Abstract
Given the almost complete energy dependency and the consequently high sensitiveness to energy security in Italy, energy efficiency and a significant renewable share in the national energy mix are key goals of energy policy. Although the energy intensity of the Italian economy is among the lowest in western countries, there is room for further improvements pursuing economic growth without increasing the energy use (decoupling). Indeed the high Italian energy efficiency has been stimulated by import dependence and relatively high energy prices, because the economic system proved to be very reactive to selective price incentives towards energy products. Notwithstanding these premises, the general coherence and efficacy of the current framework—a bundle of excise taxes, direct subsidies, feed-in tariffs and tax expenditure together with the launch of an auction-based ETS phase—is highly questionable. Therefore, a progressive evolution of support mechanisms for renewable and energy efficiency to a more cost-effective and market-based system is strongly encouraged. This chapter outlines the current complex incentive system, highlighting incoherencies and successes, and discusses a proposal for a general reform that includes, in accordance with the European Commission proposal, a carbon taxation.
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Notes
- 1.
Since 2011, 3 out of 15 refineries have been shut down in Italy. In 2014, the available refining capacity was around 91 million tons, with a drop of 15 % compared to 2011.
- 2.
The graph shows the contribution of different fuels to total energy import dependency. The sum of the relative shares of the net imports of the total demand represents the total import dependency.
- 3.
The country-specific supplier concentration index is computed as the sum of the squares of the ratio between the net positive imports from a partner and the gross inland consumption in the importing country (EC Staff 2014). The index takes values between 0 (no imports) and 100 (the entire supply of a fuel comes from a single supplier).
- 4.
Data are from the Italian electricity budget (2013). See Terna (2013).
- 5.
Moreover, several issues related to its measurement may arise. See Bhattacharyya (2011), Chap. 3.
- 6.
See the website http://www.odyssee-mure.eu/.
- 7.
For instance for households kWh/appliance, koe/m2, toe/dwelling; for transport: toe/passenger for air transport, goe/passenger -km for rail, goe/t-km for the transport of goods by rail and water, toe per vehicle for motorcycles and buses. For the index specification of other sectors, see www.odyssee-mure.eu
- 8.
See Young et al. (2014).
- 9.
Article 5 of this directive establishes that the heating, lighting and thermal insulation of at least 3 % of total public buildings must be upgraded every year.
- 10.
This increase is due to a growth in wind (+11 %), photovoltaic (+14.5 %), hydroelectric (+25 %) and biomass and waste (+36.9 %) electricity production.
- 11.
The lowest bracket with very low consumption volumes covers second-home owners. This explains the higher unit price both in the EU and in Italy.
- 12.
According to the Italian Energy Balance (2013) published by the Ministry of Economic Development, the most important energy inputs for industrial firms are natural gas (43 % of total energy consumption), electricity (33 %), and oil and oil products (13 %). See http://dgerm.sviluppoeconomico.gov.it/dgerm/ben.asp.
- 13.
Bardazzi et al. (2015) estimate own and cross-price elasticities for energy sources for Italian manufacturing firms. The estimated parameters are lower for the two main energy inputs (−0.46 for electricity and −0.82 for natural gas) than for diesel (−0.90) and fuel oil (−1.44).
- 14.
On the characteristics of energy and environmental instruments, see Perman et al. (2013).
- 15.
Moreover, the low demand elasticity of energy products minimizes the excess burden and makes this policy instrument consistent with the so-called Ramsey rule for optimal commodity taxation.
- 16.
Earmarking conflicts with the principle of universality in public budgeting (total revenue in the budget must cover total expenditure). However, part of the economic literature stresses that earmarking enhances the public acceptability of taxes, and in particular of environmental taxes. On this topic, see OECD (2012) and Kallbekken and Sælen (2011).
- 17.
For a discussion of energy security and market failures, see Goldthau (2011).
- 18.
The IEA data, used by the OECD to compute effective tax rates, collect all kinds of transportation under Transport Use, thus also including household energy use for private transport. Residential and commercial uses are therefore mainly energy use for heating purposes.
- 19.
For an appraisal of the effect of the full reform on the competitiveness of manufacturing firms, see Bardazzi et al. (2004).
- 20.
In the 2009 and 2013 G20 summits, a resolution to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption” was agreed.
- 21.
See the IEA, OECD and World Bank report prepared for the 2010 G20, and OECD (2013a, b). Although difficult to estimate, other aspects such as the limitation of civil liability for nuclear accidents or a lack of measures aimed at internalizing external costs caused by producers should be taken into account.
- 22.
