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Spain Environmental Export Market Plan
Chapter 5


General Overview

As in all other areas of environmental protection, EU legislation sets the standards in the field of air quality to be followed by Spain. Because air quality transcends national borders, there is a long history of European efforts to reduce air pollution. These efforts have concentrated on defining and setting standards of air quality and the enactment of controls for vehicle and industrial emissions. Following a pattern that is evident in other areas of pollution control, the EU has directed its efforts at controlling and preventing pollution at its source.

Air quality in Spain is improving, but there is still much to be done. Per capita and per GDP emissions of sulfur dioxide (CO 2 ) in Spain are higher than the average for the European countries of the Organization for Economic Cooperations and Development (OECD). After Germany and the United Kingdom, Spain is the third largest air polluter. The OECD considers Spain's performance in applying the best available technology to reduce emissions as insufficient.

Municipal power plants burning high-sulfur coal generate about 62 percent of the sulfur dioxide (SO 2 ) emissions. Industry produces another 26 percent of SO 2 emissions. Road vehicles create about 57 percent of the carbon monoxide (CO) pollutants and stationary sources emit the remaining 43 percent. Per capita CO 2 emissions are 25 percent lower than the OECD Europe average. As in other environmental areas, Spain has adopted EU guide values for air pollutants. The national government and regional governments share responsibility to meet EU standards; they are taking some steps to comply with
EU requirements.

Spain produces low-quality high-sulfur coal in the Asturias region. The mines are, in part, inefficient and only survive through government subsidies. Low-sulfur coal imports and gas imports from North Africa are part of the solution to the emissions problem. There is a market for technology to address this problem. For example, in many parts of Spain, new wind energy farms are under development, partly with EU subsidies. American companies have made sales of wind energy technology in Spain, but the competition is very strong from European and local manufacturers.

The 1991 National Energy Plan called for the reduction of emissions of CO 2 by substituting gas for oil and coal, and by the increased use of renewable energy. In the future, Spain is expected to import nuclear energy from France and to increase investment in hydroelectric energy and wider use of natural gas and wind energy.

Vehicle Emissions

The EU is currently discussing the question of controls on auto emissions for member states. Since 1992, the Council of EU Environmental Ministers has been studying various measures likely to reduce pollutant emissions from road vehicles by 2010. Under the United Nations Framework Convention on Climate Change (FCCC), the EU is committed to implementing measures to stabilize greenhouse gas emissions by the year 2000, and to limiting and reducing these emissions beyond the year 2000.

The European Petroleum Industry Association (EUROPIA) and the European Automobile Manufacturers Association (ACEA) want to shift the burden. The auto manufacturers would like to focus on adopting new fuels. However, the petroleum industry would like to put the burden on the vehicle manufacturers. It wants the manufacturers to use onboard diagnostic equipment and advanced catalytic converters. About 20 percent of the private car fleet in Spain had catalytic converters in 1995. The vehicle manufacturers support the concept of introducing reformulated fuels, but the refiners believe that they would be forced to invest as much as $10 billion to market fuels that would have less sulfur, benzene, aromatics, and lead. The vehicle manufacturers want the advanced fuels to help them reduce tailgate emissions.

American companies stand to gain from this debate and the eventual adoption of tighter regulations. Arco Chemicals, a unit of Atlantic Richfield Company, has introduced an oxygenated fuel in some European countries and is trying to convince the EU to adopt its technology. In the debate, the California standards (which are the strictest in the world) are often cited. Americans have the recognized lead in technology for the petroleum industry, and American vehicle manufacturers and part suppliers have the competitive edge because they developed technology to meet stricter American legislation.

For air emissions inspection, Spain applies the EU directives concerning vehicle exhaust and noise. Some cities, including Madrid, Barcelona, and Bilbao, have introduced an additional air emissions inspection for cars (i.e., CO and CO 2 ).

As was mentioned in the section on the Spanish economy, Spain produces a wide variety of vehicles, from automobiles to trucks and buses. In 1996, Spain had a record year in the manufacture of cars, which constitute Spain's top export. Several American, European (including subsidiaries of Seat, Opel (General Motors), Volkswagen, Ford, Renault, and CitroŽn), and Spanish companies manufacture auto parts for use by local industry and for export. Some auto parts are also imported. These firms’ products have to meet EU environmental directives and Spanish environmental legislation. In this regard, any changes in European standards on emissions will force manufacturers to consider the use of new technologies, and perhaps create important opportunities for American suppliers who have had to develop technology to meet stricter U.S. and California legislation.

Industrial Air Pollution

Major fuel burning installations, particularly those that use low-quality high-sulfur coal, are the largest air polluters in Spain. Electric utilities are among the worse polluters, followed by the cement, iron, and steel industries. In the case of the 14 electric utilities operating in Spain, the Spanish Government has slowly divested itself of their ownership over the past 20 years. Many of them are now in the hands of private shareholders. ENDESA, the largest Spanish utility, was partially privatized through the sale of stock in 1996; it is expected to be completely privatized in this year.

Electric utilities in Spain are large, sophisticated and are capitalized sufficiently to invest in plant upgrading, diversify into other areas (including environmental services), and expand internationally. ENDESA, for example, purchased the Chilean electric utility from the Chilean Government in 1997, which created the largest European electric utility and a key player in the Latin American market. ENDESA is traded on the New York Stock Exchange and has many American shareholders. Selling to the electric utilities which have been privatized in Spain is less complex than when they were government monopolies and standard government procurement practices applied.

The total size of the electric market in Spain is estimated at about $1.7 billion per year, but this figure does not include the purchase of new plants. Spain has installed substantial electricity generating overcapacity, almost equal to twice the energy consumption during peak demand. Thus, most of the market represents maintenance and upgrade of existing plants. Some of these upgrades are related to improving emission controls. But, there is no specific breakdown that shows investment in environmental emission controls from coal-fired plants. The OECD reported in its environmental performance review of Spain, that coal was the leading fuel for power generation in 1994, accounting for 39 percent of the electricity supply.

The electric sector is managed and operated by the Red Electrica de EspaŮa, a former state-owned company that was privatized in 1983. ENDESA accounts for 31 percent of the sector's production; IBERDROLA, another large utility, produces about 28 percent; and Hidrocantabrico approximately 6 percent. However, these last two companies operate a substantial amount of hydroelectric generation. About 9 percent of electric production is generated by the large vehicle manufacturing plants, mainly from cogeneration. The remaining production (26 percent) is shared between 10 other companies.

Electric utilities are allowed to charge Spanish consumers a surcharge as compensation for the cost of purchasing domestic coal above the international market price and operating obsolete plants built over the years to support the political position to keep coal mines opened. This political consideration affects the market for environmental technologies to reduce air pollution from industrial plants. The surcharge is also used to pay the cost of the nuclear moratorium. The subsidy received by the coal mines will be phased out by 2005, although this is a very thorny issue.

In recent years, the large Spanish utilities have expanded their area of activity to other types of investments, often tied to privatizations of state-owned companies. Together with several banks, including Banco Bilbao Viscaya (BBV), Banco Santander, La Caixa, and BHI, they are the new owners of substantial portions of regional water resources, telecommunications companies, and oil industry and important environmental projects. These companies are also active outside of Spain, namely in Latin America and North Africa. Thus, they are both clients and strong potential competitors for American companies seeking contracts in major projects in the environmental sector in Spain. Together with several large Spanish construction companies, they have picked up many contracts with revenue of as much as $3 billion per year for municipal waste collection, treatment, and disposal in sanitary landfills.

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