Background

Italy is a founding member state of the EU. It has over 61 million inhabitants (2014 figure) and is the fourth-largest economy in the EU with a GDP in PPP of USD 2.14 trillion in 2014. The service sector accounts for 81 per cent of Italy’s GDP, industry and agriculture represent 17.3 per cent and 1.7 per cent respectively of the country’s GDP (OECD, 2013c; World Bank Data). Oil and natural gas account for over 70 per cent of Italy’s total primary energy supply, and the country is thus heavily dependent on imports of fossil fuels (IEA, 2014). Electricity production from renewable energy sources, mainly driven by hydropower and photovoltaic, has increased dramatically in recent years and accounted for 37 per cent of total domestic electricity production in 2014 (GSE, 2015b). Although GHG emissions per capita decreased from 9.2 to 8.1 C02-equivalent metric tonnes from 1990 to 2011 (EEA Data), more than half of the 30 most polluted cities in Europe are located in Italy (OECD, 2013b). Water stress is a key environmental challenge in Italy due to high extraction and high concentrations of phosphorus and nitrates. Italy is among the leaders in industrial recycling in the EU having recovered 25 million tonnes of industrial material (equivalent to 55 million tonnes of CO2) in 2008-14 (Symbola, 2015), and the share of municipal waste treated in landfills fell from about 75 per cent in 2001 to less than 50 per cent in 2011 (EEA, 2013). Italy’s protected marine and terrestrial areas cover about 10.5 per cent of the total land area (OECD, 2013b).

Overall Fiscal Profile

Italy was significantly affected by the 2007-2008 global economic crisis, with GDP falling by 6.8 per cent in 2008-09. Despite a slow return to pre-crisis levels in 2010-11, the country’s GDP decreased by 2.8 per cent in 2012 with the unravelling of the EU debt crisis. In 2013 and 2014, Italy’s GDP declined by 1.7 per cent and 0.4 per cent respectively. Against this backdrop and as a means to address the country’s high level of public debt, a series of austerity measures in the Salva Italia (“Save Italy”) Decree were implemented in 2011 which aimed to reduce public spending and generate higher tax revenues. The measures helped to reduce the public deficit in line with EU limits to 3.0 per cent of GDP in 2014. Italy’s GDP is expected to grow by 0.9 per cent in 2015 mainly through private consumption driven by high household savings and increased purchasing power due to lower inflation. The depreciation of the Euro is also expected to favour Italy’s exports and the country’s GDP is projected to increase by 1.6 per cent in 2016 (EC Data; ISTAT, 2015). However, the unemployment rate increased from 8.4 per cent in 2011 to 12.7 per cent in 2014 with significant regional differences (ISTAT Data).

Policy and Legal Framework for a Green Economy

Italy has a well-established approach to sustainable development. The national Strategy for Sustainable Development (Strategia d’Azione Ambientale per lo Sviluppo Sostenibile in Italia) was launched in 2002, identifying four key areas of intervention: climate, nature and biodiversity, environmental quality and urban life quality, sustainable management of resources and waste. The Strategy set a series of environmental indicators, supported integration of the environment in the policy-making process, accounting for environmental quality alongside traditional measurements of national wealth, and enhanced public participation in the environmental arena (see Ministero Ambiente, 2002).

As an EU member state, Italy has implemented the EU’s environmental acquis and adopted environmental objectives and related measures in various areas. The EU Emission Trading System (EU ETS) covers around 21 per cent of the country’s total GHG emissions – which is a relatively low share compared to other EU economies (e.g. around 51 per cent in Germany) (EEA Data). Thus, in order to achieve Italy’s GHG emission reduction target of -18 per cent by 2020 relative to 2005 levels, significant efforts are needed in non-ETS sectors. A number of measures are already in place in non-ETS sectors. For example, Legislative Decree 311/2006 requires new buildings and existing buildings subject to renovation to respect a set of obligations which can support energy savings (e.g. insulation, shading devices) and the deployment of renewable energy sources (e.g. solar thermal systems to be used for at least 50 per cent of hot water demand in the buildings). In the transport sector, the National Strategic Framework 2007-13 identified a range of measures to discourage private road transport in favour of public road transport, support a shift in the transportation of goods from the road to the sea, and improve urban road circulation. In this regard, a Fund for sustainable mobility (Fondo per la Mobilità Sostenible) allocated about EUR 200 million to 192 projects in metropolitan areas and other communities to reinforce public transport and car sharing, improve traffic management etc. (Ecological Institute & Eclareon, 2014). The shift to more efficient private road transport is supported by an emission standard for new cars of 120 g CO2/km for 2015 and 95 g CO2/km for 2020 in line with EU targets (Ministero Ambiente, 2013).

