Hydrogen law, regulations & strategy in Italy

The three-year period from 2022 to 2024 can be seen as a period of significant transformation for the hydrogen market in Italy, mainly due to the implementation of the Italian National Recovery and Resilience Plan (“NRRP”).

Pursuant to the Ministerial Decree dated 3 July 2024, the Ministry of Enterprises and Made in Italy (“MIMIT”) created a fund (with financial availability of approximately EUR 22.2 million) to support the implementation of the Important Project of Common European Interest “Hydrogen 4” (“IPCEI Hydrogen 4”). This initiative focuses on innovative hydrogen technologies and solutions in the mobility sector, including road, sea and air transport. The activation of this Italian Fund follows the EU Commission's decision dated 28 May 2024, which authorised seven EU countries (including Italy) to grant state aid totalling EUR 1.4 billion.

Among the goals of IPCEI Hydrogen 4 are: (i) the development of technologies capable of reducing CO2 emissions from mobility and transport by 90% and (ii) the achievement of EU climate neutrality by 2050, through the development of (a) fuel cell vehicle platforms for buses and trucks; (b) fuel cell technologies to generate electricity required for  ships and trains, and hydrogen storage solutions on board new-generation aircraft; and (c) technologies for hydrogen refuelling stations.

MIMIT’s Directorial Decree of 19 September 2024 sets out the process and terms for submitting applications to IPCEI Hydrogen 4, as well as the forms and detailed procedures for the granting and disbursement of the relevant funds. The application period for accessing the State aid ran from 8 October 2024 to 6 December 2024.

In addition to the IPCEI Hydrogen 4 project, Italy is promoting the production of hydrogen in disused industrial areas by financing the development of Hydrogen Valleys (i.e., energy hubs that include both hydrogen production and consumption). There are currently 52 Hydrogen Valleys projects already financed throughout the country (to be implemented by 31 December 2026),  with 28 located in Southern Italy, where more than EUR 250 million of investments envisaged by the NRRP are allocated.

Moreover, it is worth mentioning that the Italian gas transmission system operator (“TSO” or “Snam”) has included in its new 2023-2027 Strategic Plan investments totalling EUR 11.5 billion,  with EUR 100 million allocated specifically for activities related to the hydrogen supply chain. According to the Snam 2023-2027 Strategic Plan, Snam will act as an enabler for the development of a hydrogen market at a European level, in partnership with other European TSOs. Specifically, it will be involved in the construction of a 3,300 km-long hydrogen backbone that will connect North Africa, Italy, Austria and Germany to supply renewable hydrogen to Italian and European demand clusters at competitive prices (Project “SoutH2 Corridor”).

The major ongoing policies and expected legislation concerning hydrogen may be summarised as follows:

1. NRRP: On 13 July 2021, the EU Commission approved the Italian NRRP, which has a total value of EUR 191.5 billion. The NRRP is built upon three strategic pillars: (i) digitalisation and innovation, (ii) ecological transition, and (iii) social inclusion. It is currently in its development and implementation phase. In the context of the ecological transition, paramount importance has been given to renewable energy, hydrogen and sustainable mobility.
2. 2024 PNIEC: On 30 June 2024, the Ministry of Environment and Energy Security (“MASE”) and the Ministry of Infrastructure and Transport (“MIT”) sent the final text of the 2024 National Integrated Energy and Climate Plan (“2024 PNIEC”) to the EU Commission, confirming the 2023 goals and supplementing those published in the previous PNIEC dated December 2019. Final approval by the EU Commission is currently pending.
3. National Hydrogen Strategy: In August 2024, a draft of the National Hydrogen Strategy was made public by the MASE, setting out specific targets and anticipating several strategic investments. Italy has not yet defined its National Hydrogen Strategy, which is expected to be published in its final version by the end of 2024.
4. DM Opex: A specific ministerial decree, called “DM Opex”, is expected to be approved and adopted by the end of 2024, which will define the modalities for providing incentives to producers of renewable hydrogen.

National Recovery and Resilience Plan (NRRP)

The NRRP sets out several expected reforms and investments dedicated to the development of the hydrogen market in Italy, providing financing of EUR 3.19 billion for this purpose.

More specifically, the most relevant expected investments are the following:

• NRRP Investment 3.1: Production of hydrogen in brownfield sites (EUR 500 million). The goal of this investment is to finance the development of hydrogen valleys, or industrial areas whose economy is based partly on hydrogen, in order to promote, at the local level, the production and use of hydrogen in the industrial sector and transport. The investment is aimed at incentivising the development of at least 10 hydrogen production projects on brownfield sites with an average capacity of at least 1-10 MW each.
• NRRP Investment 3.2: Use of hydrogen in hard-to-abate sectors (EUR 2 billion). This is the investment where the highest financing has been allocated. The aim is to favour the transition towards zero emissions green hydrogen in those industrial sectors that today are the most polluting and hard to convert. The sectors concerned are chemicals, petroleum, steel, cement, glass and paper.
• NRRP Investment 3.3: Experimenting hydrogen in road transport (EUR 830 million). The aim is to promote the establishment of filling stations for hydrogen experimentation in road transport. At least 40 refuelling stations are expected to be developed, giving priority to strategic areas for road transport (i.e., along motorways, areas close to ports and to logistics terminals).
• NRRP Investment 3.4: Experimenting hydrogen in rail transport (EUR 300 million). The aim of this investment is to convert diesel trains travelling on non-electrified railway lines into hydrogen-powered trains. Such a project includes the production of green hydrogen near refuelling stations and the development of the entire hydrogen production, storage and use chain. Thanks to these investments, it will be possible to convert around 10 filling stations on 6 different railway lines.
• NRRP Investment 3.5: Hydrogen research and development (EUR 160 million). The aim of this investment is to improve knowledge of hydrogen-related technology for the production, storage and distribution phases in order to increase competitiveness and gradually reduce costs. By implementing this investment, it will be possible to test various technologies and to provide research and development services to companies that need to validate their products on a large scale. Specifically, Investment 3.5 envisages the development of four main research strands: (i) production of green hydrogen; (ii) development of technologies for hydrogen storage and transport and for the transformation of hydrogen into other derivatives and green fuels; (iii) development of fuel cells; and (iv) improvement of the resilience of existing infrastructures in the event of increased hydrogen deployment (this investment has been implemented in Italy by Ministerial Decree of the Ministry of Ecological Transition dated 23 December 2021 and Ministerial Decree of MASE dated 9 June 2023).

