## 1espea2022002 ## Source details **Canonical URL:** [1espea2022002](https://www.imf.org/-/media/files/publications/cr/2022/english/1espea2022002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1espea2022002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1espea2022002.pdf.json) --- ### Spanish Labor Market: structural challenges and COVID-19 impact - Unemployment rate in 2019: "about 14 percent". - Youth unemployment rate in 2019: "32.5 percent". - Long-term unemployed: "5.3 percent of the labor force" versus "2.6 percent in EU-27"; represented "almost 40 percent of total unemployment". - Elevated prevalence of temporary workers and involuntary part-timers relative to the rest of Europe. - Labor mobility costs relatively high (Artuc et al., 2015). - Significant qualification mismatch (OECD data, 2016 reference year). - COVID-19 effects: - Short-time work scheme limited increases in unemployment. - Disproportionate job loss for women, young, less educated, low skilled and immigrant workers (Lariau and Liu, 2022). - Pandemic may have increased income inequality among vulnerable groups. - Accelerated automation and shifts toward online/at-home activities imply significant structural transformation and increased need for upskilling and sectoral reallocation policies. ### Trends in ALMP spending and participation - ALMP expenditure in 2019: "0.69 percent of GDP". - OECD average ALMP expenditure in 2019: "0.46 percent of GDP". - Over 2000–19, Spain’s ALMP expenditure close to or above the "75th percentile" of OECD countries except for a few years. - Pre-GFC average ALMP expenditure in Spain: "0.8 percent of GDP". - ALMP expenditure declined in 2010–12 by "almost ½ percentage point of GDP". - ALMP spending per unemployed in 2019: "10 percent of per capita GDP" — about "half the OECD average". - ALMP spending composition in 2019 (percent of total ALMP resources): - Start-up incentives: "20 percent". - Administration and provision of employment services: "19 percent". - Sheltered & supported employment programs: "18 percent". - Direct job creation programs: "16 percent". - Training: "15 percent". - Employment incentives: "12 percent". - Comparative positioning: - Shares of spending on direct job creation and start-up incentives were "above the 75th percentile" in 2019. - Share of spending on training was close to the "25th percentile". - Participation patterns: - Employment incentives had the largest number of participants in 2019, "almost three times the OECD average". - Participation in start-up incentives programs was "significant". - Public Employment Service (PES) engagement: - Share of jobseekers in regular contact with PES is "among the lowest in the OECD". - Possible causes: alternative job-search channels, jobs PES does not facilitate, low digitalization, heterogeneity across regional PES, and resources not allocated based on performance (AIReF, 2018; OECD, 2021a). ### Allocation shifts and pandemic adjustments to ALMP - Since 2005, ALMP resources shifted toward start-up incentives, direct job creation, and sheltered/supported employment, at the expense of employment incentives and training. - Share of spending on employment incentives declined sharply, "by about 30 percentage points". - Training resources declined and were already low compared to OECD peers; regional heterogeneity and entry limits for training providers affect quality and cost (OECD, 2021a). - Pandemic-era adjustments (2020–2021): - Some ALMP funding could not be executed and was re-allocated to employment protection policies. - Additional PES staff hired in 2020 and 2021 to process unemployment benefit and ERTE claims. - Employment services and training increasingly provided through digital platforms. - New public sector job creation positions added (mainly regional and local governments). - Temporary reductions in social security contributions for the most affected sectors. - No changes introduced to hiring and start-up incentives (OECD, 2021b and 2021e). ### Evaluation and effectiveness of ALMP - Aggregate impact of ALMPs on employment in Spain is limited; theoretical offset by substitution and displacement effects. - Empirical findings (1987–2010; stronger for 1997–2010): - Employment incentives had a positive but small impact on transitions from unemployment to employment and from temporary to permanent employment (Arranz et al., 2013). - Job creation programs and vocational training showed little or no effect on aggregate outcomes over the same period. - Internships, apprenticeships and training contracts increased transitions from unemployment to employment mainly through temporary contracts. - Micro-level evaluations sparse and not systematic; results vary across programs: - AIReF (2020): positive effect on employability during crises but "modest, temporary and concentrated among workers with higher education". - Font et al. (2021): subsidies to employment maintenance relatively effective at job maintenance but "at a disproportionate cost". - Blázquez et al. (2019): orientation and training improved employability, particularly for the long-term unemployed. - AIReF (2018): PREPARA created disincentives to returning to the labor market. - Rebollo-Sanz and García Pérez (2021): no increased employability for young workers in Andalucia, positive impact for workers older than 30 with extreme difficulty accessing the job market. - Felgueroso et al. (2018): guidance on job search tools and professional orientation most effective; individualized assessment (service 14A) increased employment probability for recipients. ### Youth-oriented and long-term unemployed programs: past performance and recent measures - Youth Guarantee (since 2014, revamped in 2021) targeted NEETs but experienced subdued participation. - Causes of low participation: low visibility, limited PES outreach capacity, narrow eligibility, inadequate management systems. - Brugarolas et al (2021): programs reached more highly educated students more effectively than NEETs. - Employment Activation Program (income support with tutor): helped one third of participants find a job but covered about half of an estimated 400,000 participants. - In 2015 only 0.5 percent of the low-skilled unemployed for 1–2 years benefited from PES training programs (Jansen, 2016). - Institutional fragmentation and decentralization: - 2020 Annual Employment Policy Plan: 696 policies, only 60 common to all regions; average region implemented 72 measures/services. - Recent youth-focused measures: - 2019–2021 Action Plan for Youth Employment: funding of €2 billion; objective to reduce youth unemployment rate to 23.5 percent. - June 2021: Juventud Avanza strategic plan with allocated funding of almost €5 billion; key element Youth Guarantee Plus Plan 2021–27 extends age limit from 25 to 29. - Juventud Avanza allocations (SEPE table): - Youth Guarantee Plus Plan 2021–27: 3,263 (€ million) — Covered with the European Social Fund. - Investments in RTRP: 937 (€ million) — Includes Primeras Experiencias Profesionales (€330 million); Investigo (€315 million); Tándem (€120 million); Other (€172 million). - Plan de Formación en Alternancia con el Empleo: 600 (€ million). - Agreement with Secretary of State of Digitalization and Artificial Intelligence: 150 (€ million). - Total: 4,950 (€ million). - Long-term unemployed measures: - After regular benefits expire, long-term unemployed may access extraordinary benefits and Renta Activa de Inserción (RAI). - Reincorpora-T Plan 2019–21: 63 measures, estimated cost of €4 billion, of which €1.3 billion allocated to ALMPs. ### Digitalization of PES and service delivery - COVID-19 accelerated PES digitalization: counselling, career guidance, job matching, training via online channels; remote benefit applications and registrations revamped. - PES adopted SEND@, a digital tool to facilitate individualized orientation services (to be evaluated by the OECD in 2022). - Ongoing challenge: maintain digital investments while preserving face-to-face interactions for vulnerable groups with lower digital skills and limited Internet/device access. ### Policy implications and recommendations for ALMPs - Reorient ALMP resources toward training and upskilling to address structural change and facilitate sectoral reallocation. - Strengthen capacity of the Public Employment Service and reduce heterogeneity of service provision across regions. - Improve digitalization and access to PES services. - Introduce a system of regular evaluations to assess program effectiveness; institutionalize regular evaluations and cost-benefit analysis and include evaluation requirements in relevant legislation. - Simplify ALMP regulations to bring agility. - Continue providing employment services attuned to local labor market conditions while ensuring well-designed accountability for regional PES. - Foster cooperation among public authorities, firms, training institutions. - Increase ALMP allocation to training, focus on in-demand sectors/skills, deepen engagement with firms, emphasize joint public-private programs and digital tools. - Complement ALMPs with education policies: - National Plan for Digital Skills (approved January 2021). - Vocational training reform and modernization: First Strategic Plan for Vocational Training (November 2019); Royal Decree 143/2021 (March 2021); Draft Law on Organization and Integration of Vocational Training (September 2021). - Strengthen PES targeting: - Introduce statistical profiling tools, enable early interventions, tailor services (requires PES digitalization and improved data systems). - Continued monitoring of cases for longer periods. - Revamp collaboration with private job-placement agencies. - Systematic exchanges of best practices and peer review among regions. - Enhance coordination between active and passive labor market policies: - Reorganize social and employment services around social cohesion; adopt integrated service models (one-stop shops) with caseworkers managing both social benefits and ALMPs. ### Alignment with Recovery, Transformation and Resilience Plan (RTRP) - RTRP reforms broadly consistent with recommendations but require careful design and timely execution. - Authorities plan regulation to modernize ALMPs, make them more targeted, focus on youth, and account for digital and green transitions. - New Employment Law contemplates development of a national digital job market platform. - Recovery plan includes PES digitalization, simplification and better administration of existing hiring subsidies (no new hiring subsidies), and investments that: - (i) include programs with large training components for young, women, and vulnerable groups; - (ii) provide training and employment support to facilitate a digital and green transition; - (iii) develop governance structure for ALMPs and training for National Employment Service staff. - Note: Actions aiming at improving coordination between active and passive labor market policies are not included in the RTRP. --- ### Climate Change Mitigation Policy in Spain — overall assessment and key targets - Spain’s Law on Climate Change and the Energy Transition: - Goal of carbon neutrality by 2050; Spanish electricity system must be 100 percent renewable by 2050. - Intermediate requirement to reduce emissions by 23 percent relative to 1990 levels by 2030 (about a one third reduction compared to 2018 levels). - 2030 targets: renewables to account for 42 percent of the country’s energy mix, generate 74 percent of its electricity (on a primary energy basis), and reduce primary energy consumption by at least 39.5 percent by 2030. - Additional policies: no later than 2040 new passenger cars and light commercial vehicles will be vehicles with emissions of 0gCO2/km; establishment of low emission zones in urban centers with population of at least 50 thousand by 2023; creation of an Expert Committee to submit an annual report to Congress. - National Integrated Energy and Climate Plan 2021–2030 (NECP) and complementary strategies (Just Transition Strategy, Long-Term Strategy 2050). - Recovery, Transformation and Resilience Plan: About 40 percent of announced investments (€70 billion, 6.5 percent of GDP) for 2021–23 allocated to green projects. ### National emissions trends and projections - GHG emissions were 8.5 percent higher in 2019 than in 1990; EU level about 28 percent lower. - Emissions declined significantly after the global financial crisis but stabilized since 2013. - Total GHG emissions dropped by 5.6 percent in 2019 despite about two percent growth in real GDP. - Approximated 2020 Inventory indicates GHG emissions dropped by 13.7 percent in 2020. - Spain is the fifth largest emitter in the EU. - Emissions per capita lower than average for advanced European countries but higher than France and Portugal. - Country projections (submitted before March 2020): absent additional policy measures, emissions would remain about seven percent above 1990 levels in 2030. - Meeting the 2030 target requires a reduction in emissions of about one third compared to current (2018) levels. ### Policy framework and carbon pricing coverage - Power and large industry: EU Emissions Trading System (ETS) covers about 40 percent of Spain’s national emissions. - Non-ETS sectors covered under the European Effort Sharing Regulation (ESR). - An explicit domestic carbon tax on fluorinated greenhouse gases in place since 2014, covering 3 percent of Spain’s total emissions. - Current tax rate on fluorinated gases: 15 euros per ton CO2-eq. - Rate for recycled and regenerated gases: 50 percent of the general rate. - Environmental tax collection: - As share of total revenues: 5 percent. - As share of GDP: 1.8 percent. - Reference carbon cost benchmark: 60 EUR per tonne of CO2eq cited as a mid-range benchmark for 2020 and low-end benchmark for 2030. - EU ETS permit prices increased significantly since 2020Q4, reaching about 80 euro per tonne by December 2021. ### Policy assessment and quantitative carbon-pricing scenario - Carbon pricing is key and cost-effective but requires complementary policies to address sector-specific barriers. - Quantitative scenario: an ambitious carbon price of US $75 per ton applied across all sectors, as the sole additional tool, would: - Cut emissions by about 15 percent below the computed business-as-usual baseline levels in 2030. - Fall short of the roughly 25 percent reduction needed (relative to the baseline) to meet Spain’s 23 percent emissions reduction pledge for 2030. - Price elasticities used in modeling: between -0.3 to -0.5. - A US $75 per ton carbon price would raise additional annual revenues of around 0.9 percent of GDP in 2030 (relative to a zero-carbon price and accounting for erosion of pre-existing fuel tax bases). - Revenue uses suggested: compensate the most vulnerable; fund other climate initiatives; cut distortionary taxes (e.g., labor income taxes); mitigate public indebtedness. --- ### Surface transport: emissions profile, taxation, and policy mix - Transport: largest emitter and largest contributor to total emission growth since 1990. - Surface transport accounts for about two thirds of the transport sector’s emissions. - Passenger cars are the largest subsector; vehicle production and related activities account for about 8.5 percent of GDP and 9 percent of employment. - About 22 percent of domestic car registrations are produced in Spain; about 80 percent of Spain’s production is exported. - Three large export markets pledged to ban ICE passenger cars by 2030 (Germany and UK) or 2040 (France). - A US $75 per ton carbon price would increase natural gas prices by about 43 percent, electricity by about 13 percent, and gasoline by about 17 percent. - Surface transport policy mix required: demand management, modal shift, efficiency improvements, and accelerated uptake of clean technologies. ### Fuel taxation and vehicle taxes - Fuel taxation high compared to other goods but less ambitious than in other European countries. - Spain’s diesel taxes per liter are materially lower than gasoline taxes; diesel accounts for about sixty percent of the car fleet. - Nominal duty uprating sporadic over 15 years, resulting in decreasing real rates. - Raising fuel taxes options: dedicated carbon tax; ETS framework; higher excise taxes. - Acquisition tax specifics: - Differentiated based on car emission intensity but schedule coarse and flat within brackets. - In 2019 about 60 percent of car registrations fell below the lower threshold (120g/km) paying a 0 percent rate; WLTP adoption (January 2021) implies higher measured emissions. - Schedule is ad-valorem; within-bracket payments depend on price not emission intensity. ### Feebates, subsidies, and electromobility - Feebates defined: CO2 price × (CO2/mile – fleet average CO2/mile) × lifetime mileage; revenue neutral and can be adapted from current acquisition tax schedule. - Feebates promote shifts: high- → lower-emission ICEs; ICE → biofuel/hydrogen; ICE → EVs. - Feebates are more flexible and cost-effective than regulations but less efficient than carbon pricing absent other frictions. - EV targets: - 250k electric vehicles (100k charging stations) by 2023 (government announcement in 2020). - Spain’s 2030 plan: five million electric vehicles (three million cars) by 2030 and 500k charging stations. - Target to discontinue sale of internal combustion engine passenger cars by 2040. - EV adoption and infrastructure: - 2020 sales of EVs (BEV, PHEV): nearly five percent of sales. - EVs account for 0.4 percent of total fleet. - Charging points: about 11.5k charging points; superfast charging network: 24 points (>=250kW) in five service stations. - 2020 expansion brought Spain in line with EU suggestion of at least one charger per 10 vehicles. - Subsidy programs history (selected entries and funding): - Plan 2000E (2009–2010) Grants Yes 100mn. - PIVE 1 to 8 (2012–2015) Grants Yes 10+1115mn. - MOVELE 14-15 (2014–2015) Grants No 17mn. - MOVES II (2020) Grants No (but favored; 7y+) 100mn. - RENOVE '2020 (2020) Grants Yes 10y+ 250mn. - MOVES III (2021–2023) Grants No (but favored; 7y+) 400mn (may expand to 800mn). - Distributional concerns: subsidies tend to accrue to richer households; limiting subsidies to lower income quintiles would improve distributional outcomes but likely reduce adoption rates. - Recommendation: integrate subsidies into feebates to be revenue neutral and incentivize low-emission adoption without fiscal cost. ### Low Emission Zones (LEZs), freight, and modal shift - LEZs: required from 2023 in urban centers with more than 50k inhabitants; LEZs account for 40 percent of transport sector emission reduction by 2030 in authorities’ plan. - Urban transport accounts for about 35 percent of ground transportation in Spain. - LEZ implementation is decentralized; national guidelines permit local flexibility; central government could consider minimum standards (size, stringency, enforcement, exemptions). - Complementary measures: differentiated tolls; toll revenues could be recycled to mitigate distributional concerns. - Freight decarbonization: - Heavy duty vehicles: about a third of surface transport emissions (one fifth of total transport emissions including international). - Rail accounts for about 5 percent of total tonne-kms in Spain versus 17 percent at EU level. - Investment needs: cross-border connections with France and Portugal, port/logistic hub links. --- ### Buildings and residential sector: emissions, renovation needs, and policies - Buildings: second largest contributor since 1990; account for about one third of final energy consumption. - Residential buildings account for more than half of emissions in the building sector. - More than half of dwellings built before 1980; 75 percent built before 2000. - Energy Performance Certificate (EPC): most dwellings report grade C or worse. - 2030 plan targets: - Energy renovations of 1.2 million dwellings cumulative over the decade (thermal envelope). - Annual average renovation of 300,000 heating and cooling systems. - Recovery plan: renovate at least 355,000 residential dwellings by 2026, achieving on average a primary energy demand reduction of at least 30 percent. - Recovery plan allocation: about €7 billion toward building efficiency and urban transformation. - Current renovation activity: - Only 0.3 percent of energy renovations over 2012–2016 were deep renovations meeting NZEB criteria. - Only 56,000 dwellings have undergone deep energy renovation (>60 percent savings). - Current rate: 30,000 dwellings per year (0.2 percent of residential stock). - Strong performers have rates about five times higher; European Commission recommended rate: 2–3 percent. - Market failures and barriers: liquidity constraints, owner-renter split incentives, unawareness, coordination frictions; Spain-specific features aggravating challenges: - Share of apartments: 66 percent. - Share of multi-family buildings: 71 percent. - Home ownership rate: ~80 percent. - Policy tools and recommendations: - Tax-subsidy (feebate) for thermal installations: interim tax on gas heating technologies (rate increasing through mid-2030s) funds subsidies for electric heat pumps. - Differentiate property tax rates to incentivize energy efficiency renovations. - Prioritize vulnerable households and "hard to treat" dwellings; require sufficiently deep renovations and ex-post verification. - Use EU funds and augment aid lines (e.g., PAREER, MITMA State Housing Plan, ICO lines). - Develop green mortgages and on-bill financing; remove legal barriers (reform Horizontal Property Law). - Introduce one-stop-shops (Renovation Offices) and a centralized digital platform. - Consider centralized price lists for renovation services. ### Supply-side and workforce recommendations for renovations - Recommendation: introduce certification and training programs for construction and residential sector professionals to increase supply of retrofit skills (Arregui et al., 2020). - Address availability of skilled workers, cooperation between trades, and creation of certifications and advisory structures. --- ### Power sector: role, generation mix, and infrastructure needs - Progress away from coal: coal-generated electricity fell from 14 percent of total in 2018 to five percent in 2019 and two percent in 2020. - Share of electricity generation from renewables increased to about 40 percent of total, up from 15 percent 15 years ago. - Government target: renewables to account for 74 percent of electricity production by 2030. - Nuclear generation: about 20 percent of total power generation in 2019; phased closure starting in 2027 to be completed by 2035. - Infrastructure and capacity needs: - Expand smart grids and renewable electricity storage. - Enhance system flexibility (e.g., “smart” vehicle charging, building heating/cooling). - Increase coverage and interconnection of electrical grids. - Spain interconnectivity: 6.5 percent; EU targets: 10 percent by 2020 and 15 percent by 2030. - Capacity expansion target: from 103.7GW in 2018 to 161GW in 2030. - EU ETS dynamics: - Levels now above 50 euros per ton; nearly double 2020 average and ten times 2016–17 values. - Consider predictable carbon price floor if price uncertainty deters investment (noting potential "waterbed effect"). - Auctions: - Auction framework appears adequate to support renewable investment. - New auction scheme first used January 2021; IEA (2021) and del Rio (2021) assessments positive. - Fiscal recommendation: align carbon pricing across sectors to avoid undermining incentives for electrification. --- *Prepared by IMF staff; content drawn from the provided PDF chapter.