also ensuring a more sustainable and digitally-managed electricity infrastructure for the UK.
While this transition can help create a more sustainable future, accurately measuring its progress presents a significant challenge. Traditional industry classification systems and even patent data struggle to capture the dynamic nature of these intertwined sectors. This “measurement gap” hinders our understanding of the geographic distribution of green and digital activities, their impact on regional development, and the effectiveness of policies designed to support them.
Following ESCoE’s 2024 Conference on Economic Measurement, a new ESCoE discussion paper identifies UK regions leading the “twin transition” and uncovers diversification opportunities for regions to engage in green, digital, and twin activities.
How we did it
Our paper uses a new dataset provided by The Data City. This data platform offers a real-time industry classification based on machine learning techniques to identify and classify emerging sectors in the UK. The Data City’s Real Time Industrial Classifications (RTICs) allow the identification of economic activities linked to green sectors (e.g., renewable energy), digital sectors (e.g., communication technologies), and twin sectors (e.g., smart grids). Our study uses this new data platform to analyse industrial transitions in the UK.
For this analysis, we developed a dataset that includes information on over 200,000 companies classified into 385 different economic sub-sectors, with 166 sub-sectors linked to digital sectors, 45 to green sectors, and 13 to the twin domain. The classification methodology builds upon existing approaches to map green, digital, and twin activities, tailored to match The Data City’s sub-sector descriptions. Sub-sectors are classified as “green” if their activities promote environmental sustainability, such as clean energy and sustainable production methods. “Digital” sub-sectors involve innovative digital technologies, like AI. “Twin” sub-sectors intersect both areas, using digital technologies for environmental applications such as environmental monitoring, smart grids, and agri-tech.
We used this information to map the regional distribution of the number of firms active in green, digital, and twin domains across UK local authorities. Given that many firms can be classified into multiple sub-sectors due to their activities across different fields, we developed a measure of “relatedness” between sub-sectors based on their co-classification patterns. Two sub-sectors are considered related if they frequently co-occur in the economic activities of firms. For example, a company might be involved in both “smart grid technology” (a sub-sector of information technology) and “wind farm management systems” (a sub-sector of environmental technology). This co-occurrence suggests a connection between these sub-sectors. Using this metric, we created measures that helped us understand to what extent a regional economy is related to digital, green and twin domains, specifically the portfolio of local industries. We then used these measures to explore diversification opportunities for UK local authorities.
What did we find?
We found significant geographical variations in the distribution of green, digital, and twin sectors across the UK. This has implications for local development and policy-making.
Our results showed that digital industries tend to cluster in urban, densely populated areas, growing much faster than the population itself. In contrast, our study found less urban concentration effects for green and twin industries, suggesting a more dispersed development pattern across the country. This highlights the potential for spatial inequalities during the twin transition and the importance of region-specific strategies to tackle this.
Our findings also indicate that local relatedness to both digital and green industries positively correlates with gaining a local competitive advantage in twin sectors. This suggests that diversification strategies from either the green or digital sectors can foster advancements in twin industries within a region.
Why does it matter?
Understanding these synergies is crucial for policymakers and businesses navigating the challenges and opportunities of the future economy. Against this background, our research highlights key drivers, barriers, and implications across green, digital, and twin sectors. It emphasises the need for tailored approaches to maximise the benefits of this transition, considering the unique economic and industrial landscapes of local areas in the UK.
As traditional data forces may fall short, innovative data sources (particularly those using text data) will be necessary to identify and better understand emerging economic activities. Our study is a first step in this direction. Future research could look at accurately distinguishing between economic activities that are genuinely “twin”, rather than only identifying instances where green and digital activities co-occur.
This paper links to ESCoE work on subnational statistics, the digital economy and net-zero.
ESCoE blogs are published to further debate. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.
Gloria Cicerone is Assistant Professor of Applied Economics at the Gran Sasso Science Institute (GSSI) and Research Fellow at The Productivity Institute, Alliance Manchester Business School (AMBS), The University of Manchester. Her research interests lie at the intersection of regional economics, innovation, network analysis and sustainable development.
Sebastian Losacker is Research Group Leader at the Department of Geography at Justus Liebig University Giessen (JLU). His research interests include economic geography, innovation studies and sustainability transitions.
Raquel Ortega-Argilés is Professor of Regional Economic Development and the Director of the TPI Productivity Data Laboratory at the Alliance Manchester Business School (AMBS), The University of Manchester. Her research lies at the intersection of applied economics work on productivity, innovation, regional inequality and place-based policies.
[1] https://www.nationalgrideso.com/news/critical-role-innovation-delivering-net-zero-future