Over the next five years, Italy will phase-out coal fired generation: by 2025 (2028 including Sardinia), Italy will be among the first countries in the World to ban coal from its generation mix. At present, coal contributes to less than 10% of the total electricity produced, but still to 1/5 of CO2 emissions of the overall Italian power system. It is the cheapest source of baseload power and contributes to the stabilization of the Italian transmission network. Phasing-out coal will have important consequences both on the day-ahead market as well as on the ancillary services market that could result in a weakening of the system or, worse, in a failure to achieve the objectives of decarbonisation. A number of factors complemenets the phase-out of coal, such as: the recent introduction of the Italian capacity market, the discussed reforms to increase competition in the ancillary service market with the deployment of VRES and the recent surge in gas prices. The latter showed how the Italian electricity market is still subject to the behavior of pivotal operators that can act strategically by co-optimizing their bids and offers on the day-ahead (in Italian “MGP”) and the ancillary services market (“MSD”). This approach might have ambiguous effects on competition and therefore on emissions, as this work will demonstrate. Understanding the competitive dynamics on the two markets and testing alternative market reforms is therefore paramount if Italy wants to achieve a cost-efficient energy transition. Hence, we developed the CIES Model, a comprehensive structural power and gas market simulator that incorporates, on top of the standard technical transmission and generation constraints, the strategic behaviour of market participants which are allowed to maximize their profits by adopting an optimal strategy in the day-ahead and ancillary services markets. To the best of our knowledge a co-optimization simulator that allows different agents to strategically operate in the market is a novelty for the Italian power system.