In August 2021, the Israeli government announced that it will introduce a carbon tax, following in the footsteps of other developed countries. This new tax was announced in a statement approved by the Tax Authority and the Finance, Energy, Environmental Protection and Economy ministries.
The number of countries introducing carbon taxes is growing rapidly
Israel's carbon tax will be gradually introduced from 2023 to 2028. The tax is expected to cover around 80% of the country’s greenhouse gas emissions. It will be applied to coal, liquified petroleum gas, fuel oil, pet coke and gas. The tax will be limited to ensure that citizens are protected from electricity price rises of no more than 5% during the period of the rollout.
There will be no additional carbon taxes on diesel used in transportation. Israel’s existing transportation taxes are among the highest in the OECD.
Later on, taxes will be extended to emissions from other sources of greenhouse gases, such as landfills and cooling gases used in air conditioning systems, refrigerators, and refrigerated vehicles. Garbage dumps account for 8% of Israel's greenhouse gas emissions. Cooling gases account for 7% of greenhouse gas emissions.
The Israeli government considers carbon pricing to be the most efficient and effective method of reducing greenhouse gas emissions and creating certainty in the markets. The tax aims to encourage businesses to switch to fuels that contribute less to pollution and global warming and invest in new technologies that can help reduce their carbon footprints. The government has also said that they aim to support this move to more energy efficient resource use.
The International Monetary Fund, the World Bank and the Bank of Israel have all recommended carbon taxation. The Environmental Protection Ministry’s research, conducted in cooperation with the Israel Democracy Institute, indicates that carbon pricing alone will reduce greenhouse gas emissions by 67% by 2050, relative to 2015 levels. It also found that the carbon tax will have a negligible effect on economic growth.
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