The International Energy Agency's 2003 review of Italy's energy policies and programmes.  This review finds that Italy has made substantial progress in implementing electricity and gas market reforms. The gas market is now fully opened to competition and the electricity market is proceeding towards full opening. The government has reduced its shareholding in ENEL and Eni. New market institutions, notably an energy sector regulator, are now operational. Italy ratified the Kyoto Protocol in June 2002 and launched a national strategy to mitigate climate change in December 2002. But Italy also faces some challenges. High reliance on imported oil and gas raises concerns about security of supply. Energy diversification is restricted since there are few options available apart from natural gas, given the limitations of renewable energy as a source of supply. Timely investments in energy production, transportation and interconnection are crucial for security of supply, but they often meet strong local resistance under the devolution of powers to local authorities. In spite of the progress made, continuous monitoring is needed to further develop competition in the gas and electricity markets and enable energy price reductions. While Italy enjoys relatively low energy and carbon intensities of its economy, these advantages may be eroded over time. More is required to mitigate climate change emissions. As part of the IEA’s periodic review process of its Member countries, this report analyses Italy’s energy sector and policies, and provides proposals and recommendations for the Italian government.