Review of Environment, Energy and Economics - Re3 The Challenges of Decarbonization in Italy


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The Challenges of Decarbonization in Italy
Isabella Alloisio, Alessandro Antimiani, Simone Borghesi, Enrica De Cian, Maria Gaeta, Chiara Martini, Ramiro Parrado, Maria Cristina Tommasino, Elena Verdolini, Maria Rosa Virdis
Environment - Articles

This article draws from the Executive Summary of “Pathways to Deep Decarbonization in Italy”,  the Italian Country Report which was published within the “Deep Decarbonization Pathways Project (DDPP)”, an initiative of the Sustainable  Development Solutions Network (SDSN) and the Institute for Sustainable Development and International Relations (IDDRI).  This report contributes to the national debate on climate-change mitigation, and the importance of deep decarbonization, by examining three alternative pathways that could reduce Italian CO2 emissions by at least 40% in 2030 and 80% in 2050, compared to 1990. The research for the Country Report for Italy “Pathways to deep decarbonization in Italy” was conducted jointly by teams at the Italian National Agency for New Technologies, Energy and Sustainable Economic Development (ENEA) and the Fondazione Eni Enrico Mattei (FEEM):

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Key challenges and uncertainties that Italy needs to address and overcome to foster a deep decarbonization process
Italy has some idiosyncratic features in its natural resource endowments, and its geographic, social, and economic factors. These represent barriers to achieving deep decarbonization. The country has small coal deposits, orographic features that limit railroad transports, some renewable sources that are already fully exploited (e.g. hydrogeological sources), and others that are difficult to exploit for geographic reasons (e.g. few suitable areas for offshore wind generation). As a result, Italy has historically experienced a higher share of gas and oil products, and a lower share of coal, in the energy mix compared to average EU levels. Furthermore, Italy heavily relies on imported fuels.

About 80% of Italy’s energy used is imported. Hence, deep decarbonization represents a chance to reduce pressure on the environment, and also an opportunity to lower energy dependence and exploit some available natural resources. For example, the recent penetration of renewable energy technologies has already significantly reduced energy dependence. Several technological, social, and economic challenges will have to be addressed to design feasible deep decarbonization pathways:

  • the limited social acceptability of some options, in particular carbon capture and storage (CCS), which is subject to the “not-in-my-backyard” (NIMBY) syndrome that seems to arise with large energy projects;
  • obstacles to further increasing the use of some renewable sources, mainly domestic biomass and large hydro, and also off-shore wind and ground installations of solar energy that compete with agricultural land;
  • the insufficient technological ability to manage the variability of power generation from some renewable sources;
  • the current lack of CCS technologies at reasonable costs. 

Impacts of deep decarbonization and related investment costs
To provide a deeper understanding of the feasibility of Italian decarbonization targets and the related costs, the report presents three alternative pathways to achieve deep decarbonization, or an 80% GHG emission reduction by 2050 compared to 1990 levels. The three pathways differ in their underlying assumptions about which ones of various technologies will be available, and able to penetrate the Italian energy system. It does this by postulating different assumptions on the cost of technology, the availability of renewable sources and of carbon capture and storage (CCS), the social acceptability of renewable generation technologies and CCS, and administrative barriers.

The decarbonization scenarios have been produced by combining insights from a very detailed bottom-up energy system model (TIMES-Italy), with two top-down Computable General Equilibrium (CGE) models (GDyn-E and ICES). TIMES-Italy provides insights on the transformation required by the Italian energy system, while GDyn-E and ICES allow studying the macroeconomic implications of such an energy transformation.

To reduce domestic emissions by at least 80% (compared to 1990) in 2050, a smooth and efficient transition is needed.  All three DDPs achieve energy and process emissions below 90 MtCO2 , or 1.5 tCO2  per person. In the analysis of these energy scenarios, emissions reductions are driven by a drastic decrease in the carbon intensity of energy (3.0% to 3.2% average annual rate - a.a.r). Renewable sources and electricity (electrification of final consumption up to 46%) progressively replace fossil fuel consumption (30% to 35% of fossil fuel consumption in 2050), and improvements in energy efficiency reduce further their demand. The faster or slower development of CCS determines the long-term role of solid fuels. Limiting fossil fuel role has significant impacts on energy source diversification and energy security: while in 2006 Italian import dependence reached 87%, in 2050 it may drop to below 30% to 35%.

One of the most important drivers of deep decarbonization is an almost total decarbonization of power generation processes (which translates into a -96% decrease in their emissions in 2050 compared to 2010 level). In the DDP scenarios analyzed,  renewable energy sources (RES) provide growing shares of power generation (up to 93% in 2050) and the contribution of variable RES expands after 2030. These variable RES account for 55% to 58% of total net generation in 2050.

At the same time, end-use technologies efficiency is crucial to achieving the 2050 targets in all DDPs.