In 2010, Italy adopted its National Action Plan for Renewable Energy which defines tools and incentives to achieve the target of a 17 per cent share of renewable energy in the total energy mix by 2020 (Ministero Ambiente, 2013). In 2013, Italy launched its National Energy Strategy (Strategia Energetica Nazionale) which set more ambitious domestic objectives to reduce GHG emissions by 21 per cent by 2020 relative to 2005 levels and aimed to generate investments in green economy sectors of EUR 180 billion by 2020 supported by a series of incentives (see Ministero Sviluppo Economico, 2013). The National Action Plan for Energy Efficiency launched in 2011 has led to the adoption of several measures to promote energy efficiency. For example, the market for energy efficiency certificates was refined through the Certificati Bianchi Decree in 2012 and sets an energy saving target for gas/electricity distributors according to their national market quota. Another measure is the Fondo Rotativo di Kyoto which aims to support the deployment of small, high-efficiency systems for electricity production, heating and cooling; promote innovative technologies in the energy sector, and sustainable forest management (Ecological Institute & Eclareon, 2014; Ministero Ambiente 2013).

Fiscal Measures for a Green Economy

In 1999 a carbon tax on solid fuels (EUR 0.516 per tonne equivalent to EUR 0.208 per tonne of CO2 emitted) was introduced in response to GHG emission reductions envisaged under the Kyoto Protocol. However, the tax was suspended due to increasing oil prices in 2001 (Banca d’Italia, 2013). Further discussions on environmental tax reform driven by fiscal consolidation needs and the decision to definitively phase out nuclear energy following a public referendum led the Italian government to propose several environmental-related taxes and incentives.

  • In 2011, the approval of the budget package ‘Salva Italia’, included an increase of excise taxes on motor fuels from January 2012 (Article 23, Decree Law 98/2011), a new tax on high-powered vehicles and boats, a revised tax on municipal waste (TARES) from 1 January 2013 (Article 14, Decree Law 201/2011) and incentives for photovoltaic energy (Decree Law, 5 July 2012) and non-photovoltaic renewable energy (Decree Law, 6 July 2012) (IEEP, 2014b).
  • Further fiscal measures were introduced in 2012 including increased excise duties on motor fuels (diesel, in particular), the removal of some incentives for company cars and a proposal for a carbon tax on energy products in non-ETS sectors which was to come into effect with the adoption of the amended EU energy taxation Directive (IEEP, 2014b).
  • In 2013, Italy’s CIPE (Comitato Interministeriale per la Programmazione Economica) approved a resolution with a plan to revise existing energy taxes applied to fuels used in industrial, civil and transport sectors (Ministero Ambiente, 2013).
  • Article 15 of the Fiscal Delegation Law (Delega Fiscale) approved in 2014 identified the review of excise taxes on energy products and electricity as a main priority and proposed that associated revenues would be used to decrease income and labour taxes, finance low-carbon technologies, and revise subsidies to renewable energy sources.
  • Following a parliamentary question highlighting the lack of enforcement of Article 15 of the Delega Fiscale, in September 2015 Italy’s Minister for the environment announced that an informal working committee would be established to support environmental fiscal reform through a “Green Act” (Camera Deputati, 2015).

In the energy sector, energy taxes in Italy are among the highest in the EU, with an average tax rate on energy of EUR 211 per tonne of oil equivalent (2011 figure) (Ecological Institute & Eclareon, 2014). However, the excise duty on fuel varies widely across different types of fuel and is characterized by several duty exemptions such as reduced rates on liquefied petroleum gas used for heating in mountainous areas and reduced rates on electricity for energy intensive businesses (OECD, 2013c).

Renewable energy is supported through a range of fiscal incentives. For example, the Conto Energia provided incentives over a 20-year period to support photovoltaic installations connected to the national energy grid amounting to EUR 6.7 million on average annually in 2006-13 (GSE, 2015a). A scheme of “Green Certificates” (Certificati Verdi – CV) were introduced in 2012 and allocated to energy producers in proportion to the energy produced from renewable energy and/or cogeneration and according to the energy source employed. The market demand for CV relies on the obligation on conventional energy producers and importers to achieve a pre-determined quota of electricity from renewables (2.52 per cent in 2014) in the national electricity network. CV can also be collected by the state-owned energy services operator (Gestore Nazionale dei Servizi Energetici – GSE) in the form of fiscal transfers to suppliers, which amounted to EUR 3.2 billion in 2014 (GSE, 2015a). Under the Scambio sul Posto (SPP) scheme, plants sourced by renewable energy and cogeneration plants with a power lower than 500 kW can obtain a refund relative to electricity consumption expenditure and based on the amount of electricity fed into the grid (GSE, 2015b). Fiscal support to the purchase of biomass stoves and heaters is provided through direct fiscal transfers in the framework of the Conto Termico, which aims to support the diffusion of thermal energy from renewable sources especially in the civil sector.

