Abstract
ALMP resources in Spain have been directed mostly to job creation programs and start-up incentives. While evaluation has been limited, the general perception is that past ALMPs have not been effective. In the new context of significant structural changes, more ALMP resources should be allocated to training and upskilling the labor force. It would also be desirable to strengthen the capacity of the public employment service and reduce the heterogeneity of provision of services to jobseekers at the regional level. Introducing a system of regular evaluations would help assess the effectiveness of ALMP programs. The labor market reforms in the Recovery, Transformation and Resilience Plan include broad goals consistent with these recommendations. A careful design and timely execution of specific policy measures would be necessary for the success of the reforms.
Active Labor Market Policies to Support the Recovery of the Spanish Labor Market1
ALMP resources in Spain have been directed mostly to job creation programs and start-up incentives. While evaluation has been limited, the general perception is that past ALMPs have not been effective. In the new context of significant structural changes, more ALMP resources should be allocated to training and upskilling the labor force. It would also be desirable to strengthen the capacity of the public employment service and reduce the heterogeneity of provision of services to jobseekers at the regional level. Introducing a system of regular evaluations would help assess the effectiveness of ALMP programs. The labor market reforms in the Recovery, Transformation and Resilience Plan include broad goals consistent with these recommendations. A careful design and timely execution of specific policy measures would be necessary for the success of the reforms.
Spanish Labor Market: Structural Challenges and COVID-19 Impact
1. Spain’s labor market was facing significant structural challenges even before the pandemic. The unemployment rate in 2019, of about 14 percent, was among the highest in the EU and biased towards the young and long-term unemployed (i.e., persons out of jobs for more than a year). For instance, the youth unemployment rate was 32.5 percent—more than twice the headline rate—and the long-term unemployed, which were 5.3 percent of the labor force against 2.6 percent in EU-27, represented almost 40 percent of total unemployment. Among the employed, the shares of temporary workers and involuntary part-timers were elevated compared to the rest of Europe. Labor mobility was low, not only across regions (Liu, 2018), but possibly also across jobs due to high mobility costs.2 Furthermore, there was a considerable skill mismatch in the labor force.
2. The COVID-19 crisis exposed the existing vulnerabilities and underscored the need for improvements in the design and targeting of ALMP. While increases in unemployment were limited due to the successful implementation of the short-time work scheme, the pandemic negatively affected the most vulnerable groups. Lariau and Liu (2022) find that women, young, less educated, low skilled and immigrant workers were disproportionately impacted by the COVID shock in terms of job loss rates, even after controlling for individual and job characteristics. Given that these groups of workers were positioned at the lower end of the pre-crisis income distribution, the pandemic may have also increased income inequality. Furthermore, the pandemic triggered an acceleration of automation and other technological adoption, as well as changes in consumers’ and workers’ preferences from in-person towards online and/or at-home activities, which may lead to significant structural transformation. In this context, it would be critical to design and implement more effective policies to improve the employability of displaced workers and to facilitate sectoral reallocation through acquisition of new skills. This would also reduce the risks of poverty and social exclusion for vulnerable groups.
Pre-COVID Structural Challenges in the Spanish Labor Market
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Pre-COVID Structural Challenges in the Spanish Labor Market
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Pre-COVID Structural Challenges in the Spanish Labor Market
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Trends in ALMP Spending and Participation
3. Spain spends more than its peers in ALMP and, while the level of expenditure is still lower than in the past, it has been increasing in recent years. Spain’s expenditure in ALMP, amounting 0.69 percent of GDP in 2019, is higher than the OECD average (0.46 percent of GDP in 2019). Over the period 2000–19, it has been close to (or even above) the 75th percentile of ALMP expenditure in OECD countries, with the exception of a few years. In terms of its evolution over time, ALMP expenditure in Spain before the GFC was, on average, 0.8 percent of GDP. It declined significantly in 2010–12, by almost ½ percentage point of GDP, due to fiscal consolidation efforts that included limiting public sector hiring and suppressing employment incentives. Since then, it has progressively increased, but it still remains below the pre-GFC levels.
Expenditure in ALMPs
(Percent of GDP)
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Expenditure in ALMPs
(Percent of GDP)
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Expenditure in ALMPs
(Percent of GDP)
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
4. However, in terms of spending per unemployed, Spain ranks very low compared to other OECD countries. Due to the structurally high level of unemployment in Spain, its spending per unemployed tends to be much lower than in peer countries. In 2019, Spain’s ALMP spending per unemployed amounted to 10 percent of per capita GDP. This was about half the OECD average and significantly lower than in other large European countries, such as Germany and France. The level of ALMP spending per unemployed in Spain is comparable to the one in Italy, which the OECD (2019b) assessed to be too low to address structural problems similar to the ones faced by Spain.
Expenditure in ALMPs per Unemployed
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Sources: OECD and IMF staff calculations.Note: Greece and the U.K. are not included in the chart due to limited data availability.Expenditure in ALMPs per Unemployed
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Sources: OECD and IMF staff calculations.Note: Greece and the U.K. are not included in the chart due to limited data availability.Expenditure in ALMPs per Unemployed
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Sources: OECD and IMF staff calculations.Note: Greece and the U.K. are not included in the chart due to limited data availability.5. Spain allocates more resources to direct job creation programs and start-up incentives and less resources to training than its peers. In 2019, the ALMP resources were relatively evenly distributed across various activation programs: 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), and employment incentives (12 percent).3 Compared to OECD countries, the shares of ALMP spending on direct job creation programs and on start-up incentives were very high in 2019, above the 75th percentile, while the share of ALMP spending on training was among the lowest across OECD countries, close to the 25th percentile. Despite having the lowest share in total ALMP spending in 2019, employment incentives had the largest number of participants, almost three times the OECD average. Participation in start-up incentives programs was also significant.