* ### References ____________________________________________________________________________ 14 ### 1espea2022002 - References ____________________________________________________________________________ 14 ### Spanish Labor Market: Structural Challenges and COVID-19 Impact - Spain’s unemployment rate in 2019 was "about 14 percent". - Youth unemployment rate in 2019: "32.5 percent". - Long-term unemployed were "5.3 percent of the labor force" versus "2.6 percent in EU-27", and represented "almost 40 percent of total unemployment". - Prevalence of temporary workers and involuntary part-timers was elevated relative to the rest of Europe. - Labor mobility costs are relatively high in Spain (Artuc et al., 2015), potentially limiting workers’ ability to switch jobs. - Significant qualification mismatch exists in the labor force (OECD data, 2016 reference year for mismatch chart). - COVID-19 effects: - Short-time work scheme limited increases in unemployment. - Disproportionate job loss for women, young, less educated, low skilled and immigrant workers (Lariau and Liu, 2022). - Pandemic may have increased income inequality among vulnerable groups. - Accelerated automation and shifts toward online/at-home activities imply significant structural transformation and increased need for upskilling and sectoral reallocation policies. ### Trends in ALMP Spending and Participation - Spain’s ALMP expenditure in 2019: "0.69 percent of GDP". - OECD average ALMP expenditure in 2019: "0.46 percent of GDP". - Over 2000–19, Spain’s ALMP expenditure was close to or above the "75th percentile" of OECD countries, except for a few years. - Pre-GFC (before the global financial crisis) average ALMP expenditure in Spain: "0.8 percent of GDP". - ALMP expenditure declined in 2010–12 by "almost ½ percentage point of GDP". - Spain’s ALMP spending per unemployed in 2019: "10 percent of per capita GDP" — about "half the OECD average". - ALMP spending composition in 2019 (percent of total ALMP resources): - Start-up incentives: "20 percent". - Administration and provision of employment services: "19 percent". - Sheltered & supported employment programs: "18 percent". - Direct job creation programs: "16 percent". - Training: "15 percent". - Employment incentives: "12 percent". - Comparative positioning: - Shares of spending on direct job creation and start-up incentives were "above the 75th percentile" in 2019. - Share of spending on training was close to the "25th percentile". - Participation patterns: - Employment incentives had the largest number of participants in 2019, "almost three times the OECD average". - Participation in start-up incentives programs was "significant". - Public Employment Service (PES) engagement: - Share of jobseekers in regular contact with PES is "among the lowest in the OECD". - Limited PES engagement possible causes: availability of alternative job-search channels, preference for jobs PES does not facilitate, low degree of digitalization, heterogeneity in capacity across regional PES, and resources not allocated based on performance (AIReF, 2018; OECD, 2021a). ### Allocation Shifts and Pandemic Adjustments - Since 2005, ALMP resources shifted toward start-up incentives, direct job creation, and sheltered/supported employment, at the expense of employment incentives and training. - The share of ALMP spending on employment incentives declined sharply, "by about 30 percentage points", bringing it closer to the OECD median. - Training resources declined and were already low compared to OECD peers; regional heterogeneity and entry limits for training providers negatively affect quality and cost (OECD, 2021a). - Pandemic-era adjustments (2020–2021): - Some ALMP funding could not be executed and was re-allocated to employment protection policies. - Additional PES staff hired in 2020 and 2021 to process unemployment benefit and ERTE claims. - Employment services and training increasingly provided through digital platforms. - New public sector job creation positions added (mainly regional and local governments). - Temporary reductions in social security contributions for the most affected sectors. - No changes introduced to hiring and start-up incentives (OECD, 2021b and 2021e). ### Evaluation and Effectiveness of ALMP - Aggregate impact of ALMPs on employment in Spain is found to be limited; theoretical offset by substitution and displacement effects. - Empirical findings (1987–2010; stronger for 1997–2010): - Employment incentives (incentivized contracts) had a positive but small impact on transitions from unemployment to employment and from temporary to permanent employment (Arranz et al., 2013). - Job creation programs and vocational training showed little or no effect on aggregate outcomes over the same period. - Internships, apprenticeships and training contracts increased transitions from unemployment to employment mainly through temporary contracts. - Micro-level evaluations are sparse and not systematic; results vary across programs. Examples: - Employment incentives: AIReF (2020) — positive effect on employability during crises but "modest, temporary and concentrated among workers with higher education"; Font et al. (2021) — subsidies to employment maintenance relatively effective at job maintenance but "at a disproportionate cost". - Training: Blázquez et al. (2019) — orientation and training improved employability, particularly for the long-term unemployed; AIReF (2018) — PREPARA created disincentives to returning to the labor market. - Direct job creation: Rebollo-Sanz and García Pérez (2021) — no increased employability for young workers in Andalucia, but positive impact for workers older than 30 with extreme difficulty accessing the job market. - Public employment services: Felgueroso et al. (2018) — guidance on job search tools and professional orientation most effective in helping the unemployed find a job; AIReF (2018) — individualized assessment (service 14A) increased employment probability for recipients. ### Policy Implications and Recommendations (as described in the text) - Reorient ALMP resources toward training and upskilling to address structural change and facilitate sectoral reallocation. - Strengthen the capacity of the Public Employment Service and reduce heterogeneity of service provision across regions. - Improve digitalization and access to PES services. - Introduce a system of regular evaluations to assess program effectiveness. - Careful design and timely execution of labor market reforms in the Recovery, Transformation and Resilience Plan are necessary for success. *Prepared by Ana Lariau (EUR); content drawn from the provided PDF chapter.* ### 11. Youth-oriented programs, as well as those targeting the long-term unemployed, ### 11. Youth-oriented programs, as well as those targeting the long-term unemployed ### Past performance and participation - Youth Guarantee (in place since 2014, revamped in 2021) targeted NEETs but experienced subdued participation despite Spain receiving the highest share of EU funding for the initiative. - Reported causes of low participation: low visibility of advertising campaigns, limited capacity of the PES for outreach, narrowly defined eligibility criteria, and inadequate management systems. - Brugarolas et al (2021) find targeting difficulties: programs reached more effectively highly educated students rather than those neither studying nor working. - Employment Activation Program (income support with tutor) helped one third of its participants to find a job but covered about half of the initially estimated 400,000 participants. - Jansen (2016): in 2015 only 0.5 percent of the low-skilled unemployed for 1–2 years benefited from training programs offered by the Public Employment Services; an even smaller fraction for low-skilled unemployed for more than two years. - Institutional fragmentation and decentralization: - Total number of policies in the 2020 Annual Employment Policy Plan: 696, of which only 60 were common to all regions; on average each region implemented 72 different measures and services. - Existing evaluation frameworks (EVADES; measurement system for professional training for employment) monitor operational performance but are not suitable for counterfactual causal analysis with experimental methods. ### Recent measures to strengthen ALMPs - Youth-focused measures: - 2019–2021 Action Plan for Youth Employment: funding of €2 billion; objective to reduce the youth unemployment rate to 23.5 percent; comprised 50 cross-cutting measures (guidance, training, job creation, equal opportunities, entrepreneurship, institutional framework). - June 2021: Juventud Avanza strategic plan with allocated funding of almost €5 billion. Key element: Youth Guarantee Plus Plan 2021–27 (extends age limit from 25 to 29; requires targeted and individualized approaches for vulnerable groups; addresses under- and over-qualification). - Table of initiatives within Juventud Avanza Strategic Plan (Source: SEPE): - Youth Guarantee Plus Plan 2021–27: 3,263 (€ million) — Covered with the European Social Fund. - Investments in RTRP: 937 (€ million) — Includes Primeras Experiencias Profesionales (€330 million); Investigo (€315 million); Tándem (€120 million); Other (€172 million). - Plan de Formación en Alternancia con el Empleo: 600 (€ million) — Public employment-training program for unemployed from disadvantaged groups without specific training in a profession. - Agreement with the Secretary of State of Digitalization and Artificial Intelligence: 150 (€ million). - Total: 4,950 (€ million). - Long-term unemployed measures: - Upon expiration of regular benefits, long-term unemployed may access extraordinary benefits and Renta Activa de Inserción (RAI) providing income support and individualized employment services to certain groups. - Reincorpora-T Plan 2019–21: 63 measures, estimated cost of €4 billion, of which €1.3 billion allocated to ALMPs (more guidance counsellors, vocational training in rural areas, training in key digital skills); remainder allocated to social protection and evaluation measures. ### Digitalization of the PES and service delivery - COVID-19 accelerated PES digitalization: counselling, career guidance, job matching, and training administered via online channels; remote benefit applications and jobseeker registrations revamped to facilitate processing speed despite high volumes. - PES adopted SEND@, a digital tool to facilitate individualized orientation services (to be evaluated by the OECD in 2022). - Ongoing challenges: maintain investments in digital technologies while preserving face-to-face interactions for vulnerable groups with lower digital skills and limited Internet/device access. ### Key evaluation and delivery findings - Existing evaluation frameworks are useful for monitoring but not for establishing causal impact via counterfactual experimental methods. - Meta-analysis by Card et al (2018): training programs tend to have larger and more long-lasting positive impacts than other activation policies. - Caliendo and Schmidl (2016): job search assistance is the only ALMP with unambiguously positive effects on employment outcomes in Europe; other ALMPs show mixed or negative effects. - OECD (2021a): a 25-percent increase in ALMP spending per unemployed (as a share of GDP per capita) would entail an increase in the level of GDP per capita by 0.2 percent within five years and by 0.3 percent within 10 years. ### Policy recommendations (priorities and actions) - Address capacity constraints in the PES. - Simplify ALMP regulations to bring agility to the ALMP system. - Continue providing employment services attuned to local labor market conditions while ensuring a well-designed accountability framework for regional PES. - Foster cooperation and coordination among relevant stakeholders (public authorities, firms, training institutions). - Increase allocation of ALMP resources to training, focusing on sectors and skills in most demand and deeper engagement with firms; emphasize joint public-private programs and intensive use of digital tools where feasible. - Complement ALMPs with education policies that mitigate skill mismatches and facilitate accreditation of professional competences: - National Plan for Digital Skills (approved January 2021): investments in digital skills for the entire population