European policymakers face mounting pressure to control energy costs amid geopolitical instability while maintaining ambitious climate targets. Italy's 2026 Decreto Bollette package exemplifies this tension, proposing to exempt certain gas-fired power plants from carbon pricing in wholesale electricity auctions. A new study published on arXiv examines the long-term consequences of this approach using advanced multi-agent reinforcement learning simulations of the Italian power system.
Researchers employed MARLEY, a computational framework designed to assess electricity market dynamics over decades, testing various policy combinations around carbon price suppression, renewable subsidies, grid flexibility, and resource adequacy. The results challenge the rationale for removing carbon signals from markets.
Short-term relief is real: suppressing carbon prices temporarily lowers consumer bills by reducing wholesale costs for natural gas generation. However, this benefit erodes substantially over time as investors redirect capital away from renewable and storage projects that lack a clear economic advantage. The deferred carbon costs ultimately resurface through higher emissions and eventual compliance expenses, shifting the burden to future consumers rather than eliminating it.
Critically, only the most aggressive green investment support scenarios—involving direct subsidies and mandates—prevented emissions increases under carbon price suppression. Yet these approaches paradoxically undermine the market signals that such policies were originally designed to preserve, creating a fundamental contradiction: policymakers either maintain a carbon-priced wholesale market and accept near-term affordability pressures, or they abandon market mechanisms entirely in favor of a hybrid system of subsidies and regulations.
The study suggests that targeted relief mechanisms—such as temporary bill subsidies for vulnerable consumers—may achieve affordability goals without sacrificing the investment signals that drive decarbonization. As other EU nations evaluate similar cost-mitigation proposals, this research provides quantitative evidence that tampering with carbon pricing mechanisms redistributes rather than solves the core tension between energy security and climate commitments.
