Executive summary
Italy’s energy system has changed notably since 2010 and today the country’s energy mix includes more natural gas and renewable energies and less coal and oil. From a lower base than the IEA average, Italy’s energy intensity, measured by the ratio of total final consumption (TFC) to gross domestic product (GDP), declined by 15% between 2005 and 2021, reflecting a shift in the economic structure from industrial to the service sector combined with energy efficiency improvements. Italy is on track to reach the emissions reductions and energy efficiency targets set in its National Energy and Climate Plan (NECP) for 2030. However, it will need to make substantial additional efforts to meet the much more ambitious new targets for 2030 stemming from the European Union’s (EU) Fit-for-55 (FF55) package (and that are still being defined in the EU legislative process) as well as to align with the even more ambitious objectives proposed by the REPowerEU plan aimed at rapidly reducing the European Union’s dependence on Russian fossil fuels. Italy reduced total greenhouse gas (GHG) emissions by almost 30% between 2005 and 2019. There was an additional strong dip from 2019 to 2020 largely due to the Covid-19 pandemic, but preliminary data show a noticeable rebound of emissions in 2021, although they were still 4% lower than in 2019. Italy is committed to achieving carbon neutrality by 2050.

Buildings have been the largest energy-consuming sector since 2008, accounting for some 40% of TFC. Transport and industry have hovered around 30% of TFC each in the last decade. Natural gas covered more than half of energy use in buildings in 2021. Nonetheless, buildings are the sector with the highest share of demand covered by renewables (25.3%), mainly bioenergy and renewable electricity. Oil is by far the dominant fuel used for transport (89% in 2021). Electricity, oil and natural gas contribute nearly equal shares to industrial energy use

Energy demand by sector and fuel in Italy

TFC followed a trend similar to TES, but declined at a slower pace. In 2021, TFC was 17% below its 2005 level. It dropped by 9% in 2020 as a result of the Covid-19 pandemic, but rebounded in 2021 by 9%, returning to a similar value as in 2019. Industry accounts for most of the decrease in TFC. Industrial energy use declined markedly between 2008 and 2013 but has stabilised since (Figure 2.3). Energy use in buildings hovered around the same level for most of the last decade and started to decline in 2018, in part as a result of energy efficiency measures. Transport energy demand declined by 14% between 2005 and 2019, although at a slower rate in the second half of the 2010s. It fell by 19% in 2020 due to the pandemic, but rebounded by 22% in 2021. Oil use decreased accordingly. In the medium term, some lifestyle changes induced by the pandemic may result in higher energy use (e.g., preference for private cars and higher consumption in homes when teleworking).

Greenhouse gas emissions profile
Between 2005 and 2019, total GHG emissions in Italy, excluding land use, land-use change and forestry (LULUCF), declined by 29% (Figure 3.1). GHG emissions started to drop remarkably with the global financial crisis of the late 2000s and continued to decline, albeit more slowly between 2015 and 2019. They decreased in all sectors, and mostly in energy industries and manufacturing. In 2020, emissions fell to 381 million tonnes of carbon dioxide equivalent (Mt CO2-eq), or by 9% from 2019.1 This was a consequence of the exceptional restrictions on social and economic activity to contain the spread of Covid19. The largest drop was in transport emissions (Figure 3.1; ISPRA, 2022b). Preliminary estimates indicate that 2021 GHG emissions were 6.8% higher than in 2020 (above the projected 1% growth), due to economic recovery and increases in transport activity (ISPRA, 2022c). Italy’s LULUCF has acted as an emission sink, absorbing an average of 34 Mt CO2-eq per year from 2005 to 2020.