6. Even though employment services have the highest allocation of spending, engagement of jobseekers with the PES tends to be limited. The share of jobseekers in regular contact with the public employment service is among the lowest in the OECD (Figure 4). Limited PES engagement may reflect the availability of alternative job-search channels or the preference for jobs that the PES does not seem to facilitate (OECD, 2019a). In addition, access to PES services might be difficult due to a low degree of digitalization. Finally, there is great heterogeneity in capacity across regional PES (OECD, 2021a), and resources are not allocated based on performance (AIReF, 2018), which may also hinder effectiveness.
ALMPs by Program
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
ALMPs by Program
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
ALMPs by Program
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Share of Jobseekers in Regular Contact with the Public Employment Service
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Source: OECD Employment Outlook 2019.Share of Jobseekers in Regular Contact with the Public Employment Service
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Source: OECD Employment Outlook 2019.Share of Jobseekers in Regular Contact with the Public Employment Service
Citation: IMF Staff Country Reports 2022, 046; 10.5089/9798400201523.002.A001
Source: OECD Employment Outlook 2019.7. The allocation of ALMP spending in Spain has shifted over time, with more focus on job creation programs and start-up incentives, in detriment of training. The ALMP resources allocated to start-up incentives, direct job creation programs, and sheltered and supported employment programs have increased since 2005. For instance, promotion of entrepreneurship through start-up incentives was one of the cornerstone policies to support employment recovery in the aftermath of the GFC, guided by the Strategy for Entrepreneurship and Youth Employment 2013-16 (European Parliament, 2017). This happened at the expense of employment incentives and training programs. The share of ALMP spending on employment incentives declined sharply, by about 30 percentage points, bringing it closer to the OECD median. The high prevalence of employment incentives in the early 2000s was part of an effort to address labor market duality via deductions in social security contributions for new open-ended contracts and for conversions of temporary into open-ended contracts. This changed with the 2012 labor market reform, which focused on the reduction of severance payments for permanent contracts rather than on employment incentives (European Parliament, 2017). The declining resources devoted to training, which were already low compared to the OECD, is of particular concern, as it could become a barrier to upskilling of the labor force in the future. Furthermore, there is regional heterogeneity in training programs and regions tend to limit the entry of training providers from other regions, with a negative impact on quality and cost (OECD, 2021a).
8. The pandemic forced Spain to make adjustments to its ALMPs, setting the stage for a new wave of reforms. In 2020, funding that was initially allocated to ALMPs could not be fully executed and was re-allocated to employment protection policies. Despite this, Spain made significant efforts to ensure continuity of the services with a growing number of jobseekers and constraints on normal face-to-face operations. Additional PES staff was hired in 2020 and 2021 to process the high number of unemployment benefit and ERTE claims, and many employment services and training started being provided through digital platforms. To support employment, new positions were added to the public sector job creation program (mainly by regional and local governments) and temporary reductions in social security contributions were introduced for the sectors most hit by the pandemic. No changes were introduced to the system of hiring and start-up incentives (OECD, 2021b and 2021e).
Evaluation and Effectiveness of ALMP
9. The overall impact of ALMPs on aggregate employment is found to be limited in Spain. Theoretically, the positive effect of ALMPs on improving the job matching process may be partially offset by substitution and displacement effects on non-participants. Arranz et al (2013) estimate a dynamic panel model and find that employment incentives in the form of incentivized contracts had a positive, but small, impact on transitions from unemployment to employment and from temporary to permanent employment during the period 1987–2010, though stronger for the sub-period 1997–2010 following the 1997 reform.4,5 Job creation programs and vocational training were found to have little or no effect on aggregate outcomes during the same period. On the other hand, internship, apprenticeship and training contracts helped increase transitions from unemployment to employment, albeit mainly through temporary contracts.
10. At the micro level, evidence on the effectiveness of ALMP is limited since evaluation has been sparse. While there have been some efforts to evaluate ALMP programs, they have not been done systematically or on a regular basis, and the results vary greatly across programs.6 Examples of recent evaluations include:
Employment incentives. AIReF (2020) reviews employment incentives and concludes that they had a positive effect on employability during crises, but it was modest, temporary and concentrated among workers with higher education rather than vulnerable groups. Font et al (2021) focus on subsidies to employment maintenance and find that they were relatively effective at keeping a higher rate of job maintenance, though at a disproportionate cost.
Training. Blázquez et al (2019) report that participation in orientation and training programs had a positive influence on the employability of jobseekers, particularly among the long-term unemployed. However, AIReF (2018) also finds that the Professional Requalification Program (PREPARA), which provided a temporary subsidy to long-term unemployed participating in training programs, created disincentives to returning to the labor market.
Direct job creation. Rebollo-Sanz and García Pérez (2021) find that direct public job creation initiatives in Andalucia did not increase the employability of young workers but had a positive impact on the employability of workers older than 30 who had extreme difficulty to access the job market by their own (due to lack of experience or lengthy unemployment spell).
Public employment services. Felgueroso et al (2018) estimate a model of unemployment duration and find that guidance on job search tools and professional orientation are the most effective in helping the unemployed to find a job. At the local level, AIReF (2018) studies the service 14A of the Aragon region, based on the individualized assessment of the unemployed to increase their probability of finding a job and finds that those who received the 14A service had a greater probability to be employed than those who did not receive it.
11. Youth-oriented programs, as well as those targeting the long-term unemployed, suffered from low participation in the past. Prior to its revamp in 2021, the Youth Guarantee had been in place in Spain since 2014, targeting the so-called NEET, i.e., young people who are neither working nor in education or training. Even though Spain received the highest share of EU funding to implement this initiative, participation in the program remained subdued. Moreno (2017) argues that this was due to low visibility of the advertising campaigns and limited capacity of the PES for effective outreach to the young population. 7 Additional factors explaining low participation in the program included narrowly defined eligibility criteria and inadequate management systems to monitor its progress (IMF, 2017). Regarding programs targeting the long-term unemployed, the Employment Activation Program, which was an income support program that involved support from a tutor, also faced a lower-than-expected participation. It was in place until 2017 and reportedly helped one third of its participants to find a job; however, it only covered about half of the initially estimated 400,000 participants (IMF, 2017).
