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Italy's Effort to Phase out and Rationalise Its Fossil Fuel Subsidies

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Italy's Effort to Phase out and Rationalise Its Fossil Fuel Subsidies ITALY’S EFFORT TO PHASE OUT AND RATIONALISE ITS FOSSIL-FUEL SUBSIDIES A REPORT ON THE G20 PEER-REVIEW OF INEFFICIENT FOSSIL-FUEL SUBSIDIES THAT ENCOURAGE WASTEFUL CONSUMPTION IN ITALY PREPARED BY THE MEMBERS OF THE PEER-REVIEW TEAM: ARGENTINA, CANADA, CHILE, CHINA, FRANCE, GERMANY, INDONESIA, NETHERLANDS, NEW ZEALAND, IEA, UN ENVIRONMENT, IISD, EUROPEAN ENERGY RETAILERS, GREEN BUDGET EUROPE, THE OECD (CHAIR OF THE PEER-REVIEW) AND SELECTED EXPERTS APRIL 2019 1 │ Italy’s effort to phase out and rationalise its fossil-fuel subsidies A report on the G20 peer-review of inefficient fossil-fuel subsidies that encourage wasteful consumption in Italy Prepared by the members of the peer-review team: Argentina, Canada, Chile, China, France, Germany, Indonesia, Netherlands, New Zealand, IEA, UN Environment, IISD, European Energy Retailers, Green Budget Europe, the OECD (Chair of the peer-review) and selected experts ITALY’S EFFORT TO PHASE OUT AND RATIONALISE ITS FOSSIL FUEL SUBSIDIES 2 │ Table of contents Acronyms and Abbreviations ............................................................................................................... 4 Executive Summary .............................................................................................................................. 5 1. Introduction ....................................................................................................................................... 7 1.1. Background and context ............................................................................................................... 7 1.2. The scope of fossil fuel subsidies ................................................................................................. 9 2. An overview of Italy’s energy sector: resources, market structure, prices and taxes ............... 10 2.1. Energy resources and utilisation ................................................................................................. 10 References .......................................................................................................................................... 14 2.2. Market structure and organisation .............................................................................................. 15 2.3. Prices and taxes ........................................................................................................................... 17 3. Fossil fuel subsidies in Italy ............................................................................................................ 22 3.1. General observations ................................................................................................................... 22 3.2. Subsidies to the energy sector ..................................................................................................... 23 3.3. Subsidies to industry (manufacturing) ........................................................................................ 26 3.4. Subsidies to transport .................................................................................................................. 27 3.5. Subsidies to households and public services............................................................................... 28 3.6. Subsidies to agriculture and similar sectors ................................................................................ 30 3.7. Phasing-out fossil fuel subsidies in Italy: a macroeconomic assessment ................................... 31 4. The Peer-review team’s evaluation ................................................................................................ 32 4.1. Recent reforms of fossil fuel subsidies and strategies for the energy system ............................. 32 4.2. Transparency through the Catalogue and macroeconomic impact assessment .......................... 33 4.3. From stock-taking to reform options .......................................................................................... 35 4.4. Conclusion .................................................................................................................................. 39 References ............................................................................................................................................ 40 Tables Table 3.1. Fossil fuel subsidies inventoried in the Italian Self-Report .................................................. 23 Table 3.2. Measures benefitting directly the fossil fuel production and distribution identified in the Italian Self-Report ......................................................................................................................... 