Trade and Economy

Expert opinion prepared by Dr. Doron Lavee and Tomer Ash of the Pareto Group, Inc.

Past Developments:

The government was involved in the market and gave priority to economic development and full employment. In general, as both regulator and employer, the government opposed the imposition of environmental limitations on governmental bodies. The economy was small and geared towards local needs such as construction, agriculture, and infrastructure.

Current Trends:

The Israeli economy shifted from local production to foreign trade, which today accounts for 61% of the GDP. These days the economy is very vulnerable to global impacts. Per capita GDP has risen to $28,000, a development that was led during the past two decades primarily by elite technology (high tech). Privatization of the economy resulted in a separation between the regulator, on the one hand, and the producer and employer on the other, thus enabling government – as regulator – to set environmental restrictions and to work for the inclusion of social and environmental liability in business. The Israeli economy adjusted itself following global market conditions (including OECD requirements) and international environmental standards. Today, despite the high level of concentration of the economy, particularly in the area of banking, it does not affect environmental issues. There is a close link between the defense industry and innovation, generating a spinoff of innovation in the civilian sector.

“Business as Usual” Scenario:

Global economic activity is expected to double by 2030. The Israeli economy, a small player within the international marketplace, is vulnerable to fluctuations. To date, the Israeli economy has demonstrated an ability to withstand crises and continue developing. GDP grew during the past decade by 20% and since the 1990s by approximately 75%. In recent years there has been a significant increase in the export of chemicals and medicines, which have severe environmental consequences. At the same time, the transition from production of goods to the provision of services (which characterizes developed countries) is likely to reduce pressures on the local environment. If current trends do not change, the increase in GDP per capita is likely to be reflected in increased household consumption. For the trend of rising GDP per capita to continue, the economy should generate a competitive advantage, refrain from risks, and develop the ability to adapt to global changes, as well as transition to “green growth” practices. Given the dependence on global market developments, the government will need to adopt measures designed to place the economy at the forefront of innovation, including “cleantech” industries and especially those areas in which Israel has a competitive advantage and the potential to position itself as a global leader.

Recommendations for the future:

1. Making Israel a leader in innovation will require extensive investment in education, research and development, training institutions, and promotion of technological and non-technological innovation.

2. The fields of green growth, cleantech, efficiency, and reduction (of raw materials, energy, water, land-use, and waste) are potential avenues for market leadership.

3. Israeli could find itself in competition with global markets and exposed to risks related to import and export.

4. If Israel’s foreign debt increases, it will be inherited by future generations.

5. Under a scenario in which Israel does not take measures to encourage innovation, Israel could lose its place in the global markets and experience a decline in GDP per capita.

Full Report- Hebrew

Land and Space

Expert opinion prepared by Arch. Dan Stav, former deputy director for planning and development at the Israel Land Authority

Past Developments:

Land was considered a national resource, to be used by the state in pursuit of its objectives, foremost of which was establishing governance over land reserves. Land was allocated for use in a process that effectively transferred “ownership” of the land to a status comparable to private ownership. Privately owned lands were compulsorily purchased for marketable and public purposes. Following a change in public priorities, reflected in a multitude of legal suits, the compulsory purchase of land has been reduced and is used only for public purposes, primarily infrastructures.

Current Trends:

Today land is perceived more as a means of production and less as a resource for the achievement of national objectives. At the same time, its price does not include external costs such as payment for infrastructures or environmental damage. The lack of full pricing of land facilitates a trend towards the expansion of built-up areas at the expense of open spaces and does not facilitate the renewal of existing urban areas.

“Business as Usual” Scenario:

Land will serve as an economic asset that enables short-term solutions to economic and social problems. A preference for the expansion of built-up areas can, therefore, be expected, at the expense of more efficient use of land, and with a resulting loss of open space. Urban renewal will occur only when it is considered “economical.” In the absence of urban renewal, residential development, commercial, and industrial activities will move out of the cities.

Recommendations for the future:

A scenario for reducing the rate of expansion of the built-up area  – a scenario for preserving and protecting open space:

This scenario would entail the formation of an integrated network combining transportation – public transportation in particular – with business and employment, in the form of a central column stretching from Naharia to Be’er Sheva, with extensions and sub-circuits. This network would constitute a skeleton for a nationwide municipal network – a singular national metropolis. 

