How much investment is needed for the decarbonisation of Italian economy?

A propaedeutic analysis for the revision of the National Energy and Climate Plan (NECP)

In several weeks, the Italian Government will submit its updated Energy and Climate Plan (NECP) to the European Commission. The last version of the NECP, submitted in 2019, is very outdated and does not reflect, among other things, the new European decarbonisation ambitions and legislative initiatives such as the Fit for 55 and the REPowerEU. The new NECP should thus include the latest goals, be aligned with the strategy defined by the EU, designate coherent intervention policies, and identify appropriate investments.

Read the paper “How much investment is needed for the decarbonisation of Italian economy?”

For this reason, the updated National Energy and Climate Plan represents a fundamental document for the Italy’s future. The Plan will determine the incisiveness and the credibility of the initiatives, which will affect three crucial elements:

  1. The re-focusing of the National Recovery and Resilience Plan (NRRP) on the European energy and climate targets
  2. The reform of the Stability and Growth Pact
  3. The possible establishment of a European sovereign fund for climate and energy security.

The way in which these challenges will be addressed will show whether Italy will manage to fully capitalise on the economic opportunities that are offered by the green transition.

  1. The alignment of the NRRP with the targets of the European Green Deal appears to have discrepancies, as the level of investment with positive environmental and climate impacts still accounts for less than half of what required by European rules. The possibility of introducing new norms and financing for energy efficiency, which come with both the REPowerEU and the industrial policy defined in the Green Deal Industrial Plan (GDIP), can function as incentive for the revision of the NRRP. This revision should thus be carried out at the same time as the NECP update. The latter, indeed, allows to use the European targets as a basis for adapting Italy’s investment plans, which, at the moment, do not reach the amounts needed for the green transition. From this point of view, ECCO estimates that these investments should amount to at least € 120-134 billion on average per year. This financial effort is massive, but it would involve growth and employment opportunities, provided that also private finance is re-oriented.
  2. The reform drafts of the Stability and Growth Pact envisage the preliminary negotiation between individual governments and the European Commission of specific multiannual adjustment paths for each country, and the application of stricter and more rigorous discipline throughout. This approach places responsibility on national governments for reconciling the investment effort for the ecological transition with the (necessarily restrictive) stabilisation trajectories of public finances. Together with the simultaneous relaxation of European constraints on state aid, this leads to inevitable imbalances in the fiscal capacity of different EU countries due to the different starting levels of their public debt. This different fiscal capacity, combined with more restrictive constraints for the more indebted countries, compromises (or at least strongly weakens) their ability to independently implement the ecological transition. It is therefore crucial for Italy to systematically connect public investments with the European objectives of the Green Deal, aligning them with the NRRP and the NECP.
  3. If the Stability and Growth Pact retains this approach, the issue of transition investment financing shifts entirely to the dossier of the establishment the EU Climate and Energy Security Fund. Achieving the establishment of a fund expressly aimed at encouraging decarbonisation and ecologic transformation would indeed remain the only option for financing the transition and safeguarding the country’s competitiveness. In turn, the Government would have very strong negotiating arguments for the need for the Fund if the investment expenditure planned by Italy (set out in the NECP) was strictly correlated to achievement of the climate objectives dictated and shared by the EU, and strictly consistent with the project goals that the EU already finances through the NRRP.

Read the paper “How much investment is needed for the decarbonisation of Italian economy?”


Photo by Kindel Media

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