This presentation was made by Andrea Molocchi, Ministry for the Environment, Land and Sea, Italy, at the 1st Workshop on Green Budgeting held at the OECD, Paris, on 20 June 2018.

1. The Italian Catalogue of environmentally harmful
and environmentally friendly subsidies
Andrea Molocchi, senior environmental economist
Ministry for the Environment, Land and Sea, DG-SVI - TAU Sogesid S.p.A
Paris Collaborative on Green Budgeting
Experts Workshop: Mapping the forward Agenda and testing
initial outputs, OECD, Wednesday, 20 June 2018

2. Overview
• Why the Catalogue
• Definition and classification of environmentally subsidies
• Overview of the Catalogue’s main results
• Conclusions and main recommendations
• The Catalogue as a work in progress

3. Why the Catalogue
• Through Article 68 of the Law 28th December 2015, n. 221, the Italian Parliament has asked the
Italian Ministry of Environment, Land and Sea (MATTM) to provide a Catalogue of environmentally
friendly and harmful subsidies.
• According to the Law “the subsidies are considered in their broader definition and include, among
others, incentives, benefits, subsidized loans, exemptions from taxes directly related to
environmental protection”. It is a definition which matches with the OECD definition, widely shared
by most of the scientific community
• The Ministry, through its Directorate General for Sustainable Development and International
Affairs (DG-SVI) and the technical assistance of Sogesid s.p.a., has ensured the first version of the
Catalogue presented here, with the cooperation of other Italian administrations.
• The Catalogue will be updated and enriched yearly, within the 30th June of each year.

4. The policy context – International commitments
• G20 (Seul - November 2010): “rationalize and phase out over the medium term
inefficient fossil-fuel subsidies that encourage wasteful consumption”.
• G7 (Ise-Shima - 26-27 May 2016): “Given the fact that energy production and use
account for around two-thirds of global GHG emissions, we recognize the crucial role
that the energy sector has to play in combating climate change. We remain committed to
the elimination of inefficient fossil fuel subsidies and encourage all countries to do so by
2025.”
• Agenda 2030 – SDG 12c: “12.c Rationalize inefficient fossil-fuel subsidies that
encourage wasteful consumption by removing market distortions, in accordance with
national circumstances, including by restructuring taxation and phasing out those harmful
subsidies, where they exist, to reflect their environmental impacts, taking fully into
account the specific needs and conditions of developing countries and minimizing the
possible adverse impacts on their development in a manner that protects the poor and
the affected communities

5. The policy context – OECD recommendations
• Since the end of the 90s, OECD developed different reports and
methodological tools to identify and reform EHSs, in particolar
phasing-out FFS;
• Warning on subsidies «inertia»: in OECD countries, 2/3 of EHSs have
been introduced before the year 2000 (OECD, 2015);
• Introduce a systematic monitoring system of (current and in the
pipeline) direct and indirect subsidies, in view of their potential
environmental impact.

6. A subsidy
could be…
…a transfer of money from the State to a
private body
(WTO)
…a State action providing an advantage in
terms of revenue (income or minor cost)
(OECD)
…a difference between the observed price and the
marginal social cost of production, meaning the
cost that internalizes the impact to society
(IMF)
Alternative definitions of subsidy
In the Italian Catalogue
a subsidy is:
…a measure that reduces costs
for producers and consumers,
or that increases income for
producers or benefits for
consumers, through direct or
indirect support

7. Description Classification
Direct transfers of funds
On-budget Direct subsidies
Potential direct transfers of funds
Tax exemptions and rebates
Off-budget
Indirect subsidies
(Tax expenditures, tax credits,
etc.)
Preferential tax treatment of alternative
products
Foregone revenues
Selective exemptions from government
standards
Implicit income transfers resulting from a
lack of full cost pricing, even if required by
legislation
Subsidy types included in the definition

8. How do we classify our subsidies
 EFS: Environmentally Friendly Subsidy (aimed to protect the environment and
possibly justified through scientific literature)
 EHS: Environmentally Harmful Subsidy (justified through scientific literature,
impact indicators, guidebooks on external costs evaluation...)
 Uncertain: Either positive and negative environmental impacts. Difficulties in
applying external costs to aggregate impacts. Further investigations are needed
 Neutral: namely, a subsidy not impacting significantly on the environment
 Identifying subsidies
 Quantifying their financial impact on State budget
 Assessing subsidies from the environmental point of view
 Classification of subsidies
The assessment approach

