The Carbon Tax in Italy

Future Carbon Tax Implementation and Current Climate Solutions in Italy

Italy is already experiencing the extreme impacts of climate change, especially rising temperatures that cause heat wave events. In response, the country is considering measures to help mitigate climate change. The carbon tax is a tax imposed by the government that requires carbon emitters (most often businesses) to pay a fee for each ton of carbon emissions they produce. 

In this article, you will learn about how Italy is planning for the implementation of a carbon tax, and their existing alternative solutions to reduce carbon emissions.

Table of Contents

Future Implementation of Carbon Tax in Italy

Current Solutions to Reduce Carbon Emissions in Italy

Key Takeaways

Future Implementation of a Carbon Tax in Italy

Why might Italy need a carbon tax? 

As announced in 2021, Italy is planning to reduce its carbon emissions by 60% by 2030. However, the country does not have an existing direct carbon tax yet to support this goal. Currently, they depend on the European Union Emission Trading System (EU ETS), which operates as a cap-and-trade system. Under this system, the government sets a limit on the amount of greenhouse gasses that specific sectors are allowed to emit in countries where ETS is applied.

A cap-and-trade system like this is similar to a carbon tax, because it places a financial burden on greenhouse gas emitters. However, the cap-and-trade system puts a price on the amount of gas emitted, whereas a carbon tax puts a price on carbon itself.

Read more about carbon taxes versus cap-and-trade systems: A Cost Benefit Analysis of the Carbon Tax

Italy’s carbon reduction objective will be difficult to achieve solely through the ETS, because the ETS cap-and-trade rules do not apply to all sectors within the country, even if they emit greenhouse gasses. In fact, non-ETS sectors (sectors where the EU ETS does not apply) account for around 60% of the country’s overall carbon emissions. Non-ETS sectors include large carbon emitters such as transportation, agriculture, waste, and residential sectors.

For example, Italy’s transportation sector alone is responsible for almost a quarter of its total carbon emissions. Despite its numerous public transportation options, Italy is still one of the countries with the most private vehicles in all of the EU.

In order to achieve carbon emission reduction goals by 2030, some experts believe that these non-ETS sectors must be addressed with stricter and more direct policies, like an implementation of a carbon tax in Italy.

The beginnings of a carbon tax in Italy

In order to create a carbon tax with a minimal negative impact on low-income companies, small businesses, and households, the Italian government is considering implementing a carbon tax based on a “polluter-pays” concept. The polluter pays concept is the backing behind many carbon taxes, as it argues that companies that pollute or contribute to climate change should be the ones to pay the price through a charge on carbon. Under this concept, the companies or individuals that contribute to global warming in larger amounts will face a larger financial burden of the tax.

The implementation of a carbon tax in Italy is intended to lower private transportation demand in the residential sector. Government data analysis concluded that the carbon tax in Italy would motivate households to reduce their fuel consumption. A carbon tax in Italy would likely also encourage switching to energy-efficient alternative practices and equipment in residential sectors through the incentives from the carbon tax revenue. However, since transportation is essential to many businesses, the commercial sector’s carbon emissions from transportation may not be reduced even with the implementation of a carbon tax. 

The government would allocated revenue from the carbon tax in Italy to different initiatives that could benefit the public, including: 

  • Supporting and funding the development of better transportation infrastructure that could lessen the numbers of private vehicle usage
  • Reducing other taxes like labor tax
  • Supporting and funding the transition to renewable energy sources

Today, a true carbon tax in Italy has yet to be implemented. The country, however, has alternative solutions for dealing with the issue of its carbon emissions.

The fuel excise tax: a carbon tax in Italy?

While a conventional price on carbon (a carbon tax) has not been created in Italy, as of 2021, 77.4% of carbon emissions from energy were “priced” by a fuel excise tax. This means that around 77% of all carbon emissions were “paid for” in the form of a tax on fuel burning. 

Italy’s fuel excise tax applies to many different types of energy-use, including the use of oil products, natural gas, and coal. The energy used to create electricity is also taxed, although at a lower rate. A tax on burning fuel acts very similarly to a carbon tax, as it puts a financial burden on carbon emitters, and incentivizes less burning of fossil fuels.

Current Solutions to Reduce Carbon Emissions in Italy

Since carbon tax implementation in Italy is still in the planning phase, there are other programs and initiatives the country is focusing on to reduce its carbon emissions. Here are the recent updates on Italy’s climate actions to help them achieve their emission reduction goals.

Improved national forestry policy

In 2018, the government issued a new legislative framework that aims to improve the country’s forestry policies to increase carbon sequestration. 

Initiating a forestry program is intended to provide information on companies and individuals involved in the forestry industry. The goal is to increase the efficiency of the forest’s carbon-capturing ability and raise the quality of its products.

Additionally, due to recent shifts in how Italians utilize their lands, the country’s forests have grown in size. This can have a huge impact on reducing carbon in the atmosphere. 

Transition to renewable energy

By 2030, Italy intends to double its solar energy production and triple its wind energy production. The country believes that the key factor to achieving this goal is to phase out coal-sourced energy in the electrical supply industry. According to the trajectory of the Integrated National Energy and Climate Plan, 55% of the electricity supply in 2030 will be sourced from renewable energy sources such as solar, bioenergy, wind, and hydropower.

solar panels in italy - carbon tax italy
Solar panels in Marche, Italy.
Source: Solar Farm – Solar energy power plants / CA’ MARINELLO 1

Key Takeaways

The implementation of a carbon tax in Italy is still in the planning phase, although the country does have a few similar measures already in place. Today, Italy’s solutions to reduce its emissions rely on nature-based policies and switching to renewable energy.  Here are the key takeaways:

  • Italy relies on a cap-and-trade program, the European Union Emission Trading System (EU ETS), and a fuel excise tax for the reduction of carbon emissions in the country
  • The Italian government is considering implementing a carbon tax based on a “polluter-pays” concept to minimize the impact of the tax on low-income households and small businesses. 
  • Italy also plans to increase carbon sequestration through forestry and increase reliance on renewable energy.

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