🧵The Italian government has approved a decree to reduce...
Carlo Stagnaro 🏴🇺🇦@CarloStagnaro
13 views
Mar 04, 2026
~2 min read
Advertisement
1
🧵The Italian government has approved a decree to reduce #electricity prices. Its core measure intervenes in the day-ahead market, drawing on the Iberian "tope al precio". Will it work? It's complicated
bloomberg.com/news/articles/… 1/n
bloomberg.com/news/articles/… 1/n
2
The mechanism subsidizes gas-fired generators, lowering their effective marginal costs and, in principle, the system marginal price 2/n
3
It is conceptually akin to the Iberian model and is likely to encounter similar limitations and implementation challenges cepr.org/voxeu/columns/… @LionHirth 3/n
4
The subsidy has two components: exemption from gas transport levies and compensation for #ETS-related costs. The measure is financed through a tariff on electricity consumers 4/n
5
As gas accounts for ~40% of Italy’s generation, each euro of subsidy could yield ~1.5 euros in gross consumer benefit 5/n
6
Lower marginal costs should reduce day-ahead prices. Consumers benefit; gas generators are compensated; infra-marginal producers lose rents. However, as Yogi Berra said, in theory there is no difference between theory and practice. In practice there is 6/n
7
First, the measure likely requires approval by the European Commission as state aid. The ETS-related component is particularly problematic. If replicated elsewhere, such schemes could undermine the EU ETS framework 7/n
8
ETS reform may be justified, but it should occur at EU level through coordinated action. Unilateral national interventions risk fragmenting carbon pricing and weakening policy credibility 6/n
9
Second, lower Italian day-ahead prices could, at times, fall below those in interconnected markets (e.g. Germany), turning Italy into a net exporter (as occurred in Spain, but in a context characterized by significantly greater interconnection capacity) 7/n
10
Such flows could increase gas consumption, upward pressure on fuel prices, and potentially emissions – partly offsetting the intended effects of the measure. Italian consumers would effectively subsidize foreign demand 8/n
11
Third, the decree assumes full pass-through of cost reductions into bids. To assure this will happen, the decree requires regulatory verification insofar as only opportunity costs estimable at negotiation would justify prices above marginal cost 9/n
12
This introduces a form of administrative price control into a liberalized wholesale market. These policies have never worked and never will - as demonstrated by previous attempts to prevent the pass-through of "windfall profit taxes" in the energy sector and elsewhere 10/n
13
Notably, the regulator recently investigated possible economic withholding by large generators under #REMIT. If anti-competitive conduct exists, REMIT provides the appropriate legal basis rekk.hu/research-paper… 11/n
14
Addressing market power through existing rules is preferable to ad hoc price controls. The decree responds to a legitimate concern - Italy’s electricity prices. However, the proposed solution may prove legally fragile, economically distortionary, and operationally complex n/n
15
cc @JMGlachant @epicenterEU @RadovanDurana @mayerandrew @thierry_bros @vtchakarova @degiorgiod @JavierBlas @SStapczynski @MichaelGiberso3 @knowledgeprob @steve_hanke @Ed_Crooks @JesseJenkins