The European “Fit for 55” Package – the first part of which was published by the European Commission in July 2021 and a second part in December 2021 – represents a major opportunity to modernize and innovate the economy.
This Policy Briefing aims to identify the key elements of the European Package Fit for 55 and the first implications for Italy, highlighting how it is functional to the achievement of climate goals. This work wants to start a reflection and an informed debate on what approaches and tools Italy can bring into play to build its specific economic, political and diplomatic leadership through the orderly and fair implementation of the Package.
Download the Policy Briefing here (ita).
The Package creates a clear framework of objectives and policies that can update and complement existing measures with new tools for decarbonizing key sectors of the economy.
The economic and social challenges posed by decarbonization cannot be an excuse to slow down or weaken the transition. Failure to act now in a systemic way means increasing the overall costs of climate change impacts, which are far higher than those of the transition.
This is an opportunity for Italy and Europe to provide a way out of the contradiction between the political message on the importance of the transition and the lack of a coherent implementation plan. The Package creates a framework of goals and policies that can provide greater clarity. The Package complements the climate ambition of existing measures with new tools to decarbonize key sectors, such as transport and household consumption.
Decarbonization poses significant challenges in terms of economic and social impacts. These challenges cannot be solved if they are used as an excuse to slow or weaken the transition. Failure to take systemic action now on these challenges means increasing the overall costs of climate change impacts, which far outweigh the costs of the transition. The option of slowing the phase out from fossils, including gas, is far riskier and more costly than the transformation itself.
Addressing the transition by accelerating and advancing the decarbonization curve is the best way to maximize its benefits and minimize its costs and negative impacts. Carbon pricing alone is not enough to support the transition. Other policies are needed, such as incentives to convert to zero-emission production methods, the creation of dedicated zero-emission product markets (such as green steel) acting on both supply and demand (including the conditional role of loans and guarantees, fiscal support for innovation and public investment), high climate and environmental product standards, and specific support for innovation and international competitiveness of primary industry and associated supply chains. Transition support measures must aim to increase the resilience of citizens and businesses through the reduction of exposure to the risk of volatility of international prices of fossil fuels and the availability of fossil supplies. For Italy, this means in particular reducing dependence on gas through, a rapid deployment of renewables, increased energy efficiency of buildings, electrification of domestic consumption, and improved access to mobility, infrastructure and electric transport. Accelerating the transition reduces the impacts of the fossil economy and thus the need for multi-billion dollar government income support for the most exposed segments of the population and small businesses, thereby decreasing costs to the state.
The transition to new technologies and industrial supply chains cannot occur without redistributive and welfare policies in line with decarbonization and in favor of lower income groups that do not have access to sufficient capital, as well as the most vulnerable communities, such as city suburbs. The Climate Social Fund, provided by the Package, is the right tool for this purpose. Its size (€72.2 billion in current prices for the period 2025-2032) is very limited, but it can be further capitalized with national resources. It is therefore essential to direct additional resources in this direction. In this sense, the Recovery and Resilience Plan has been a missed opportunity for Italy.
The transformation of high-impact fossil industries must be managed through targeted active labor and social policies. Trade union forces should support short-term transformation to create the basis for new long-term prosperity untethered from fossil fuels and actively participate in the debate about what constitutes a “just” transition. Defending vulnerable jobs regardless and without a real assessment of their exposure to the gradual exit from oil and gas would be a disservice to the future of the workers themselves and would only benefit the profits of vested interests. Instead, companies will have the task of innovating and, when accessing public support, will have to be subject to conditionality to present industrial and investment plans consistent with decarbonization goals, for a socially just transition.
An unambitious or unjust transition would increase social and intergenerational tensions, undermine political support for decarbonization and European action, and risk creating a front of opposition to both the transition and Europe itself.
Without a decision-making process and a new climate governance, it will be difficult for Italy to identify its goals and the strategy to achieve them. Without a clear and effective negotiating position on the various dossiers within the package, Italian interests will be absent, poorly presented or reflective of vested interests that are more able than other forces to influence policy and institutions and thus Italy’s position in Brussels.
