ROME Reuters -- When Briton Candida Arvanitakis decided to make her 18th century Italian holiday home more energy efficient, she was surprised to find out that Italy has stumped up about 150,000 euros of the bill, and she was surprised to find out that it would cost her next to nothing.
Under a scheme introduced in July last year, the Italian government pays 110% of the cost of turning buildings green, from insulation to solar panels to replacing old-fashioned boilers and window fittings.
"I only wish it existed in Britain," Arvanitakis said.
Three-quarters of the buildings in the bloc are energy inefficient, according to the European Union. It says that renovating them could reduce carbon dioxide emissions by 5%, but less than 1% of the region's building stock is upgraded each year.
There is a huge take-up in Italy's superbonus scheme, which is seen as a litmus test for the kind of policies EU members may need to meet the bloc's goal of slashing greenhouse gas emissions this decade to 55% below 1990 levels.
Italy's council of engineers estimates that it has boosted gross domestic product GDP by 0.7% this year and created 153,000 jobs - exactly the kind of growth story that economists say the green transition can deliver for decades.
Italy's tax collection agency said last month it had discovered a fraud worth more than $1 billion related to the superbonus and other home improvement incentives, but the surge in demand has inflated the cost of building services.
Critics also object to the high cost to the state, the fact that some of the main beneficiaries are well off and don't really need government handouts, and the subsidies cover new gas heating and therefore continue fossil fuel use.
There are subsidies for green home improvements in a number of other European countries, including France, the Netherlands, Hungary and Denmark, but none are as generous as Italy.
The scheme is due to run through 2025 but will be reduced in size and availability by the end of next year.
Rome's strained public finances are having a significant impact on its strained public finances. The Treasury estimates that there will be a total outlay of 33 billion euros $37 billion by 2036 - once all the subsidies and credits have worked their way through the tax system - which is equivalent to almost 2% of annual GDP.
The average cost of the subsidised works carried out on the individual apartment blocks most Italians live in is 557,000 euros, according to Italian economic analysis and consultancy firm Nomisma.
Since the superbonus was introduced, work has more than doubled, says Luca Passerini, who owns a building firm in Rome. I have hired more labourers but we can't meet the demand. We are not taking any new jobs until May. Climate analysts said it was too soon to measure the impact of subsidies on household energy use, but they welcomed the thrust of the measure in a country where homes account for 11.5% of emissions, and is positive for reducing emissions and improving the air quality of our cities, according to Michele Governatori at the Climate and Energy think-tank ECCO.
He said the subsidy was probably too generous and initial confusion over its scope and duration led to a rush to cash in. The market was flooded by that, allowing builders to hike prices for work of dubious quality.
The bonus is applicable for gas heating and the subsidies should exclude fossil fuels. One way for people to claim the subsidy is by deducting it from their tax returns over a five-year period.
A popular method to pay the building firm is to use the tax credit. It is able to take the credit to a bank that is reimbursed by the state, if it subtracts the sum from its taxes.
The measure has been blighted by corruption.
Italy's tax collection agency said last month it had found 950 million euros of fraud connected with the superbonus and other home improvement incentives.
The agency's chief Ernesto Ruffini said that there were invoices for work that didn't exist, invoices issued by unqualified firms, even butchers that issued invoices for building work.
Italy is ranked 52 nd in Transparency International's global corruption perceptions index and 21st out of 27 member states, above Greece and five Eastern European countries.
The goal of maximum emissions cuts at minimum cost was not achieved by the scheme, according to the Parliamentary Budget Office UPB, Italy's public finance watchdog.
Alberto Zanardi, UPB board member, said the goal of energy efficiency risks creating excessive benefits for building firms.
The superbonus scheme still stands out among Italy's efforts to meet its climate targets, which many experts say are not enough for its alleged flaws.
Italy, which is heavily reliant on imported oil and gas, is doing too little to develop alternative energy sources and has not followed the lead of countries such as Germany and Spain in a major push towards electric vehicles, according to them.
The switch to renewable energy is way behind and we are not on track to meet our emissions pledges, said ECCO's Governatori.