Italian Prime Minister Giorgia Meloni’s government is heading for a showdown with Brussels over a key pillar of the EU’s green deal after Rome proposed to cut power bills by stripping carbon costs from wholesale electricity prices.
Meloni’s government has been under fierce pressure from Italian industries to reduce the country’s persistently high energy prices, which manufacturers complain have eroded their competitiveness.
To tackle the problem, Rome is seeking to overhaul the country’s electricity market by shifting the burden of paying for EU permits to emit carbon from gas-fired power plants to consumers.
Rome says this should lower bills, as the most expensive form of electricity generation, usually gas, currently sets the price for all companies, even if they are producing renewable power and do not need to buy permits. These account for up to a quarter of the wholesale price of electricity.
In a video message explaining the proposals, which require EU approval, Meloni called the current system a “de facto tax imposed by Europe”.
She said her government wanted to separate the cost of carbon permits “from the pricing of renewable electricity such as hydroelectric or solar, to lower costs”.
But analysts warn the scheme is likely to meet fierce resistance in Brussels as lower wholesale prices will sharply reduce clean revenues at energy companies, at a time when Italy’s renewable rollout is lagging behind other EU economies.
The EU Emissions Trading System (ETS), which forces heavy polluters to buy permits, is a centrepiece of the bloc’s push to discourage fossil fuel use and promote more renewables development.
“[The Italian scheme] is tantamount to eliminating carbon pricing from the electricity sector,” said Carlo Stagnaro, an energy economist at the Bruno Leoni Institute, a liberal think-tank. “At the end of the day, it has the same effect as [a] tax on renewable energy.”
A spokesperson for the Italian renewable energy company ERG Group said the measure was a “cure worse than the disease” and would result in a “push for gas”.
Massimo Schiavo, lead analyst for Italian utilities at S&P Global Ratings, also questioned the extent to which it would lower bills as it will not affect output from renewable energy generators under fixed-price contracts.
Italy’s proposals come as the cost of electricity and decarbonisation are high on the agenda across Europe. German Chancellor Friedrich Merz recently suggested that the ETS be watered down to give breathing space to the EU’s heavy industries.
Brussels plans to present its own options in March for EU energy market reforms that could ease costs.
A spokesperson for the Commission said it was aware of Rome’s proposals, adding: “As a general point, it is for member states to decide if they wish to support a specific company or sector. If they decide to do so, it is for them to ensure that any measures are in line with EU law.”
Analysts warned that if Rome succeeded in lowering bills, other countries may follow suit.
“In the current geopolitical climate, it’s an important move because if it gets approved, then it sets a precedent and this might spread across Europe,” said Jean-Paul Harreman, director at Montel Analytics. In Britain, shadow energy secretary Claire Coutinho said the opposition Conservative Party would remove the carbon tax if it returned to power.
Matteo Leonardi, co-founder of Italian climate change think-tank Ecco, said the scheme appeared designed to fuel a confrontation with the EU ahead of Italy’s general elections next year, potentially allowing Meloni to shift the blame to Brussels for Italy’s energy woes at a time of sluggish economic growth.
“What Italy wants to do is raise a conflict with the EU on its climate package, and at the national level they want to sell the idea that they have tried to reduce the price of electricity but Europe will not allow us,” Leonardi said. “At the EU level, they want to criticise and jeopardise the whole mechanism of the emissions trading system.”
Italy’s industry minister, Adolfo Urso, recently called for the ETS system to be suspended on all industries, not just power generation.
Domestic protests are already mounting. More than 150 Italian scientists and economists, led by the Nobel Prize-winning physicist Giorgio Parisi, wrote an open letter to Meloni’s government recently, warning against moves to weaken Europe’s “decarbonisation tools”.
Italy’s industrial association Confindustria has long pleaded for relief from power bills. It estimates that Italy’s electricity prices were 30 per cent higher than the EU average in the first half of 2025, eroding competitiveness. Italian industrial output contracted 0.2 per cent in 2025, following a sharper drop of 4 per cent in 2024, according to statistics agency Istat.
Rome’s new scheme — which must be approved by parliament before being sent to Brussels for its approval — would see the government reimburse gas-fired power producers for the cost of carbon permits, using funds raised directly from electricity consumers.
But Stagnaro warned that “the entire mechanism could backfire” if it leads to such a sharp drop in wholesale prices that other countries start to import more electricity from Italy, increasing gas use. Italians would then pay carbon permit costs for consumers elsewhere.
“If you want to reform this you have to do it at the European level, not at the member state level or it would just be a mess,” he said.