The two dimensions of governance – who and how we make decisions and what implementation system we use – provide the foundation for building a strong and positive Italian position on the Package:
- Having a clear and effective national decision-making process, with the goal of developing an Italy’s position that is recognizable internally and externally to the institutions, is key to ensuring that there is an effective channel of communication between the political side, responsible for defining national priorities and the overall framework of the position, and the technical officers, responsible for the operational management of individual dossiers. It is therefore necessary to establish the interaction between the new CITE and the structure institutionally responsible for defining the national position (CIAE and its CTV).
- An appropriate governance structure is needed guided by a clear political vision, resilient to changes in the legislature, and balanced (i.e., not volatile going from “bloodbath” to “necessary” transition and back again). This structure must ensure that technical and policy choices are consistent with the 2030 and 2050 climate goals, highlighting points of interest and potentially critical ones. From this, and based on transparent, shared, updated and detailed climate scenarios (the PNIEC and the Long Term Strategy, LTS, are not sufficiently detailed for this purpose), an in-depth analysis of the various components of the Package and their impacts must be developed. Without these analyses, it is impossible to develop coherent energy, residential, industrial, and transportation policies appropriate to decarbonization goals, nor welfare and social policies necessary to ensure a just transition without social imbalances.
Going back to the instruments of the Package, it is worth noting the problematic proposal of the Carbon Border Adjustment Mechanism (CBAM), i.e. a duty on imports of steel, cement, fertilizers, aluminum and electricity depending on the carbon content and in the absence in third countries of carbon pricing systems (ETS) similar to the European one. However, so far there is no evidence to support carbon leakage effects due to the ETS as shown by the EU Commission’s report for the EU Parliament in April 2020.
CBAM is a complex tool to implement due to the lack of reliable and comparable data on the emission intensity of imported products and a system to verify this data. Internationally, the CBAM is even more problematic because it imposes a transition model with little regard for the social and economic impacts of those who suffer it and with respect to the significant negative repercussions on international collaboration and solidarity. For the most exposed, vulnerable and least developed countries, the CBAM does not provide for a redistribution of resources to their benefit and is perceived as a protectionist measure that uses the economic strength of the EU to cement the dominance of its industry. This spirit goes against the multilateral spirit of the Paris Agreement and damages the credibility of the EU.
That said, the geopolitical “threat” function of the CBAM and some positive effects of movement in the desired common direction on some G20 countries, such as Russia and Turkey, is undeniable. Less clear and more negative effects on cooperation with China and India seem at the moment. Nevertheless, CBAM may be more functional as a geopolitical tool in the form of ‘last resort’ than as a leading policy in support of global decarbonization.
Fostering the transition of all countries through international cooperation means first of all aiming at the shared adoption of high standards of products and services, such as eco-designs, sharing of know-how, encouraging structural investments with the promise of productive investments, also through the new European Global Investment Initiative (Global Gateway), and through the creation of privileged green markets between the EU and international partners. EU credibility and concrete climate results would be achieved less through a complex and unproven economic instrument such as the CBAM and more through an increased EU contribution to international climate finance, in particular to support decarbonisation and resilience of the least developed and most climate vulnerable countries.
Italy has the opportunity to be the spokesperson in Europe for these collaborative and ambitious solutions. This renewed role of climate leadership would also be combined with a greater presence on regional issues relating to the Mediterranean basin and Africa, where a role of accompaniment and management of the ecological transition is needed for a “Green Deal diplomacy” that, instead of protectionist measures, puts in place resources in favor of greater cooperation to advance the climate agenda. At the same time, it is necessary to open up to the countries of the Mediterranean and the African continent through a dialogue based on cooperation, taking into account the specific and differentiated needs of the various countries, their different resource endowments and different stages of development. With the European Union-African Union Summit scheduled for February 17-18, 2022, Italy must remain at the forefront in leading this effort to rethink cooperation between Europe and the Mediterranean-Africa region. Finally, the strategic autonomy of this approach must not be based on protectionist and punitive impulses that undermine universal European values and international cooperation, but on the ability of the EU, and Italy, to formulate a strategic action of openness, innovation and collaboration – projecting it externally on the global chessboard – without renouncing a legitimate ultimate prerogative of protection.