with focus on vulnerable groups and the unemployed, digitalization of the education system, and training of ICT specialists. - Vocational training reform and modernization: First Strategic Plan of the Educational System for Vocational Training (November 2019); Royal Decree 143/2021 (March 2021) establishing permanent procedure for evaluation and accreditation of professional competences acquired through work experience or non-formal channels; Draft Law on the Organization and Integration of Vocational Training (September 2021) integrating vocational training for education and for employment into a single system. - Strengthen PES capacity and address regional heterogeneity to provide individualized and timely support: - Introduce statistical profiling tools to target services, enable early interventions, and tailor services to individual needs (requires PES digitalization and improved data systems). - Continued monitoring of cases, possibly for longer periods. - Revamp collaboration with private job-placement agencies to overcome capacity limitations. - Systematic exchanges of best practices and peer review among regions to address heterogeneity. - Enhance coordination between active and passive labor market policies: - Reorganize social and employment services around the common goal of social cohesion. - Adopt integrated service models (e.g., one-stop shops) at the regional level with caseworkers managing both social benefits and ALMP interventions and a centralized back-office for eligibility verification. - Endow caseworkers with resources, training, and discretionary capacity to design individual activation plans for holistic service provision. - Institutionalize regular evaluations and cost-benefit analysis of ALMPs to prioritize programs where gains outweigh costs and to inform allocation of funding to regional PES; include evaluation requirements in relevant legislation. ### Alignment with Spain’s Recovery, Transformation and Resilience Plan (RTRP) - RTRP reforms broadly consistent with recommendations but require careful design and timely execution: - Authorities plan regulation to modernize ALMPs, make them more targeted, focus on youth, and account for digital and green transitions. - New Employment Law contemplates development of a national digital job market platform to facilitate labor matching and individualized employment services. - Recovery plan includes PES digitalization, simplification and better administration of existing hiring subsidies (no new hiring subsidies), and investments that: - (i) include programs with large training components for young, women, and vulnerable groups (long-term unemployed, disabled, etc.); - (ii) provide training and employment support to facilitate a digital and green transition; - (iii) develop governance structure for ALMPs and training for staff of the National Employment Service. - Note: Actions aiming at improving coordination between active and passive labor market policies are not included in the RTRP. *Source: Spain — IMF country report chapter on Active Labor Market Policies (text as provided).* ### References ### References ### Key citations and literature - AIReF. (2018). Public Expenditure Evaluation 2018: Active Labour Market Policies Programme. Madrid: Autoridad Independiente de Responsabilidad Fiscal. - AIReF. (2020). Evaluación del Gasto Público 2019: Incentivos a la Contratación. Madrid: Autoridad Independiente de Responsabilidad Fiscal. - Arranz, J. M., Garcia Serrano, C., & Hernanz, V. (2013). Active Labor Market Policies in Spain: A Macroeconomic Evaluation. International Labor Review, 152(2), 327-348. - Artuc, E., Lederman, D., & Porto, G. (2015). A mapping of labor mobility costs in the developing world. Journal of International Economics, 95(1), 28-41. - Blázquez, M., Herrarte, A., & Sáez, F. (2019). Training and job search assistance programmes in Spain: The case of long-term unemployed. Journal of Policy Modeling, 41(2), 316-335. - Brugarolas, P., Gorjón, L., Lizarraga, I., & Vega-Bayo, A. (2021). Youth Employment PartnerSHIP - Report on outreach performance and YGS implementation: results and efficiency in Spain. ISEAK Report 2021/4. - Caliendo, M., & Schmidl, R. (2016). Youth unemployment and active labor market policies in Europe. IZA Journal of Labor Policy, 5(1), 1-30. - Card, D., Kluve, J., & Weber, A. (2018). What Works? A Meta Analysis of Recent Active Labor Market Program Evaluations. Journal of the European Economic Association, 16(3), 894-931. - Desiere, S., Langenbucher, K., & Struyven, L. (2019). Statistical profiling in public employment services: An international comparison. OECD Social, Employment and Migration Working Papers, No. 224. Paris: OECD Publishing. - European Parliament. (2017). Social and Employment Policies in Spain: In-Depth Analysis for the EMPL Committee. Directorate General for Internal Policies, Policy Department, Employment and Social Affairs. - Felgueroso, F., García-Pérez, J. I., & Jiménez-Martín, S. (2018). Perfilado estadístico: un método para diseñar políticas activas de empleo. Madrid: Fundación Ramón Areces. - Font, P., Izquierdo, M., & Puente, S. (2021). The Effect of Subsidies to Mature-Age Employment: a Quasi-Experimental Analysis. Journal of Labor Research volume, 42, 123-147. - Government of Spain. (2021). Plan de Recuperación Transformación y Resiliencia. Componente 23: Nuevas Polítivas Públicas para un Mercado de Trabajo Dinámico, Resiliente e Inclusivo. - Heidenreich, M., & Rice, D. (2016). Integrating Social and Employment Policies in Europe. Cheltenham, UK: Edward Elgar Publishing. - IMF. (2017). Spain: Staff Report for the 2017 Article IV Consultation. Country Report No. 17/319. Washington, D.C., International Monetary Fund. - Jansen, M. (2016). El Reto de la Inserción de los Desempleados de Larga Duración. Policy Paper 2016/26. FEDEA. - Lariau, A., & Liu, L., forthcoming. Inequality in the Spanish Labor Market During the COVID-19 Crisis. Washington, D.C., International Monetary Fund. - Lauringson, A., & Lüske, M. (2021). Institutional set-up of active labour market policy provision in OECD and EU countries: Organisational set-up, regulation and capacity. OECD Social, Employment and Migration Working Papers No. 262. Paris: OECD Publishing. - Liu, L. (2018). Regional Labor Mobility in Spain. IMF Working Paper WP/18/282. Washington, D.C., International Monetary Fund. - Moreno, A. (2017). The Challenge for the Youth Guarantee: A Solution to a Structural Problem? In Social Observatory "la Caixa", Youth Unemployment and Poverty: A Structural Problem? (pp. 30-39). Barcelona: "la Caixa" Banking Foundation. - OECD. (2019a). OECD Employment Outlook 2019: The Future of Work. Paris: OECD Publishing. - OECD. (2019b). Strengthening Active Labour Market Policies in Italy. Connecting People with Jobs. Paris: OECD Publishing. - OECD. (2020). Public employment services in the frontline for employees, jobseekers and employers. OECD Policy Responses to Coronavirus (COVID-19). Paris: OECD Publishing. - OECD. (2021a). OECD Economic Surveys - Spain. Paris: OECD Publishing. - OECD. (2021b). Scaling up policies that connect people with jobs in the recovery from COVID-19. OECD Policy Responses to Coronavirus (COVID-19). - OECD. (2021c). Designing active labour market policies for the recovery. OECD Policy Responses to Coronavirus (COVID-19). Paris: OECD Publishing. - OECD. (2021d). Building inclusive labour markets: Active labour market policies for the most vulnerable groups. OECD Policy Responses to Coronavirus (COVID-19). Paris: OECD Publishing. - OECD. (2021e). Active labour market policy measures to mitigate the rise in (long-term) unemployment: Summary of country responses to the OECD-EC questionnaire. Paris: OECD Publishing. - OECD. (2021f). What have countries done to support young people in the COVID-19 crisis? OECD Policy Responses to Coronavirus (COVID-19). Paris: OECD Publishing. - Rebollo-Sanz, Y. F., & Pérez, J. I. (2021). Evaluación de Impacto de Políticas Activas de Empleo para Colectivos de Difícil Inserción Laboral. Fedea Policy Papers 2021/11. - Rice, D. (2017). How governance conditions affect the individualization of active labour market services: An exploratory vignette study. Public Administration, 95(2), 468-481. ### Annex I — Classification of OECD Data for Public Expenditure and Participants in ALMP - Public Employment Services and Administration - Placement and related services: Include open information services, referral to opportunities for work, training and other forms of assistance, counselling and case management of jobseekers, financial assistance with the costs of job search or mobility to take up work, and job brokerage and related services for employers, if spending on these functions can be separately identified. Services provided by the main public employment service and by other publicly financed bodies are included. - Benefit administration expenditure: Includes the budget of institutions that manage the unemployment and early retirement benefits, if this spending can be separately identified. - Other expenditure: Includes the budget of institutions whose functions are within the scope of this database, but whose costs cannot be separately identified into the above categories. - Training - Training programs: Comprises institutional training (programs where 75 percent or more of the training time is spent in a training institution), workplace training (programs where 75 percent or more of the training time is spent in the workplace), and alternate training (programs where training time is evenly split between a training institution and the workplace). - Special support for apprenticeship: Programs providing incentives to employers to recruit apprentices from labor market policy target groups, or training allowances for particular disadvantaged groups. - Employment Incentives - Recruitment incentives: Programs making payments for a limited period only to facilitate the recruitment of unemployed persons and other target groups into jobs where the majority of the labor cost is covered by the employer. They include payments to individuals that are conditional upon the take-up of a new job (back-to-work bonus, mobility/relocation allowance or similar) only if they are targeted (restricted to a specific group of people, e.g. the long- term unemployed). - Employment maintenance incentives: Similar to the previous category, but with the purpose of facilitating continuing employment, in a situation of restructuring or similar. - Job rotation and job sharing: Job rotation refers to schemes promoting the full substitution of an employee by an unemployed person or a person from another target group for a fixed period. Job sharing refers to schemes promoting the partial substitution of an employee by an unemployed person or a person from another target group. - Sheltered and Supported Employment and Rehabilitation - Sheltered and supported employment: Consists of subsidies for the productive employment of persons with a permanently (or long-term) reduced capacity to work. These measures typically provide ongoing support and have no planned duration. - Rehabilitation: Vocational rehabilitation for persons with a reduced working capacity which prepares them to move on to work or regular training. - Direct Job Creation - These programs create additional jobs - usually of community benefit or socially useful, and usually in the public or non-profit sector although similar projects in the private sector may also be eligible—for the long-term unemployed or persons otherwise difficult to place. The majority of the labor cost is covered by public funds. - Start-up Incentives - Programs that promote entrepreneurship by encouraging the unemployed and target groups to start their own business or to become self-employed. ### Climate Change Mitigation Policy in Spain — Main findings and policy messages - Overall assessment - Significant effort will be needed to reach Spain’s new more ambitious