9.  131 forms of subsidies examined, for an overall financial impact on budget
of € 41 billion;
 classification of subsidies into 5 categories (Agriculture, Energy, Transport,
reduced VAT rates, Other);
 75 tax expenditures examined, with a budget impact of about € 22 billion
 56 direct subsidies examined, with a budget impact of about € 19 billion
Subsidies examined by the first edition of the
Catalogue

10. Main results - Overview
As a general rule, all public
subsidies should either be
“environmentally friendly” or
“neutral” (namely, not impacting
significantly on the
environment). However,
according to the Catalogue,
environmentally harmful
subsidies (EHSs - SADs) totalled
16.2 billion Euros. The so-called
“uncertain” subsidies, which
entail both positive and negative
environmental impacts, account
for 5.8 billion.

11. 57%
(75 tax
expenditures)
43%
(56 direct
subsidies)
Breakdown of subsidies (number)
Spese fiscali
Sussidi diretti
Tax
expenditures
Direct subsidies
Tax
expenditures
Direct subsidies
Main results – breakdown of subsidies, per type

12. Main results – where do EHSs hide?

13. Main results – Energy EHS
Energy:
Tax expenditures = ca. € 11.2 bn (97%)
Direct Subsidies = ca. € 310 mn (3%)

14. VAT: ca. € 3.5 bn (100% tax expenditures)
Electricity for
domestic use
Natural mineral
waters
General fertilizers Petroleum products
for agriculture use
and fishery sector
Pesticides
Environmentally Harmful Subsidies (EHS) – VAT reduced rates

15. EHS allocation to beneficiary sectors
The financial cost (for the State
Balance) of 46 subsidy measures
has been allocated to beneficiary
sectors (64 NACE branches and 3
household consumption types).
Types of EHS allocated:
 5 direct subsidy measures
 6 subsidies through VAT
reduced rates
 6 subsidies on income taxation
(IRPEF/IRES)
26 subsidy measures on excise
duties on energy products
 7 other types of indirect
subsidies (free ETS allowances,
anchorage tax rebates, tonnage
tax regime…)

16. Main results – Environmentally Friendly Subsidies (EFS)
Where do EFSs apply?
Agriculture:
Direct Subsidies = ca. € 2.2 bn (99.8%)
Tax expenditures = ca. € 4 mn (0.2%)
Energy:
Direct Subsidies = ca. € 12 bn (99%)
Tax expenditures = ca. € 86 bn (1%)
Agriculture Transport Other VATEnergy

17. Solar Photovoltaic (FIP) Other RES ≠ PV
Main results – Environmentally Friendly Subsidies (EFS)
Energy

18. Payments for agricultural
practices that benefit climate
and the environment
Agri-environment-climate
payments
Organic agriculture Payments to farmers in mountain
areas and other areas facing
natural constraints
Main results – Environmentally Friendly Subsidies (EFS)
Agriculture

19.  The Catalogue is an informative instrument: it should be properly disclosed.
 Institutional monitoring of the environmental impacts and of the related external
costs of subsidized activities must be strenghtened.
 The introduction of specific environmental requirements/conditionalities in each
subsidy regulation can improve subsidy performance (from «uncertain» or
«neutral» subsidies to «friendly» subsidies).
 Calling upon fiscal allowances and tax expenditures seems to have facilitated the
approval of measures clashing with the environment, while opting for direct
transfers apparently makes such measures more easily consistent with their
environmental goals. Towards an ex ante environmental compatibility assessment
of new subsidies?
Conclusions and recommendations
How to build up on the Catalogue

20. • The Italian Catalogue must be conceived as a work in progress:
 continuous update of the financial impact of subsidy schemes;
 gradual extension of the scope of analysis to consider new forms of
subsidies to be classified as EHS or EFS and quantified (subsidies in tariffs
for public services; tax breaks on royalties; concession fees on natural
resources that do not cover the external costs of the use of natural
resources, such as water discharges…);
 stable cooperation with the Expert Commission on tax erosion, with the
Ministry for Economy and Finance and with other central public bodies
(responsible for sectoral public expenditures);
 improvements in data collection at the regional and local scale.
Towards the second edition of the Catalogue