1. Constraining the spread of development entails strengthening cities and urban life, implementing urban renewal projects from an inclusive national perspective, and implementing measures to restrict urban sprawl;
2. Housing that is accessible to large population groups will be constructed using new and specialized methods and systems;
3. Preparations will be undertaken for the possibility of future waves of immigration or ingathering, with an emphasis on urban absorption;
4. Use of underground space will be increased, among other means by changing ownership rights of underground space;
5. The rate of expansion of built-up areas will be reduced to 0.1%-0.5%

The scenario for reducing the rate of expansion can be combined with other scenarios:

A scenario for reducing the allocation of land for infrastructures, under which:

1. 1. 1. Infrastructures will pay for their use of land,

      2. The integration of infrastructures will be encouraged, including tunnels within cities and corridors between cities.

A scenario for preservation and development, under which:

1. 1. 1. Preservation of open spaces will not be based on the past model of a division between conservation and development, but on models which integrate conservation and development biosphere reserves.

Full Report- Hebrew

Water

Expert opinion prepared by Shimon Tal, Tal Consulting, Inc., former water commissioner

Past Developments:

The provision of water was perceived as a strategic foundation for achievement of national objectives; the water supply network was administered at the national level; until the 1990s agriculture was held as a dominant objective in the political perspective relating to management of the water supply network. The water economy infrastructures (legal, physical, and administrative) were constructed with due consideration to the severe shortage in water sources and the expected future intensification of this shortage.

Current Trends:

Water continues to be perceived as a resource in short supply.
The objectives of water supply have been expanded today and include the conservation of landscape and natural water sources as national objectives. Water also plays a political role in the Middle East, and Israel must abide by its obligations under political agreements in which water is an important issue among the issues on the negotiating table. Other trends include: drawing a distinction in the administration of the water economy between policymakers (the government and its ministers) and ongoing professional management (the Water Authority); advancing the objectives of sustainability in the water economy by increasing the sources of water – desalination and recycling of wastewater for agriculture; preservation of water sources by preventing their contamination and by rehabilitating contaminated water sources; ensuring availability of drinking water by developing procedures and methods for alternative water supply during times of crisis.

“Business as Usual” Scenario:

The master plan for the water system that was approved in July 2011 prepares the water system to operate in conditions of uncertainty, such as a decrease in natural water sources. Under the procedures of the water system , water supply for urban and industrial consumers will be determined by market allocation . The preservation and promotion of national objectives (scope and distribution  of agriculture, water for nature, and provisions regarding water in the peace agreement) will be achieved by means of price subsidies. Ensuring reliable water supply for various needs will be achieved by efficient exploitation of the operative water storage systems and other water sources. Plans to double the potential water sources will be achieved through desalination, more efficient use of energy sources for water production, and use of wastewater for agriculture, alongside reduction of the risks of land and groundwater contamination. There will also be active engagement in the search for regional solutions to develop additional water sources and overcome regional shortages. The development of additional water sources (fossil waters in the Negev, exploitation of surface runoff) will entail examination of their economic feasibility. The efficiency of water use will be achieved by demand management and managing runoff and drainage.

Recommendations for the future:

The approved master plan for the water system is in fact a development plan for the coming years.

Full Report – Hebrew

See also: Policy Packages for the Water Sector SPREE Project

Energy

Expert opinion prepared by Dr. Amit Mor and Shimon Saroussi, Eco Energy, Inc.

Past Developments:

Israel was dependent on fuel imports and suffered the consequences of being an “electricity island” disconnected from international networks. Coal was selected as strategic source for energy production, and measures were taken to reduce environmental consequences in accordance with accepted practices at the time; the production, transmission, and distribution of electricity are carried out by a government company (the electricity company), whose goal is ensuring the reliable supply of electricity.

Current Trends:

The inclusion of natural gas in the energy market paves the way for private electricity producers, constitutes a substantive structural change for Israel, and reduces dependence on fuel imports; to date, the scope of renewable energy development has been very limited; a significant reduction in air pollution from the burning of fuel for energy production has been achieved, but it is still unclear how Israel will meet its obligations to reduce greenhouse gasses.

“Business as Usual” Scenario:

The price of oil is not expected to decline, yet the price of natural gas is expected to rise. Within a decade natural gas will provide 70% of the market’s needs for electricity production and for large industries’ energy supply. Measures will be taken to ensure a variety of natural gas sources. Despite greater energy efficiency, there will be an increase in energy consumption by 64% compared to 2009. The scope of renewable energy production will reach 10%. Given that Israel will remain an “electricity island” and that the electricity network lacks redundancy, it will be necessary to back up energy sources with diesel and fuel oil.