12. Even though evidence is limited, the general perception is that past activation strategies have not been effective. Coordination might have been a challenge, given the large number of programs and an institutional structure that favors a decentralized implementation.8 This institutional setup has also weakened coordination between active and passive labor market policies (the central government manages unemployment benefits, while the provision of ALMPs is done at the regional level), distorting the incentives of the unemployed and hampering the effectiveness of activation strategies. Furthermore, despite recent efforts, targeting of ALMPs has been insufficient, particularly among the most vulnerable groups. Jansen (2016) finds that, 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, with an even a smaller fraction of participants in the case of the low-skilled unemployed for more than two years. Since then, new activation programs have been developed for the young and long-term unemployed, but low participation limited their effectiveness (IMF, 2017).
Recent Measures to Strengthen ALMP
13. ALMPs have recently become more targeted, focused on addressing the employment situation of vulnerable groups. The most noteworthy programs have aimed at improving employment prospects of the young population who is inactive or unemployed, as well as the long-term unemployed. The World Bank has monitored the implementation of these programs and has identified good practices in many areas, which have been a reference for the design of investment projects included in the RTRP.
Youth. In end-2018, the government approved the 2019–2021 Action Plan for Youth Employment, aiming at reducing the youth unemployment rate to 23.5 percent. The plan, which had a funding of €2 billion, comprised 50 cross-cutting measures involving provision of guidance, provision of training, creation of employment opportunities, ensuring equal opportunities in access to employment, promotion of entrepreneurship and improving the institutional framework. In June 2021, the government launched Juventud Avanza, a strategic plan that brings together all the government actions related to youth employment, with an allocated funding of almost €5 billion. One of the key elements of this plan is the Youth Guarantee Plus Plan 2021–27, which aims at improving the employability and entrepreneurship of the young population, including by fostering the acquisition of the professional and technical skills needed to access the labor market, addressing skill mismatches (both under- and over-qualification). Relative to the Youth Guarantee of 2014, the Youth Guarantee Plus Plan extends the age limit of young people from 25 to 29 and requires targeted and individualized approaches for vulnerable groups (OECD, 2021f).
LT Unemployed. Upon expiration of the regular unemployment benefits, the long-term unemployed may have access not only to extraordinary unemployment benefits but also to the Renta Activa de Inserción (RAI), which provides both income support and individualized employment services to certain groups of long-term unemployed with difficulties finding a job. In 2019, the government approved the Reincorpora-T Plan 2019–21 for preventing and reducing long-term unemployment. It includes 63 measures with an estimated cost of €4 billion, of which €1.3 billion are allocated to ALMPs, including more guidance counsellors, support for vocational training in rural areas, and training in key digital skills. The rest is allocated to social protection and evaluation measures.
Spain: Initiatives within the Juventud Avanza Strategic Plan
Covered with the European Social Fund.
Includes: Primeras Experiencias Profesionales (€330 million); Investigo (€315 million); Tándem (€120 million); Other (€172 million).
Public employment-training program for unemployed from disadvantaged groups without specific training in a profession.
Spain: Initiatives within the Juventud Avanza Strategic Plan
| Initiative | Funding (€ million) |
|---|---|
| Youth Guarantee Plus Plan 2021–27 | 3,263 1/ |
| Investments in RTRP | 937 2/ |
| Plan de Formación en Alternancia con el Empleo 3/ | 600 |
| Agreement with the Secretary of State of Digitalization and Artificial Intelligence | 150 |
| Total | 4,950 |
Covered with the European Social Fund.
Includes: Primeras Experiencias Profesionales (€330 million); Investigo (€315 million); Tándem (€120 million); Other (€172 million).
Public employment-training program for unemployed from disadvantaged groups without specific training in a profession.
Spain: Initiatives within the Juventud Avanza Strategic Plan
| Initiative | Funding (€ million) |
|---|---|
| Youth Guarantee Plus Plan 2021–27 | 3,263 1/ |
| Investments in RTRP | 937 2/ |
| Plan de Formación en Alternancia con el Empleo 3/ | 600 |
| Agreement with the Secretary of State of Digitalization and Artificial Intelligence | 150 |
| Total | 4,950 |
Covered with the European Social Fund.
Includes: Primeras Experiencias Profesionales (€330 million); Investigo (€315 million); Tándem (€120 million); Other (€172 million).
Public employment-training program for unemployed from disadvantaged groups without specific training in a profession.
14. The COVID-19 pandemic triggered a much-needed process of digitalization at the PES. In response to the COVID-19 outbreak, the PES accelerated a long-due digitalization process, including by boosting remote channels for ALMP provision. Counselling, career guidance, job matching, and training started being administered via online channels. Remote benefit applications and jobseeker registrations were already in place even before the pandemic, but were revamped with the COVID-19 shock, which facilitated processing speed despite high volumes (OECD, 2021b). The PES adopted SEND@, a digital tool to facilitate individualized orientation services, which will be evaluated by the OECD in 2022. The challenge going forward is to build on the progress made so far and continue investing in digital technologies. Furthermore, while many processes could be automated and digitalized, there will still be areas in which face-to-face interactions will still be needed, particularly when working with vulnerable groups, who to have lower digital skills and more limited access to the Internet and devices (OECD, 2021d).