climate mitigation objectives, as reflected in the authorities’ plans. - Spain’s Law on Climate Change and the Energy Transition establishes the goal of carbon neutrality by 2050, together with an intermediate requirement to reduce emissions by 23 percent relative to 1990 levels by 2030 (about a one third reduction compared to 2018 levels). - Carbon price coverage in Spain is comprehensive, but the effective tax rates are low relative to estimates of emission damages, and also tend to be lower than in other euro area economies. - Carbon price increases should be gradual, predictable, and complemented with distributive policies to protect vulnerable households. - Complementary policies will be essential to address sector-specific obstacles to reducing emissions. - Across all sectors, public investment and financial support will be vital where market failures constrain private investment. - The authorities’ plans to leverage the NGEU funds to support green investments, prioritizing clean energy, sustainable mobility and building efficiency renovations, are welcome. - Key targets and plans - Spain’s Law on Climate Change and the Energy Transition (enacted in 2021): - Goal of climate neutrality by 2050 at the latest, when the Spanish electricity system must be 100 percent renewable. - Intermediate target to reduce emissions by 23 percent relative to 1990 levels by 2030. - Targets for 2030: renewables to account for 42 percent of the country’s energy mix, to generate 74 percent of its electricity (on a primary energy basis), and to reduce primary energy consumption by at least 39.5 percent by 2030. - Additional policies: no later than 2040 new passenger cars and light commercial vehicles will be vehicles with emissions of 0gCO2/km; establishment of low emission zones in urban centers with a population of at least 50 thousand by 2023; creation of an Expert Committee to submit an annual report to Congress. - National Integrated Energy and Climate Plan 2021–2030 (NECP): outlines sectoral actions for 2030 objectives including increasing renewable power installations, boosting renewable gases in power, modal shifts and electrification in transport, refurbishments and renewable heating in residential/commercial sectors, and energy efficiency in industry and agriculture. - Complementary strategies: Just Transition Strategy and Long-Term Strategy 2050. - Recovery, Transformation and Resilience Plan: About 40 percent of announced investments (€70 billion, 6.5 percent of GDP) for the period 2021–23 are allocated to green projects, prioritizing clean energy, sustainable mobility and building efficiency renovations. - Policy recommendations and sectoral messages - Carbon pricing - Carbon pricing will need to play a more significant role going forward. - Effective carbon rates are low relative to estimates of carbon emission damage and typically lower than in peer economies. - Authorities’ review of environmental taxation should provide the foundations for a broad tax reform covering multiple sectors. - As carbon pricing for the power sector has increased significantly in 2021 and is expected to continue to increase within the EU ETS framework, it will be important to move in tandem in other sectors to internalize the emission externality and not undermine incentives for electrification. - Options for higher carbon taxation in the residential and road transport sector include raising current taxes, introducing a dedicated carbon tax, or via an ETS framework. - Increasing carbon pricing ambitions in a predictable and gradual way would strengthen incentives for consumers and investors while providing fiscal revenue. - Distributional considerations - Climate policy should be mindful of its distributional implications and protect vulnerable households. - Use carbon tax revenues to support low-income households to mitigate regressive effects. - Complementary policies should ideally avoid additional burdens or even mitigate distributional effects of carbon prices. - Sectoral policies and complements - Road transport: - Vehicle acquisition taxation could be strengthened; current schedule is coarse, flat within each bracket, and less ambitious compared to peer countries. - Feebates (taxes on high-emissions vehicles combined with subsidies for low-emission ones) can shift purchases toward cleaner vehicles. - Establishment of low emission zones (LEZ) is a key policy; implementation is decentralized and should be monitored; local authorities should consider toll systems as a complement. - Continued improvement in public transportation is essential for promoting modal shifts. - Residential sector: - Fiscal package could reinforce carbon pricing: a tax-subsidy (feebate) scheme where revenues from an interim tax on gas heating technologies (with rate increasing through mid-2030s) fund subsidies for electric heat pumps. - Differentiating rates of property taxes could incentivize energy efficiency renovations. - Feebates could be applied to electricity consumer products. - Phased tightening of mandatory energy performance standards for existing buildings could increase rate and depth of renovations. - Attractive financial mechanisms can help overcome large upfront costs of improving residential energy efficiency. - Power sector: - Recent studies suggest Spain’s auction framework appears adequate to support investment in renewable energy. - Cross-sectoral public investment: - Spain’s 2030 strategy identifies needed interventions including deployment of transport charging infrastructure, upgrades to rail freight infrastructure, expansion in coverage and interconnection for electrical grids. - Funds under the NGEU present an opportunity to kick start these transformations as intended under Spain’s recovery and resilience plan. *Source: References; Annex I classification of OECD data for ALMP; Climate Change Mitigation Policy in Spain (Introduction and main messages).* ### 6. In contrast with most other EU countries, GHG emissions in Spain remain above 1990 ### 1espea2022002 - 6. In contrast with most other EU countries, GHG emissions in Spain remain above 1990 ### Key findings: national emissions trends - GHG emissions were 8.5 percent higher in 2019 than in 1990, compared to about 28 percent lower at the EU level. - Emissions declined significantly after the global financial crisis but stabilized since 2013; recent declines: total GHG emissions dropped by 5.6 percent in 2019 despite about two percent growth in real GDP, and the approximated 2020 Inventory indicates GHG emissions dropped by 13.7 percent in 2020. - Spain is the fifth largest emitter in the EU. - Emissions per capita are lower than the average for advanced European countries but higher than in peer economies like France and Portugal. - The increase in consumption-based CO2 emissions is less pronounced than production-based emissions, but Spain still diverges from most peer economies. ### Drivers of emissions growth (1990–2018) - Aggregate decomposition highlights: - Population and GDP per capita growth have outpaced gains in energy emission intensity and activity energy intensity. - Sectoral contributions: - Transport: the largest emitter and the largest contributor to total emission growth since 1990; rapid emission growth from road transport, aviation, and navigation. - Buildings: second largest contributor since 1990; buildings account for about one third of final energy consumption. - Power: decarbonization progress until 2018 was more limited in Spain than in the EU; coal-generated electricity fell from 14 percent of the total in 2018 to five percent in 2019 and two percent in 2020. ### Targets, projections, and implications - Spain has committed to cut emissions by at least 23 percent by 2030 relative to 1990. - The EU framework imposes stronger requirements for higher-income members; Spain’s 2030 target is in line with enhanced EU 2030 climate target of -55 percent (from 1990 levels) at the EU aggregate level. - Starting in 2023, Spain’s new climate law allows for upward revisions in the 2030 target. - Country projections (submitted before March 2020) suggest that, absent additional policy measures, emissions would remain about seven percent above 1990 levels in 2030. - Meeting the 2030 target requires a reduction in emissions of about one third compared to current (2018) levels. - Delivering the required reductions during a decade of economic expansion will demand large and persistent gains in energy emission intensity and activity energy intensity; electrification will play a crucial role and electricity demand is expected to increase significantly. ### Policy framework and carbon pricing coverage - Spain’s mitigation framework: - Power and large industry: main tool is the EU-wide Emissions Trading System (ETS), which covers about 40 percent of Spain’s national emissions. - Non-ETS sectors (transport, building, agriculture, waste, fluorinated gases, smaller manufacturing): covered under the European Effort Sharing Regulation (ESR) with country-specific targets; within-country measures include environmental taxes, subsidies, regulations, and direct government investment. - Carbon pricing coverage in Spain is extensive across major emitting sectors (EU ETS, fuel duties, specific taxes), but effective carbon rates are low relative to estimates of carbon emission damage and typically lower than in peer economies. - An explicit domestic carbon tax on fluorinated greenhouse gases has been in place since 2014, covering 3 percent of Spain’s total emissions. - Current tax rate on fluorinated gases: 15 euros per ton CO2-eq. - Rate for recycled and regenerated gases: 50 percent of the general rate. - Environmental tax collection metrics: - Environmental tax collection as share of total revenues: 5 percent. - Environmental tax collection as share of GDP: 1.8 percent. - The implicit tax rate on energy is relatively low compared to other European countries. - Reference carbon cost benchmarks: 60 EUR per tonne of CO2eq cited as a mid-range benchmark for 2020 and low-end benchmark for 2030. - EU ETS permit prices increased significantly since 2020Q4, reaching about 80 euro per tonne by December 2021. ### Role of carbon pricing and complementary policies - Carbon pricing is identified as a key, cost-effective tool: it provides economy-wide incentives to reduce energy use, shift to cleaner energy, mobilize revenue, and is administrable. - Complementary sectoral policies are essential even with ambitious carbon prices to: - Address non-price market barriers and frictions (innovation dynamics, slow technology adoption, financial constraints, network externalities). - Reinforce policies where carbon pricing faces acceptability constraints. - Meet sectoral targets that may be more ambitious than nationwide targets. - Complementary policies examples (conceptual): electricity grid investment, EV charging stations, green mortgages, renovation programs, R&D support, reward land conversion, measurement and monitoring improvements, process efficiency and CCS deployment, demand management, renewables/CCS deployment. - Revenue redistribution from carbon pricing should play a significant role in mitigating distributional impacts and protecting vulnerable groups. ### Policy assessment and scenario: additional carbon pricing - Several international bodies and Spanish expert committees have recommended increasing energy-environmental taxation; Spain’s 2030 NECP acknowledges carbon pricing’s potential and authorities are reviewing environmental taxation. - A predictable and gradual increase in carbon pricing would strengthen incentives and provide fiscal revenue. - Quantitative scenario: an ambitious carbon price of US $75 per ton applied across all sectors, as the sole additional tool, would: - Cut emissions by about 15 percent below the computed business-as-usual baseline levels in 2030. - Fall short of the roughly 25 percent reduction needed (relative to the baseline) to meet Spain’s 23 percent emissions reduction pledge for 2030; hence US $75 per ton alone would not be enough. *Source: 1espea2022002 — IMF staff summary of the provided chapter.