Climate Innovation Report

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This report presents the results of the work led jointly by the Israel Democracy Institute and the Israel Innovation Institute - a proposal for government policy to promote climate innovation

Executive Summary


Since 2019, the Israel Democracy Institute and the Ministry of Environmental Protection, in conjunction with additional government ministries (Finance, Energy, Economy, Transport, the Israel Planning Administration, and others), have led a national, multi-sectorial effort to transition Israel to a thriving low-carbon economy. This process has led to the definition of a series of targets being set by the government, and to a number of government resolutions relating to plans for reducing greenhouse-gas emissions and combatting the climate crisis, including government resolution #171 on the transition to a low-carbon economy, which was passed on July 25, 2021.

The fact that over the last three and a half years, the Israel Democracy Institute has led the efforts to plan for the climate crisis—together with the various government bodies involved, representatives of the business sector and civil society, and representatives of environmental organizations and academia—has allowed the Institute to gain significant experience both in the professional aspects of climate policy and in leading inter-sectorial and inter-ministerial processes, particularly as a neutral party for all sides. As part of this climate project, the Institute has led ten work teams, with the results and products of these teams being presented each year at the Eli Hurvitz Conference on Economy and Society in a special session dedicated to addressing the climate crisis.

This report presents the results of the work of the tenth team—that is, a proposal for government policy to promote climate innovation. This team was formed with the aim of helping the government of Israel, and the Director General and staff of the Prime Minister’s Office in particular, to successfully implement government resolution #544: “To act to remove the regulatory barriers to research, development, implementation, and integration of relevant technologies.” The team was led jointly by the Israel Democracy Institute and the Israel Innovation Institute.

Chapter 1 of the report presents a plan for developing government policy to promote Israel as a center of climate innovation. The report focuses on the ways and means that the government of Israel should adopt in order to support the building of an ecosystem of climate innovation in Israel, taking a broad view of the governmental tools that are relevant to this task. This chapter is based on the substantial knowledge of the Israel Innovation Institute, led by Dr. Jonathan Menuhin, in forming ecosystems that promote innovation.

Chapter 2 presents the main insights provided by climate innovators in a series of meetings, as summarized by the Israel Democracy Institute. Among other purposes, they served as the basis for writing the plan presented in Chapter 1.

We believe that the recommendations and the insights presented in this report can provide a significant contribution to realizing the vision presented by the Prime Minister at the Glasgow Climate Change Conference: Making Israel a Global power in climate innovation.

Chapter 1: Policy Proposals for Climate Innovation in Practice

This chapter outlines a plan for government policy to position Israel as a center for developing solutions that address the climate crisis, the need to reduce greenhouse-gas emissions, and challenges related to climate change. This will drive economic growth for Israel, while also providing responses to humankind’s most urgent challenges.

The proposal is based on Israel’s experience in developing innovation policies in various fields (such as smart transport, digital health, and precision agriculture), and responds to the various challenges described by climate entrepreneurs. It presents a framework for inter-sectorial and inter-ministerial activity, with three main goals: (1) expanding the variety of solutions to the challenges presented by climate change; (2) developing innovation arenas in Israel to promote the transfer of knowledge to entrepreneurs, create opportunities for testing and implementing innovative technologies, and increase the understanding of barriers to innovation; and (3) positioning Israeli solutions globally so as to gain knowledge, contacts, and resources for Israeli entrepreneurs.

The proposal defines seven interconnected areas in which action is required:

1. Promoting knowledge and understanding of this field: Encourage academia and research institutes to address the issue; provide training for various stakeholders; identify and publicize the challenges facing different industries; require a climate profile of solutions when requesting government support; provide training programs of varying scope for entrepreneurs on various subjects.

2. Building diverse innovation arenas: Encourage government corporations to advance climate innovation policies; develop a range of innovation arenas in different organizations; provide training and develop professional communities for climate innovation managers in organizations; launch challenge competitions to address climate issues.

3. Providing support for entrepreneurs and companies to secure resources: Encourage the capital market to invest in innovation enterprises; promote the involvement of venture capital funds in the field of climate innovation; provide government funding for public organizations and local companies to serve as design partners; expand relevant pilot programs.

4. Adapting regulatory frameworks: Change the government’s regulatory approach so that it examines the climate context for its activities, and synchronize various regulatory activities; ensure greater transparency regarding new regulation (including publicizing and engaging in dialogue about regulation); bolster the use of best available technologies (BATs); introduce a carbon tax.

