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Making the most of Italy's energy resources

Digital format, 30/11/2020, National Interest

In stark contrast with the past, any analysis of the year 2020 is dominated by the profound impact of a pandemic so capricious as to thwart any attempt at predicting the future. The fundamental question is whether the change has been a structural one and, as regards energy, if it is capable on its own of accelerating or slowing decarbonization, given the fact that the energy industry remains a prime sector within which to seize recovery-related opportunities.

Apart from the specific features of the recovery, we need to work out how to generate economic and market changes whose structural durability will depend on one key element: consumer habits. The good news is that CO2 emissions in 2020 are expected to have fallen by 7% to slightly higher than the 30 billion tons of ten years ago.

Nevertheless, it is risky to consider such an emissions reduction a structural given; on the contrary, the pandemic crisis threatens to unleash forces that could slow decarbonization processes – first among them a global slump in sector investments. There are, however, some optimistic signs regarding decarbonization since, despite the drop in energy investments, demand for renewable source energy has remained stable, as seen in the (still marginal) rise in the sale of electric cars.

As for Italy, it is obvious that significant efforts are going to be required, in terms both of renewable source development and of efficiency. Equally important will be the capacity to stimulate the development of large-scale mature technologies such as hydrogen and Carbon Capture Utilization and Storage.  Electrical power will suffice to a certain point, but the rest will be based on molecules, with a growing role precisely for hydrogen – consideration of which requires distinguishing between various technologies. The key word here is partnership: copying the typical model of the major oil companies and generating inter-business collaboration to create hydrogen.

When talk turns to the Green Deal climate goals, not everyone is aware of the magnitude of the challenges. As far as Italy is concerned, the increased 2030 goal of reducing CO2 emissions to 55% as compared with 1990 means a target of 40% renewable energies in the total mix, and of 55% for electricity generation. In order to achieve that goal, Elettricità Futura estimates a need for 100 billion euro for everything from generation to storage. Moreover, 6.5 GW of installed capacity would be needed annually, compared with the historic average of 1GW – at this rate the energy objectives would not be reached before 2085.

The risks involved include the fact that the financial world seems unconvinced that the energy sector is capable of responding ably to changes that are going to be rapid and take place in the space of a single generation. The tragedy of the pandemic shows that an attempt is being made to eliminate the concept of the conflict between growth and the climate challenge, as the EU’s strategy demonstrates. Nevertheless, although the strategy is clear, the operational details for translating words into action are still missing.

An additional important element to be considered during the recovery phase is the inelastic deformation the energy sector’s structure, which differs significantly from the 2009 crisis, whose V-shaped recovery essentially followed pre-crisis criteria, dogmas, rules and perspectives. In general, what is needed today is a more resilient economic system, and the energy sector has a central role to play in this. Subsidies and government aid will not be enough given the limited nature of resources – indeed, it is especially urgent to confront the social emergency in this phase.

While it is true that the Covid-19 emergency has accelerated the transition, as witnessed by the rise in European objectives announced during the pandemic, it is also indispensable to create financial and regulatory decarbonization instruments since this is a perfect opportunity to pair growth with sustainable development.

Nevertheless, overly rapid acceleration is to be avoided as that could lead to a distorted sense of urgency capable of deteriorating into a loss of control. The nation has proven its resilience, but new technologies and innovation are going to be crucial. Issues must be confronted with a holistic approach and the awareness that traditional sources and domestic energy production also play a key role, especially in terms of supply security, wealth creation and energy cost containment.