The Italian government is calling for the suspension of the European Emissions Trading System (ETS), the central pillar of the European Union’s climate policy, in a move that risks shaking the European consensus on green transition, writes Politico.
Rome’s request would practically allow companies to pollute without paying for CO₂ emissions, at least temporarily, undermining the mechanism that has been in place since 2005 and covers approximately half of the bloc’s emissions.
"ETS is nothing more than a tax"
Italy had already announced its intention to subsidize energy companies in a way that dilutes the central principle of the ETS - that polluters must pay for emissions contributing to global warming. However, on Thursday, Rome took an additional step and requested the complete suspension of the mechanism until its reform, scheduled for this year.
"The ETS mechanism, as it is currently designed, is nothing more than a tax, a fiscal burden on large energy-consuming companies. It needs to be substantially revised (...) To do this properly, the ETS mechanism must be suspended until a reform," said Italian Industry Minister Adolfo Urso in Brussels.
Carbon market shaken by political statements
According to Politico, Italy's position represents the most aggressive attack so far on the ETS by one of the largest European economies.
Earlier this month, following industry criticism and after German Chancellor Friedrich Merz suggested weakening the system, the price of carbon certificates dropped from 81 euros to 72 euros in just one week. After Urso's statements, it fell to just over 70 euros.
The high volatility reflects the growing political pressure ahead of the official review of the mechanism expected in the third quarter of the year.
Subsidies for gas in the name of lower bills
In addition to the ETS suspension, the government led by Giorgia Meloni wants to compensate gas power plant operators for the costs of emissions certificates - a measure that essentially cancels out the decarbonization incentive of the system.
The Italian government argues that this compensation would reduce the price of electricity, as in the current system, the most expensive sources - usually gas - set the price for the entire market.
"We are facing the collapse of the European chemical industry; we are facing a crisis in European steelmaking. We cannot wait for EU-level negotiation timelines to find solutions," said Urso.
Italy has the fourth highest energy bills in the EU, partly due to its high dependence on gas power plants, which account for about 44% of the country's energy mix.
Critics: risk of slowing down the green transition
Supporters of the ETS warn that the measure would weaken the price signal that encourages investments in clean energy and create market uncertainty.
"Excessive electricity prices in Italy are a direct result of its excessive dependence on gas for energy production - the highest in the EU," said Chiara di Mambro, Europe director of the Italian think tank ECCO.
"Suspending the ETS (...) or subsidizing gas (...) would lead Italy in the opposite direction: weakening the price signal, increasing market uncertainty, and ultimately delaying the transition from expensive fossil fuels," she added.
A former executive in the energy sector, quoted by Politico on condition of anonymity, explained that the measure "eliminates a tax on energy generated from fossil fuels and distributes that cost to energy produced from renewable sources."
Furthermore, renewable energy prices are largely set through long-term bilateral contracts, meaning the impact on the population's bills could be limited.
Growing political pressure in Brussels
The European Commission has not officially commented on the Italian decree, which has not yet been adopted as law. However, the pressure to relax the ETS is increasing.
Austria has suggested exempting gas power plants from the system, while Germany has called for a comprehensive review, citing difficulties for the chemical industry.
On the other hand, France and Sweden have rejected the idea of a suspension. Swedish Industry Minister Ebba Busch warned that calling for "open-heart surgery" on one of the EU's most successful economic instruments risks "completely cutting off the blood flow."
G.P.