Policy Recommendations
15. Reforms that ensure an effective use of ALMP resources would help bring down unemployment further and facilitate reallocation. In the aftermath of the COVID-19 crisis, additional investments into ALMPs may be needed to support a rapid return to work of displaced workers, to facilitate the reallocation of labor from declining to expanding sectors, and to address emerging labor market inequalities. Effective ALMP expenditure helps boost GDP through higher employment and productivity.9 However, to ensure that ALMPs are scaled up in a timely and effective manner, action is necessary on various fronts, including: (i) addressing capacity constraints in the PES; (ii) simplifying ALMP regulations, bringing agility to the ALMP system; (iii) continuing to provide employment services that take into account the local labor market situation while ensuring that a well-designed accountability framework for regional PES is in place; and (iv) fostering cooperation and coordination between all relevant stakeholders (OECD, 2021b; Lauringson and Lüske, 2021).
16. The allocation of ALMP resources to training should be increased. The meta-analysis of the literature by Card et al (2018) indicates that training programs tend to have larger and more long-lasting positive impacts than other activation policies. Providing training opportunities to vulnerable groups affected by the pandemic, as well as to participants in STW schemes would help improve employability and facilitate reallocation. In order to be relevant, training programs should focus on those sectors and skills in most demand. This requires a deeper engagement with firms to get a better understanding of the current and future skill needs and to adapt existing programs accordingly. Since joint public and private sector programs tend to perform better, an efficient delivery of training requires a stronger coordination with firms, training institutions and vocational education. A more intensive use of digital tools could also facilitate training delivery, particularly in those countries with online training solutions already in place, as suggested by the experience of Estonia, Austria, Denmark, the Netherlands, and some regions of Italy and Belgium (OECD, 2020).
17. Education policies, particularly those related to acquisition of digital skills and vocational training, should complement ALMP efforts. Education policies that mitigate skill mismatches and that facilitate accreditation of professional competences would improve employability of the young and low-skilled. Enhancing digital skills and boosting vocational training would help in this direction. Spain has recently made progress in both areas.
Digital skills. The implementation of the National Plan for Digital Skills, which was approved in January 2021, includes significant investments in the provision of digital skills to the entire population with focus on the vulnerable groups and the unemployed, the digitalization of the education system, and the training of ICT specialists.
Vocational training. The ongoing reform and modernization of vocational training is focused on recognizing existing skills and promoting upskilling and life-long learning. Following the approval of the First Strategic Plan of the Educational System for Vocational Training in November 2019, the next key steps in this direction have been: (i) the approval in March 2021 of Royal Decree 143/2021, which establishes the opening of a permanent procedure for the evaluation and accreditation of professional competences acquired through work experience, or through non-formal training channels; and (ii) the approval of the Draft Law on the Organization and Integration of Vocational Training in September 2021. The draft law integrates the vocational training for education and for employment into a single system. Furthermore, it regulates the relationship between vocational training and university education, promoting mutual recognition. It would be important to ensure that the acquisition of skills and competences is consistent with those demanded in the job market and to adjust the curriculum accordingly.
18. Strengthening the capacity of PES and addressing regional heterogeneity are needed to provide more individualized and timely support to jobseekers. Caliendo and Schmidl (2016) find that job search assistance is the only ALMP that has unambiguously positive effects on employment outcomes in Europe; the other ALMPs have mixed or even negative effects. This calls for strengthening the PES and improving employment services. Introducing new tools, such as statistical profiling, would help to target employment services to specific groups of jobseekers such as those most affected by the pandemic, to do early interventions, and to tailor services to better serve the needs of individual jobseekers.10 While the use of statistical profiling tools has become widespread across OECD countries (Desiere et al, 2019), in the case of Spain it would require digitalizing the PES and improving its data systems, as well as strengthening its capacity to provide a more individualized support. Besides the use of statistical tools to improve diagnosis, and adequate provision of individualized services would also require a continued monitoring of the cases, possibly for longer periods. Revamping the collaboration with private job-placement agencies could also help to overcome capacity limitations. Systematic exchanges of best practices and peer review among regions would be useful to address the great heterogeneity in performance at the regional level.
19. Enhanced coordination between active and passive labor market policies would help increase the effectiveness of activation strategies. This would require a reorganization of social and employment services, aligning them around the common goal of achieving social cohesion (Heindrich and Rice, 2016). The adoption of integrated service models, such as one-stop shops, is a strategy that has been pursued in many European countries, with implementation varying greatly depending on the institutional context. Establishing one-stop shops at the regional level, with caseworkers managing both social benefits and ALMP interventions (and a centralized back-office in charge of verifying that eligibility rules for benefits are respected), would increase coordination of active and passive policies and facilitate the provision of a more tailored support to the unemployed. In such a system, caseworkers at the regional PES would have a crucial role and would need to be endowed with the necessary resources and training to perform this task. Giving caseworkers the ability to apply institutional discretion when designing individual activation plans would increase targeting capacity and make service provision more holistic, which would be important to adequately serve groups with more complex employability issues (Rice, 2017).
20. Assessments of the effectiveness of ALMPs are needed through regular evaluations, including cost-benefit considerations. It would be important to establish a system of evaluation of ALMPs, where the gains from each program are contrasted against the resources needed to implement it. Such cost-benefit analysis would allow to prioritize ALMP actions, pursuing only those for which the gains largely outweigh the costs. The results from these evaluations could also be used to establish adequate criteria for the allocation of funding to regional public employment services. The inclusion of evaluation requirements in the relevant legislation, as done in the case of the Minimum Income Scheme, could help to institutionalize the evaluation of ALMPs.
