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23 March 2021updated 06 Nov 2021 7:31am

Can Italy marry clean energy and economic prosperity?

Former chief of the European Central Bank and newly appointed Prime Minister of Italy Mario Draghi insists tackling climate change is central to his country's economic growth, but Italy has a steep hill to climb to make the shift to a clean energy economy.

By Heather O'Brian

As the largest recipient of Next Generation EU funds, Italy has a unique opportunity to lay the groundwork for a post-Covid economic recovery that also supports the energy transition. The new government is currently finalising plans to spend the roughly €205bn ($244.44bn) in grants and loans earmarked for the country. At least 37% of this, or about €76bn, must benefit climate action.

While such ready cash is a good start, Italy has plenty of challenges to overcome if these funds are to genuinely put the country onto a more sustainable path. The hurdles include updating 2030 targets, avoiding financing projects that will lock in fossil fuels and tackling the sluggish authorisation of renewable energy projects.

cyclists-and-wind-turbines

Cyclists and wind turbines between Caltanissetta, Sicily, and Mount Etna during the 101st Giro d’Italia cycling race in May 2018. (Photo by Luk Benies / AFP via Getty Images)

Prime Minister Mario Draghi, former chief of the European Central Bank, whose government was sworn in on 13 February, has called for a “New Reconstruction” like the investment and job creation measures that led to Italy’s economic boom after the Second World War. Fighting climate change is now central to growth, he has stressed.

“Climate change, like the pandemic, penalises certain production sectors, without there being an expansion in other sectors that can compensate,” Draghi said, as he put his policy programme to Italy’s Senate. Economic policy’s answer to climate change and the pandemic should be a combination of “structural policies that facilitate innovation, of financial policies that facilitate access to capital and credit for companies […] and of expansionary fiscal policies that enable investments and create demand for new sustainable activities”, he said.

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“Italy is determined to transform the crisis into an opportunity, to guarantee that recovery measures address climate change while restoring growth and creating jobs,” said Roberto Cingolani, former scientific director at the Italian Technology Institute, after being appointed to lead Italy’s newly created ministry for the ecological transition.

The establishment of the ministry, which takes over responsibility for much of Italian energy policy as well as environmental issues, has generally been welcomed by climate campaigners. Yet Cingolani’s past comments on gas and renewables – calling gas “one of the lesser evils” and solar photovoltaics (PV) “expensive” in an interview last year with Italian oil and gas group Eni’s in-house magazine –  has led to some scepticism about his appointment.

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Poor track record

Italy’s track record on prioritising clean energy post-Covid-19 is poor. Data from Energy Policy Tracker shows that as of 17 March, Italy had committed at least $5.32bn to projects impacting energy and climate as part of recovery measures announced since the pandemic broke out last year. At least $4.24bn went to propping up fossil fuels, including $3.42bn to bail out Italy’s flagship carrier Alitalia, without any decarbonisation strings attached.

The national government also provided funds for discounts on the purchase of new gasoline and diesel vehicles with emissions of up to 135g of C02 a kilometre (g/km). This level is well above the latest EU target of 95g/km, although below the 145g/km limit set by the northern Italian region of Lombardy for cars that can be purchased with financial support.

At least $500.34m has been set aside to support green energy.  This includes $239.7m  for the purchase of bicycles and electric scooters, and funds for energy efficiency improvements in public buildings. Both the national and Lombardy governments have also provided discounts to encourage the purchase of electric and hybrid vehicles.

The most high-profile ‘green’ measure is the so-called SuperBonus, which allows a tax credit of 110% over five years for home energy efficiency improvements. Eligible renovations include the installation of new heating and cooling systems, building insulation, and solar PV systems and electric charging stations.

However, even projects that may contribute to reducing emissions do not appear to be part of a broader, long-term strategy. “Incentives for electric bikes are very nice but what is missing is the connection between these and a strategy for the decarbonisation of transport,” says Matteo Leonardi, director at energy and climate think tank ECCO. In his view, spending should be evaluated on the basis of whether a project is part of a wider strategy and makes sense from a cost-benefit perspective.

Updating targets

Evaluating whether Italy’s recovery and resilience plan – for which the previous Italian government released its latest draft on 12 January  – aligns with the country’s climate goals is complicated. “Even though we are about to make big investments, we don’t even know what our targets are for 2030,” says Edo Ronchi, president of Italy’s Sustainable Development Foundation and a former environment minister.   

To invest wisely, it is crucial Italy updates the targets in its 2030 national energy and climate plan in line with the European Commission’s pledge to cut emissions by 55% by 2030, compared with 1990 levels, and the objective of climate neutrality in 2050, Ronchi says. To hit these targets, Italy would need to source 65–70% of its electricity from renewable energy in 2030, up from 55% in its previous plan, he adds. Italy derived about 38% of its electricity from renewable sources in 2020. Targets for decarbonising transport, and heating and cooling would likewise have to be increased.

Lock-in risks

There is also a risk the recovery plan enables financing for projects that decarbonise, but too slowly to meet climate goals, warns Edoardo Zanchini, vice-president of environmental association Legambiente. Excluding fossil fuels from the recovery plan would be “a good first step” to mitigate this concern, says ECCO’s Leonardi.

