The Ministry of Finance should reconsider its objections to hard targets if it wants to ensure Israel’s competitiveness
Since March of this year, India has been suffering a massive economic blow due to an extreme heatwave. This is the hottest it has been in the country in at least 120 years. Daily temperatures above 45 degrees Celsius (113 Fahrenheit) have led to a near total shutdown of India’s daily life: workers unable to work past 10am, children unable to stay in school past 11am, office buildings unable to operate midday due to skyrocketing energy prices. Crop failure. Manufacturing breakdown. Infrastructure degradation. One of the world’s largest economies has been crippled by just one of many extreme weather events expected this year alone.
Only a few hours west, and not far in terms of latitude, Israel, too, has seen an odd start to Spring. Intermittently since February, dust storms have blanketed Israel and our neighbors, most significantly for 20 days of April. Aside from the long-term economic impact due to the effect of this dust on our health, these storms also had immediate economic effects, as the elderly, children, and pregnant women were all told to avoid the outdoors.
This is the background against which Israel’s Ministry of Finance has decided to severely weaken a proposed climate law, on the grounds that doing so would be better for business. Business leaders who care about having viable businesses past 2030 need to speak up to share their disagreement.
Israel’s economic competitiveness and long term sustainability depend on our ability to compete in a changing world
When done right, environmental policy aimed at mitigating climate change is conducive to economic policy aimed at supporting growth. Israel’s economic competitiveness and long term sustainability depend on our ability to compete in a changing world. Our largest trading partners have all recognized the importance of transitioning global industry from emission to sustainability. The majority of them have already built detailed plans with hard targets, including significant transfer taxes to penalize imported products and services that do not abide by the same standards. Even without taking into account the direct effects of climate change on the functioning of our economy, as a participant in global trade, Israel will need to improve sustainability practices just to stay in the game.
Wise environmental policy goes beyond compliance. Concrete sustainability plans and the targets they set have been recognized as critical by strategic planners around the world, as they lay the ground rules according to which business leaders can plan appropriately. Without clear guidelines for industry, Israel will be forfeiting the predictability that made our economic growth possible despite global financial downturns throughout the 21st century.
Predictability is a critical component of strategic planning for any sector. It enables the financial sector to properly price capital and avoid financing projects that will become too costly and default due to extreme weather. It enables insurers to properly price risk and avoid default due to a lack of resilience to extreme weather. It enables private and public leaders to do their fiduciary duty and drive their organizations toward outcomes that stand a chance for sustainability and growth. For any of this to happen, we need some level of certainty, and the way to provide that is through ambitious targets that are both enforceable and enforced, not wishy-washy goals that can be adjusted at a whim. Better a challenging target that accounts for future scenarios than an ever-changing set of regulations that do not enable proper investment.
Predictability is a critical component of strategic planning for any sector. It enables the financial sector to properly price capital and avoid financing projects that will become too costly and default due to extreme weather
As the EU writes in its ‘Fit for 55’ strategic plan, “By setting a clear policy framework with detailed targets and policies, the Commission is increasing investor certainty and reducing the risk of locking in investments in carbon intensive industries that will become obsolete before too long and lead to stranded assets.” The proposed law in Israel, as it now stands, does the opposite: it does not set specific goals, it does not create a clear policy framework, it does not set out detailed targets and policies. It will, therefore, do nothing to increase investor certainty, and will most likely lead to a lock-in of investments that will be subject to increased scrutiny and taxation, raising their risk profile and reducing their returns.
This is why all of us who care about Israel’s economic longevity should care about the climate bill, and demand that it be properly strengthened. We do not need to be a first mover in this case; we just need to ensure we are not shooting ourselves in the foot by remaining unprepared. There are more than enough excellent proposals to expand the strategic vision of the bill, matching the broad reach of the EU and South Korea in calling not only for emissions targets but also ensuring Israeli industry isn’t broadsided by international carbon taxation, and that what taxes are paid are paid to Israel and not a foreign country.
It doesn’t take science fiction to predict where the wind is blowing: as organizations like Fossil Free Israel point out, future proofing our economy requires a strengthening of our financial sector by integrating the cost of emissions into the cost of capital. The only way our industry will survive is if we invest now, before it is too late, to ensure that the rising cost of capital does not cripple our economy within the decade.
This is why all of us who care about Israel’s economy should care about the climate bill and demand that it be properly strengthened
By applying a global lens to our climate legislation, and thinking of it first and foremost as providing the foundation for the future competitiveness of the Israeli market, we can better ensure Israel sustains the economic miracle it currently is experiencing. All of us, not only those who are environmentally focused, need to call on Israel’s Ministry of Finance to demand more, not less, from the Knesset, and to pass a comprehensive series of laws that secure Israel’s competitive edge in the decades to come.