Italy is being urged to introduce a carbon tax and already has the legislation in place to support one.
Introducing a carbon tax may help Italy to ease its financial problems, argued Gianni Silverstini, an Italian researcher and scientific director of the Kyoto Club (an NGO pushing government to meet greenhouse gas reduction targets), in a campaign post last month.
Italy has been mulling carbon taxes for a number of years. The government introduced a finance law in 2012 that included a green tax, but it has never been implemented.
Revenue from a carbon tax would help the country to comply with EU budget deficit rules. The government is currently aiming to increase tax revenue by €2.5 billion via a fuel tax increase.
A €20 per tonne tax on CO2 emissions would generate €8 billion. Another billion euros per year could be generated by increasing royalties on raw methane extraction – currently €350 million euros – and on reducing fossil fuel subsidies.
As an EU member state, Italy has been part of the EU’s Emission Trading Scheme (EU ETS) since 2005. This ‘cap-and-trade system’ sets a maximum level of pollution and distributes emission permits for each tonne of CO2 that companies produce. The level of the cap determines the number of permits available.
Companies can obtain these permits through an initial allocation or auction, or through trading with other firms. Therefore, permits have a value as they allow companies to avoid making cuts on emissions. The EU ETS has been plagued by over-allocation of permits, windfall profits, price volatility and energy price inflation.
A carbon tax would impose a direct tax on emissions. Companies may emit as much as they like, provided that pay the associated tax. Carbon taxes therefore contribute to mitigating climate change while generating revenue for the state.
Countries to have adopted a carbon tax include Denmark (2002), Germany (via tax reform in 2003) and India (2010).