Andrea Marega
Ughi e Nunziante, Rome
a.marega@unlaw.it

Energy transition is a high priority on the European Union’s agenda. It has led to Italy introducing a radical reform to its energy supply system. This has taken place in the threefold political and regulatory direction of maximising the use of renewable energy sources, increasing domestic natural gas production and reducing the use of hydrocarbons.

This renewed geopolitical and regulatory framework has forced oil and gas industry operators to reinvent systems and business models. These operators are now called upon to play a key role in both the development of a green energy system and to achieve EU targets.

Policies adopted by the Italian government in compliance with the EU Directive

The 2012-2020 targets

Over the past four years, energy transition has taken special priority on the EU’s agenda through the Clean Energy Package and the ‘Fit for 55’ package. Its fundamental goal is to change energy production, distribution and consumption through a shift to the use of green energy, the promotion of a sustainable economy and energy conservation.

In Italy this directive has resulted in measures to maximise the exploitation of renewable energy sources^[1] and gas,^[2] and impose strict bans or limits on the exploration and cultivation of fossil fuels.^[3]

Italy has contributed to the achievement of the three pivotal targets set at the EU level by:

• a 20 per cent reduction in greenhouse gas emissions compared to 1990 levels by 2020 (a threshold that will be increased to 40 per cent by 2030;
• a 20 per cent improvement in energy efficiency in terms of primary and final energy consumption; and
• the use of energy produced from renewable sources to equal at least 20 per cent of total consumption.

Italy has reduced emissions in energy-intensive industrial sectors (including petroleum refineries, steel mills and production of iron, metals, aluminium, cement, lime, glass, ceramics, pulp, paper, paperboard, acids and large-scale organic chemicals) and in civil aviation, by nearly 50 per cent. In non-energy-intensive industrial sectors, Italy has reduced emissions by approximately ten per cent compared to the initially required effort of minus 13 per cent. With regard to the share of energy produced from renewable sources in total consumption, Italy has made a contribution of 22 per cent, which exceeds the target.

2021-2030 targets, data recorded in 2022, and forecasts

In 2020, Italy adopted the Integrated National Energy and Climate Plan (PNIEC) for the period 2021-2030. In July 2023, the Italian Ministry of Environment and Energy Security sent the European Commission a proposal to update the PNIEC, made necessary by the adoption of the 2021 ‘Fit for 55’ Package, which upgraded the threshold for reducing greenhouse gas emissions, already set at 40 per cent, to at least 55 per cent below 1990 levels by 2030.

During 2022, Italy was greatly affected by the international crisis caused by the war in Ukraine, with primary energy demand falling by 4.5 per cent. Gross energy availability in 2022 consisted of 37.6 per cent natural gas, 35.7 per cent oil and petroleum products, 18.5 per cent renewables, five per cent solid fuels, 2.5 per cent electricity, and 0.8 per cent waste.

The share of net imports in gross energy availability increased from 73.5 per cent in 2021 to 79.7 per cent in 2022, confirming Italy’s dependence on foreign sources of supply. In particular, there was an increase in imports of oil and petroleum products and solid fuels, which was partly offset by a reduction in natural gas imports.

With reference to domestic production, there was an eight per cent reduction in production from the previous year, mainly attributable to the decline in energy produced from renewable sources. This was caused by the collapse of hydroelectricity due to adverse weather, and lower production of oil and petroleum products.

Italian energy policy has been focused on issues relating to diversifying the origin of imported gas, as opposed to obtaining gas from Russia. For instance, the agreement signed for the gradual increase in gas imported from Algeria, which in itself is not going to solve the problem of dependence on foreign players for gas supplies, and the short-term increase in gas imports from the Trans Adriatic Pipeline (TAP) pipeline.

These policies have been accompanied by others aimed at taking urgent measures to increase domestic natural gas production.

New challenges facing oil and gas

Even today, approximately 80 per cent of global energy consumption comes from fossil fuel sources: in 2020, global energy-related CO2 emissions amounted to 40 billion tonnes, of which nearly two-thirds related to the oil and gas industry.

In the ‘green’ context of global energy development, the oil and gas industry is being called on to transform activities and business models in order to reduce its greenhouse gas emissions drastically.

The industry as a whole now has an opportunity to lay foundations for the Earth’s energy future.

In Italy, thanks to policies which support research and technological innovation in energy supply and the allocation of funds to support oil and gas companies, most of latter have made strides in reducing their carbon use and are considering which investments and technologies could facilitate further progress. Such policies include: upgrading facilities, especially those relating to methane gas extraction, to limit CO2 emissions; reducing flaring; lowering consumption in drilling operations; and introducing innovative technologies such as carbon sequestration.

Over half of International Petroleum Industry Environmental Conservation Association member companies have committed to achieving zero emissions.

A first lever is the elimination of almost all emissions in the footprint classes called Scope 1 (direct emissions) and Scope 2 (indirect emissions from energy consumption). Although many companies have made progress in reducing waste emissions from gas flaring or methane leakage, widespread deployment of renewable energy and massive inclusion of electric or biofuel vehicles in corporate fleets becomes urgent to help bring emissions close to zero.

Second, many companies are investing in and implementing net carbon technologies. However, from a practical point of view, the only way of achieving near-zero emissions in the next few decades may be to make use of technologies which remove carbon from the product lifecycle with carbon capture and storage technologies.

Many companies are reducing emissions through the increased use of natural gas, more efficient engine power systems, and the development of low-carbon mobility technologies such as electric vehicles, biofuels, liquefied natural gas, ammonia, and fuel cells.

Low-carbon hydrogen will be able to help sectors such as heavy industry dramatically reduce emissions, as well as offer large-scale, long-term support for renewable energy.

With lower emissions than other fossil fuels and a dispatchable energy source, natural gas will also be a key tool in the energy transition if methane emissions can be controlled throughout the value chain.

Investors too, are becoming a strategic driver of decarbonisation, shifting their focus to the environmental impact of oil and gas production through investments focused on Environmental, Social and Sustainable Governance.

Operators active in oil and gas are also increasing their exposure to the emerging bioenergy segment.

Ultimately, the challenge for the oil and gas industry is not only to adapt to a changing investment and policy landscape, but also to evolve in a way that drives the greening and decarbonisation of the energy system.