24 Table 3.3. Measures benefitting directly energy products identified in the Italian Self-Report ............ 25 Table 3.4. Differential fiscal treatment between diesel and gasoline .................................................... 26 Table 3.5. Measures subsidising industry inventoried in the Italian Self-Report .................................. 27 Table 3.6. Measures subsidising transport inventoried in the Italian Self-Report ................................. 28 Table 3.7. Measures subsidising public services inventoried in the Italian Self-Report ....................... 29 Table 3.8. Measures directly subsidising households inventoried in the Italian Self-Report ................ 30 Table 3.9. Measures directly subsidising agriculture and similar sectors inventoried in the Italian Self-Report .................................................................................................................................... 31 ITALY’S EFFORT TO PHASE OUT AND RATIONALISE ITS FOSSIL FUEL SUBSIDIES 3 │ Figures Figure 1. Total Primary Energy Supply in Mtoe, 1971-2017 ................................................................ 11 Figure 2.2. Total final consumption of energy per sector (2016) .......................................................... 12 Figure 2.3. Electricity generation by source (2016) .............................................................................. 13 Figure 2.4. Average electricity retail prices, second quarter of 2018 (in c€/kWh) ............................... 18 Figure 2.5. The Household Energy Price Index (HEPI) in the European capital cities – Electricity prices in November 2018 (in c€/kWh) .......................................................................................... 19 Figure 2.6. Average gas retail prices - Second quarter of 2018 (in c€/kWh) ........................................ 20 Figure 2.7. Composition of Household Energy Price Index (HEPI) in the European capital cities – natural-gas prices in November 2018 (in c€/kWh) ....................................................................... 20 Figure 2.8. Evolution of SP95 and gasoil prices in Italy and in the EU ................................................ 21 ITALY’S EFFORT TO PHASE OUT AND RATIONALISE ITS FOSSIL FUEL SUBSIDIES 4 │ Acronyms and Abbreviations APEC Asia-Pacific Economic Cooperation ARERA Autorità di Regolazione per Energia Reti e Ambiente c€ Euro-Cents EER European Energy Retailers Enel Ente Nazionale per l’Energia Elettrica s.p.a. ENI Ente Nazionale Idrocarburi s.p.a. EU28 European Union (28 members) EU-ETS European Union Emission Trading System GBE Green Budget Europe GME Gestore dei Mercati Energetici GDP Gross Domestic Product GHG Greenhouse Gas G20 Group of Twenty GW giga-Watt ICAO International Civil Aviation Organisation ICES Italian Catalogue of Environmentally Harmful and Friendly Subsidies IEA International Energy Agency IISD International Institute for Sustainable Development ISR Indonesian Self-Report ITSR Italian Self-Report Ktoe kilotonnes of oil equivalent LNG liquefied natural gas LPG liquefied petroleum gas Mtoe million tonnes of oil equivalent OECD Organisation for Economic Co-operation and Development PSV Punto di Scambio Virtuale Tcf trillion cubic feet TFC total final consumption (of energy) TPES total primary energy supply USD United States dollar UNEP United Nations Environment Programme VA volt ampere VAT value-added tax VFT vehicle fuel tax ITALY’S EFFORT TO PHASE OUT AND RATIONALISE ITS FOSSIL FUEL SUBSIDIES 5 │ Executive Summary Italy and Indonesia announced in February 2017 that they would undertake a reciprocal peer review of their fossil-fuel subsidies under the auspices of the G20. With People’s Republic of China and the United States of America setting the precedent for these peer reviews as the first countries to participate in such an undertaking, and Germany and Mexico as the second pair, Indonesia and Italy constitute the third pair of countries to follow suit. The two countries proceeded to invite other countries, international organisations and experts to take part in the review. In the case of Italy, those invited participants (in addition to Indonesia) were Argentina, Canada, Chile, China, France, Germany, the Netherlands, New Zealand, the IEA, the IISD, the European Energy Retailers, Green Budget Europe, experts from Bocconi University and the University of Pavia, the UNEP, and the OECD. The OECD was also asked to chair the review, and to act as a co-ordinator and facilitator among the participants. This report is the principal outcome of this peer-review process, reflecting the review team’s in-person discussions with Italian officials, but also deliberations among the review team itself. After summarising the key aspects of Italy’s energy landscape, the report provides a detailed analysis of the measures reported as inefficient fossil fuel subsidies
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