Italy advocates for EU ETS reform amid energy challenges

Italy's steel industry is urging the EU to address perceived structural distortions in the EU Emissions Trading System, arguing that Italy's reliance on gas for power generation puts its energy-intensive producers at a disadvantage compared to competitors in countries with nuclear or coal-based energy systems.

Antonio Gozzi, chairman of the Italian steel association Federacciai, emphasized the significance of Prime Minister Giorgia Meloni's recent discussions at the EU level regarding the ETS. He noted that this marks the first time critical issues surrounding the ETS have been prominently featured in political debates in Brussels. "Several countries are paying attention to this approach," Gozzi said, highlighting the growing recognition of Italy's energy challenges.

Italy's energy landscape is characterized by a greater reliance on natural gas for electricity generation than many other European nations, leading to higher indirect ETS costs for consumers. Gozzi pointed out that this reliance results in Italy having the highest electricity prices in Europe, compelling the government to implement protective measures for energy-intensive sectors, which are significantly affected by the price disparities with French and German companies.

With the EU now formally considering these issues, Gozzi stressed the importance of sustained engagement from Rome to ensure the country's competitiveness and align with broader European energy policies. "It will be essential to follow the dossier with continuity and attention," he said.

As Italy pushes for ETS reform, the European steel market faces cost pressures, with mills raising prices despite cautious buyer sentiment. In response, the Italian government is expected to unveil a reform package aimed at reducing energy costs for consumers, which Meloni announced ahead of an informal meeting with EU leaders.

Platts, part of S&P Global Energy, assessed domestic hot-rolled coil in Italy at Eur650/mt ex-works on Feb. 13, up Eur5 day over day, and up Eur35 since the start of the year.

Meloni described the high energy costs as a "serious problem" for the country's industry, underscoring the urgency of the situation. Federacciai has communicated to policymakers that the debate surrounding ETS reform transcends climate policy, framing it as a critical issue for Italy's industrial competitiveness, particularly for energy-intensive sectors such as steel.

The European Commission has pledged to review the ETS in the third quarter, with some member states pushing for greater price predictability through extended free allocations or changes to allowance caps.

Under current rules, free allocations are set to be phased out completely by 2034 for sectors covered by the EU's Carbon Border Adjustment Mechanism.

European carbon prices -- known as EU Allowances -- have slumped by almost Eur22/metric ton of CO2 equivalent since Jan. 15 after several member states called for the EU ETS to be watered down to boost the bloc's industrial competitiveness.

Gozzi reiterated that the ETS's structural distortions have led to sustained price disadvantages for Italian producers, necessitating state support to mitigate the impact on energy-intensive consumers.

In contrast, German Chancellor Friedrich Merz recently expressed a more favorable view of the ETS, calling it an "effective system" that fosters growth, a shift from his previous stance advocating for revisions. French President Emmanuel Macron and European Commission President Ursula von der Leyen have voiced support for the ETS, opposing significant changes.

As the Carbon Border Adjustment Mechanism prepares to alter trade dynamics, stakeholders are closely monitoring whether Italy's elevated push for ETS reform will lead to tangible changes that could alleviate electricity price disparities within the EU.