21. The reforms proposed in Spain’s RTRP are broadly consistent with most recommendations in this paper. A careful design and timely execution of specific policy measures would be necessary for the success of the reforms. For example, the authorities foresee the adoption of regulation to modernize ALMPs, making them more targeted, focused on the youth and accounting for new trends such as digital and green transition. For instance, the new Employment Law contemplates the development of a national digital job market platform to facilitate labor matching and the provision of individualized employment services to the unemployed. The recovery plan also comprises the digitalization of the PES. While the RTRP does not introduce new hiring subsidies, it proposes the simplification and better administration of the existing ones. Regarding the investments, the plan includes: (i) programs—with a large training component—for the young, women and vulnerable groups (long-term unemployed, disabled, etc.); (ii) training and employment support programs to facilitate a digital and green transition; and (iii) development of a governance structure for ALMPs and training to staff of the National Employment Service. See Table 2 for details. Actions aiming at improving coordination between active and passive labor market policies are not included in the RTRP.
ALMPs in Spain’s Recovery, Transformation and Resilience Plan
ALMPs in Spain’s Recovery, Transformation and Resilience Plan
| Modernization of ALMPs | 1) Approval of Spanish Strategy of Active Support to Employment (2021–24). 2) Modification of Employment Law (RDL 3/2015). 3) Approval of Garantia Juvenil Plus (2021–27). 4) Reform to the law regulating the Professional Training System. |
2021–22 | |||
| Digitalization of PES | 2021–23 | ||||
| Youth Employment Initiative | 355 | 255 | 155 | 765 | |
| A | Training programs based on the school-workshop model, in occupations related to green transition, digitalization, local and rural development (Empleo Joven-Tandem) | 40 | 40 | 40 | 120 |
| B | First professional experience in public administrations (targeted to young people who have completed their studies but remain unemployed) | 160 | 110 | 60 | 330 |
| C | Employment opportunities for young researchers (Investigo program) | 155 | 105 | 55 | 315 |
| Female Employment Initiative and gender mainstreaming in ALMPs | 55 | 35 | 15 | 105 | |
| A | Training programs for women entrepreneurs both in urban and rural areas | 45 | 25 | 5 | 75 |
| B | Training programs, with commitment to hiring, for women who are victims of gender-based violence, trafficking and sexual exploitation | 8 | 8 | 8 | 24 |
| C | Actions to facilitate gender mainstreaming in all ALMPs | 2 | 2 | 2 | 6 |
| Support a digital, green and productive transformation through training and employability of workforce | 146 | 146 | 144 | 435 | |
| A | Professional requalification of workers in the tourism sector | 40 | 40 | 39 | 119 |
| B | Training, with commitment to hiring, of unemployed people registered in the National Employment Service to cover positions in strategic sectors that were vacant due to lack of candidates with adequate skills | 40 | 40 | 40 | 120 |
| C | Microcredits for training to improve employability | 24 | 24 | 24 | 71 |
| D | Identification of training needs | 2 | 2 | 2 | 6 |
| E | Training for workers under ERTE | 40 | 40 | 39 | 119 |
| Governance and support to ALMPs | 44 | 27 | 35 | 106 | |
| A | Creation of the Network of Public Centers for Guidance, Entrepreneurship, Support and Innovation for Employment, under the umbrella of the National Employment System | 23 | 7 | 15 | 44 |
| B | Activities of the Network of Public Centers for Guidance, Entrepreneurship, Support and Innovation for Employment, based on annual plans specific to each center | 15 | 15 | 15 | 46 |
| C | Training plan for staff of the National Employment System | 6 | 5 | 5 | 16 |
ALMPs in Spain’s Recovery, Transformation and Resilience Plan
| Modernization of ALMPs | 1) Approval of Spanish Strategy of Active Support to Employment (2021–24). 2) Modification of Employment Law (RDL 3/2015). 3) Approval of Garantia Juvenil Plus (2021–27). 4) Reform to the law regulating the Professional Training System. |
2021–22 | |||
| Digitalization of PES | 2021–23 | ||||
| Youth Employment Initiative | 355 | 255 | 155 | 765 | |
| A | Training programs based on the school-workshop model, in occupations related to green transition, digitalization, local and rural development (Empleo Joven-Tandem) | 40 | 40 | 40 | 120 |
| B | First professional experience in public administrations (targeted to young people who have completed their studies but remain unemployed) | 160 | 110 | 60 | 330 |
| C | Employment opportunities for young researchers (Investigo program) | 155 | 105 | 55 | 315 |
| Female Employment Initiative and gender mainstreaming in ALMPs | 55 | 35 | 15 | 105 | |
| A | Training programs for women entrepreneurs both in urban and rural areas | 45 | 25 | 5 | 75 |
| B | Training programs, with commitment to hiring, for women who are victims of gender-based violence, trafficking and sexual exploitation | 8 | 8 | 8 | 24 |
| C | Actions to facilitate gender mainstreaming in all ALMPs | 2 | 2 | 2 | 6 |
| Support a digital, green and productive transformation through training and employability of workforce | 146 | 146 | 144 | 435 | |
| A | Professional requalification of workers in the tourism sector | 40 | 40 | 39 | 119 |
| B | Training, with commitment to hiring, of unemployed people registered in the National Employment Service to cover positions in strategic sectors that were vacant due to lack of candidates with adequate skills | 40 | 40 | 40 | 120 |
| C | Microcredits for training to improve employability | 24 | 24 | 24 | 71 |
| D | Identification of training needs | 2 | 2 | 2 | 6 |
| E | Training for workers under ERTE | 40 | 40 | 39 | 119 |
| Governance and support to ALMPs | 44 | 27 | 35 | 106 | |
| A | Creation of the Network of Public Centers for Guidance, Entrepreneurship, Support and Innovation for Employment, under the umbrella of the National Employment System | 23 | 7 | 15 | 44 |
| B | Activities of the Network of Public Centers for Guidance, Entrepreneurship, Support and Innovation for Employment, based on annual plans specific to each center | 15 | 15 | 15 | 46 |
| C | Training plan for staff of the National Employment System | 6 | 5 | 5 | 16 |
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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.
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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.
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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 ALMP1
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.
Prepared by Ana Lariau (EUR).
