In First, Israel Approves Carbon Pricing on Greenhouse Gas Emissions

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The power station in Hadera, in 2019.
The power station in Hadera, in 2019.Credit: rami shllush

The Israeli government approved an unprecedented measure on Monday that would charge companies for the environmental and economic damage caused by their carbon dioxide emissions. The mechanism, widely known as a carbon pricing scheme, was praised by environmental activists, but they noted that the funds collected would go to the state treasury rather than to fighting climate change or welfare.

The decision will now be sent to the Knesset Finance Committee for final approval. Carbon pricing is meant to solve a market failure created when the polluter is not the one who pays for the damage caused by the greenhouse gas emissions. Experts say that a carbon tax makes allocating economic resources more efficient, as it targets the source of the pollution and encourages awareness of its effects in manufacturers and consumers. This in turn creates an economic incentive to switch to renewable energy.

Carbon pricing is considered to be the most efficient way to encourage the reduction of greenhouse gas emissions. The International Monetary Fund and the World Bank have stated that it is the most effective tool to promote meeting targets for curbing climate change, and for several years, the OECD has been recommending that the Israeli government tax carbon emissions. Many of the countries signed on the Paris climate agreement have already implemented such measures.

Environmental activists say that the main problem with the newly-approved Israeli proposal is that it does not obligate the government to put the billions of shekels that the treasury will receive from carbon pricing toward fighting the climate crisis, investing in renewable energy and accelerating the move to a low-carbon economy. The money is also not earmarked to return to the taxpayers’ pockets or to be invested in disadvantaged populations.

The proposal only says that mechanisms will be formulated to guarantee that disadvantaged populations will not be harmed. Victor Weiss, the director of the Vote Green environmental initiative, told Haaretz: “We praise the move, but we regret that the decision states that all the revenues from the tax will go to the state’s coffers and will not directly support the economy to help it deal with the climate crisis, become more energy efficient, move to an economy based on renewable energy and a switch to efficient and electrified public transportation.”

In comparison, in the Canadian province of British Columbia, which enacted a carbon tax in 2008, all the money collected through the tax goes back to the residents, and authorities are planning to support projects to reduce emissions while keeping the market competitive. It also gives a tax credit is given to low-income families.

France allocates about 34 percent of its carbon pricing revenues to a special fund; it is then invested in technology that make energy efficiency more profitable, as well as in projects for promotion and conversion to low-carbon energy sources. The rest of the revenues are used for budgetary purposes, as well as for reducing taxes and aid to low-income households, through partially subsidizing their electric bills.

A broad macroeconomic study, conducted by the Environmental Protection Ministry and the Israel Democracy Institute, examined the effects of carbon pricing in Israel. It found that just by implementing the measure, greenhouse gas emissions will fall 67 percent by 2050 compared to 2015. The step is therefore essential for reaching the goal of an 85 percent reduction in emissions that the government decided on last week. The research also shows that the reduction in pollution in 2050 stemming from the carbon tax in Israel will lead to some 20 billion shekels in savings.

According to the proposal, the carbon pricing process will be gradual. In the first stage, it will be imposed on all polluting fuels, and later also on emissions from waste disposal and other sources of greenhouse gasses. The taxation will begin in 2023 and rise gradually every year. For example, the excise and purchase tax on coal will be 131 shekels (about $40) per ton in 2023, rise to 167 shekels in 2024, 214 shekels in 2025, 274 shekels in 2026, 353 shekels in 2027, 456 shekels in 2028, etc. In the first year, government revenues from the carbon tax are forecast to be about 300 million shekels (over $93 million), and according to the treasury’s estimates, are expected to reach 2.8 billion shekels (over $869 million) in 2028.

Activists also criticized the proposed amount of the tax on gas, which remains low despite how much pollution it creates. Yoni Sapir, the chairman of the Homeland Guards environmental organization, said that “The intention is right, but the implementation is poor.” What is being heard in Energy Ministry talks, he said, and what is clear in this proposal, is that “we must protect the gas.”

The Israel Union for Environmental Defense said that “Carbon pricing is an important tool in climate policy. But if it is not done properly, there is a risk that it will not be effective enough, and that it will lead to harming the lower classes, which have no readily available or sufficiently suitable alternative. Social justice must be a central consideration in any process, and the lower classes must not be the ones who subsidize the price of carbon for the economy’s more powerful figures.”

Environmental Protection Minister Tamar Zandberg praised the decision, saying that “The climate crisis is a global danger of a scope unknown to humanity,” and that we must prepare for it.

Finance Minister Avigdor Lieberman said that by implementing the carbon tax “falls in line with the developed nations that are fighting the climate crisis.”

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