Heavy energy-consuming industries face a €20 billion reduction in CO2 emissions.
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Italy is facing a significant increase in the cost of decarbonizing its hard-to-abate (Hta) sectors, which include ceramics, chemistry, cement, integrated steel, electric arc steel, paper, glass, and foundries. These sectors, which account for approximately 64% of total direct Scope 1 emissions and about 18% when considering Scope 2 emissions, are highly energy-intensive and pose significant challenges for decarbonization.
The escalation in decarbonization costs is driven largely by high prices of renewable fuels (like hydrogen), rising carbon permit prices, capital-intensive infrastructure upgrades, and stringent regulatory requirements.
One of the main contributors to the rising costs is the higher cost of low-carbon alternatives such as renewable and blue hydrogen. These alternatives are estimated to be approximately 6 times and 4 times more expensive than natural gas respectively between 2025 and 2030. Since hydrogen is a critical input in many hard-to-abate sectors like heavy industry, this substantial cost differential drives up overall decarbonization expenses.
Another factor is the rising carbon emission allowance prices within the EU Emissions Trading System (ETS). The inclusion of new sectors under ETS2 and increasingly stringent regulatory requirements increase operational and capital expenditures for compliance and energy efficiency measures. As of now, the price of carbon emission allowances in the EU ETS has reached about €72.50 per ton of CO2.
Capital expenditure needs for infrastructure upgrades and energy efficiency retrofits driven by accelerated energy transition policies and EU carbon targets add to the financial burden, especially on utilities and heavy industry players. For instance, an Italian utility (Iren) faces rising net financial debt due to such investments, indicating the scale of required capital.
Regulatory mandates and ESG-driven transformations in sectors such as fuel retail are also influencing investment levels. Italian regulatory targets like a 60% gas share reduction by 2030 and a 131 GW renewable energy target create a policy push requiring capital-intensive shifts towards clean energy solutions like EV charging and biofuels, which increase transition costs initially.
Uncertainty in carbon markets and energy prices further complicate cost estimates. While emission allowance prices and market mechanisms aim to incentivize decarbonization, their volatility (e.g., planned auctioning of increased permit allowances and market stability reserves) affects budgeting and risk premiums.
To address these challenges, acceleration of the timelines needed to obtain decarbonization funds is necessary. Additional support for the development of new technologies, particularly CCUS projects and direct reduced iron production in Taranto, is needed for Italy's decarbonization. Stimulating demand, particularly in the industrial sector, is crucial for hydrogen projects.
An incentive system for the use of alternative energy sources and fuels, which would reduce operational costs, particularly for the industrial sector, is needed in regulation. The new Pniec, the National Integrated Energy and Climate Plan, has been sent to Brussels, outlining the route to 2030 with more challenging targets than in 2019. The document correctly identifies the levers to focus on: renewable energy, biomethane, hydrogen, CCUS, and energy efficiency. The main levers for achieving net-zero emissions in Italy include electrification of processes, use of green fuels, CCS projects, digitalization, and circular economy.
While the estimated cost of decarbonization for Italy's hard-to-abate sectors by 2030 is expected to increase significantly, not acting on decarbonization could be more costly in the long run. The decarbonization path will allow Italian industry to remain competitive and preserve jobs and GDP. Decarbonization in Hta sectors is necessary to create a new innovation paradigm that will make a difference in the market.
- The environmental science field is crucial in addressing the challenges posed by decarbonization in Italy's hard-to-abate sectors, as innovative strategies and technologies, such as CCUS projects and direct reduced iron production, can potentially reduce costs and ensure competitiveness.
- The finance industry plays a significant role in Italy's decarbonization efforts, as investment in hydrogen projects, energy efficiency retrofits, and clean energy solutions like EV charging and biofuels contributes to the transition costs and can impact the competitiveness of the industrial sector.
- The energy sector, particularly the production and utilization of hydrogen, is vital in the decarbonization of Italy's hard-to-abate industries. The high costs of low-carbon alternatives like renewable and blue hydrogen necessitate exploring more affordable energy sources that can contribute to a cost-effective decarbonization pathway while ensuring industrial competitiveness.