Artuc et al. (2015) infer mobility costs using a structural econometrics model of costly job adjustment, applied to observed sectoral allocations, and find that labor mobility costs in Spain are above the sample average, which may limit the workers’ ability to switch jobs.
‘Incentivized contracts’ stands for programs to promote permanent jobs by giving firms financial incentives to hire workers on permanent rather than temporary contracts.
The 1997 reform introduced financially incentivized “contracts to promote permanent jobs” in an attempt to reduce the incidence of temporary employment and address duality in the Spanish labor market.
Spain has put in place frameworks to evaluate some ALMPs. First, the evaluation of the performance of the National Employment System (SEPE and the 17 regional PES) has been established through the EVADES program based on the methodology defined at the European level by the PES Network. Second, the evaluation of the entire system of professional training for employment is based on the measurement and analysis of a set of pre-determined indicators on quality, impact, effectiveness and efficiency. These frameworks have been useful to monitor operational performance and achievement of pre-determined objectives. However, they are not suitable to perform counterfactual analysis with experimental methods that would allow to establish causal relationships.
This is confirmed by the analysis of Brugarolas et al (2021), which focuses on the implementation of the Youth Guarantee Initiative in four Spanish regions (autonomous communities of Basque Country, Aragon, and Murcia, and the province of Alicante). Furthermore, the report indicates that targeting was difficult, as the programs reached more effectively the highly educated students rather than those who were neither studying nor working.
The total number of policies included in the 2020 Annual Employment Policy Plan was 696, of which only 60 were common to all regions and the rest were region-specific. On average, each region implemented 72 different measures and services.
OECD (2021a) finds that a 25-percent increase in the 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. These estimates are based on the historical relationships between reforms and growth in OECD countries.
Felgueroso et al (2018) for a detailed description of statistical profiling tools and how their implementation can increase the effectiveness of ALMPs.
Based on OECD data description, available in: https://www.oecd.org/els/emp/Coverage-and-classification-of-OECD-data-2015.pdf.
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Prepared by Nicolas Arregui (EUR department) and William Oman (MCM department). Thanks to Simon Black, Louis-Gaëtan Giraudet, Dora Iakova, Ian Parry, and counterparts in Spain met during the Article IV mission for comments and suggestions.
While climate change adaptation policies are crucial, this note focuses only on climate change mitigation policies.
The proposed package gives a central role to carbon pricing through a reduction in the Emission Trading System (ETS) emissions cap, extension of the scheme to the maritime sector, and the introduction of a new ETS for road transport and buildings. It also establishes a fund to help the most vulnerable households, and proposes an introduction of a carbon border adjustment mechanism starting in 2026.
In addition to the specified targets, Spain’s climate law establishes specific policies, such as that no later than 2040 new passenger cars and light commercial vehicles will be vehicles with emissions of 0gCO2/km, and the establishment of low emission zones in urban centers with a population of at least 50 thousand by 2023. The law also strengthens the climate policy framework, with the creation of an Expert Committee tasked with submitting an annual report to Congress with policy evaluation and recommendations, among other elements.
EU legislation requires each member State to adopt a 10-year national energy and climate plan (NECP) to map out how they will contribute to the Union’s climate and energy targets for 2030.
Other recent relevant documents include the Circular Economy Strategy, the Draft Law on Waste, and the National Climate Change Adaptation Plan.
Carbon pricing is interpreted here in a broad sense, not only as explicit carbon pricing (which is limited in Spain beyond that of the EU ETS). It includes specific taxes on energy use, such as fuel duties.
Along this line, the National Strategy Against Energy Poverty launched in 2019 included the first official definition of energy poverty, as well as reduction objectives by 2025.
Data refers to total GHG emissions without LULUFC from UNFCCC.
Total GHG emissions dropped by 5.6 percent in 2019, despite about two percent growth in real GDP. According to the approximated 2020 Inventory, GHG emissions dropped by 13.7 percent in 2020.
The standard territorial accounting of greenhouse gas emissions excludes lifecycle emissions from bioenergy grown overseas, Spain’s share of international aviation and shipping, plus the CO2 generated when making goods that are imported into Spain (minus that of exports). Spain’s imports have more embodied CO2 than exports so the per capita carbon footprint (demand-based CO2 emissions) is higher than actual (production-based) emissions would imply (IMF 2020). Methodologies for estimating consumption emissions are not straightforward, as they require estimates of emissions along international supply chains, and there are no agreed international reporting standards. Moreover, under the Paris Agreement, countries are responsible only for emissions produced within their own borders.
Power refers to “energy industries,” which includes public electricity and heat production, petroleum refining, manufacturing of solid fuels and others.
Country projections submitted under the Monitoring Mechanism Regulation (EC No. 525/2013). Projections were submitted before March 2020 and therefore do not account for impact of the Covid-pandemic.
Complementary policies may be needed to address non-price barriers to otherwise self-financing abatement measures (such as liquidity constraints, awareness). Conversely, some abatement opportunities may be too costly for an early-phase carbon price to unlock without rising to levels that raise concerns over distributional impacts. More targeted policies, such as dedicated technology funds, low-carbon technology mandates, or R&D support, may be needed to bring forward new mitigation options and reduce future abatement costs. See also Krogstrup and Oman (2019).
As discussed below, revenue redistribution should play a significant role mitigating the distributional impact of carbon pricing policies to protect those most vulnerable.
The EU ETS also covers emissions from aviation (flights within the European Economic Area). The ETS covers about 40 percent of Spain’s national emissions.
Currently, Spain is required to reduce emissions in the non-ETS sectors by 26 percent in 2030 relative to 2005. Nonetheless, given the country’s 2030 target of a 23 percent reduction in total emissions by 2030 relative to 1990, the non-ETS sectors will need to reduce emissions by about 40 percent compared to 2005 levels. This is aligned with the new EU 2030 proposed target to reduce aggregate EU emissions in the non-ETS sectors by 40 percent by 2030 relative to 2005 (based on the EC’s reported additional effort requirements in the Fit for 55 proposal).
