Trésor-Info - Publications de la direction générale du Trésor - Spain

The Economic Issues Surrounding Support for Renewable Electricity

2026-02-16T00:00:00+01:00

Renewable electricity, when used to supplement nuclear energy, contributes to achieving the goals of the energy transition. This requires the widespread electrification of uses in transport, construction and industry. Renewables also enable us to reduce our dependence on fossil fuels, which are mostly imported, and thus strengthen our energy sovereignty.

The competitiveness of renewable energy development projects depends on the sector (solar, onshore wind, offshore wind, etc.) and the ratio between their cost and the market price of electricity. In 2025, market prices in France were lower than in most neighbouring countries. While the cost of renewable electricity has fallen sharply in recent years, it has not yet reached the average level of current market prices in France. Hence, the development of these sectors still requires government support.

Support for renewable energy aims to improve the return on investment. Its cost increases when electricity market prices fall, and vice versa. The increase in the volume of renewable electricity receiving support will automatically lead to greater exposure of public finances to market price fluctuations. As a result, support for renewables has had to change, in particular by transferring more of the risks borne by government to producers.

Until 2035, the annual cost of supporting renewable electricity will continue to be dominated by the cost of contracts signed before the end of 2024 (see Chart). As a result of lower generation costs for renewable technologies, the unit support cost for new facilities will be lower than for existing ones. So, for solar and wind power, the average full generation cost for supported facilities should be approximately €80₂₀₂₄/MWh in 2035, compared with €120₂₀₂₄/MWh today, resulting in an automatic reduction in the cost of government support per MWh generated.

The Market for Safe Assets

2023-08-29T00:00:00+02:00

The holding of so-called “safe” assets, and the market for these securities more broadly, play a key role in maintaining financial stability. Yet there is no consensus as to how these assets are defined because the “safety” of a security depends on a number of different characteristics such as its stability, counter-cyclicality and liquidity, how transparently it is valued, and how solid its fundamentals are. The relative importance of these aspects varies according to investor preferences and financial-market conditions.

By examining how different asset classes perform against different safety criteria, it is possible to identify a universe of assets that can be considered “safe”, and to analyse developments in the market for these assets over the past two decades.

The supply of safe assets grew sharply in the 2010s, owing in part to sovereign bond issues. However, these assets became less readily available as central banks, especially in Europe, embarked on bond-buying programmes as part of a broader package of unconventional monetary policy measures. Despite increased supply, safe assets remained hard to come by throughout this period, as demand surged in both Europe and the United States, owing largely to the introduction of tighter prudential requirements in the wake of the 2008 financial crisis.

Globally, the market imbalance caused by these opposing forces has been partly redressed since the COVID-19 crisis of 2020, owing in large part to sovereign debt issues intended to fund pandemic support packages, which have had the effect of bringing the supply of safe assets into closer alignment with demand.

Looking ahead, the market could be affected by a number of major structural trends. Factors that could impact supply include the reshaping of the safe assets landscape amid the green transition, debt sustainability issues, rating downgrades and reform of the international monetary system. Meanwhile, demand could be influenced by developments such as the roll-back of unconventional monetary policy measures and changes to regulatory standards, especially those relating to non-bank financial institutions (NBFIs).

The Expected Benefits of the European Recovery Plans Introduced in the Wake of the COVID-19 Pandemic

2023-03-09T00:00:00+01:00

Following the COVID-19 pandemic and the emergency measures implemented to mitigate the loss of income for households and safeguard businesses, European Union (EU) Member States agreed on the NextGenerationEU (NGEU) package which is an unprecedented joint response to support the recovery, making over €800bn available to Member States.

The European recovery plan is financed by common debt for the first time in EU history and by national resources (see chart). The Recovery and Resilience Facility (RRF), NGEU’s centerpiece, funds the Recovery and Resilience Plans (RRPs) comprising reforms and investments determined by the Member States.

European recovery plans are expected to foster the convergence in living standards within the EU since a significant share of RRF funds are allocated to countries with low levels of GDP per capita.

Recovery plan reforms and investment will underpin innovation and productive potential, thereby enhancing potential growth, and bring down structural unemployment, especially in those countries that had larger structural weaknesses prior to the pandemic. The European recovery plan will help take up the challenge of the green and digital transitions to which national recovery plans have to devote a minimum amount of green and digital investments.

The plans of some countries with current account deficits focus on supply-side measures. However, narrowing external imbalances within the EU and the euro area would have been more effective with better coordinated implementation of the European recovery plan: countries with large current account surpluses could have concentrated their plans more on demand-side measures. In this respect, bolstering the macroeconomic imbalances procedure (MIP) could contribute to improved coordination of economic policies in the EU.