The DDPs require considerable effort in terms of low-carbon resources and technologies. They also require considerable effort in economic terms. The cost changes, compared to a Reference Scenario, are significant: up to 30% higher cumulative net costs over the period 2010-2050. In particular, the emphasis switches from fossil fuel costs and operating costs towards investments in power generation capacity and more efficient technologies and processes.

The macroeconomic analysis points at increasing decarbonization costs, in line with cost estimates for other EU countries. Such costs do not vary significantly across the three alternative pathways; they range between 7% and 13% of gross domestic product (GDP) relative to the reference scenario. All DDP  scenarios estimate per capita GDP to grow over the examined period although less rapidly when decarbonization policies are implemented. The average annual growth rate of GDP in  the 2010-2050 period is expected to be between 1.17 and 1.25% in the reference case. With decarbonization policies the growth rate would be between 0.18% and 0.35% slower. Modeling analysis suggests that decarbonization is likely to induce a structural change in the economy that could benefit both the electricity generation sectors and energy-intensive industries. This structural change will also determine employment reallocation across sectors, from fossil fuel extraction, refining, and commercialization towards renewable energy generation and energy intensive industries (+15% and +25% employment in 2050).

Available and close-to-the-market technologies to achieve the target
The DDPs presented in this report rely on the deployment of already available or close-to-the-market technologies. Hence, the technical feasibility of the transformation  scenarios is high. Still, some technical hurdles remain to be addressed. High among them are the management of variable renewable energy and concerns over the contribution of biomass. Furthermore, challenges exist with respect to the deployment of CCS technologies.

Policy support to achieve deep decarbonization
In past decades, Italy adopted several policy instruments to support the deployment of RES and the achievement of energy-efficiency targets (green certificates, feed-in tariffs, investment subsidies, tax deductions, etc.). These instruments allowed important successes to be  achieved, such as increasing the share of renewables in Italy’s primary and final energy consumption, and improving overall energy efficiency. However, the DDPs in this Report illustrate, achieving the deep decarbonization and modernization of the Italian energy system will require a much stronger effort, in terms of technology development and even more focused policy planning.

There is a need to learn from national best practices, and improve policy  implementation to contain the costs of an energy transition for producers, consumers, and the public sector. High subsidies, such as those granted so far, are no longer necessary to  increase the deployment of certain renewable technologies. If subsidies are granted, they should be targeted towards technologies that present the greatest benefits, but which are likely to encounter the most significant obstacles.

In any scenario characterized by higher electrification and higher penetration of variable renewables, investments in the overall strengthening and modernization of the power grid  is crucial. This would allow Italy to exploit the full potential of electric renewables, while improving service quality. It is therefore necessary to create a better framework to foster the necessary level of investment.

In light of limited public budgets, a key requirement for modernizing the Italian energy system is mobilizing private capital, and guaranteeing access to credit for firms and households.  A clear regulatory context, streamlined administrative procedures, the intelligent use of public guarantee schemes, framed by a stable long term policy orientation (although admitting adjustments and corrections of the course adopted), would give investors a positive indication about the future for their returns on investments, limiting policy and regulatory risk.

Public-Private Partnership agreements (PPPs) should be strongly encouraged to assure that important private capital investment is available, provide the necessary public guarantees, and offer the private sector’s technology innovation and management expertise in project financing.

Appropriate normative frameworks for the operation of energy service companies (ESCOs) could help fund the renovation of public and private buildings and condominiums for better energy efficiency or greater penetration of electric or thermal renewable energy sources. A transparent framework for involving citizens and local communities in decisions about large energy infrastructure projects is a key element to realize many renewable technologies and projects, and to develop technologies like CCS. This would facilitate public understanding of the actual risks, local costs, and benefits of a given energy technology or project. Designing a national industrial development strategy, aimed at the progressive decarbonization of the economy and the efficient use of all resources, would set a path for the transition of the Italian energy system. The strategy should strengthen the material and human research infrastructure, developing technologies and products coherently with the decarbonization perspective, and accelerating the innovation process to enhance competitiveness.

At the core of such a strategy should be a renewed effort at all levels of the RD&D chain, including higher education, training, and basic research. Development of new energy and enabling technologies or materials is necessary  for less carbon- and resource-intensive production of goods and services. International research cooperation in technology areas critical to a low-carbon transition (CCS, offshore wind for deep water applications, energy efficiency, energy storage technologies, etc.) would be beneficial. Public research spending needs to return to levels closer to EU averages, with a firm government commitment to enabling policies and to complement private funding in those stages of research where it is sub-optimal.









Isabella Alloisio, FEEM and CMCC

Alessandro Antimiani, INEA

Simone Borghesi, University of Siena and FEEM

Enrica De Cian, FEEM and CMCC

Maria Gaeta, Studies and Strategy Unit, ENEA

Chiara Martini, Energy Efficiency Unit, ENEA

Ramiro Parrado, FEEM and CMCC

Maria Cristina Tommasino, Studies and Strategy Unit, ENEA

Elena Verdolini, FEEM and CMCC

Maria Rosa Virdis, Studies and Strategy Unit, ENEA