In the transport sector, a registration tax (IPT – Imposta Provinciale di Trascrizione) is applied to both new and second-hand cars based on engine capacity. The national registration tax rate of EUR150 can be increased by up to 30 per cent depending on the region and province (Ecological Institute & Eclareon, 2014). The circulation tax for passenger cars is based on the engine capacity and EURO emission standards. The tax is set at the regional level and ranges from EUR 2.58/kW to EUR 4.95/kW (Eunomia et al., 2014). Vehicle taxes thus do not take into account carbon emissions, however for vehicles below 120g CO2/km as well as for gas and LPG-powered vehicles there is a reduction in the applied rate (Eunomia et al., 2014). Overall, Italy’s average emissions for newly registered cars are among the lowest in the EU (126.2 CO2/km) (Ecological Institute & Eclareon, 2014).A distance-based road charge is applied on some parts of the national road network. The purchase of cars powered by natural gas, electricity and hybrid engines is supported through lump sum transfers set according to the CO2 emission levels of the cars, and vary between EUR 3,000 and 5,000 for different cars. Support through the scheme amounted to EUR 120 million between 2013 and 2015 (Ecological Institute & Eclareon, 2014).

Fuel suppliers are required to produce a minimum amount of biofuels set according to the energy content of gasoline and diesel produced in the previous year. In 2014, fuel suppliers were required to produce biofuels with an energy content of at least 4.5 per cent of the energy content of gasoline and diesel produced in 2013). A certification scheme (Certificati di Immisione al Consumo) for biofuels provides suppliers of biofuels with entitlements that can be exchanged among producers. In order to cover part of the costs associated with the scheme, suppliers are charged a tariff based on energy content of biofuels provided for consumption (GSE, 2015a).

In relation to air pollution, a tax of EUR 50 per tonne is applied to sulphur dioxide emissions. This rate is significantly lower than other EU Member States (IEEP, 2014). In Milan, a congestion charge (Area C) was introduced in 2012 which applies a fixed EUR 5 charge to every vehicle accessing the city centre regardless of its pollution level. Revenues from the charge are reinvested in sustainable mobility and pollution control measures (Ecological Institute & Eclareon, 2014).

In the water sector, Italy applies a water consumption tax (Imposta Sul Consumo d’Acqua) to households, business, agriculture and hydropower, which is administered by the regions as a surtax on water tariffs. However, tax rates have not been updated overtime and have been eroded by inflation, thus it has been estimated that the water tax burden hardly exceeds 1 cent/m3 (Eunomia et al., 2014).

In the waste sector, in the framework of the Salva Italia package, Italy revised its tax on municipal waste (TARI) in 2013 to cover the costs of waste collection and disposal. The disposal of waste in landfills is subject to the so-called “eco-tax” (Deposito in Discarica dei Rifiuti Solidi), a pay-as-you-throw scheme managed at the regional level. The rate is determined according to both the amount and nature of waste, and 18 per cent of the revenue generated should be channelled to regional funds supporting waste recovery and recycling and the restoration of contaminated sites (Diritto.it, 2013).

The recently approved Environmental Bill (“Collegato Ambientale”) connected to the Stability Law 2014 requested the government to introduce a scheme of payments for ecosystem and environmental services, which should cover carbon storage in forests, water extraction, protection of biodiversity and landscape and the use of state property for energy production. Beneficiaries of the scheme should be municipalities (Comuni), protected areas and organizations representing mountain and basin communities (Minambiente).

Fossil Fuel Subsidy Reform

Italy’s dependence on fossil fuels and lack of major domestic reserves have historically led the government to use various incentive regimes to keep energy prices low and stimulate fossil fuel exploration and development. According to a recent report published by ODI & Oil Change International (2015), Italy channelled an annual average of USD 1.2 billion (approximately EUR 930 million) towards the production of fossil fuels in 2013 and 2014. Incentives include excise tax reductions for electricity production from fossil fuels on small islands, royalty reliefs and reductions for several types of fossil fuel production, VAT deductions for some forms of electricity production from fossil fuels, and support to an offshore regasification plant in the Tyrrhenian Sea (ODI & Oil Change International, 2015). According to a recent bulletin published by Legambiente (2015), Italy’s overall support to fossil fuels amounts to an annual average of EUR 14.65 million in 2010-15, including several subsidies and tax deductions in the transport sector, funding for drilling and extensive investments in road transport.

