Italy produces small volumes of natural gas and oil but virtually no coal, hence the domestic production only met 23% of its primary energy needs in 2021. Yet, the country is among Europe’s largest energy consumers. Most of the country’s fossil-fuel supplies – as well as a significant share of its electricity – are increasingly imported. Although the country’s oil imports are diverse, around 70% originate from the Russian Federation (hereafter “Russia”), Azerbaijan, Libya, Iraq, and the United States. Russian imports more than doubled in 2022 compared to 2021 because of an exponential increase in oil purchases by Italy’s second biggest refinery, owned by the Russian oil company LUKoil. However, because of the European Union’s1 embargo on Russian oil, imports from Moscow were zeroed out in December of 2022. To alleviate the country’s dependency on oil imports, the demand for natural gas has been steadily rising since 1973, exceeding domestic production. Ninety-four per cent (94%) of domestic consumption of natural gas was met by imports in 2021, primarily from Algeria and Russia. This changed dramatically in 2022 following Russia’s war of aggression against Ukraine, with a 61% decrease of gas imports from Russia. Russian natural gas imports have mainly been replaced by an increase in imports from Algeria, Northern Europe, and LNG primarily from the United States.2
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
Italy
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
In 2017, Italy released a new National Energy Strategy (SEN) based on four pillars: fostering the competitiveness of the Italian economy, protecting the environment, promoting green growth, and strengthening the security of energy supply. In practice, the government made the natural gas market more competitive, promoted the development of a European-integrated electricity market and the increase of fossil fuels production in the country, as well as the restructuring of the downstream oil market. The state still holds about 30% of four important players in the energy and electricity market: Snam S.p.A, which dominates the downstream gas market; Eni, which leads the oil industry from extraction to marketing and the upstream gas sector; Enel, which accounts for 25% of the production of electricity; and Terna S.pA., the primary owner and operator of the national high voltage transmission grid. Small generators account for 35% of the total national generation. Electricity trade with Malta started in 2015, following the opening of the Malta-Sicily submarine power cable during the same year.
Although the Italian oil and gas market is fully liberalised, it is dominated by Eni, which retains about 85% of total extraction activities and 30% of the oil refining market. In a similar vein, more than 90% of the physical gas infrastructure, including almost the entire transmission network and underground gas storage capacity, but also the leading local distribution-network operator, is controlled by Snam S.p.A.
Energy prices and taxes
Italy has liberalised its electricity and gas sector progressively to conform to EU directives. Transmission and distribution of natural gas and electricity have been unbundled and a regulator, Autorità di Regolazione per Energia Reti e Ambiente (ARERA)—which succeeded the AEEG authority in 2018—supervises access to networks and regulates tariffs. Electricity consumers have a choice of supply from incumbent suppliers at regulated tariffs or from alternative suppliers at market rates. On average, VAT and excise taxes accounted for 36% of the price of electricity for residential consumers in 2020, but their share in electricity bills has been going down all throughout 2021 and 2022 as a consequence of rising energy prices and exceptional measures to contain them, with VAT and excise taxes coming to account for 11-12% of the final prices in 2022.3 Multiple pricing schemes exist to encourage the production of electricity from renewable resources and are managed by the Energetic Services Manager (Gestore Servizi Energetici), under the full ownership of Italy’s Ministry of Finance.
Since 2013, gas users also have the choice between regulated and market prices. Vat on natural gas has been momentarily reduced to 5% in response to the energy and Covid crisis whereas it previously4 was set at a 10% rate for residential and commercial consumers and at 22% for industries. The excise tax varies according to whether it is a household or a business user, and additional regional taxes5.
Figure 2. Total tax rebates and support for fossil fuels in Italy
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
In 2020, the Italian customs office announced an increase in tax rates on lubricating oils, from EUR 120/tonne to EUR 150/tonne. This change in benchmark tax rate for lubricating oil is expected to drive an increase in the revenue foregone of measures exempting lubricating oils used in the petrochemical sector in the following years ahead.
The energy crisis started in 2022 along with the COVID-19 economic effects has led the Italian government to repeatedly introduce each quarter of the year several temporary fossil fuels support measures, mostly benefitting transports, households, and firms. The transportation sector has been assisted especially through the reduction of excise duties on fuels. Even though they still have tripled in some cases when compared to 2021, households’ energy bills have been contained thanks to electricity and natural gas vouchers which saw an increase in the total support amount and the number of eligible consumers of the already existing social bonus (Bonus Luce e Gas). Moreover, households benefitted from the previously mentioned VAT reduction on natural gas, the elimination of system charges in electricity bills and reduced natural gas bills. These latter three measures supported the industrial and tertiary sector along with tax credits ranging from 15% to 40% for electricity and from 10% to 40% for natural gas, depending on the quarter and the energy intensity of firms.
The fiscal cost of support measures for fossil fuels in Italy was estimated at EUR 47.59 billion in 2022 (Table 1). Forty-eight per cent (48%) was directed at end user beneficiaries, as opposed to 52% directed to firms. Support was mainly given out in the form of tax expenditures (EUR 43.80 billion) accounting for 92% of the total fiscal cost of support measures. Direct transfers amounted to EUR 3.79 billion.
The fiscal cost of support measures for fossil fuels has increased by 437% since 2017. Since last year, tax expenditures have increased by 437%, from EUR 11.09 billion to EUR 43.80 billion and direct transfers increased by 63%, from EUR 2.55 billion to EUR 3.79 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
7.948 |
7.840 |
7.975 |
7.476 |
11.094 |
43.800 |
|
Direct transfers |
0.920 |
1.596 |
2.099 |
1.972 |
2.549 |
3.788 |
|
Total |
8.868 |
9.437 |
10.074 |
9.448 |
13.643 |
47.588 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
||||
|
Reduced excise duties and VAT for fuels used for road transports |
8.940 |
(Started 2022) |
8.940 |
|
|
Tax credit to energy-intensive firms based on natural gas consumption |
7.777 |
(Started 2022) |
7.777 |
|
|
Tax credit to energy-intensive firms based on electricity consumption |
6.181 |
(Started 2022) |
6.181 |
|
|
Direct transfers |
||||
|
ETS quotes distributions |
3.577 |
0.395 |
3.182 |
|
|
Fund to support increased costs of fuels for public transport companies |
0.155 |
(Started 2022) |
0.155 |
|
|
Tax concessions for household use of electricity and gas |
0.055 |
(Started 2018) |
0.055 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Reduced excise duties and VAT for fuels used for road transports |
Excise exemption and VAT reduced to 5% for natural gas, excise duties reduced to EUR 478.4/1000 L for gasoline (EUR 578.4/1000 L only for December), EUR 367.4/1000 L for diesel (EUR 467.4/1000 L only for December) and EUR 182.61/1000 Kg for LPG (EUR 216.67/1 000 Kg only for December), if used as fuels for road transports, are periodically renewed all throughout 2022 starting in March. |
|
Tax credit to energy-intensive firms based on natural gas consumption |
Tax credits are periodically granted to energy-intensive firms that experienced a significant increase in their energy costs. Firms are eligible for tax credits if they have experienced a minimum increase of 30% in gas price compared to the same semester in 2019. Tax credits are a share of firms' gas expenses (generally 20%). |
|
Tax credit to energy-intensive firms based on electricity consumption |
Tax credits are periodically granted to energy-intensive firms that experienced a significant increase in their energy costs. Firms are eligible for tax credits if they have experienced a minimum increase of 30% in electricity price compared to the same semester in 2019. Tax credits are a share of firms' electricity expenses (generally 20%). |
|
ETS quotes distributions |
As a result of transitory norms for the implementation of measures necessary to fulfil the Paris Agreement, some emission quotas under the ETS are distributed free of charge. |
|
Fund to support increased costs of fuels for public transport companies |
A fund is created in order to partially compensate public transport companies for the increase in fuels prices in 2022. |
|
Tax concessions for household use of electricity and gas |
This measure is a facility that low-income customers and customers in serious health condition, with medical machines at home, can apply to their respective energy provider as a compensation scheme for electricity and natural gas domestic consumption. Amounts for electricity and natural gas have been allocated using the IEA's consumption data in the residential sector. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.
Notes
← 1. Source: Analisi trimestrale 1/2023 (enea.it), p 23. IEA sources not available or accessible.
← 2. Source: Analisi trimestrale 1/2023 (enea.it), p. 26-30 . IEA sources not available or accessible.
← 3. Source, NormalSegreteria (camera.it) page 16
← 4. Source, law-decrees between 2021 and 2022 that lowered the VAT rate
← 5. Revoked with budget law 2021. Source ID0014a (camera.it), p. 13