TCS Daily

Berlusconi in Charge

By Carlo Stagnaro - December 5, 2003 12:00 AM

Last summer Italians woke up to a staggering realization: Their power system is in deep trouble. The first of a long series of blackouts occurred on June 26th, 2003. Many others followed, as energy demand repeatedly exceeded supply by an average of 2-3,000 MegaWatts. Then, on the night of September 27th, the last blackout of the season occurred and it was severe. Given this kind of experience, the ruling class should have by now understood that a radical reform is needed as far as energy generation and distribution is concerned.

The Minister for Productive Activities, Antonio Marzano, said that this shows how important it is to build new power plants as soon as possible. Although this seems to make sense, it appears to be a short term plan. In the long run, Italian problems are much deeper and more complex.


First, Italians are still paying for their decision to get rid of nuclear energy. They voted in a referendum in 1987, and approved the ban on nukes as a consequence of irrational fears - fears that were the most impressive fall-out, at least in the West, from Chernobyl. Ironically, Italy buys about 17 percent of her energy from nuclear plants in France, Switzerland, Germany, and Slovenia. This makes the cost of power much higher, as that the average citizen pays an energy bill about 2-3 times higher than in the rest of Europe increasing the cost of living. Government subsidies of inefficient -- or "alternative" as they are called -- energy sources necessitates higher raise taxes as well, without producing any significant benefit.


Second, Italy has confused and costly regulations, which make it very difficult for an entrepreneur to go into the energy business. While officially private, the power sector is still substantially in the hands of the government. The government no longer advocates a real monopoly, as was the case until very recently, but things are even more complicated than they used to be: ENEL (the main energy producer in the country, which is still in process of privatization) can't increase its share of power supply due to antitrust regulations.


So, last summer's blackouts were not only largely foreseeable (because of a long-developing trend toward a larger use of energy for air conditioning), they were created by government ham-handedness and were prompted by the absence of free-market policies in the field of energy production and distribution. (The so-called privatization notwithstanding, the power grid still is a government monopoly in Italy.) Of course, the costs of all this fall to the consumers, who pay more for unreliable service.


This situation is in sharp contrast with the widely publicized backing by the European Union of the Kyoto Protocol. Kyoto will permit fewer greenhouse gas emissions leading to higher energy costs. The International Council for Capital Formation sponsored a study which warned that Italy could suffer up to 280,000 job losses and a 3.9% GDP reduction by 2025 should the country comply with the Kyoto Protocol.


Silvio Berlusconi -- who is, personally and politically, a good friend of Russia's President Vladimir Putin and of George W. Bush - could take some cues from them and embrace their healthy scepticism of alarmist claims on climate change. The Italian economy is in trouble because of heavy taxation and pervasive regulations; and the center-right won the past elections thanks to the promise of reducing both. Kyoto would move Italy a step in the wrong direction.


Mr. Berlusconi is currently President of the E.U., and the United Nations Framework Convention on Climate Change Ninth Conference of the Parties is currently being held in Milan. This lucky combination favors Berlusconi, if he is brave enough to follow a path which no Italian politician ever dared to pursue. Given Russia's hesitation to ratify Kyoto, the E.U. might put Berlusconi under pressure to promote a new, Kyoto-style treaty. It's up to him to embrace a position that would harm the power of European bureaucrats, but which is in fact in the interest of Italian consumers -- who are, after all, those who put Berlusconi in charge.


The author is a Fellow with the International Policy Network.

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