Between 2008 and 2010, fossil fuel consumption subsidies amounted to an annual average of EUR 1.54 billion (OECD, 2011). Regarding petroleum, consumption subsidies are in the form of a fuel tax exemption for shipping, a fuel tax reduction for rail transport, energy tax breaks in the agricultural sector, tax reliefs for public transport, ambulances, trucking companies and users living in disadvantaged areas. Concerning natural gas, a tax relief is provided to industrial users of natural gas. In 2010, by using revenue generated by the increase from 7 to 10 per cent of the tax rate applied for onshore oil and gas production, Italy established the Fondo Riduzione Prezzo Carburanti, a special fund aimed at reducing the final pump price of fuels in Basilicata, a region with relatively significant oil and gas reserves but considered as disadvantaged. Between 2010 and 2013, around EUR 266 million was collected in this fund and transferred to Basilicata’s residents through a special credit card (Carta Bonus Idrocarburi) which could be used for the purchase of transport fuels. The subsidy distribution scheme was suspended in 2014 and it is currently being reviewed (EC, 2014; Unmig, 2014).

This support for fossil fuels led the European Commission to recommend that Italy eliminate various environmentally harmful subsidies (EHS) (Gazzetta Ufficiale dell’Unione Europea, 2015). In this regard, the above-mentioned Environmental Bill (“Collegato Ambientale”) connected to the Stability Law 2014 required the Italian government to establish a catalogue of EHS and environmentally friendly subsidies in order to gather data on incentives, fiscal deductions and tax exemptions affecting environmental protection.

References and additional reading

Banca d’Italia (2013). Questioni di Economia e Finanza (Occasional papers) Numero 206 – Ottobre 2013. La Tassazione “Verde” in Italia: l’Analisi di una Carbon Tax sui Trasporti. Federico Cingano e Ivan Faiella. https://www.bancaditalia.it/pubblicazioni/qef/2013-0206/QEF_206.pdf

Ecologic Institute & Eclareon (2014), http://ec.europa.eu/clima/policies/strategies/progress/reporting/docs/it_2014_en.pdf

EC (2014). Enhancing Comparability of Data on Estimated Budgetary Support and Tax Expenditures for Fossil Fuels – Final Report. European Commission. http://ec.europa.eu/environment/enveco/taxation/pdf/201412ffs_final_report.pdf

EEA (2013). EEA Report No 2/2013. Managing municipal solid waste — a review of achievements in 32 European countries. European Environment Agency, http://www.eea.europa.eu/publications/managing-municipal-solid-waste/download

ENEA (2011). Politiche e Misure Nazionali sui Cambiamenti Climatici – Elementi per Una Valutazione. Agenzia Nazionale per le Nuove Tecnologie, L’Energia e lo Sviluppo Economico Sostenibile. http://www.enea.it/it/pubblicazioni/pdf-volumi/v2011-05-politicheclima.pdf

Eunomia and Aarhus University (2014), Study on Environmental Fiscal Reform Potential in 12 Member States, No 07.0307/ETU/2013/SI2.664058/ENV.D.2, Final Report to DG Environment of the European Commission,  http://ec.europa.eu/environment/integration/green_semester/pdf/EFR-Final%20Report.pdf

Gazzetta Ufficiale dell’Unione Europea (2015). RACCOMANDAZIONE DEL CONSIGLIO del 14 luglio 2015

sul programma nazionale di riforma 2015 dell’Italia e che formula un parere del Consiglio sul programma di stabilità 2015 dell’Italia (2015/C 272/16). http://ec.europa.eu/europe2020/pdf/csr2015/csr2015_council_italy_it.pdf

GSE (2015a). Rapporto Attività 2014. Gestore dei Servizi Energetici. http://www.gse.it/it/salastampa/GSE_Documenti/Rapporto_Attivita_2014_R%20web.pdf

GSE (2015b). Rapporto Statistico Energia da Fonti Rinnovabili – Anno 2014. Gestore dei Servizi Energetici. http://www.gse.it/it/Statistiche/RapportiStatistici/Pagine/default.aspx

IEA (2014). Energy Supply Security 2014 – Chapter 4: Emergency Response Systems of Individual IEA Countries – Italy. International Energy Agency. https://www.iea.org/media/freepublications/security/EnergySupplySecurity2014_Italy.pdf

IEEP (2013). Evaluation Of Environmental Tax Reforms: International Experiences. Institute for European Environmental Policy. http://www.efv.admin.ch/e/downloads/finanzpolitik_grundlagen/els/IEEP_2013_e.pdf

