Italy Bets on a Low-Tech Plan to Green Economy and Save Jobs

Italy is betting that a tax scheme to encourage home renovations will green its economy and create jobs.

On the face of it, this low-tech approach is at odds with the European Union’s aim of promoting climate and innovation in exchange for billions of euros of aid money. But the government is convinced that paying citizens to make their homes more energy efficient is also the best way to kick-start the recovery in the middle of a pandemic.

The so-called “Superbonus 110%” offers a tax break worth 110% of the investment for climate friendly or earthquake-resisting renovations. It is set to be extended to 2022 at the cost of 6.5 billion euros ($8 billion) in this year’s budget law, and the government wants to use 11% of its EU reconstruction funds -- some 22 billion euros -- to improve the efficiency of private buildings, according to Italian media.

Everything from new windows to photo-voltaic panels to a new elevator or an upgraded gas boiler can be submitted under the program, which was first launched earlier this year. But both the complexity of the bureaucracy and of the renovations involved means that the first projects are just getting off the ground.

Financial Opportunity

Banks have also jumped on the opportunity, offering ad-hoc financing packages tailored to the plan and more than nine million of families said they are planning to use the incentive, according to a research done by mUp Research and Norstat for, an interior designers network.

Yet the measure comes with a hefty price tag attached. A study on the effects of the measure commissioned by the government and seen by Bloomberg News estimated that the cost of the Superbonus is about 7 billion euros each year, adding 9 billion euros to Italy’s output in return. More than 20,000 jobs would be either saved or created thanks to the scheme, according to the study.

Italy Bets on a Low-Tech Plan to Green Economy and Save Jobs

Italy’s low-tech approach could even pave the way for other EU countries. The bloc wants to at least double the pace of renovation of homes and offices over the coming decade in a bid to save more energy and meet stricter climate goals under a sweeping green overhaul, but member states have so far stalled in adopting specific measures.

Buildings are responsible for about 40% of the EU’s total energy consumption, and for 36% of energy-related greenhouse gas emissions. Roughly 75% of existing buildings are energy inefficient, and only 1% every year undergo renovations. The goal is to double the renovation rate, which would involve upgrading 35 million buildings over the next 10 years.

But renovation rates in Europe have traditionally been low because the challenges around financing projects often discourage home owners. Green recovery funds could speed up the creation of new funding models for these projects, according to Valentin Alfaya, sustainability director at Ferrovial SA.

“The problem with renovation in the residential sector is that when you add up the numbers the reduction in energy consumption doesn’t cover the cost of the investment,” Alfaya said. “The trick is to generate a long-term financial product that’s tied to the building.”

In Italy, the incentive will work “because construction is a pillar of the Italian economy and it casts a very wide net in terms of people who might choose to access it,” said Francesco Matrone, managing partner at tax firm SM&A. It can have a great impact, “unless it is stuck by bureaucracy or red tape.”

©2020 Bloomberg L.P.

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