Using “General government expenditure by function”, the entries ‘Subsidies’ (D.3) and ‘Capital Transfers’ (D.9) have been employed to estimate direct financial transfers from general government, while the entries ‘Intermediate Consumption’ (P.2), ‘Gross Capital Formation’ (P.5) and ‘Compensation of Employees’ (D.1) have been utilized to estimate appropriations by general government to undertake energy-related services. For each of the entries above, only the (second level) entry ‘Fuel and energy’ (04.3) under Economic Affairs (04) has been taken into account. R&D expenditure comes from the dataset “Government Budget Appropriations or Outlays on R&D” (gba_nabsfin07), entry ‘Energy’ (05) in NABS (Nomenclature for the Analysis and Comparison of Scientific programmes and Budget).
- 23.
This item, appearing in the general government public budget but not in the central government budget, is the cost paid by electricity consumers to finance renewable subsidies. See Sect. 3.3 below.
- 24.
For a summary of the international organization estimates, see Overseas Development Institute (2013).
- 25.
In recent years, relevant fossil fuel tax expenditure reforms have been realized in Indonesia, Malaysia and Iran.
- 26.
More than 17,000 farmers registered renewable equipment in 2010, and around 3000 agricultural firms declared income from solar energy production. See the Istat Agricultural Census at www.istat.it.
- 27.
The ETS sector includes power and heat generation, combustion plants, oil refineries, coke ovens, iron and steel plants, cement, glass, lime, bricks and ceramics.
- 28.
Although theoretically there is no difference between allocation by auction or grandfathering (provided that no market imperfections exist), they have different impacts on the budget: grandfathering of permits represents a transfer from society to polluters (foregone revenues), whereas auctioning represents revenue paid by polluters to society.
- 29.
The EU commission is preparing a structural reform to improve the effectiveness of the market. A market stability reserve and a limitation on the use of international offsetting credits are the key elements of the proposed reform. See “Proposal for Decision Of The European Parliament and of The Council concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and amending Directive 2003/87/EC”, COM(2014) 20/2.
- 30.
The Italian government has declared that 50 % of this sum will be used for climate- and energy-related purposes, as set by the EU regulation.
- 31.
These contracts typically last between 15 and 20 years.
- 32.
In addition to FITs, there are also other mechanisms through which renewable energy sources are supported, for example, renewable energy certificates (Green Certificates), and other similar support schemes.
- 33.
In addition, a “priority access” to the power grid is generally granted to renewable electricity generators. This clause obviously imposes costs on some segments of the energy sector while conferring benefits on others.
- 34.
“CIP 6/92”, Green Certificates, “Conto Energia” (with five different sub-regimes) and “Tariffa Onnicomprensiva” are the main support schemes that came in one after the other.
- 35.
Between 2000 and 2013 electricity power generation by RES more than doubled (from 50,990 to 112,008 GWh). 35 % of this increase is from solar installations.
- 36.
A representative residential user is currently paying more than 20 % of the electricity price per Kwh to finance the A3 component. See Pazienza and Verde (2013) for further details.
- 37.
PV producers, which were granted incentives for a period of 20 years under the “Conto Energia” mechanism, now have to choose between three options that in any case result in a cut in the previously guaranteed FIT. See decree law 91/2014.
- 38.
The RES share of electricity consumption for 2013 is much higher than the level set by the National Action Plan for both 2013 and 2020. See GSE (2015) for further details.
- 39.
For a discussion of the US shale gas revolution, see Meade and Faiella Di Nino in this volume.
- 40.
The growing supply of LNG from the Middle East area pushes the natural gas price down as a result of increased competition, especially in those countries where regasification infrastructure is available.
- 41.
The National Energy Strategy was first sketched by the Prodi government, then formulated under the Berlusconi government, and finalized by the Monti government in March 2013. The Renzi government confirmed the Strategy in 2014.
- 42.
This renewed opening towards fossil fuel extraction has also been challenged from environmental and landscape conservation perspectives. Several regions have gone to the Constitutional Court over the government decree.
- 43.
The Commission proposal, launched in 2011, is still under discussion because of strong resistance from some member countries.
- 44.
As discussed in the previous paragraphs, the gas-electricity price differential has determined an important shift from electricity to gas use in industrial processes.
- 45.
This abrupt growth in the supply of renewable cannot show all the potential benefits because of the inadequacy of the Italian transmission network in absorbing this kind of supply. As discussed in Sect. 3.3, the incentive scheme led to high profits for renewable producers and a high burden on electricity consumers, both households and firms, thus forcing the Italian government to stop the programme.
- 46.
The need for an energy tax reorganization has also been identified by the OECD (2015).
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Bardazzi, R., Pazienza, M.G. (2016). Public Policies and the Energy Mix in Italy: Where Do We Stand?. In: Bardazzi, R., Pazienza, M., Tonini, A. (eds) European Energy and Climate Security. Lecture Notes in Energy, vol 31. Springer, Cham. https://doi.org/10.1007/978-3-319-21302-6_12
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