IEEP (2014a). Environmental Tax Reform in Europe: Opportunities for the future. Institute for European Environmental Policy. http://www.ieep.eu/assets/1397/ETR_in_Europe_-_Final_report_of_IEEP_study_-_30_May_2014.pdf

IEEP (2014b). Environmental Tax Reform in Europe: Opportunities for the Future – Annexes to Final Report. Institute for European Environmental Policy. http://ieep.eu/assets/1398/ETR_in_Europe_-_Annex_2_3_4.pdf

ISTAT (2015). L’Evoluzione dell’Economia Italiana: Aspetti Macroeconomici. Istituto Nazionale di Statistica, http://www.istat.it/it/files/2015/05/CAP-1-Rapporto-Annuale-2015.pdf

Legambiente (2015). 14, 7 Miliardi di Euro ogni Anno in Italia per Incentivare le Fonti Fossili. Legambiente Presenta Tutti i Numeri degli Aiuti ai Combustibili Fossili in Italia e nel Mondo. 4 Dicembre 2015 Ufficio Stampa Legambiente, http://www.legambiente.it/contenuti/comunicati/147-miliardi-di-euro-ogni-anno-italia-incentivare-le-fonti-fossili-legambiente-

Ministero Ambiente (2002). Strategia d’Azione Ambientale per lo Sviluppo Sostenibile in Italia. Ministero dell’Ambiente e della Tutela del Territorio. http://www.arpa.veneto.it/servizi-ambientali/acquisti-pubblici-verdi-gpp/file-e-allegati/Strategia_CIPE_2002.pdf

Ministero Ambiente (2013). Italy Climate Policy Progress Report. Ministero dell’Ambiente e della Tutela del Territorio. http://groupware.sinanet.isprambiente.it/reportnet/library/projected_emissions/delivery-2013/it_2013-italy-climate-policy-progress-report/download/1/IT_2013%20Italy%20Climate%20Policy%20Progress%20Report.pdf

Ministero Sviluppo Economico (2013). Strategia Energetica Nazionale: per un’Energia più Competitiva e Sostenibile. Ministero dello Sviluppo Economico. http://www.sviluppoeconomico.gov.it/images/stories/normativa/20130314_Strategia_Energetica_Nazionale.pdf

ODI & Oil Change International (2015). Empty promises G20 subsidies to oil, gas and coal production, http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/9957.pdf

OECD (2013a). Environmental Performance Reviews – Italy 2013. Assessment and Recommendations. Organisation for the Economic Co-operation and Development. http://www.oecd.org/env/country-reviews/EPR%20Assessment%20and%20recs%20ITALY%202013.pdf

OECD (2013b). Environmental Performance Reviews – Italy 2013. Highlights. Organisation for the Economic Co-operation and Development. http://www.oecd.org/env/country-reviews/EPR%20Highlights%20ITALY%202013.pdf

OECD (2011). Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels. Organisation for the Economic Co-operation and Development. http://www.oecd.org/site/tadffss/48805150.pdf

OECD (2013c). Rapporti dell’OCSE sulle Performance Ambientali – Italia 2013. Organisation for the Economic Co-operation and Development. http://www.minambiente.it/sites/default/files/archivio/comunicati/EPR_Assessment_and_recs_ITALY_2013_ITA_-_8_Feb.pdf

Symbola (2015). Green Italy Rapporto 2015 – La Sfida del Futuro. Fondazione Symbola. http://issuu.com/fondazionesymbola/docs/rapporto_greenitaly_2015

http://banchedati.camera.it/sindacatoispettivo_17/showXhtml.Asp?idAtto=36411&stile=7&highLight=1&paroleContenute=%27INTERROGAZIONE+A+RISPOSTA+SCRITTA%27+|+%274-09217%27+|+%27INTERROGAZIONE+A+RISPOSTA+SCRITTA%27+|+%27CAMERA%27

http://ec.europa.eu/economy_finance/eu/countries/italy_en.htm

https://ec.europa.eu/energy/sites/ener/files/documents/2014_neeap_en_italy.pdf

http://unmig.sviluppoeconomico.gov.it/unmig/royalties/fondo/fondo.asp

http://dati.istat.it/Index.aspx?DataSetCode=DCCV_TAXDISOCCU

http://www.camera.it/leg17/522?tema=collegato_ambientale#6025

http://www.diritto.it/docs/35809-ecotassa-tributo-speciale-per-il-deposito-dei-rifiuti-solidi-in-discarica

http://www.eea.europa.eu/soer-2015/countries/italy

http://www.minambiente.it/comunicati/cdm-approva-collegato-ambientale-lagenda-verde-del-governo