* ### 17. At the same time, scaling up carbon pricing could be challenging due to political ### 1espea2022002 - 17. At the same time, scaling up carbon pricing could be challenging due to political ### Carbon pricing: effects and political constraints - A US $75 per ton carbon price would have a material impact on energy prices: natural gas increasing by about 43 percent, electricity by about 13 percent, and gasoline by about 17 percent. - Scaling up carbon pricing could be challenging due to political acceptability constraints in the absence of mitigating measures; carbon pricing imposes a first-order tax burden largely passed forward to consumers, except in trade-exposed industries where producers may largely bear the burden. - Recent policy experience: a recent attempt to increase diesel prices was dropped; recent adoption of measures to mitigate steep rises in energy prices illustrates the political challenge for higher carbon pricing. ### Modeling and uncertainty - Emissions and fiscal impacts are estimated using the IMF’s spreadsheet tool projecting fuel use from recent data (2018; shares until 2020 for electricity) forward using post-COVID GDP projections and assumptions on: - (i) income elasticity of demand for energy products; - (ii) technological progress improving energy efficiency and renewables productivity; - (iii) future international energy prices. - Price elasticities used are between -0.3 to -0.5 based on empirical evidence and energy models. - There is inherent uncertainty in emissions projections and responsiveness to pricing, particularly for large carbon prices, because future emissions-saving technology availability and adoption are difficult to project. ### Fiscal impact and use of revenues - A carbon price of US $75 per ton in 2030 would raise additional annual revenues (relative to a zero-carbon price and accounting for erosion of pre-existing fuel tax bases) of around 0.9 percent of GDP in 2030. - Revenues can be used to: - compensate the most vulnerable; - fund other climate initiatives; - cut distortionary taxes (e.g., labor income taxes); - mitigate elevated levels of public indebtedness. - Policy guidance: use of funds should be guided by efficiency, equity and acceptability objectives; support for low-income households is important to offset regressive effects and ensure social acceptability. If maximizing economic efficiency, some revenue could reduce distortionary taxes or address critical public investment gaps. ### Surface transport: emissions profile and constraints - Surface transport accounts for about two thirds of the transport sector’s emissions (including international transport) and is dominated by passenger cars and heavy duty trucks to a lesser degree. - Passenger cars are the largest subsector; emissions have increased significantly driven by income and population growth, with no progress to date in reducing emissions per distance travelled relative to 1995 in contrast to peer economies. - Vehicle production and related activities account for about 8.5 percent of GDP and 9 percent of employment. - About 22 percent of domestic car registrations are produced in Spain; about 80 percent of Spain’s production is exported, mostly to European markets. - Export market regulatory context: three of Spain’s largest export markets have pledged to ban internal combustion engine passenger cars by 2030 (Germany and UK) or 2040 (France, in line with Spain). ### Policy mix for transport decarbonization - A multipronged approach is necessary: demand management, shifting to cleaner modes, improving efficiency in existing technologies, and accelerated uptake of clean technologies over the coming decade. - Reliance on less emission-intensive transport modes remains crucial long term because some subsectors are hard to decarbonize; cleaner technologies will not necessarily mitigate other externalities such as congestion. ### Fuel taxation: current stance and options - Fuel taxation is high compared to other goods, but Spain’s fuel taxation is less ambitious than in other European countries. - Retail petrol and diesel prices do not typically reflect the full range of external costs (climate, local air pollution, traffic congestion, etc.). - Higher carbon pricing could be implemented via: - a dedicated carbon tax; - an ETS framework (e.g., EC Fit for 55 proposal for road transport and residential sectors); - higher taxes proportional to fuel consumption (excise taxes). - Over the last 15 years, nominal duty uprating only sporadically has resulted in decreasing real rates; good practice would be to uprate fuel duties, at least in line with inflation, more frequently. - Taxing diesel at higher rates per liter than gasoline is sound environmental policy, but in Spain and most European countries diesel taxes per liter are materially lower: this cost advantage increases demand for diesel cars, which account for about sixty percent of the car fleet in Spain. - Attempts to reduce the diesel tax advantage (“diesel premium”) in the 2020 budget failed to get the necessary support. - Example of policy interaction risk: Portugal’s carbon tax rate tied to average EU ETS price nearly doubled in 2019, but the government reduced the tax on gasoline by more than double the carbon tax increase, offsetting the intended effect. ### Distributional implications of higher fuel taxes - Increasing fuel taxes would not be particularly regressive in aggregate, but impacts are heterogeneous across households: - Spending on transport fuels as a share of total consumption is relatively flat across quintiles. - Car ownership rates are materially lower among poorer households, but for car-owning poorer households, fuel spending typically accounts for a large share of total consumption. - Spatial dimension: rural households generally spend a higher share of income on fuel. - Policy options to address distributional concerns: - use revenue recycling to compensate affected households; - consider subsidies to certain public transport modes as an alternative with potentially better distributional implications; - targeted measures like increased commuters’ allowance (example: Germany proposed increased allowance for long-distance commuters) can mitigate impacts but may partially undermine carbon pricing objectives if they compensate high-carbon consumers. ### Vehicle taxation and acquisition taxes - Stronger vehicle taxation can complement carbon pricing. Acquisition taxes (upfront) may influence buyer behavior more than running-cost taxes and may be more politically viable. - Acquisition and circulation taxes are not based on actual use; acquisition taxes may be useful because they apply to new car flows rather than the whole fleet. Circulation taxes have less clear environmental rationale compared to fuel duties and acquisition taxes. - Specifics of Spain’s acquisition tax: - Already differentiated based on car emission intensity, but current schedule is coarse and flat within brackets, providing limited continuous incentives and encouraging bunching near bracket thresholds. - In 2019 about 60 percent of car registrations fell below the lower threshold (120g/km) paying a 0 percent rate; many of those cars would now fall above this threshold under the WLTP methodology adopted January 2021. - The schedule is ad-valorem (tax payments depend on car price) which can misalign incentives since tax within each bracket depends on price not emission intensity; example: a SEAT Leon would pay significantly more than a DACIA Sandero despite lower emission intensity in the illustrative comparison. - Overall acquisition tax schedule is weaker (flatter) in Spain compared to most other countries. - Note: Spain adopted the WLTP emissions measurement methodology in January 2021; WLTP emissions are typically higher than NEDC, and Spain initially did not modify the existing schedule to mitigate implied tax increases (brackets were relaxed on a temporary basis around mid-2021). ### Additional quantitative and methodological notes - Price elasticities for fuel demand used in modeling: between -0.3 to -0.5. - Illustrative model baseline carbon price mentioned in figure note: 45USDtCO2. - Revenue estimate referenced in a footnote: increasing diesel taxation to converge with gasoline taxation would generate additional 2.6bn in revenues (Gago et al 2019). *Source: IMF staff using Carbon Pricing Assessment Tool. Methodology described in appendix to 2019 Fiscal Monitor: How to Mitigate Climate Change.* ### 28. Authorities could consider a role for feebates. Feebates are a special case of CO2-based ### 28. Authorities could consider a role for feebates. Feebates are a special case of CO2-based ### Feebates: design and rationale - Feebates are a special case of CO2-based acquisition taxes that provide for a sliding scale of fees on vehicles with above average emission rates and a sliding scale of rebates to products or activities with below average emission rates. - Mechanism (as specified): CO2 price × (CO2/mile – fleet average CO2/mile) × lifetime mileage. - Behavioral responses promoted: - shifting from high- to lower-emission rate ICEs; - shifting from ICEs to biofuel and hydrogen vehicles; - shifting from ICEs to EVs. - Comparative notes: - Tax incentives for EVs would promote only the ICE → EV response, while feebates promote a wider set of shifts. - Absent frictions other than the climate externality, feebates are less efficient than carbon pricing because they do not promote the same demand responses (e.g., reductions in vehicle use) but are more flexible and cost-effective than regulations. - Fiscal and administrative features: - Feebates can provide powerful incentives for low-emission investments with no first-order tax burden on the average motorist. - Feebates are revenue neutral, so there is no change in revenue with the progressive cleaning of the vehicle fleet (unlike a fixed CO2-based tax scheme). - A feebate system could be adapted from the current acquisition tax schedule, without requiring a new capacity for implementation. ### Vehicle ownership taxation and alignment with emissions - Annual circulation taxes in many European countries are based on vehicles’ CO2 emission intensity, and those countries tend to have a lower passenger car average age. - Spain currently bases circulation taxes on (tax) horsepower; engine power is positively correlated with CO2 intensity but with wide dispersion, so vehicles conditioned on engine power can have a broad range of emission intensities yet be treated equally under the tax. - Many municipalities and regions (including Madrid, Barcelona, and Seville) provide a discount of up to 75 percent for certain vehicles, including electric, hybrids, and vehicles on gas (CNG)/bioethanol. - This can result in some zero-emission vehicles (BEV) receiving the same discount as some more contaminating vehicles (example: some plug-in hybrid SUVs with large engine power may have larger emission intensity than some smaller ICE vehicles). - Additional vehicle characteristics (weight and size) correlate with pollution and congestion and could be taken into account in ownership taxes. ### Transport taxation revenue outlook and road pricing - Fuel duties and vehicle taxation represent a non-negligible source of revenue for Spain—about one percent of GDP—but this base will decline over time with improvements in vehicle efficiency and fleet electrification. - Electricity is taxed at much lower rates than conventional fuels in most countries (including Spain), partly because electricity tax is not intended to contribute to road financing. - Recommendation: consider intelligent road pricing schemes to address vehicle attributes and actual vehicle use as well as congestion, air pollution, and other externalities from road transport. - Authorities’ plans: implement toll systems on highways from 