Following the OECD definition of effective carbon rates, this includes specific taxes on energy use, emission permit price, and any explicit carbon taxation. There are currently no explicit carbon taxes in Spain. Main energy-use taxes include a tax on hydrocarbons, a special tax on coal, and a special tax on electricity consumption (ad-valorem).
The tax rate is based on the Atmospheric Warming Potential of these gases and the tax is levied on the recharging of the equipment that uses them, allowing for a partial recovery if a correct management of these gases at the end of the useful life of the equipment is accredited. At present, the tax rate is 15 euros per ton CO2-eq and the rate for recycled and regenerated gases is 50 percent of the general rate in order to encourage their use.
For reference, 60 EUR per tonne of CO2eq is a mid-range benchmark of carbon costs in 2020, and low-end benchmark for carbon costs in 2030 (OECD 2021).
The implicit tax rate on energy is defined as the ratio of energy tax revenue to final energy consumption calculated for a calendar year. The implicit rate is a very broad indicator, capturing information on a variety of energy products with different tax rates. It is not influenced by the size of the tax base.
Environmental taxes are referred to in measure 1.26, measure 1.20 (in the context of the EU ETS), and as a mechanism for the delivery of multiple sector goals, such as the renewal of the vehicle fleet the promotion of electric vehicles, and energy efficiency improvements in the residential sector.
In a context of still large and negative output gap, the gradual increase in carbon prices should be understood in a broader context of frontloaded investment support as part of the recovery plans.
Estimates are based on the IMF’s spreadsheet tool to project emissions on a country-by-country basis and the emissions, fiscal, and economic impacts of carbon pricing and other mitigation instruments. The model starts with recent data (2018) on use of fossil and other fuels by major energy sector (data until 2020 is used for shares of sources used in electricity production) and then projects fuel use forward using (post-COVID) GDP projections and assumptions about: (i) the income elasticity of demand for energy products; (ii) technological progress that improves energy efficiency and the productivity of renewables; and (iii) future international energy prices. The impact of carbon pricing (and other policies) on fuel use depends on their proportionate impact on future energy prices and the price responsiveness of fuel use—price elasticities are between -0.3 to -0.5 based on empirical evidence and results from energy models. There is, however, inherent uncertainty surrounding emissions projections and the responsiveness of emissions to pricing, particularly for large carbon prices, given, for example, that the availability and adoption of future emissions-saving technologies is difficult to accurately project.
This finding holds true across most European peer economies, with differences across countries reflecting differences in both the stringency of pledges (advanced countries tend to have stronger pledges) and the price responsiveness of emissions (which tends to be greater in countries that consume large amounts of coal, like Poland).
In 2021, wholesale electricity prices have increased significantly in Europe, and the passthrough to retail prices has been particularly high in countries with a high prevalence of dynamic pricing, such as Spain. Several measures have been adopted to mitigate the impact on consumers, including temporary reductions in various taxes.
Gago et al (2019) estimate that increasing diesel taxation to converge with gasoline taxation would generate additional 2.6bn in revenues.
For instance, a dedicated tax framework is used in Ireland, Finland, France, and Sweden, whereas an ETS framework is used in Germany.
In the German commuter allowance scheme, anyone travelling more than 20 kilometers to work gets a deduction per kilometer from their income tax in their annual tax return.
Spain adopted the new methodology for measuring emissions on January 2021. Emissions under the new methodology (WLTP) are typically higher for the same car compared to those measured under the previous methodology (NEDC). Contrary to countries such as France, Italy, and Portugal, Spain did not initially modify the existing schedule to mitigate the implied increase in taxation. Nonetheless, around mid-2021 the tax brackets were relaxed on a temporary basis.
According to ACEA’s Tax Guide CO2-based acquisition tax es linked to car prices are used in Austria, Finland, Greece, Ireland, Malta, and Spain. CO2-based acquisition taxes are independent of car prices in Belgium (Flanders, Wallon), Cyprus, France, Italy, Netherlands, Portugal, and UK. In addition, Croatia’s acquisition tax depends on car prices, but the CO2 component does not (i.e. there is no interaction).
The schedule for Spain is computed using average prices within each bracket to allow for a comparison with other countries in nominal terms.
Specifically, a feebate system imposes a charge on new vehicle sales equal to the product of (1) a price on CO2 emissions; (2) the difference between the vehicles CO2 emission rate per mile and the fleetwide average CO2 per mile; and (3) the average lifetime mileage of vehicles. That is, CO2 price × (CO2/mile – fleet average CO2/mile) × lifetime mileage.
Absent frictions other than the climate externality, feebates are less efficient that carbon pricing as they do not promote the same demand response (e.g., reductions in vehicle use) but they are more flexible and cost-effective than regulations. See IMF Fiscal Monitor 2019.
Tax horsepower is based on mathematical formulas and may not reflect actual engine power. As EEA microdata is not available on tax horsepower, engine power is used for comparisons.
The length of time that the reduction rates apply varies significantly across regions.
Until recently, the EU had neither mandatory procedures for monitoring fuel efficiency in the sector, nor mandatory targets. The emissions standards for HDVs adopted in 2019 set targets for reducing the average emissions from the highest-emitting HDV segments (accounting for about 65 percent of HDV emissions) for 2025 and 2030 by 15 and 30 percent, respectively, relative to a 2019–20 baseline.
The interaction of standards with other policies is not straightforward. For instance, aggressive policies to accelerate the uptake of electric vehicles may lead to a waterbed effect if compensated with higher emissions by remaining internal combustion engine vehicles.
On the contrary, manufacturers must comply with annual targets in the US.
