Israel Environment Bulletin Autumn 1994-5755, Vol. 17, No. 3

THE GREENING OF THE INDUSTRY

Industrial processes today are all too frequently disruptive to the environment. Worldwide, and in Israel too, means are being sought to prompt companies to internalize the environmental costs incurred during the life cycle of products. Governments can play an important part in this process through fiscal and regulatory policies whether revenue collecting mechanisms or incentives.

Recognition of the important role government can play in the greening of industry has recently found expression in a decision to support green investments in industrial plants. The decision came in the wake of a report by an interdisciplinary committee chaired by the director general of the Ministry of the Environment. The report, presented in August 1994 to the Ministers of Finance and the Environment, reviewed green investment in industry, examined various economic mechanisms for implementing environmental policy, and recommended specific measures for encouraging environmental investment in industrial plants. The committee’s recommendations were adopted by both ministers.

Criteria for Environmental Investment

While recent years have witnessed a breakthrough in the enactment of environmental legislation, Israel’s industry has lagged behind in its compliance with environmental requirements. Environmental investments often seem unfeasible from the point of view of the individual plant but may be economically feasible to the country as a whole if the dire consequences of environmental degradation are taken into account. In order to help industry comply with today’s environmental requirements, some form of government intervention is necessary.

In order to assess the scope of investment required, industrial plants were asked to calculate the level of investment needed over the next three years to enable them to comply with the Environment Ministry’s requirements. The responses received from 116 industrial plants formed the basis for the committee’s recommendations. Responses revealed that over two-thirds of the investment will be required for air pollution treatment and monitoring (35%) and for sewage treatment (28%).

Both geographic and environmental considerations were used to determine national priority in allocating grants to industrial plants. In the realm of air quality, top priority will be granted to densely populated areas in which polluting industries exist, specifically the Tel Aviv metropolitan area and Haifa Bay. In the case of industrial effluents and hazardous substances, top priority will be accorded to the entire country in light of the severe environmental risks which may be generated by them. Lower priority will be granted to solid waste because of its lower environmental risk level.

Economic Instruments to Promote Environment Policy

The committee reviewed a wide variety of economic tools which could be used to boost environmental investments in industry both in the short and long terms. In the short term, it was agreed that grants constitute the most effective and the quickest means of promoting environmental investments. In the second phase, once environmental investments make compliance with environmental requirements possible, other economic mechanisms should be used to help implement environmental policy.

Among the various incentive options, the committee decided that government grants are most suitable given Israel’s present requirements. According to the committee’s recommendations, financial grants to industrial plants will be offered at a rate of 35% of the investment up to a ceiling of NIS 1 million. Multiple grants may be given to an individual company if the investment is targeted at different realms (i.e. sewage treatment and air quality), but several projects in the same field will not be eligible for more than one grant. Funds will be transferred to the companies only once the projects are fully implemented and validated in terms of technological, environmental and accounting considerations.

The innovative new program is slated to begin in January 1995 for a period of four years. Grants will be provided for investments in monitoring and pollution treatment facilities as well as for investments in environment- friendly technologies and materials in line with the worldwide move from "end-of-pipe" treatment to pollution prevention at source.

Plants may submit their applications for aid during the two year period beginning on January 1st, 1995. A steering committee, chaired by the Ministry of the Environment and including representatives of the Ministry of Finance and Ministry of Trade and Commerce, will be responsible for implementing the program.

To bring about long-term reduction of environmental pollution, industrial plants must bear the true price of using environmental commodities and natural resources. To achieve this, pricing systems must be altered to reflect the real costs of pollution.

Emission fees, trade in emission rights, taxes and levies were all examined by the committee as legitimate means of making industry more responsive to environmental requirements. Viable options for Israel include the imposition of taxes and levies on products and activities which damage the environment while reducing other taxes so that the overall burden of taxation on industry is not increased. The imposition of high emission fees is yet another means of motivating companies to invest in pollution prevention, but a suitable administrative framework must be set up for this purpose. Trade in emission rights (the "bubble concept") was found to be generally unsuitable for Israel except in the Ramat Hovav industrial area in the Negev where a large number of polluting plants are concentrated within a small geographic area. In this region, the committee recommended that as a first step, trade in emission rights for one pollutant will be instituted for an 18-month period. If the results are positive, the method can be expanded to an additional two pollutants.

Operative recommendations on taxes, levies, fees, deposits and other fiscal devises designed to implement environmental policy in the long term will be presented by January 31,1995.

Finally, the committee set forth a number of recommendations designed to promote the establishment of recycling plants and other environmental plants. In this case, existing systems such as the Encouragement of Capital Investment Law and the Investment Center may be appropriate, but modifications are required. Operational recommendations in this area too will be submitted by January 31, 1995.

The use of economic incentives and disincentives to promote environmental investments is seen as a first step in the Ministry of the Environment’s program for aggressive enforcement of environmental regulations. Some NIS 500 million will made available over the next four years for environmental investments in industrial plants. At the same time, efforts will be made to increase and strengthen environmental enforcement and to raise fine levels substantially.