Law 7/2021 on Climate Change and Energy Transition

In 2015, the Paris Agreement was signed with the mission to promote the international response to the threat of climate change and to establish the objective of keeping the increase in global average temperature to well below 2°C above pre-industrial levels. In addition, that same year the 2030 Agenda for Sustainable Development was established at the United Nations (UN), which sets out 17 sustainable development goals. Both agreements mark the beginning of a global agenda towards sustainable development.

In this context, the General Courts, in Spain approved in May 2021 the Law 7/2021 on climate change and energy transition with the aim of ensuring compliance with the objectives of the 2015 Paris Agreement and facilitating the decarbonization of the Spanish economy. Additionally, in October 2021, the Ministry of Economic Affairs and Digital Transformation (MINECO) issued a public consultation on the Royal Decree implementing Article 32 of the Law, which must be approved by 20 May 2023. This article establishes the content of the reports on the estimation of the financial impact of risks to society.

Executive summary

The General Courts approved Law 7/2021 on climate change and energy transition with the aim of addressing, among others, aspects related to energy transition and fuels, emission-free mobility and transport, measures to adapt to the effects of climate change, or the integration of climate risk by entities whose securities are admitted to trading on regulated markets, credit institutions, insurance and reinsurance companies and companies obliged to include in the consolidated management report or in the individual management report, the statement of non-financial information.

Main content

This Technical Note summarises the main aspects of the Law:

• Energy transition and fuels. No new exploration authorisations, hydrocarbon research permits or exploitation concessions will be granted for hydrocarbons. Likewise, no new authorisations for exploration, research permits, exploitation concessions or their extensions for radioactive mineral mines shall be granted. In addition, coherence will be required between public aid or incentives and climate change mitigation objectives.
• Emission-free mobility and transportation. Development of the 2050 decarbonization strategy. To this end, the necessary measures shall be taken to ensure that new passenger cars and light commercial vehicles, not intended for commercial use, reduce their emissions. On the other hand, municipalities with more than 50,000 inhabitants and island territories will plan measures to reduce emissions derived from mobility. The installation of electric recharging infrastructures in service stations whose annual sales of gasoline and diesel exceed 5 million liters, must have a power equal to or greater than 50 kW.
• National Plan for Adaptation to Climate Change (PNACC). It is the basic planning instrument to address the effects of climate change in Spain. The PNACC includes 5 different objectives and will be developed through Work Programs, to be implemented in five-year periods.
• Securities issuers, credit institutions and insurance companies.
  • The Climate Change Law establishes disclosure obligations for financial sector entities and eligible non-financial companies.  The reports that financial sector entities and non-financial companies must disclose will include, inter alia, the actual and potential impacts of climate change risks and opportunities and the processes for identifying, assessing, monitoring and managing these risks.
  • This Law is to be developed by a Royal Decree, which must be approved before 20 May 2023, following the public consultation carried out by the MINECO in October 2021 with the aim, among others, of specifying the content of the climate change and energy transition reports that entities must disclose.

Download the technical note by clicking here (only available in Spanish).