Israel: Green innovation could power economic recovery

Countries have responded differently to the large societal and economic impacts of the Covid-19 pandemic. While some view the crisis as a window of opportunity for new technologies and approaches to achieve climate neutrality, others will be tempted to reinforce their dependence on old technologies, leading to a carbon lock-in. Israel’s response as a start-up nation is promising, but further measures are needed to support a green transition.

‘Greenish’ recovery plans

The coronavirus crisis is expected to hit the Israeli economy hard and much of the governments’ attention is focussed on options to create employment opportunities and foster economic growth. The Israeli Ministry of Energy plans to increase its 2030 renewable energy target from 17% to 30%, and to accelerate infrastructure projects in the energy and water economy. While this sounds like good news, the Energy Ministry’s plans to continue promoting natural gas are problematic. Nevertheless, these strategies are important steps towards a green recovery package. Such a post-crisis green response, leading economists have found, could result in an even better economic recovery.

Barriers to green innovation

A ‘green recovery’ could tap into Israel’s potential for the commercialization and scaling up of cleantech. Israel is home to one of the largest start-up ecosystems in the world. Many cleantech innovations struggle to reach the market. In Israel, as in many other countries, innovation gaps often hinder the development of scalable solutions. Proven cleantech solutions that are ready to be brought to commercial scale frequently grapple with an inadequate capital supply and asymmetric information, which can cause market failure. The problem is not the availability of cleantech innovations per se, but rather their narrow and slow diffusion throughout the economy and society, which limits their impact in efforts to tackle global sustainability challenges. How, then, can we get cleantech from the lab to the market?

Government action needed to accelerate the commercialization of green innovations

In 2019, I conducted research in Israel, in the framework of the fellowship programme “Decarbonization Strategies for the 21st Century: German-Israeli Perspectives”, organized by the IASS, the Israel Public Policy Institute and the Heinrich Böll Foundation Israel. In the course of this research, I interviewed 41 Israeli and international experts from start-ups, corporates, investment companies, consulting companies, civil society organizations and government bodies, and led a workshop with about 50 Israeli stakeholders. Based on these consultations, I identified four key areas for government action to help innovators overcome the cleantech commercialization challenge:

1. A mix of innovation incentives and environmental regulatory policies (e.g. investment-driven tax reductions or cash grants) could accelerate market demand for cleantech even in more conservative industries and support national commercialization successes.

2. The expansion of impact and growth funding (e.g. by introducing a cleantech growth fund) could provide the capital needed along the innovation cycle and help start-ups to overcome the financial ‘valley of death'. Moreover, associated technological and financial risks could be minimized via risk sharing measures, such as government guarantees.

3. Public-private partnerships as well as business-to-business cleantech collaborations, along with good marketing, could increase the number of start-ups entering the market and support customer acquisition. Strategic collaborations across ministries, in addition, would reduce the regulatory burden of ministries and increase the relevance for cleantech innovations.

4. With strong climate leadership, Israel could set course towards achieving climate neutrality by around mid-century, and create more buzz for the Israeli cleantech, which will play an important role in achieving this ambitious goal. An ambitious climate action plan, for example, could increase demand for the development and deployment of cleantech solutions.

These measures address the innovation pipeline from R&D through to widespread diffusion and their implementation could facilitate Israel’s transition to carbon-neutrality by providing solutions to pressing sustainability challenges, ranging from clean, shared modes of transportation and climate-smart agriculture, to zero-carbon buildings and renewable energy supply.

Clean technologies and infrastructures as components of a green recovery

The suggested policy measures have become even more important in the context Israeli efforts to address the economic crisis triggered by the Covid-19 pandemic. It is vital that the short-term solutions adopted now are in line with medium- and long-term climate and SDG objectives. Accelerating the commercialization of clean technology and infrastructure is a promising strategy for Israel’s crisis recovery efforts. It is my hope that the Israeli government will understand the current crisis as an opportunity to boost actions towards international and national climate and sustainable development goals. This would support the Israeli cleantech ecosystem and could strengthen the country’s position as a global R&D leader and trading hub for green and other technologies.

If you want to read more about my research in Israel, you could read my recent policy brief or the joint IASS Study.