According to Mock (2021), EU manufacturers took advantage of the five-year interval in the regulation, optimizing their vehicle fleet mix in 2016–2019 towards profits, largely ignoring CO2 emissions and delaying the launch of some electric vehicle models until 2020.
For reference, three million passenger cars amounts to 12 percent of the total passenger cars in use in 2019 (ACEA 2020).
None of the announcements by European countries have been transposed into binding regulation to date, as the latter conflicts with internal market rules. A country-level ban in the EU is deemed to fall within the scope of, and therefore to conflict with, rules including the EU type-approval regulation and the CO2 regulation for new passenger cars and vans (Wappelhorst 2021).
The expansion in charging infrastructure in 2020 has brought Spain in line with the suggestion in the EU Alternative Fuels Infrastructure Directive of at least one charger per 10 vehicles.
Electric vehicles are broadly expected to reach cost parity with conventional vehicles over this decade. There is less consensus as to when over the next decade parity would be reached: BloombergNEF 2019a argues it would be reached by 2022, CCC 2019a expects by mid-2020s, and MIT 2019 contends it would happen only toward the end of the decade (as the cost of raw materials is expected to rise following a sharp increase in demand).
Spain’s recovery and resilience plan published in 2021 sets a target of at least 238k electric vehicles and charging points subsidized by 2023.
The EU’s Fit for 55 package includes a proposal for a regulation on the deployment of alternative fuels infrastructure (AFIR), which would imply a multi-annual plan for the deployment of publicly available charging points in member countries. The proposed reform to the Directive on Energy Performance of Building includes requirements for recharging infrastructure in private buildings, at home or at workplace.
Urban transport accounts for about 35 percent of ground transportation in Spain (Economics for Energy 2021).
It is also required for urban centers with more than 20k inhabitants with high air pollution levels.
In a strict sense, the climate externality does not call for a geographically differentiated treatment. That is, the climate impact of GHG emissions does not depend on where they are generated. On the contrary, air pollution and congestion do call for a differentiated treatment based on geography (and potentially other dimensions, such as the time of the day).
Low-emission zones have been implemented in recent years in Madrid (since November 2018) and Barcelona (since January 2020), but quite lax in current state.
The rest of the sector’s emissions are accounted for commercial and institutional subsectors, which have also increased significantly relative to 1990 levels.
Indirect emissions from the generation of electricity to run appliances, electric space heating or cooling, electric cooking and lighting are covered in the next section, as part of the broader discussion on the power sector.
As a caveat, comparisons are not straightforward, as not always the same letter of EPC corresponds to the same range of efficiency in all countries.
Complementary policies, as discussed below, could also play a significant role in addressing energy poverty. For instance, subsidy programs for energy efficiency investments could be adjusted by negatively linking subsidy rates to recipients’ income, as suggested by Bourgeois et al. (2021). In addition, owners of dwellings of the lowest EPC classes (F and G) could be systematically provided with technical and financial advice (see Sichel 2021).
This alternative has been proposed for consideration by the Committee on Climate Change in the UK (CCC 2020).
The authorities’ plan the introduction of tax deductions for dwellings that improve their EPC rating. These measures could be complemented by pilots to assess whether alternative measures (such as e.g., rebates or cash paid to contractors who install heat pumps) are more cost effective.
Collective decision making is subject to rules (including a system of majorities depending on the type of work to be undertaken) regulated by the Horizontal Property Law.
On the other hand, the relatively high home ownership rate in Spain (about 80 percent) suggests that frictions related to investor/user barriers are likely less of a concern than in countries where renters are more predominant.
The current rate of renovation is 30,000 dwellings per year (0.2 percent of the residential housing stock)—about five times less than strong performers like France and Germany (Climate, 2021), and far below the rate recommended by the European Commission (2–3 percent).
Energy performance requirements for renovations of existing buildings are regulated in the Technical Building Code (CTE). The CTE requires that deep renovations comply with energy performance requirements for new buildings. A review of the CTE is planned, in order to increase energy efficiency and renewable energy requirements, as well as the minimum requirements for thermal installations via the Regulations on Thermal Installations in Buildings for all new buildings and renovations.
The EPD revision proposes a minimum energy performance standard, with a welcome focus on worst performing buildings (i.e. class of F or G). The proposed standard requires an improvement by one or two EPC classes only over the next decade. Member states are empowered to set national minimum standards in addition to the EU-wide ones.
Support mechanisms include grants, subsidized and guaranteed loans, and tax incentives to reduce non-renewable energy use (e.g. property and construction tax rebates for buildings with solar facilities, tax deductibility of renovations from personal income taxes if at least a 30 percent primary energy demand reduction is achieved).
Examples include the PAREER aid programs, MITMA’s State Housing Plan, and the ICO lines for companies and entrepreneurs.
This is in line with the recently proposed revision of the EPBD (EC 2021).
See Spain’s RRP reform C2.R5.
For a detailed proposal, see Sichel (2021).
Nuclear energy is emission free but not classified as renewable energy by the EU. Spain plans a phased closure of nuclear power generation (accounting for about 20 percent of total power generation in 2019) starting in 2027, and to be completed by 2035.
The agreed cross-border capacity ratio corresponds to the import capacity over installed generation capacity for Member States.
Solutions that enhance system flexibility (for example, “smart” vehicle charging or building heating and cooling), will be important to ensure that power demand peaks are manageable and enable maximum use of renewable generation
Beyond the electricity sector, the government plans to expand self-consumption of renewables and distributed generation, as well as promote the use of renewables in the industry and heating sectors.
A Market Stability Reserve (MSR) was introduced in January 2019 to reduce the volatility of ETS prices. A large accumulated surplus of allowances weakens the carbon price signal. The MSR puts a fraction of surplus allowances into a reserve when the surplus exceeds a certain threshold. Following the announcement of the MSR, the ETS price has strengthened.
