Italy’s ETS reform push risks political blowback as EU review nears

Italy’s ETS reform push risks political blowback as EU review nears Analysts warn Rome’s hardline stance could isolate it from allies and weaken its hand in carbon market negotiations. Italy’s energy sector remains publicly split over the EU ETS ahead of a review of key reform proposals, with analysts warning that a highly politicised debate risks weakening Rome’s negotiating leverage. The rift was reported by Montel on Thursday (2026-06-18), as the government presses Brussels to scrap a planned revision to free allowance benchmarks.⁶ Italy formally requested the EU drop the benchmark revision in May (2026-05-21), warning that moving ahead would raise compliance costs for energy-intensive industry at a time when European competitiveness is under pressure. The country relies on gas for around 25% of its energy consumption, particularly for industrial heat and power, making carbon costs a direct input for much of its manufacturing base.^1,7 But that focus on cutting compliance costs carries political risk. Nicoletta Pirozzi, a political analyst cited by Montel, said that if Italy pushes for extreme measures such as suspending the EU ETS, it risks losing allies in Europe, weakening its negotiating position on broader energy issues and deepening domestic divisions.⁶ Italy has held almost daily exchanges with the Commission and received no negative feedback so far, a government source told Montel. Still, analysts said the proposal may clash with the EU’s updated state aid framework. The Cisaf state aid framework, which governs compensation for indirect carbon costs, appears to allow for case-by-case assessment and faster procedures, the source added.² The timing is treacherous. The EU’s proposed timeline to agree carbon market reforms by Q1 2027 looks “extremely challenging”, with the ongoing US-Israeli war with Iran likely to delay the process, analysts told Montel on Thursday (2026-04-30).⁴ Heavy industry organisations in Europe could access extra free permits under the ETS review, as reported by Reuters and cited by edie.net on Friday (2026-06-19). That option could pull support from the Italian industrial lobby toward a Brussels-brokered compromise, leaving Rome arguing for a harder line than its own factories want.⁷ The European Commission proposed a 90% emissions-reduction target for 2040, as reported by The Economist in May (2026-05-17), stipulating that three percentage points could be achieved through carbon dioxide removals and reductions. That ambition leaves little room for a member state seeking to dial back the carbon price mechanism itself.³ European carbon prices reflected the uncertainty. ICE EUA Dec-rolling settled at €78.95 on Friday (2026-06-19), with the consensus among traders and analysts leaning bearish on the sector.^5,2 For traders watching the EUA Dec-rolling contract, the next catalyst is the Commission’s initial reaction to Italy’s proposal. A public rejection would signal the review timeline remains intact, while any concession to Rome would reopen the benchmark debate and could push allowance prices lower.² Italy’s internal divisions compound the external risk. If Rome succeeds in slowing the benchmark revision, the cost relief for its industry is immediate. If it fails, the political fallout may leave Italian manufacturers paying a higher premium on every tonne of CO2 they emit.^6,1 The unresolved question is whether Italy’s partners in the Council — particularly France and Germany, which also have heavy industrial carbon exposure — endorse Rome’s position or let it negotiate alone.^2,3