Greenhouse gas emissions by sector in Italy, 2005-2021

CO2 accounts for 79% of Italian GHG emissions. Methane (excluding LULUCF) has averaged about 10% of the country’s GHG emissions in the last decade. Agriculture is the main source of these emissions, followed by waste management. Fugitive emissions account for a relatively low share of methane emissions (9% in 2020). They originate mainly from the extraction of natural gas and oil. These emissions declined by 12% between 2005 and 2019, due to declining domestic production of oil and gas. However, they grew by 2% in 2020 following an increase in oil production.

Climate policy and targets EU requirements have been the main driver of Italy’s progress in planning for climate mitigation and integrating it with energy policy. Like other EU member countries, Italy has GHG emissions mitigation targets for 2020 and 2030 that are defined within the EU climate policy framework and are communicated internationally to the UNFCCC. Italy’s 2019 NECP sets national targets to 2030 in line with the 2030 EU Climate and Energy Package, which aimed to reduce EU-wide net GHG emissions by 40% from 1990 levels. The European Green Deal and the 2021 European Climate Law raised this target to -55% by 2030 compared to 1990 levels. The EC proposed a legislation package, the so-called “Fit-for-55”, to achieve the new -55% target. Italy will have to update its NECP in 2023 and align it with the enhanced EU targets. Italy’s ETP 2021-2050, adopted in March 2022, endorses the -55% target at the national level, as well as the carbon-neutrality goal by 2050. The LTS, adopted in January 2021, outlines possible pathways to reach carbon neutrality by 2050.

2020 and 2030 greenhouse gas emissions reduction targets for Italy and the European Union

Overview Italy shows a decoupling of economic growth and energy consumption since 2010. However, this appears to be partly driven by the economic downturn and fallout from the Covid-19 pandemic on economic activity and mobility. Based on consumption data for 2020, Italy is well on its way to reaching the energy efficiency targets set for 2030 in its NECP. However, data for 2021 show that energy consumption bounced back to 2019 levels, and as the economy starts recovering from the current dual crisis, reaching the 2030 targets may become more challenging. Moreover, current policy measures may not be sufficient to realise the likely increased ambitions for energy efficiency under the EU FF55 policy, the legislative process of which has not yet been finalised, and enhanced efforts across all sectors are required. Natural gas is the second-largest fuel in TFC after oil, and Italy relies heavily on gas imports from Russia. Italy aims to become independent from Russian gas imports by 2025 Improving energy efficiency, especially in the building sector, will be an important contribution to reducing and eventually ending Italy’s dependence on Russian gas.

Energy demand Italy’s TFC broadly followed the trend in GDP until 2010. Since then, energy demand has progressively decoupled from economic performance. The final energy intensity of the economy (as measured by the TFC/GDP ratio) declined by 7% between 2011 and 2021. TFC decreased at a faster pace than GDP during the economic recession between 2010 and 2013, mainly due to a drop in industrial energy use over the same period. Energy demand tended to stabilise in all sectors between 2014 and 2019, then fell markedly in 2020 as a result of the Covid-19 pandemic. The drop was particularly steep in the transport sector, due to the restrictions on mobility. In 2021, TFC bounced back to a level similar to that of 2019, driven by the rebound of transport sector demand.

Energy demand and drivers in Italy, 2005-2021

Total final consumption by sector in Italy, 2005-2021

Road transport (passenger and freight) and residential space heating are the largest final consumers of energy in Italy. They both heavily rely on fossil fuels, namely natural gas for heating and oil for transport. In addition to reducing energy consumption in these sectors, there is large scope for shifting to renewable electricity to lower the CO2 footprint of these sectors.

Renewable energy supply and demand TFEC1 from renewables more than doubled between 2005 and 2020. The share of renewables in TFEC increased from 7% in 2005 to 16% in 2014 and hovered around that level until 2021. The electricity sector drove the growth of renewables, which was particularly fast between 2010 and 2013. In 2020, the share of renewables increased to 18% of TFEC, thanks to lower energy use due to the Covid-19 pandemic, while renewable energy use remained roughly stable at the level of the previous three years. In 2021, the share went back to 17%.