An initial version of Italy’s recovery plan included funding for a massive carbon capture and storage (CCS) project proposed by Eni off the coast of Ravenna in northern Italy. While that project was subsequently abandoned, there are concerns it could be resuscitated, facilitating the continued use of fossil fuels, says Zanchini. 

Also ambiguous is the role assigned to hydrogen in Italy’s draft plan, which sets aside €2bn for green hydrogen, but also talks generically about hydrogen, without specifying whether it would be sourced from fossil fuels or renewables.

Even though we are about to make big investments, we don’t even know what our targets are for 2030. Edo Ronchi, Sustainable Development Foundation Italy

Italian energy regulator Arera has weighed in on the debate, arguing that devoting resources to industrial-scale green hydrogen projects over its six-year horizon could distract from the goal of using renewables to decarbonise Italy’s electricity system.  Instead it suggests “evaluating technological alternatives” to decarbonise the hydrogen sector, such as CCS, which it claims are “usable in the short term at lower costs”.   

The potential to lock in suboptimal investments can be seen even in measures like the SuperBonus incentive. Through the SuperBonus, Italy is the only European country where the government can, under certain conditions, subsidise the entire cost of a heat pump, says the European Environmental Bureau, a Brussels-based NGO – but the SuperBonus can also be used for gas boilers.

Francesco Ferrante, vice-president of the non-profit Kyoto Club, says it should be tightened to eliminate this option. He also believes funds allocated to the SuperBonus – €18.5bn in Italy’s latest plan – overestimate the net costs of the incentives needed.

The generosity of the 110% tax rebate reflects the complexity of accessing it, Zanchini says. “Since no one was using it, they just kept increasing the incentive rather than trying to solve the real problems,” he says. Applicants face a mass of bureaucracy. They have to submit a long list of administrative and technical documents, including energy certifications prior to and following renovation work. Cingolani has set up a task force for a “dramatic de-bureaucratisation” of the SuperBonus.

Private capital

Quantifiable targets, verifiable results and “precise indications of where [Italy wants] to be in 2030”, are key to ensure investments from the recovery plan make long-term sense, said Enrico Giovannini, Italy’s new transport minister, in his previous role as spokesman of the Italian Alliance for Sustainable Development.

Clear authorisation procedures are essential to attract private capital, he added. Some €19bn in subsidies that are detrimental for the environment, mainly through support for fossil fuels, must likewise be ditched, believes Giovannini.

The government is planning financial support for less mature renewable technologies like offshore wind and offshore solar PV in Italy’s recovery plan. Italy has no capacity in either technology, although a 30MW near-shore wind farm is being constructed off the coast of Taranto in the region of Apulia in southern Italy.

In 2020, Italy sourced 8.4% of its electricity from solar PV and 6.1% from onshore wind. These are expected to represent the lion’s share of new renewable capacity, although authorisation procedures need simplifying for their potential to be reached, says Ferrante.   

Dozens of government bodies are typically involved in the authorisation of commercial-scale renewables projects. Italian wind energy association Anev estimates it takes about five years to get a permit for a new wind farm, while renewable energy observatory OIR finds it can take 3–4 years to get a permit for a solar PV facility.

Regional governments, which hold primary responsibility for clearing renewables projects, have at times put hurdles in their way. In February 2021, the region of Calabria announced a temporary halt to new wind farm authorisations, for example, citing concerns about their impact on the landscape.

The slow authorisation of projects is impeding investments. At Italy’s last joint auction for wind and solar PV projects over 1MW in January 2021, just 259MW of wind and 20MW of solar – less than a quarter of the 1,161MW on offer – were assigned 20-year fixed-price tariffs. There was a lack of authorised projects and tender rules excluded ground-mounted solar projects on agricultural land.

Italian electricity trade association Elettricità Futura estimates about 6.5GW of renewable energy capacity needs to come online each year between now and 2030 to let Italy source 70% of its electricity from renewables and cut emissions by 55%, well above the roughly 1GW seen in recent years.

Doing so will be a challenge, but the trade association also highlights the benefits of stepping up ambition. It estimates about €100bn in investments in generation, storage, power grids and digitalisation will be mobilised, leading to the creation of 90,000 new jobs and 50 million tonnes in avoided C02 emissions for the electricity sector alone.

Related content:

Energy Monitor is running a special series of analyses of post-Covid climate and energy-related spend and policies, to determine whether countries really are building back better.

The data behind this series is based on Energy Monitor’s interpretation of work done by Energy Policy Tracker. This tracks public money commitments and policies that could impact a green recovery post-Covid-19. Policies are assigned on the criteria of which energy technology they benefit and whether they have environmental strings attached. While the original source had five categories, we have opted to distinguish solely between whether a measure benefits fossil fuels or clean energy (or nuclear power).

The measures are very different in nature and include countries’ Covid-19 recovery strategies, national climate policies and bailout measures for companies. We brand the whole package of measures as Covid-19-related government policy responses from an energy and climate perspective.

Our measurement of a country’s performance may not be fully complete as certain measures, such as tax incentives or new taxes, may not be included in our methodology.

The data covers the period from March 2020 to 10 February 2021.

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