In the European Union (EU), the Emission Trading System (ETS) sets out the policy architecture to introduce carbon pricing. ETS was introduced in 2003 with Directive 2003/87/EC, which was significantly reformed in 2008 when long-term climate targets for the first half of the century were presented in 2011. After the Paris agreement, the Directive was amended to reinforce the commitment of all sectors in the economy to contribute to the reduction of greenhouse gas emissions, with Directive 2018/410.
Directives need to be implemented by the EU’s member states within a certain timeframe. The limit set out in the Directive in Art. 3 is by 9 October 2019. However, according to the transposition record, Italy has not yet implemented the Directive.
The general characteristic of the EU ETS is that it puts a price on the emissions of Greenhouse Gases (GHG), among which CO2 is the most important. This provides a rational economic incentive to minimize the production of GHG and achieve environmental objectives. It operates though the auctioning of allowances, with free allocation as the exception. Directive 2018/410 stipulates the auctioning of 57% of the total emissions. It also introduces a new mechanism to qualify direct carbon leakage sectors. These are defined as sectors which would be comparatively disadvantaged by the EU ETS, as they are carbon-intensive and hence would relocate their businesses to countries with laxer emission constraints. For example, the most recent European Commission list contains, among others, manufacture of paper and oil refining. Carbon leakage sectors are entitled to receive free allocation of emissions under ETS, in order to prevent the “leakage” of their carbon emissions somewhere else.
Activity Rating: *Falling Behind
Italy’s Environmental Ministry website acknowledges the existence of the new Directive 2018/410 but has not acted towards implementing it within the deadline. Although untimely implementation is not an exception, the recently approved PNIEC (National Integrated Plan for Energy and Climate) seems to signal a falling behind in the carbon pricing commitments and generally a mismatch between Italy’s environmental stance and the EU’s. PNEIC was sent to the European Commission for review on 21 January 2020 and is now publicly available. It foresees a reduction by 2030 of 33% of GHG emissions as compared to 1990, for the sectors that are not covered by the European ETS (e.g. transport except aviation, agriculture). By contrast, the 2018 Directive stipulates a reduction of at least 40% by 2030 as compared to 1990. Although the two laws target different sectors, there seems to be an underlying desire in Italy to shelter carbon-intensive sectors, as proven by the permanence of 8 coal-fired thermal power plants which do not seem likely to be substituted by 2025. Therefore, Italy seems to be falling behind and to have just passed a law which is underpinned by different standards than Directive 2018/410. Although Sergio Costa, Minister for the Environment, has declared to have acknowledged the difference between the European targets and the ones present in the Italian law, no action seems to have been taken for the two to coincide. Not having a clear line on carbon pricing targets and on environmental standards in general could prove to be problematic in the long-run, and generate tensions.
Please send the following message to the policymaker below:
Dear Mr. Patuanelli,
The world is experiencing an unprecedented environmental crisis; mild and hesitant solutions will not address this threat. It is necessary that Italy implements Directive 2018/410 as soon as possible, and updates its carbon pricing mechanism, which are not in line with the progress made in the Paris Agreement. Northern Italy’s industrial production is only second to Germany’s, in Europe: rendering it carbon-neutral would be an incomparable step towards solving the climate crisis.
Contact: Mr. Stefano Patuanelli, Minister for Economic Development
This Post was submitted by Climate Scorecard Italy Country Manager Cecilia Ivardiganapini
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