Recommendations for the future:

Scenarios under which energy sources will increase:

1. Maintenance of a long-term reserve of natural gas for Israel by limiting its export;

2. Import of liquid natural gas (LNG), its storage, and construction of a re-gasification facility at sea (stationary or mobile container);

3. Increasing the scope of electricity production from renewable energy sources to 20% of the total of electricity production by allocating approximately 300 square kilometers in the Negev desert for solar facilities;

4. Construction of nuclear power plants at a capacity of approximately 4 GW.

Scenarios under which energy efficiency will increase:

1. Construction of a smart bi-directional electricity network to accommodate heavy demands, including electric motor vehicles;

2. Use of natural gas for transportation (CNG, methanol);

3. Use of local fuel derived from oil shale for transportation and industry;

4. Adoption of measures to increase energy efficiency by 20%

Full Report – Hebrew

Ecosystems and Ecosystem Services

“Business as Usual” Scenario:

Continuation of current development practices will exacerbate the erosion and fragmentation of Israel’s ecosystems. Food supply will be increasingly dependent on imports and therefore vulnerable to the uncertainties of the ecosystems of the countries providing for Israel’s needs. Global warming poses a threat to Israel’s ecosystems, for example via invasion of foreign species, frequency, and intensity of floods, water loss, soil erosion, and fires, none of which the state can influence. It is expected that agricultural systems will be abandoned and natural ecosystems will return, and that a process of rehabilitation of natural ecosystems will occur as a result of increased water supply resulting from desalination and the option of replenishing natural water sources.

Recommendations for the future:

Scenarios under which agriculture does not compete for water:

1. Cancellation of water subsidies for agriculture and return of abandoned lands to their natural state in light of the inability to sustain agriculture through local supply alone and the inability to complete with imported agricultural produce;

2. There is a possibility that agriculture could become less dependent on ground resources (such as greenhouse cultivation) and could be made efficient through water use at the cost of desalination;

3. Agriculture could be furthered on the basis of fossil water.

Scenarios that give priority to control mechanisms:

1. Granting priority in land use to the cultivation of ecosystems that are important in providing control mechanisms, rather than ecosystems for provision of agricultural produce;

2. Returning agricultural systems and deforested areas to their natural states, taken as a positive measure that is likely to contribute to ecosystems’ productivity;

3. Strengthening the resistance to climate change by preserving areas of sharp climatic transition;

4. Promoting biological diversity such as organic agriculture and urban nature;

5. Guaranteeing protection for natural water supply systems in future regional agreements covering water supply.

Full Report – Hebrew

Social Aspects of the Environment

“Business as Usual” Scenario:

Continuation of the “modern ecology” perspective alongside improved internalization of environmental considerations within the state’s regularization systems; more involvement by the business sector and civil society activism; strengthening of the links among science, technology, and environmental protection, and increased use of economic tools; cities will take steps to improve the quality of life in order to attract residents and investments; despite environmental policies, environmental resources and open areas are decreasing, which in the long term will result in the creation of concentrated urban centers in the north and center of the country; accumulation of economic wealth and increased consumption will be the driving forces affecting the environment in Israel.

Recommendations for the future:

Scenarios characterized by uncertainty:

• The “business as usual” scenario is based on an assumption of geopolitical stability in the region and a market economy entailing continued privatization, without taking into account the possibility of an extreme occurrence resulting from climate change or a change in attitude towards Israel in the international arena.
• An alternative scenario of uncertainty is based on the assumption that this stability will be undermined (for whatever reason) and lead to social unrest.

Scenarios of equitable intra-generational distribution:

• In response to social unrest, procedures would be adopted for more equitable distribution of environmental resources for the sake of the current generation (intra-generational equity), but these would come at the expense of future generations (for example, increased consumption and release of lands for development ).

Full Report – Hebrew

Sustainable Management of Minerals for Industry

“Business as Usual” Scenario:

The absence of clear government policy regarding the management of minerals for industry, both local minerals, and imported minerals; minimal improvement in the rates of return and reuse, and continued dumping; reliance on voluntary procedures on the parts of the industry and the free market.

Recommendations for the future:

Establishing a policy of a recycling economy in Israel for the short and the long term in the matters of recycling, disposal, development of a recycling technology industry, encouraging industrial symbiosis, and managing trade in imported environmental resources. The Ministry of Industry, Trade, and Labor should address the issue of rare earth minerals and establish priorities for the Israeli economy. The flow of critical materials needs to be examined by the Ministry of Foreign Affairs, and strategic cooperation established with member states of the European bloc, Japan, the United States, etc. Resources should be allocated for research and development in the field of recycling technologies, green chemistry, efficiency, and environmental innovation.

Full Report – Hebrew