A turbulent world: political crises and economic and financial shocks. What strategies for Italy's economic security?

I would like to thank Minister Tajani and Ambassador Guariglia for hosting this sixteenth edition of our joint conference, which once again underscores the critical role of the collaboration between the Bank of Italy and the Ministry of Foreign Affairs and International Cooperation.

Governor Panetta opened today's proceedings with an outline of global economy marked by an unprecedented energy shock, latent financial fragilities, major shifts in trade flows, rising geopolitical tensions, and setbacks in international cooperation. This morning's working sessions examined these issues with analytical rigor. In my concluding remarks, I would like to draw together some of these threads and focus on one dimension of economic security that I consider central and still largely unresolved: Italy's energy dependence and the policy levers through which it can be reduced.

The effects of the ongoing conflict in the Middle East extend to the supply of oil, gas, and derivative products that are essential for agriculture, healthcare, and defense.¹ The sharp increase in the prices of these commodities is compounded by rationing phenomena, already evident in several Asian countries, which receive a substantial share of the vessels transiting through the Strait of Hormuz.

These developments confirm the vulnerability of an economic model such as Italy's, which is heavily dependent on foreign supplies in strategic sectors, and they bring renewed attention to the issue of energy security, which had already moved to the center of the political debate following the Russian invasion of Ukraine.² Since then, we have made significant progress in diversifying our sources of fossil fuel supply; however, these efforts are insufficient to mitigate the effects of a global shock of this magnitude. It is therefore necessary both to continue reducing energy demand - for example, by increasing the level of energy efficiency in production processes and buildings - and to accelerate the development of renewable energy sources.³ In what follows, I will focus on the electricity sector.

For many years, discussion has centered on the so-called "energy trilemma," namely the difficulty of simultaneously pursuing environmental sustainability, affordability, and security of supply.⁴ Historically, renewable energy sources were associated primarily with the first objective, often at the expense of the other two.

Today, the trilemma no longer holds true - or at least it is far less clear-cut. On the one hand, technological progress and the associated sharp reductions in installation costs over recent years have made renewable energy sources competitive with fossil fuel alternatives. Choosing renewables now enables investors simultaneously to follow a least-cost criterion, to contribute to environmental sustainability, and to reduce dependence on foreign suppliers of fossil fuels.

On the other hand, it must be acknowledged that the renewable alternative is not without implications in terms of technological dependence on foreign countries. Moreover, additional costs arise in ensuring the development and stability of the electricity grid, as well as in amortizing the more polluting plants that are to be phased out.⁵ The portion of these investments borne by the public sector can be financed through electricity tariffs or general taxation, complemented by measures aimed at mitigating distributional impacts on households and on firms' competitiveness.

In Italy, the share of domestic electricity generation from renewable sources rose to 40.7 percent by the end of 2024,⁶ driven mainly by the expansion of photovoltaic capacity and the revival of wind power following the authorization simplifications introduced in the post-pandemic years by the Ministry of the Environment and Energy Security.⁷ Nonetheless, progress remains slow and risks leaving the country exposed for a prolonged period to shocks in natural gas prices - a fuel that, on average, sets the final electricity price for more than half of the hours of the day.

To accelerate these processes, it is necessary to remove a number of regulatory and technological obstacles. Connection times for new generation plants are affected by technical constraints in transmission and distribution networks; by residual inefficiencies in authorization procedures,⁸ notwithstanding the significant simplification efforts already undertaken; by shortcomings in storage systems and grid connections to manage production peaks; and by disparities between the northern and southern regions of the country in terms of generation capacity and network saturation. The digitalization of connection procedures and the strengthening of the grid, initiatives launched by Terna,⁹ can help overcome some of these limitations, but efforts need to be intensified across all these fronts.

Even without recourse to public funds, much can be achieved simply by avoiding instability in the regulatory framework. Stable rules foster investment by reducing project uncertainty,¹⁰ a consideration that is particularly relevant in a sector such as renewables, characterized by high upfront costs and returns spread over time. The amendments to the Corporate Sustainability Reporting Directive introduced by the so-called Omnibus legislation require Italy to revise the transposition law adopted in 2024, thereby increasing regulatory uncertainty. Although these changes are driven by the understandable aim of reducing the reporting-related compliance costs for firms, they risk undermining information systems that have already been developed or launched, and complicating the assessment by the financial system of projects oriented toward the transition, ultimately resulting in a slowdown in the adoption of renewable energy. The European Union still has the possibility to adapt the regulatory framework to support the transition. Over the coming months, the revision of the Taxonomy criteria initiated by the European Commission - expected to be completed by the end of the year - will be of particular importance.

The widespread resistance of local communities to hosting renewable energy facilities must also be addressed;¹¹ contractual arrangements that allocate a share of the investment benefits to local territories, through discounts on energy bills or environmental and territorial compensation mechanisms, could contribute to overcoming such opposition.¹²

These considerations primarily concern the medium term. In the short term, the energy shock calls for emergency measures, to be implemented in parallel with the structural reforms outlined thus far. Policies that move in the right direction include those aimed at cushioning the impact on firms, focusing on those most severely affected by price increases. Measures for households should be targeted at the most vulnerable groups¹³ - for example, by reorganizing social bonuses - and should include initiatives to improve the energy performance of buildings.¹⁴ Such interventions should preserve price signals and safeguard public finances.

I would like to conclude with a consideration that emerges clearly from today's discussions: economic security is not built solely through the necessary emergency responses to shocks, but through structural policies capable of enhancing the resilience of the system. In the current context, where energy choices are deeply intertwined with geopolitical equilibria, the collaboration between the Bank of Italy and the Ministry of Foreign Affairs and International Cooperation demonstrates its highest tangible value. The Bank of Italy's financial attachés, working alongside diplomatic representations, provide a privileged vantage point on markets and geopolitical scenarios across the various environments in which they operate. I believe this constitutes a valuable asset, and I am confident that this partnership will continue to act as a key support for the state.