How Does the European Union’s Carbon Market Impact Firm Productivity?

2023-02-14T00:00:00+01:00

The European Union Emissions Trading System (EU ETS) was introduced in 2005 to reduce greenhouse gas (GHG) emissions from the electricity and heat generation sectors, energy-intensive industry sectors (e.g. refineries, metals, cement, chemicals, glass, polymers, paper, cardboard) and intra-EU commercial aviation. It lowers GHG emissions in a cost-effective manner, without favouring a particular technology. Installations regulated by the EU ETS are required to obtain allowances (either purchased on the market or allocated for free) that match their actual emissions, incentivising them to invest in decarbonising their production processes.

Our paper seeks to examine the effect of the EU ETS on the productivity of firms regulated by the system. In the short term, it is reasonable to expect a negative effect, with the carbon price signal increasing costs, particularly for the production of emissions-intensive goods. However, the EU ETS also changes firms’ investment plans by encouraging investment in low-carbon technologies. In the medium- to long-term, emissions costs can thus ultimately be reduced and firms’ performance improved.

The empirical literature on the subject offers inconclusive results which vary depending on the phases examined (e.g. the pilot phase of the EU ETS, which was relatively unrestrictive in terms of the price of the allowances compared with the most recent, more ambitious phase, see Chart to the right) and from country to country. An examination of manufacturing firms in France, Italy and Spain shows that the EU ETS was not detrimental (insignificant aggregate effect) to average productivity over the 2005 to 2017 period.

Nevertheless, the system’s effects are heterogeneous. Among the EU ETS-regulated firms we examined, its effects on productivity were more positive overall for firms close to the technology frontier or financially unconstrained firms, i.e. those best positioned to invest in decarbonisation.

Measurement of Government Consumption and Its Impacts on Output in 2020 and 2021

2023-01-12T00:00:00+01:00

Government final consumption expenditure (GFCE) is a component of final demand in the national accounts. It covers services provided to households by public administrations, including both the direct production of public services by central government, local government and social security bodies (such as education and defence) and expenditure incurred by government bodies for services provided by the private sector (such as healthcare reimbursements).

GFCE stood at 23% of GDP in France in 2019, at a level similar to the other leading European countries.Growth in GFCE is therefore an important component of GDP growth, but it is harder to measure than other components mostly because of the absence of market-based prices.

The French National Institute of Statistics and Economic Studies (INSEE) and its UK counterpart the Office for National Statistics (ONS) reported a sharp decline in the output of public services during the first lockdown in the spring of 2020. The national statistics institutes in the other leading European countries (Germany, Italy and Spain), however, considered that the production of public services had not dropped.

INSEE and the ONS used additional indicators, such as the loss of teaching activity, whereas the other institutes kept their usual methodology.

The national statistics institutes estimated that the drop in GFCE in 2020 depressed GDP growth by -0.9 pp in France and -1.4 pp in the UK, whereas it contributed 0.8 pp to GDP growth in Germany and 0.7 pp in Spain.

The fact that these differentials reflect at least in part the different methodological choices made to measure output in 2020 suggests that differences in GDP growth between European countries in 2020 and 2021 should be interpreted with caution. These choices cease to affect GDP growth from 2022 onwards.

European Union's Emissions Trading System and Productivity: Firm-Level Evidence for France, Italy and Spain

2022-09-21T00:00:00+02:00

The Working Paper series presents work carried out within DG Treasury, disseminated with the aim of enlightening and stimulating public debate. The authors are solely responsible for their work.

The European Union Emissions Trading System (EU ETS) was introduced in 2005 in order to incentivize a reduction in carbon emissions in industrial firms in the most efficient way. Despite a low carbon price during the initial phases of the scheme, the EU ETS did foster a reduction in industrial emissions. A key question, though, is whether these reductions came together with lower productivity, as the scheme has constrained production processes. We study the effect of the EU ETS on total factor productivity (TFP) for manufacturing firms in France, Italy and Spain, from 2000 to 2017. The EU ETS is here considered as a quasi-natural experiment and we apply a difference-in-difference framework. We study whether firms reacted differently depending on their initial efficiency, size, financial constraints, sector, and country; or across the different phases of the implementation. The results suggest that the instrument overall was not detrimental to firms' productivity, except for smaller firms, firms initially far from the technological frontier, and financially-constrained ones. The reform had a positive impact on TFP for larger firms and more efficient or less financially-constrained ones. The impact of the EU ETS is found to be very heterogeneous across sectors, the major beneficiaries being the food, chemicals and metallurgy industries. It is also more positive in France than in Italy and Spain.