Renewable energy in total final energy consumption in Italy, 2005-2021

Italy exceeded its overall and sectoral renewable 2020 targets, as set out in the 2009 EU Renewables Energy Directive (RED) and Italy’s National Renewable Energy Action Plan (NREAP). Using Eurostat definitions, in 2020, the share of renewables was 20.4% of gross final energy consumption, above the target of 17%.2 Italy had already reached that target six years earlier. Bioenergy (solid and liquid biofuels for the direct use and production of electricity) is the main renewable energy source, covering 55% of total renewables consumption in 2021. Hydropower is the second-largest renewable source of energy, with variable production depending on temperature variation and water availability. It accounted for 20% of renewables use in 2021 (Figure 5.1). In 2022, an exceptionally dry year, hydropower generation could be 60% lower than historical averages (Assoidroelettrica, 2022).

Energy research, development and innovation policy Italy does not have a dedicated energy RDI policy document. Instead, several documents and strategies define its approach to energy RDI. The country’s latest NRP 2021-2027 sets the framework within which the overall national strategic research guidelines are outlined. The NRP is divided into six missions that align with the European Union’s Horizon Europe programme, the EU Framework Programme for Research and Innovation, and Italy’s National Strategy for Smart Specialisation. Mission 5 is dedicated to RDI in “climate, energy and sustainable mobility” (Italy, MUR, 2021). Mission 5 of the NRP is further divided into four sub-themes: 1) sustainable mobility; 2) climate change mitigation and adaptation; 3) industrial energy; and 4) energy and environment. This is the first NRP that was developed not only through consultations between the central government, the scientific community, and the state and regional administrations, but also with the participation of public and private stakeholders and civil society. This consultation process reflects a recommendation made in the last IEA in-depth review of Italy in 2016 to apply a multi-stakeholder process to define a policy for energy RDI (IEA, 2016). The government plans to define key performance indicators to analyse the achievements and impacts of the supported RDI, based on the results of monitoring and evaluation. However, the monitoring system is not in place yet. More generally, there is only limited information available about how Italy monitors, evaluates and tracks the results of RDI.

Electricity supply and demand Generation Electricity generation fluctuated around an average of 288 TWh between 2011 and 2021, below the levels of the previous decade. In the last ten years, the role of renewables in the electricity mix grew, while that of oil and coal declined. Nonetheless, Italy’s electricity mix heavily relies on fossil fuels, which accounted for 58% of total electricity generation in 2021. This is one of the highest shares among European IEA countries. Natural gas is the main source for electricity generation, covering 50% of total generation in 2021, the second-highest share among European IEA member countries (Figure 7.2). The share of natural gas decreased from 2010 to 2014, when it reached a minimum of 34%, to later increase again to compensate for the slowed growth of renewables and declining generation from coal and oil. Electricity generation from coal dropped significantly from a peak of 18% in 2012 to 5.6% in 2021, as a part of a plan for the coal phase-out by 2025. Oil decreased from 6.6% in 2011 to 2.7% in 2021. Italy had the second-highest dependence (23%) on electricity generation from Russian fuel imports among IEA member countries in 2021, just after Hungary. The main reason for this dependence is the high share of natural gas in electricity generation, combined with Italy’s high reliance on imports of natural gas from Russia (41% of natural gas net imports in 2021). Italy also depends on coal imports from Russia (62% of coal net imports in 2021). IEA analysis shows that an additional 2 GW of renewables (1 GW of solar PV and 1 GW of wind) would reduce Italian dependence on Russia for electricity generation by 1%.

Electricity generation by source in Italy, 2005-2021

Electricity generation by source in European IEA countries, 2021

Dependence of electricity generation from Russian imports, selected IEA countries, 2021

Map of Italy’s electricity system

The distribution grid is owned by approximately 140 distribution system operators (DSOs). However, four main DSOs deliver 94% of the electricity. These are e-distribuzione (Enel group, distributing 85% of total volume), Unareti (A2A Group, 3.9%), Areti (Acea Group, 3.6%) and Ireti (Iren Group, 1.3%).

