Labor Market Implications for Green Investments and Carbon Pricing in Spain: Spain

LaborMarketImplicationsforGreenInvestmentsandCarbonPricinginSpain SPAIN AnaLariauandYuShiSIP/2023/001 IMFSelectedIssuesPapersarepreparedbyIMFstaffasbackgrounddocumentationforperiodicconsultationswithmembercountries.ItisbasedontheinformationavailableatthetimeitwascompletedonDecember16,2022.ThispaperisalsopublishedseparatelyasIMFCountryReportNo23/034. 2023 January INTERNATIONALMONETARYFUND2 ©2023InternationalMonetaryFundSIP/2023/001 IMFSelectedIssuesPaper EuropeanDepartment LaborMarketImplicationsforGreenInvestmentsandCarbonPricinginSpainPreparedbyAnaLariauandYuShi AuthorizedfordistributionbyDoraIakovaJanuary2023 IMFSelectedIssuesPapersarepreparedbyIMFstaffasbackgrounddocumentationforperiodicconsultationswithmembercountries.ItisbasedontheinformationavailableatthetimeitwascompletedonDecember16,2022.ThispaperisalsopublishedseparatelyasIMFCountryReport No23/034. ABSTRACT:WeprovideatractableframeworkforassessingthelabormarketimpactofpoliciesthatsupportthegreentransitionoftheSpanisheconomy,takingintoaccountinput-outputlinkages.Wepresentillustrativeexamplesthatquantifychangesinsectoralemployment,occupationsandskillsstemmingfromtwodifferentgreenpolicies:(i)theannouncedgreeninvestmentsintherecoveryplan;and(ii)anincreaseincarbonpricingandanexpansionoftheEUEmissionTradingSystem(ETS).Ouranalysisshowsthatthelabormarketimpactofthesetwopoliciesisnetpositive,althoughtheresultsdependonthedesignofthegreenpolicies,particularlyontheuseoftheproceedsfromtheincreaseincarbonpricing.Strengtheningactivelabormarketpolicies,withafocusontraining,andcomplementingthemwitheducationpoliciessuchastheexpansionofvocationaltraining,wouldfacilitatethetransitionofworkersfromshrinkingtoexpandingsectors. RECOMMENDEDCITATION:Lariau,AnaandShi,Yu.LaborMarketImplicationsforGreenInvestmentsandCarbonPricinginSpain.IMFSelectedIssuesPaper(SIP/2023/001).Washington,D.C.:InternationalMonetaryFund. JELClassificationNumbers: H54,J24,Q52,Q58 Keywords: greenpolicies,input-outputmatrix,employment,occupations,skills. Author’sE-MailAddress: ALariauBolentini@imf.org;YShi2@imf.org SELECTEDISSUESPAPERS LaborMarketImplicationsforGreenInvestmentsandCarbonPricinginSpain SPAIN December16,2022 SPAIN SELECTEDISSUES PreparedByAnaLariauandYuShi. ApprovedBy EuropeanDepartment CONTENTS LABORMARKETIMPLICATIONSOFGREENINVESTMENTSANDCARBONPRICINGINSPAIN2 A.GreenPoliciesinSpain2 B.TheLaborMarketImpactofGreenInvestmentsandCarbonPricing3 C.ConclusionsandPolicyRecommendations8 ANNEXES I.EstimationofOutputandEmploymentMultipliersUsingtheInput-OutputApproach_11 II.ResultsfortheAlternativeCarbonPricingShockScenario,NotTakingintoAccounttheRedistributionofRevenueProceeds14 References10 LABORMARKETIMPLICATIONSOFGREENINVESTMENTSANDCARBONPRICINGINSPAIN1 WeprovideatractableframeworkforassessingthelabormarketimpactofpoliciesthatsupportthegreentransitionoftheSpanisheconomy,takingintoaccountinput-outputlinkages.Wepresentillustrativeexamplesthatquantifychangesinsectoralemployment,occupationsandskillsstemmingfromtwodifferentgreenpolicies:(i)theannouncedgreeninvestmentsintherecoveryplan;and(ii)anincreaseincarbonpricingandanexpansionoftheEUEmissionTradingSystem(ETS).Ouranalysisshowsthatthelabormarketimpactofthesetwopoliciesisnetpositive,althoughtheresultsdependonthedesignofthegreenpolicies,particularlyontheuseoftheproceedsfromtheincreaseincarbonpricing.Strengtheningactivelabormarketpolicies,withafocusontraining,andcomplementingthemwitheducationpoliciessuchastheexpansionofvocationaltraining,wouldfacilitatethetransitionofworkersfromshrinkingtoexpandingsectors. A.GreenPoliciesinSpain2 1.Spainhassetambitiousclimatemitigationobjectives.Spain’sLawonClimateChangeandtheEnergyTransition,enactedin2021,establishesthegoalofclimateneutralityby2050atthelatest,whentheSpanishelectricitysystemmustbe100percentrenewable.Furthermore,theLawincludesanintermediatetargettoreduceemissionsby23percentrelativeto1990levelsby2030,aswellastargetsfor2030forrenewablestoaccountfor42percentofthecountry’senergymix,togenerate74percentofitselectricity(onaprimaryenergybasis),andtoreduceprimaryenergyconsumptionbyatleast39.5percentby2030.3 2.Achievingtheseobjectiveswillrequiresignificantpolicyeffortsinthecomingyears.Thecountry’smitigationpoliciesoverthecomingdecadeareguidedbytheNationalIntegratedEnergyandClimatePlan2021–2030(NECP).ThePlanoutlinessectoralactionsnecessarytomeetthe2030objectives.Itenvisagesincreasingrenewablepowerinstallationsandboostingtheuseofrenewablegasesinthepowersector,modalshiftsandelectrificationinthetransportsector,refurbishmentsandincreasingtheuseofrenewableheatingintheresidentialandcommercialsectors,promotingenergyefficiencyandfuelswitchingintheindustrysector,andenergyefficiencyimprovementsintheagriculturalsector.The2030planiscomplementedbyaJustTransitionStrategytoanticipateandmanagethesocialimplicationsoftheecologicaltransition,andaLong-TermStrategy2050toensurecontinuityinmitigationseffortsbeyond2030. 1PreparedbyAnaLariauandYuShi(bothEUR). 2ThissectionisbasedonSpain:2021SelectedIssues. 3Inadditiontothespecif