2024 onwards (per measure C1:R2 of the recovery and resilience plan). ### Efficiency standards (EU framework) - Fuel economy standards for new vehicles are central to the EU framework for transport emission mitigation. - Characteristics and limits: - Standards may be less cost-efficient than price-based measures but typically face lower opposition. - Standards prompt switches to greener technologies but do not discourage vehicle use, provide little incentive to outperform standards, and raise no revenue. - EU mandatory targets: - reduction in emissions of 15 percent by 2025 and 37.5 percent (31 percent for vans) by 2030, both relative to a 2021 baseline. - Implementation and monitoring considerations: - Standards apply at the manufacturer level on average emission intensity for new cars sold at the EU level and are adjusted based on the average mass of each manufacturer’s fleet (heavier fleets allowed higher emissions). - Standards are set at five-year intervals, allowing for potential delays in adjustment. - Average emission intensity of new cars sold in Spain declined significantly during 2008–2015 but rose during 2016–19; preliminary 2020 data shows a significant drop with the phase in of the 2020–21 target. - Spain’s average new car emission intensity is now above the EU-fleet average (for the first time since Eurostat data is available), so continuous monitoring is necessary to assess the need for stronger fiscal incentives for cleaner and smaller cars (or penalties for dirtier and larger ones). ### Policies to promote electromobility: targets and timelines - Spain targets: - 250k electric vehicles (100k charging stations) by 2023 (government announcement in 2020). - Spain’s 2030 plan aims for five million electric vehicles (three million cars) by 2030 (and 500k charging stations). - Target to discontinue the sale of internal combustion engine passenger cars (and light duty vehicles) by 2040. - Comparative timelines in peers: - 2025 in Norway; 2030 in Iceland, Germany, Netherlands, Ireland, Sweden, UK (2035 for hybrids); 2035 in Denmark. - The recent EC Fit for 55 proposal includes a ban on internal combustion engine passenger vehicles by 2035. - Note on fleet turnover: with average car age in Spain typically higher than a decade, additional efforts will likely be required to discontinue some vehicles to meet net-zero emissions by 2050. ### Current electromobility adoption and infrastructure - Adoption statistics: - In 2020, sales of electric vehicles (BEV, PHEV) increased to nearly five percent of sales. - Electric vehicles account for 0.4 percent of the total fleet. - Charging infrastructure: - Currently about 11.5k charging points in Spain. - Very limited development of the superfast charging network (24 points with >=250kW in five service stations). - The expansion in charging infrastructure in 2020 brought Spain in line with the EU Alternative Fuels Infrastructure Directive suggestion of at least one charger per 10 vehicles. - Policy direction: - Spain’s national plan for deployment of alternative fuels infrastructure (Directive 2014/94/EU) approved in 2016 did not set specific targets for publicly accessible recharging points for 2020. - Recommendation: establish a multi-annual plan with long-term targets (until 2030), paired with public financial support and mechanisms for auditing progress toward 100k charging points by 2023. - The Law on Climate Change and Energy Transition requires installation of charging points (>=50kW) in larger service stations. - Commitments under the recovery and resilience plan (structural reforms and investments) should promote charging infrastructure deployment. ### Subsidies, feebates integration, and distributional considerations - Role of subsidies: - Subsidies can promote adoption of low- or zero-emission vehicles through induced innovation, learning by doing, and economies of scale. - As EVs approach cost parity with conventional vehicles, the need for support will decrease. - Spain’s history of purchase subsidy programs: - Long history of programs, often requiring or favoring scrappage of older vehicles and favoring alternative fuel vehicles. - Examples and funding (selected entries from Table 2): Plan 2000E (2009–2010) Grants Yes 100mn; PIVE 1 to 8 (2012–2015) Grants Yes 10+1115mn; MOVELE 14-15 (2014–2015) Grants No 17mn; MOVES II (2020) Grants No (but favored; 7y+) 100mn; RENOVE '2020 (2020) Grants Yes 10y+ 250mn; MOVES III (2021–2023) Grants No (but favored; 7y+) 400mn. (Note: MOVES III funding may be expanded to 800mn.) - Programs so far have not resulted in a fundamental transformation of Spain’s fleet: average car age remains high and share of “clean” vehicles low. - MOVES III (2021–2023) increases available funding significantly relative to previous programs; close monitoring of take-up rates is important. - Distributional concerns: - Subsidies tend to accrue to richer households because they have higher car ownership, higher participation in new car market, and BEV/PHEV prices remain high. - Purchase subsidy programs in Spain cap the price of eligible vehicles. - Limiting subsidies to lower income quintiles could improve distributional outcomes but likely reduce adoption rates. - Integrating subsidies into feebates: - Integrating a subsidy program into a feebate scheme can incentivize shifting from fossil fuel to electric vehicles and from high- to low-emission rate fossil fuel vehicles without imposing a fiscal cost (feebates are revenue neutral). ### Charging infrastructure support rationale - Public support is justified because network infrastructure is a coordinated system and a public-good–type provision that the market may underprovide. - Electric cars currently offer an average range of about 150 miles; the average daily trip distance in Spain is 24 miles. ### Modal shift and broader transport policy - Shifting to more efficient transport modes (bus rapid transit, rail, waterborne modes, active transportation) can be cost-effective relative to private car ownership and provide health co-benefits. - In cities, lower vehicle range requirements and higher population density facilitate the switch to cleaner transport. - Adequate pricing of externalities (as discussed) should promote modal shifts; investments in high-quality interconnected public transport, walking and cycling infrastructure will be necessary and are identified in Spain’s recovery and resilience plan for EU funds. *International Monetary Fund — selected extracts from the Spain staff report section on transport, emissions, and electromobility.* ### 39. The establishment of low emission zones constitutes the main driving force behind the ### 1espea2022002 - 39. The establishment of low emission zones constitutes the main driving force behind the ### Transport: Low Emission Zones (LEZs) and modal shift - The Law on Climate Change and Energy Transition envisions the establishment from 2023 onwards of low emission zones (i.e. areas of limited access for the most polluting/emitting vehicles) in urban centers with more than 50k inhabitants. - Authorities’ 2030 plan: LEZs account for 40 percent of the reduction in transport sector emissions by the end of the decade. - LEZs target GHG emissions (main focus), air pollution, and potentially congestion. - Urban transport accounts for about 35 percent of ground transportation in Spain. - LEZ requirement also applies to urban centers with more than 20k inhabitants with high air pollution levels. - Observed air pollution hotspots include large urban centers such as Madrid and Barcelona. - The impact of LEZs on congestion may wane over time as the vehicle fleet shifts toward cleaner vehicles. ### Implementation, monitoring, and minimum standards - Implementation is decentralized and falls under local authorities; the Ministry for the Ecological Transition and Demographic Challenge has adopted national guidelines permitting local flexibility (e.g., zone extension and types of restricted vehicles). - If necessary, central government could consider stronger guidance on minimum standards covering: - indication of size (in proportion to city size), - level of stringency, - enforcement of policies, - applicable exemptions. - Policy objective: LEZ size should be large enough to promote modal shift rather than shifting emissions to surrounding areas without meaningful reduction in total emissions. ### Complementary measures: tolls and distributional concerns - Local authorities should consider differentiated toll systems as a complement to LEZs: - Tolls could adjust pricing by time of day (e.g., based on pollution and congestion levels) and by vehicle emission levels. - Toll systems generate revenues that could be recycled to mitigate distributional concerns. - National guidelines for LEZ implementation include tolls as a possible complementary measure. - Examples of cities with complementary schemes: Milan and London. - Distributional concern: LEZs might be regressive because richer households are more able to upgrade to eligible vehicles. ### Freight decarbonization and modal shift to rail - Heavy duty vehicles (HDVs) account for about a third of surface transport emissions (one fifth of total transport emissions, including international). - Trucks have seen more limited gains in fuel efficiency relative to passenger cars; EU recently adopted efficiency standards for HDVs. - Decarbonization options for HDVs: electrification and (sustainably produced) hydrogen fuel, both requiring infrastructure scaling. - Rail for freight: - Spain: rail accounts for about 5 percent of total tonne-kms merchandise transport. - EU level: rail accounts for about 17 percent of total tonne-kms merchandise transport. - Policy: “getting the price right” in road transportation would promote shift to rail. - Investment needs: cross-border connections with France and Portugal, connections to ports and logistic hubs. - NGEU funds provide opportunity to upgrade rail freight infrastructure as intended under Spain’s recovery and resilience plan. ### Building sector: residential emissions and challenges - Residential buildings account for more than half of the emissions in the building sector. - Emissions mainly relate to fossil fuel use for activities such as water heating and space heating. - Spain’s residential emissions have increased relative to 1990 levels; expansion during construction boom years with partial decline after the global financial crisis. - Drivers: higher population growth and a lower reduction in emissions relative to energy use. - Spain’s residential building stock is relatively inefficient: most dwellings report an Energy Performance Certificate (EPC) corresponding to grade of C or worse. - Housing stock vintage: - More than half built before 1980. - 75 percent built before 2000. - Improving residential efficiency may have positive distributional implications because poorer households typically live in less energy-efficient homes. ### Policy targets and investment needs for buildings - 2030 plan targets: energy renovations of 1.2 million dwellings (thermal envelope) cumulative over the decade. - Target: annual average renovation of 300,000 heating and cooling systems, production of domestic hot water and ventilation (thermal installations). - Recovery, Transformation, and Resilience Plan: renovate at least 355,000 residential dwellings by 2026, achieving on average a primary energy demand reduction of at least 30 percent. - Plans allocate about €7 billion towards efficiency improvements in the building sector and urban transformation. - Need for a comprehensive policy package including taxation, regulation, investment support, and structural supportive measures. ### Carbon pricing and distributional protection - Residential sector shows a relatively large “carbon pricing gap” in terms of levels. - Challenges to raising carbon prices: - Household pre-tax energy prices are relatively high compared to other European countries. - Without compensating mechanisms, higher energy