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Environment

Italy – EHS Country Case Study

Reform of environmentally harmful subsidies in Italy

Italy has been regularly publishing a Catalogue of Environmentally Friendly (EFS) and Environmentally Harmful Subsidies (EHS) since 2017. The catalogue aims to equip decision-makers with a tool that provides information necessary for potential EHS removal and EFS adoption. It holistically reviews the reform process, emphasising that the existence of some subsidies may be valid for social and economic reasons and that compensatory measures may need to be applied to foster the ecological transition. The catalogue also allows for thorough monitoring of EHS, their comparative assessment and tracking of the reform progress. It classifies subsidies as direct (spending laws) and indirect (fiscal expenses) and provides information on the financial impact of the subsidies for the given year.

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© Luca Micheli / Unsplash

The Technical Support Instrument on “Enhancing environmental fiscal reform in Italy and in the European Union” supports the Italian government in developing a policy agenda and an action plan for Environmental or Ecological Fiscal Reform, including the phasing out of EHS. Reform attempts were limited in the past by the lack of political consensus and due to changes of governments. The current government is strongly committed to the preparation of a coordinated strategy for phasing out EHS by 2025 and has approved the removal of the first five EHS. The objectives of the EHS reform process are to achieve Italy’s ecological transition and create a more sustainable and socially and economically advantageous production model. In this context, Italy aims to redirect the resources already allocated to a specific sector towards “green” solutions. The efforts undertaken are aligned with the long-term objective of the Action Plan for Environmental Fiscal Reform in Italy.

Environmentally friendly subsidies in Italy amounted to EUR 18.9 billion, while environmentally harmful subsidies were estimated at EU 21.6 billion in 2020. The biggest share of EHS was related to fossil fuels at an estimated EUR 13.1 billion in 2020. Some subsidies encourage the use of fossil fuels and discourage the application of alternative energy sources with lower impacts on human health and the environment. It is important to assess whether removing one subsidy could lead to the use of other more polluting fossil fuels. This is because the benefits of new incentives may not cover the cost of the investments needed to use alternative products.

When a given subsidy is identified for reform, a detailed assessment of the impacts on different stakeholders is carried out. The reform process involves identifying the most harmful subsidies, designing the phasing out strategy and consulting impacted stakeholders. An important condition to ensure the ecological transition does not negatively impact society is to include transitory or compensatory measures accompanying the reform process.

To learn more about the reform process in Italy and other Member States read the country case studies and factsheets compilation.