On 22 May 2021, Spain's new Law on Climate Change and Energy Transition finally came into force. The law signifies Spain's commitment to energy transition by cutting emissions by 23% by 2030 (as compared with 1990 levels), prohibiting all new coal, gas and oil exploration and production permits with immediate effect, banning the sale of fossil fuel vehicles by 2040 and establishing a goal to generate 74% of the country's electricity from renewable sources by 2030. The law also brings Spain in line with the European Union's goal to become carbon neutral by 2050.
In May 2021, the Spanish government finally approved Law 7/2021 on climate change and energy transition ("New Law") to ensure Spain's compliance with the objectives of the Paris Agreement. The New Law came into effect five years after Spain signed the Paris Agreement on 22 April 2016. After long negotiations, the text was finally endorsed by almost all parliamentary groups and published in the Official State Gazette on 21 May 2021, coming into effect the next day on 22 May 2021.
Key targets set by the New Law
The key objectives of the New Law are to facilitate the decarbonization of the Spanish economy and combatting climate change. The ultimate target is achieving climate neutrality by 2050, i.e., making Spain's electricity system 100% renewable by 2050. To facilitate this target, the law sets a number of interim goals to be achieved by 2030, including:
- reduction of emissions in Spain by at least 23% (as compared to the 1990 levels)
- renewable energy representing at least 42% of the country's energy matrix by 2030
- 74% of the country's electricity generation coming from renewables
- improvements in energy efficiency by reducing the country's energy consumption by at least 39.5% with respect to the current baseline
Spain is allocating a significant proportion of the EU funding under the EU Recovery Plan to its net-zero transition.
Prohibition on new coal, gas and oil exploration
The New Law establishes a series of limitations on the exploitation of new fossil fuel deposits in Spain, both onshore and offshore. This is because electricity generation from burning fossil fuels is the main source of greenhouse gas emissions in the country. In this regard, the New Law:
- prohibits new hydrocarbon exploration and extraction projects in Spain
- establishes that research permits and concessions for the exploitation of hydrocarbon deposits in Spain that are already in force cannot be extended in any circumstances beyond 31 December 2042
- prohibits use of the hydraulic fracturing technique for any project in Spain
- prohibits radioactive mining, such as uranium mining in Spain
- effectively discontinues tax benefits for fossil fuel producers (which can only be granted if there are strong social and economic interests justifying them or if there is a lack of technological alternatives)
The New Law seeks to provide legislative support of the societal drive toward sustainable transportation. It sets the main objective of achieving a decarbonized fleet of passenger cars and light commercial vehicles by 2050. To this end, by 2040 at the latest, new passenger cars and light commercial vehicles not intended for commercial use that emit carbon dioxide may no longer be sold.
The New Law also requires municipalities with more than 50,000 inhabitants to adopt sustainable mobility plans and those with more than 20,000 inhabitants to approve low-emission zones if their air quality is not adequate.
Furthermore, the New Law establishes obligations for gas stations to install electric car charging points and to facilitate their installation in buildings and parking lots. In addition, it obliges the Spanish government to set targets for the integration of alternative fuels in the transportation sector (with special emphasis on advanced biofuels and other renewable fuels of non-biological origin) and to draw up a law on sustainable mobility and the financing of public transport.
The New Law, with its ambitious objectives, represents a key milestone in Spanish legislation, marking the direction in which Spain will move forward to achieve a sustainable economy. It presents almost unlimited opportunities for the renewable market players — and those willing to enter the market. While the New Law does present challenges for the oil and gas market players, these challenges are not unique to Spain and are part of the global drive toward energy transition. With our expertise in the oil and gas sector and significant experience in the renewables market, Baker McKenzie is uniquely placed to help market participants navigate the challenges and seize the opportunities.