Wholesale market The Italian spot electricity market consists of a day-ahead market and an intraday market. Both are managed by the electricity market operator, GME. The day-ahead market and the intraday market are based on a zonal approach, with seven market zones, as a consequence of the system topology and sensitivity, and due to transmission constraints between the zones (as mentioned above). The transmission network is represented in a simplified way, and network nodes are grouped into bidding zones. Producers and consumers submit hourly energy offers and bids. The clearing price is where the demand and supply curve meet, for each hour of each market zone, taking into account cross-zonal transmission capacity between the zones. This way, most of the internal network congestions are managed through energy markets thanks to the bidding zones configuration. Sale offers are settled at the hourly zonal price and buy offers are settled at the single national price (PUN), computed as the average of zonal prices, weighted according to the consumption in each zone. Sale prices are usually slightly higher in the northern zones than in the south. The PUN price has been increasing since the start of 2021 following the European gas crisis, it peaked in August 2022 to then decrease again, but still at much higher values than the period from 2010 to 2020.

Single national price of the Italian wholesale market, 2010-December 2022

The day-ahead market closes at noon of the day before the delivery day. The intraday market allows operators to update their bids in a combination of continuous trading and complementary regional auctions. The intraday market closes one hour before delivery. There is also an ancillary services market to ensure the reliability of the electricity grid. Terna acts as the central counterpart. Some plants (programmable plants larger than 10 MW) must participate on a mandatory basis in the ancillary services market and the balancing market. In addition, GME operates a forward electricity market, where specific volumes of electricity are sold for specific time frames.

Map of Italy’s gas infrastructure

In the past decade, Italy has invested in infrastructure facilitating the reverse flow of gas from Italy into northern Europe. In 2018, Snam, the gas TSO,1 completed upgrades at several northern compression stations to allow reverse flow into Switzerland. All of Italy’s northern gas interconnectors now have reverse flow capacity for exports.

There has been a significant rationalisation of refining capacity in Italy over the past decade with the closure of four refineries; the Gela refinery in Sicily was transformed into a biofuels processing facility while three other shuttered refineries were converted into storage facilities. Another refinery, the 84 kb/d Livorno plant, was supposed to stop processing crude in 2022, although the refinery’s closure has been delayed; Eni is considering converting the site into a biofuels refinery.

Map of Italy’s oil infrastructure

Additional rationalisation of refining capacity is highly likely in the future, given long-term projections of declining demand for oil products in the European Mediterranean and increased competition to supply European product markets from new, large-scale refineries in the Middle East and Asia. Eni is the most significant operator in the Italian refining sector with ownership of 4 of Italy’s 11 operational refineries (Sannazzaro, Taranto, Livorno and Porto Marghera). Eni also jointly owns the 200 kb/d Milazzo refinery in Sicily in partnership with KPI.

The International Energy Agency (IEA) regularly conducts in-depth peer reviews of the energy policies of its member countries. This process supports energy policy development and encourages the exchange of international best practices and experiences. Since the last review in 2016, Italy has raised its climate ambitions by aiming for carbon neutrality by 2050, and the country is on track to reach its 2030 targets for emissions reductions and energy efficiency. The government has taken encouraging initial steps to overcome the long permitting procedures, administrative burdens and increasing local opposition that have delayed new renewable installations. Italy in 2022 successfully reduced its reliance on Russian natural gas imports, by signing new contracts with alternative suppliers, making use of the pipeline and LNG infrastructure that it has built up over the last decade. Reducing overall demand for natural gas through an accelerated shift to alternative energy sources and a stronger focus on energy efficiency, especially in the building sector, will not only further strengthen energy security, but also help the country meet its climate targets.

Source:http://IEA