prices tend to be regressive. - Fuel poverty rate (share of households unable to keep home warm in winter) is already relatively high in Spain. - European Commission proposal (Fit for 55): standalone ETS system for residential and transport sectors to deliver stronger carbon pricing while allocating dedicated resources to reduce impact on lower-income households. - An analogous approach could be implemented domestically via taxation. ### Fiscal and regulatory instrument options for buildings - Feebate and tax-subsidy proposals: - Thermal installations: tax-subsidy (feebate) scheme where revenues from an interim tax on gas heating technologies (with rate increasing through mid-2030s) fund subsidies for electric heat pumps. - Thermal envelope: differentiating rates of property taxes to incentivize energy efficiency renovations. - Feebates could also apply to consumer products (e.g., refrigerators, heating systems). Feebates impose a fee equal to: (i) a per unit energy charge; and (ii) the difference between the product’s energy consumption rate and the industry-wide energy consumption rate. - Feebates have a much smaller impact on electricity or product prices than comparable carbon pricing because they avoid pass-through of carbon tax revenues or allowance rents into higher prices. - Complementary policies to address energy poverty: subsidy programs for energy efficiency investments could adjust subsidy rates by negatively linking them to recipients’ income; owners of dwellings in lowest EPC classes (F and G) could be systematically provided technical and financial advice. ### Market failures and structural barriers in residential renovations - Renovation rates are held back by liquidity constraints, cost-benefit mismatches between owners and renters, unawareness or uncertainty of potential energy savings, and coordination frictions. - Spain-specific features exacerbating challenges: - Share of apartments: 66 percent. - Share of buildings that are multi-family units: 71 percent. - Collective decision-making complexity under the Horizontal Property Law can impede renovation projects and access to public support or loans for communities of owners. - Relatively high home ownership rate (~80 percent) suggests fewer investor/user split-incentive problems than countries with more renters. ### Renovation depth, current rates, and regulatory tightening - Renovation depth and rates: - Renovation activity tends to be dominated by “light renovations” yielding energy savings of less than 30 percent. - Only 0.3 percent of energy renovations of residential buildings completed in Spain over 2012–2016 were deep renovations meeting NZEB criteria. - Only 56,000 dwellings have undergone a deep energy renovation providing energy savings higher than 60 percent. - Current rate of renovation: 30,000 dwellings per year (0.2 percent of the residential housing stock). - Strong performers (e.g., France and Germany) have rates about five times higher. - European Commission recommended rate: 2–3 percent. - Regulatory action: - Standards for new dwellings are expected to tighten over time, but trajectory for tightening standards for existing buildings has yet to be set out. - Phased tightening of mandatory minimum energy performance standards for existing buildings (as proposed in the EC’s Renovation Wave strategy and EPBD revision) could increase the pace and depth of renovations. - Energy performance requirements for renovations are regulated in the Technical Building Code (CTE); a review of the CTE is planned to increase energy efficiency and renewable energy requirements and minimum requirements for thermal installations. ### Financing, green finance, and one-stop-shops - Financial public support programs: - Grants and financing have been used historically (e.g., PAREER, MITMA’s State Housing Plan, ICO lines). Aid typically conditional on achieving certain efficiency requirements. - Lines of aid need augmentation to meet scale objectives; EU funds present an opportunity (committed in Spain’s recovery and resilience plans, measure C2.I2). - Given fiscal cost, programs should prioritize the most vulnerable households and “hard to treat” dwellings, require sufficiently deep renovations, include ex-post verification of completed projects, and conduct periodic evaluations of program effectiveness. - Green financing mechanisms: - Develop “green mortgages” supported by comprehensive and consistent data on energy efficiency and active strategies to monitor financial risks (including “greenwashing”), consistent with EU Taxonomy. - On-bill financing can help address split incentives between owners and renters. - Removing legal barriers (e.g., reforms to Horizontal Property Law) can improve access to finance for communities of property owners; recent reform seeks to improve access to finance and make majority votes on energy renovations binding. - One-stop-shops (Renovation Offices): - Planned introduction is welcome (see Spain’s RRP reform C2.R5). - Roles: reduce information asymmetries, provide technical guidance, and operate within a centralized public digital platform compatible with existing public information systems for households, regional/local governments, banks, and renovation professionals. - Platform should be budgeted and implemented as part of a comprehensive national strategy; guidelines on best practices for energy renovations should be publicly accessible. - Centralized price lists: - Authorities could consider introducing energy renovation price lists to make prices of goods and services comparable regionally, mitigate information asymmetries, support new professionals in construction and retrofitting markets, contain costs, better target public support, and mitigate windfall effects. *Source: IMF staff summary of the provided content unit.* ### 54. To address structural supply constraints, the government could consider introducing ### To address structural supply constraints, the government could consider introducing certification and training programs for construction and residential sector professionals ### Construction and residential sector supply constraints - Recommendation: introduce certification and training programs for construction and residential sector professionals to increase the supply of skills required for an industrial sector able to provide retrofitting solutions that are understandable for owners and tenants and that can sustain high rates of retrofitting (Arregui et al., 2020). - Relevant factors to address: - the availability of skilled workers, - cooperation between different trades, - the creation of certifications and advisory structures. ### Power sector: role in decarbonization and electrification - Finding: Progress toward a clean energy mix is a pre-condition for progress in other sectors. - Finding: Electrification will need to play a crucial role in decarbonizing various sectors (such as road transport, residential, and industry). - Implication: Electricity demand will increase significantly over the next decades, though sectoral energy efficiency measures (for example, lighter and more aerodynamic vehicles, residential insulation, etc.) will help reduce the increase in electricity demand. ### Recent trends in power-sector emissions and generation mix - Finding: Emissions from the power sector have dropped significantly in recent years following a faster than anticipated shift away from coal as an underlying source. - Drivers of the shift away from coal: - closure of coal mines following the discontinuation of state aid in observance of EU regulation, - closure of most coal-fired power plants to avoid violating a European environmental directive, - relatively low natural gas prices in 2019–20, - escalation in the price of carbon allowances in the EU ETS. - Renewable share: - The share of electricity generation from renewable sources has increased significantly to about 40 percent of total, above the EU average, up from 15 percent 15 years ago. - Government target: renewables to account for 74 percent of electricity production by 2030. - Nuclear: - Nuclear power generation accounted for about 20 percent of total power generation in 2019. - Spain plans a phased closure of nuclear power generation starting in 2027, and to be completed by 2035. ### Infrastructure, grids, and capacity needs - Finding: Accommodating an increasing transition to renewables and the electrification of downstream sectors will demand upgrading electrical infrastructure. - Investments needed: - develop smart grids and renewable electricity storage to manage decentralized and intermittent renewable sources (for example, solar and offshore wind), - solutions that enhance system flexibility (for example, “smart” vehicle charging or building heating and cooling) to manage demand peaks and enable maximum use of renewable generation, - increased coverage and interconnection of electrical grids. - Interconnection status and EU targets: - Spain interconnectivity: 6.5 percent. - EU interconnectivity targets: 10 percent by 2020 and 15 percent by 2030. - Capacity expansion: - Spain’s 2030 plans envision an expansion in total installed capacity in the electricity sector from 103.7GW in 2018 to 161GW in 2030. - Risk: Anticipatory investments to upgrade electricity networks will be required so grid capacity constraints do not hold back accelerated uptake of electric vehicles. ### Carbon pricing, EU ETS, and complementary policies - Finding: Carbon pricing within the EU ETS has strengthened in recent years and should help support the deployment and integration of renewable energies. - EU ETS price dynamics: - Levels are now above 50 euros per ton, - nearly double from the 2020 average, - and ten times the value in 2016–17. - Policy considerations: - A substitution of coal with gas helps in the short term, but would not allow attainment of the ultimate EU target of zero net emissions by 2050. - Barring an expansion of nuclear energy, further increasing the share of renewables is the only way to achieve a meaningful reduction in emissions per energy consumed. - Chen and others (2020) argue the EU ETS framework could be strengthened with the introduction of a predictable carbon price floor that provides more certainty on future pricing. - A national level floor (as used in the UK) could be considered if price uncertainty is a significant deterrent to clean technology investment, but unilateral action may have a “waterbed effect” on the EU ETS and may impact competitiveness. - Fiscal recommendation: As carbon pricing for the power sector is expected to continue to increase, incorporate equivalent pricing into other sectors to internalize the emission externality and to avoid undermining incentives for electrification (for example, adoption of electric vehicles or electric heat pumps over natural gas heating). ### Auctions and revenue stability for renewables - Finding: Spain’s auction framework appears adequate as a tool to support investment in renewable energy by providing predictability and stability of revenues. - Recent developments: - Spain’s 2030 strategy establishes an auction framework as the main tool for technology development. - A new auction scheme was adopted in Spain; the first auction under the new scheme was conducted in January 2021. - Assessment: - IEA (2021) assessed Spain’s updated auction mechanisms are a step in the right direction to provide a stable, long-term remuneration framework for supporting the growth of renewables. - A recent study (del Rio 2021) suggests the design is generally in line with international practice and is appropriate to achieve the goals set in the 2030 strategy. - Complementary policies: Policies complementary to carbon pricing remain necessary to support renewable deployment and grid integration. *Source: 1espea2022002 - 54. To address structural supply constraints, the government could consider introducing (PDF chapter/section).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1espea2022002.pdf_