The main reforms outlined under the NRRP are the following:

1. NRRP Reform 3.1 “Administrative Simplification and Reduction of regulatory barriers to hydrogen development” of Mission 2, Component 2.

This reform is aimed at promoting the spread of green and renewable hydrogen as a new energy vector and focuses on:

• safety standards relating to hydrogen production, transport, storage and use;
• simplification of administrative procedures to set up small green hydrogen production plants (such simplification has been implemented through Article 38 of Legislative Decree no. 199/2021);
• the participation of hydrogen production facilities in grid services;
• the setting out of a system of Guarantees of Origin (“GO”) for renewable hydrogen (a GOs trading system has been implemented by Ministerial Decree no. 224 of 14 July 2023).

2. NRRP Reform 3.2 “Measures to promote hydrogen competitiveness of Mission 2, Component 2.

This reform introduces tax incentives to: (a) support the production of green hydrogen with a neutral environmental impact and (b) promote the consumption of green hydrogen in the transport sector.

National Integrated Energy and Climate Plan (2024 PNIEC) and National Hydrogen Strategy (NHS)

The 2024 PNIEC, in compliance with the EU framework, sets out a development roadmap for hydrogen. The plan consists of five courses of action focusing on: i) decarbonisation, ii) energy efficiency, iii) energy security, iv) development of the internal energy market, and v) research, innovation, and competitiveness.

In particular, the 2024 PNIEC promotes the end-use of hydrogen in the following areas:

• Transport sector: particularly buses, heavy transport and trains, through direct use or derived fuels;
• Hard-to-abate sectors of industry: such as refining, paper, and steel.

The 2024 PNIEC also deals with the development of a National Hydrogen Strategy (“NHS”). The NHS estimates a national production in 2030 of 2.27 Mton of hydrogen (both from renewables and from fossil sources with CO2 capture), plus 0.97 Mton of imports to meet a gross consumption of 3.24 Mton/9.30 million tonnes of oil equivalent (“Mtoe”). Heavy industries are expected to consume around 2 Mtoe, primarily for steel production, as well as cement and paper mills and other hard-to-abate production facilities.

According to the NHS, hydrogen would be able to cover almost 40% of the current consumption of the industrial sectors involved (i.e. transport and hard-to-abate industrial sectors). In this scenario, the expected demand for hydrogen in transport would be 5.78 Mtoe, of which the largest share (3.47) would be for aircraft propulsion. The NHS then estimates a potential investment of around EUR 18 billion for production activities, more than half of which is for electrolysers.

Lastly, about EUR 25 billion of investments are foreseen in order to update and replace existing and to install new technologies, components and systems, which are expected to be deployed in the various end-use sectors. In particular, the industrial sector is expected to trigger about EUR 3 billion in investments, of which almost 90% are in the steel sector. For transport, around EUR 20.5 billion are expected to be invested in vehicles, components and plants for the production of synthetic fuels derived from hydrogen (e-fuel). 

DM Opex – Hydrogen Decree

A draft decree setting out an incentive scheme for renewable hydrogen producers is currently being discussed (“DM Opex”), based on the expected investments’ value and operating costs of the production plants throughout the period 2024-2027. To date, however, the DM Opex has not been published.

The measure, as envisaged by the 2024 PNIEC, represents the main legislation to promote investments in the hard-to-abate industrial sectors as well as in the transport sector, with the aim of promoting the use of renewable hydrogen as a key vector for the decarbonisation process.

The draft DM Opex under consultation has four main purposes:

1. clearly define renewable hydrogen;
2. establish specific operating contribution incentives to accelerate production;
3. define the procedures for accessing the incentives; and
4. define the modalities whereby the operating contribution incentives may be cumulated with the NRRP capital contributions.

The incentive scheme set out in the draft DM Opex requires that hydrogen must be produced through electrolytic processes from renewable energy sources in accordance with the methodologies established for renewable liquid and gaseous fuels of non-biological origin for transport.

It is anticipated that the granting of the incentives will be possible only after successful participation in specific auctions managed by the “Gestore per i Servizi Energetici” (“GSE”) and the incentive is expected to be structured as a two-way contract for difference (“CfD”). The awarded incentive would then be disbursed monthly by the GSE for 10 years from the commercial operation date of the relevant production plant.

CfDs allow for price stabilisation over time, provide the producer with greater certainty of revenue flows in the medium to long term, increase the bankability of the project, and facilitate the achievement of decarbonisation goals.

By means of the measures included in the DM Opex, a total quota of 250,000 tonnes annual renewable hydrogen production capacity through 2027 is envisaged.