Environment and Economics

Opportunities and Risks

The 16th Caesarea Economic Policy Planning Forum, July 2008

  • Edited By:
  • Publication Date:
  • Cover Type: Online | Hebrew
  • Number Of Pages: 46 Pages
  • Center: Eli Hurvitz Conference on Economy and Society

This paper details the ways to make externalities an integral part of policy-making and the ways to benefit from the emerging opportunities, so that Israel can take place in the forefront of environmental action, alongside the developed countries of which it proclaims to be part.

Environmental issues are taking a central place in public discourse in recent years in Israel, as part of its integration into the group of developed countries. However, Israel lacks a coherent environmental policy that would diminish environmental hazards that put the quality of life of its residents at risk and assure a successful integration into the OECD, which has a clear global environmental agenda. From an economic point of view, most environmental problems are due to market failures, as environmental damages are the attributes of negative externalities. Hence, dealing with environmental problems requires that the consideration of environmental consequences will become an integral part of policymaking. The ways to do so are the essence of this paper.

Integration into, and even leadership of, the clean-tech industry requires a sound policy. Unlike the high-tech industry, clean-tech is an infrastructural field which depends on incentives, regulation, and legislation, so it requires directed policy which will help develop "green collar" industry and advanced research in corporations, universities, and hothouses. Such industry will provide new workplaces and will encourage high-tech and other companies to successfully join the world trend of green investment and clean-tech.

Thus, this paper details the ways to make externalities an integral part of policy-making and the ways to benefit from the emerging opportunities, so that Israel can take place in the forefront of environmental action, alongside the developed countries of which it proclaims to be part.


Making environmental externalities an integral part of policymaking

a. A section of "environmental externalities impact analysis" should be added to the decision-making procedure of the government and to every law proposal.

b. Deciding on development policy or approving projects in government offices should require a cost-benefit analysis which accounts for externalities.

c. The alternative value of the land should be added to the cost-benefit analysis of public projects.

d. These extended cost-benefit analyses (which include environmental aspects) should be presented to planning committees.

e. Considering environmental externalities must be made part of the government purchasing policy.

Environmental taxes

a. The recommendations of the committee for green taxes in the Ministry of Finance should be implemented.

b. Green taxes should be expanded to other environmental issues, such as:

  1. Imposing a toll on construction in open spaces.
  2. Imposing a purchase tax on the production factors of electricity, according to the pollution emitted as a result of their use.

Subsidies and economic incentives

a. Subsidies which encourage harming the environment should be canceled. For example:

  1. The value of use of a company vehicle (including a leased vehicle) should be raised.
  2. Parking expenses should be taxed, while public transport expenses should be acknowledged as an expense.

b. Subsidizing environmental research and adopting environmental innovations:

  1. Encouraging environmental R&D in Israel by, for example:
    • Diverting grants awarded by the Ministry of Industry, Trade and Labor’s Chief Scientist to the clean-tech sector.
    • Expanding the Ministry of the Environment’s support of environmental innovation by allocating more funds for this purpose.
    • Founding a center for environmental technologies verification, in order to diminish the uncertainty of business firms.

  2. Encouraging the implementation of environmental innovations, for example:
    • Implementation of government decision N. 2664 (manufacturing at least 5% of the electricity in Israel by renewable energies by 2016), and constructing solar energy power stations.
    • Formulating a government plan for energy conservation and funding it.
    • Giving incentives to energy production out of waste.
    • Assisting with knowledge by expanding existing programs.

c. Subsidizing positive externalities:

  1. Water to Nature: subsidizing payments for water allocated to nature and enlarging the amount of water allocated.
  2. Expanding the support for nature parks and wildlife sanctuaries in order to diminish the dependence of the Israel Nature and National Parks Protection Authority in revenues from visitors.
  3. Environmental-scenery agriculture: subsidizing scenery and the benefit to the environment component in agriculture, in the amount of the positive externality generated.

Other tools

a. Using deposit-return mechanisms in fields where enforcement is difficult: toxic waste, batteries, packages, construction waste, etc.

b. Enhancing environmental enforcement. For this purpose, the budget of the Ministry of the Environment should be raised.

c. Public projects should be built according to green building and efficiency standards.

d. Making environmental risk considerations an integral part of financial systems:

  1. Improving firms’ information disclosure in financial reports and prospects.
  2. Financial regulators should make sure that environmental risks management systems are integrated in the policy of financial institutions.