5. Improving government work processes: Improve government leadership and coordination; include climate considerations in government purchasing and provision of government grants; expand pilot programs on climate issues; include climate issues in the support programs of the Innovation Authority and other government ministries related to technology.

6. Developing national infrastructures: Establish a knowledge center regarding challenges and Israeli solutions in the climate marketplace; create a national arena/mechanism for carbon trading; provide joint investment in development centers of global organizations.

7. Positioning Israel internationally and recruiting global partners: Create effective branding for Israel; create a work plan vis-à-vis potential customers and strategic partners.

The proposed plan can be carried out within an inter-ministerial and inter-sectorial framework, to include direct government activity; guidelines for activity by public organizations and government corporations; or activity carried out via an NGO or business entity.

Chapter 2: Main Insights from the Discussions of the Climate Innovation Team

This chapter presents the main insights that emerged from a team of around 60 climate entrepreneurs, which was established to help the government and these entrepreneurs work together to remove obstacles and make the most of opportunities to advance Israel as a global power in climate innovation. The report is based on the personal experience of these climate entrepreneurs, as well as their familiarity with similar processes in other countries. The team held a series of meetings during the first half of 2022, with the aim of mapping the main barriers facing entrepreneurs in this field, ahead of the 2022 Eli Hurvitz Conference.

The following is a review of the main barriers and possible solutions raised by the climate entrepreneurs:

1. Improving existing processes and regulation

The team’s discussions demonstrated clearly that the main barrier to a thriving climate innovation sector in Israel consists of regulatory and bureaucratic obstacles, and particularly- a lack of coordination and synchronization among the different regulators. Thus, this section is devoted to mapping the barriers identified and to presenting solutions proposed by members of the team, which as stated comprised some 60 climate entrepreneurs from a range of fields.

a. Ensure regulatory clarity for climate entrepreneurs

b. Establish a coordinating body, under the aegis of the Prime Minister’s Office, that will resolve inter-ministerial contradictions and ensure coordination of requirements set

c. Encourage demand for new technologies via mandatory regulatory requirements

d. Price external costs properly, to increase the economic motivation to transition to green technologies, including imposing a carbon tax and/or instituting an emissions-trading scheme

e. Create clear guidelines for defining developments as “best available technology” (BAT)

f. Set up a database of technological solutions developed in Israel, including a database of existing BATs

g. Improve processes at the Ministry of the Economy—develop a structured process that will include advance publication of dates of planned RFPs, strict requirements to meet stated response times, professional government help for submitting responses to RFPs, and so on

h. Improve the work of state testing agencies

i. Standardize the criteria for recognition of emissions reductions

j. Provide professional help and support for climate entrepreneurs and for businesses in general regarding improving energy efficiency

2. Government assistance for climate entrepreneurs during the “valley of death” stages

The term “valley of death” refers to the initial stages of commercial deployment, during which entrepreneurs face significant difficulties in raising investment capital and securing the first wave of clients who are willing to take the risk of implementing new technology, without a proven history of commercial activity.

Therefore, the government of Israel should formulate a plan for assisting entrepreneurs during the valley of death stages. This plan should include:

a. Creating a regulatory sandbox for promoting the implementation of new technologies

b. Advancing beta site projects for Israeli innovation, both by the government and by the business sector

c. Leading by example—the government, its auxiliary agencies, public institutions, and local authorities should be at the forefront of adopting innovative clean technologies developed in Israel

d. Giving exemptions from public tenders to pilot projects with proven technology, which have already met the RFP conditions of the Ministry of Energy

e. Creating a special track for “technological risk insurance” during the stages prior to proof of capacity for technological implementation

f. Offering grants and loans during the valley of death stages

g. Government participation in shouldering risks during development stages. Some of the entrepreneurs noted a lack of support during early years.

3. Improving policy in the energy market

The climate entrepreneurs put forward several ideas for upgrading and improving the energy market in Israel, and helping the Israeli economy to become more energy efficient, while making maximum use of natural (solar) resources and the best existing technologies. Their suggestions included:

a. Diversify the electricity network from a technological aspect, for example, by setting up hybrid power stations

b. Develop an orderly plan to encourage energy storage, via the Electricity Authority

c. Develop an orderly plan to encourage the electrification of heat

d. Adopt a pricing mechanism for managing demand

e. Promote a circular economy approach

4. Economic incentives to encourage local demand for clean technology

The climate entrepreneurs proposed incentivizing the business sector and private consumers to shift to using the cleanest energies available—for example, by providing derogatory depreciation on green investments, discounts on local taxes for businesses based on producing energy from environmentally friendly sources, and more.