Israel can also be a nation of climate innovation: opinion

As we hear repeatedly from COP26, it is about money.

How can we forge capital channels to finance the climate transition and reduce greenhouse gas emissions? The challenge we face is how to achieve cuts in emissions and, simultaneously, offer economic incentives for our citizens, neighbors and future partners so that we can change behavior and decarbonize in the transition window that remains.

This window of closure over the next few decades has important implications, for political decisions and financing mechanisms, for the natural gas markets of the Eastern Mediterranean. A recent study of these markets concludes that suppliers should focus on national, regional and European markets, including the Middle East and North Africa. And we must invest in a “sustainable market that supports a mix of gas and renewables.” In fact, the International Energy Association recognizes the importance of incorporating natural gas with renewable energy as part of a strategy for the transition to net zero in our part of the world.

Clearly, Israel cannot sit still on what will eventually become stale, unproductive and stranded assets. But the remaining window to monetize our gas reserves largely matches their current useful life, estimated at 18-25 years. We will need a laser focus for both industrial policy and market strategy if we are to accelerate emission reductions and keep economic growth alive. We need to direct that focus also on the extension of green, clean and agricultural technologies to other nations aspiring to start a new company that want to enter the conventional global economy.

There is no “one size fits all” solution to the energy transition, but optimizing a portfolio of solutions has implications for our long-awaited Israel Citizens Fund (ICF), and for finally getting it right under conditions that have matured from the start. . of these ideas a decade ago. In 2011, when we started working on the design of the fund, there were 56 sovereign wealth funds around the world; today there are 134. And their investment strategies are changing with the times. Some of the world’s largest sovereign wealth funds reported a total investment of $ 2.3 billion in 2020 in climate change investments, more than double their investments in 2019.

A banner announcing the United Nations Climate Change Conference (COP 26), in which world leaders discuss how to tackle climate change on a global scale, is seen inside the conference area in Glasgow, Scotland, Great Britain, on October 31, 2021 (credit: YVES HERMAN / REUTERS).

If Israel wants our own sovereign wealth fund to have greater influence and capacity for diversity and growth, we must follow the successful strategies of sovereign wealth funds in Singapore, Saudi Arabia, the United Arab Emirates, China, Italy and Morocco, among others. This means that we must update the ICF’s decade-long mandate. That original model of traditional sources of commodity income is outdated and insufficient to cope with the climate crisis.

The fund should expand its allocation of available capital by including, like those funds, surplus foreign exchange reserves, proceeds from privatizations, budget overruns, government transfer payments, unclaimed assets in banks and the Ministry of Finance, bonds of the diaspora, intellectual property income and funds raised. in international capital markets.

In short, if we launch the ICF as a permanent capital vehicle that includes new strategic climate investments, we can self-finance our energy transition by optimizing short-term natural resource development (our gas reserves) to drive the broader regional energy transition. Stopping coal and diesel imports immediately and accelerating the short-term use of natural gas: 1) would eliminate the risk of immobilized assets because we would be depleting reserves earlier at higher prices; 2) increase the income of sovereign wealth funds that could be invested in new energy systems and hybrid technologies; and 3) increase revenue and growth through increased energy technology exports.

This type of expanded investment portfolio aligns well with carbon neutrality objectives because its managers can design investment portfolios that reduce the fund’s carbon footprint. The Finance Ministry has already proposed a carbon pricing scheme, and the fund could dedicate some of that tax revenue and leverage sustainability bonds for project finance to help subsidize the next generation of renewable and other zero-tech technologies. carbon emissions for export.

In 2021, already 20 countries (including France, Germany, the United Kingdom, Colombia, Spain and others) have raised more than $ 100 billion. in green and sustainability sovereign bonds to accelerate energy transitions.

The government, the Israel Citizens Fund and the Israel Development Corporation (Israel Bonds) could raise low-cost funds under the Green and Sustainable Bonds principles of the International Capital Market Association (much like Bank Hapoalim raised $ 1b. In contingent convertible green bonds last month) for energy transition projects and technological development through sustainability bonds and corporate bonds linked to sustainability and based on results to finance the energy transition in the country and in the Foreign.

This would further leverage the fund as an investment vehicle to address the UN’s sustainable development goals, and highlight Israel’s catalytic role as, what the prime minister has called, a “nation of climate innovation.” When Israel helps finance green projects and pipeline development through its own capital markets, it reaps the benefits of being the leader developing, field testing and amplifying those high-value technologies for export.

We can also monetize natural gas assets in the ICF (without relying on government budgets) to channel returns on investments in technologies that can, for example, address marine conservation and protection zones, and stop acidification of the Mediterranean Sea. ; enable low-carbon energy transitions; build cultural heritage tourism; promote desert technologies and sustainable development; and boost economic growth.

And increasing Eastern Mediterranean regional cooperation (through the Eastern Mediterranean Gas Forum, which includes Greece, Cyprus, Egypt, Jordan, the Palestinian Authority and Israel) can help end energy poverty in the Middle East and the North. of Africa, where more than 65 million people do not have access. to electricity and another 60 million live with prolonged blackouts and lack of supply.

Looking outward, the larger region also has enough natural gas reserves to help fund broader cooperation with us on the growing energy needs of coastal states, and to monetize natural surpluses and reserves through LNG facilities. Egypt for various sovereign wealth funds (including ICF, Egypt). , Cyprus, Greece, Jordan and the Palestinian Investment Fund). These sovereign wealth funds can also finance technologies that promote low-carbon energy production for electrification while expanding renewable energy technology and cogeneration, thereby reducing the risk of carbon transition.

They could participate in programs that affect electricity generation and transition costs and address energy reliability by reducing intermittency. They can invest in the replacement of coal and diesel without causing a carbon lock that could limit renewables. The cooperation enables faster adaptation of cleaner energy systems in the future because it will help us avoid destabilizing power grids from overuse once flexible generation and energy storage become commercially viable and available.

With our neighbors in the Eastern Mediterranean, we can use the revenues generated by natural gas and other natural resources to finance new energy systems, improve performance, and reconfigure and shape new markets. Through these investments, we can build a nationally and regionally sustainable integrated economy.

The author is a senior director of the Milken Innovation Center and Blum Lab for Developing Economies at the Jerusalem Institute of Policy Research and a senior fellow at the Milken Institute. He teaches at the Hebrew University School of Business and the University of California-Berkeley.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *