The Ministry of Finance is proposing measures to fight pollution and global warming caused by energy use. Section 81 of the 2009 economics arrangements bill, inserted at the last moment in the restructuring paragraph appended to the bill, prescribes taxing the external costs of electricity production. Although the drafter of the section state that its goal is to reduce air pollution in Israel, it is not included in the bill's environment chapter, but in the macroeconomic chapter that deals with taxes.
Section 81 states, "In order to enable various sectors of the economy to adjust to changes, and in order not to substantially increase inputs to industry and substantial spending by households during a period of economic downturn, it is proposed to gradually increase the excise over three years beginning in 2011."
In this section, the Ministry of Finance proposes to set up an inter-ministerial team that will recommend taxes. However, the section is worded so that it is difficult to figure out if the tax will only apply to electricity production, or to all fuels.
Israel Institute of Energy and Environment general manager Yosi Arie said, "This idea has appeared elsewhere in the world, and it is a tax on fossil fuels. Israel taxes all fossil fuels via the excise, not on the carbon."
The initiative is consistent with Israel's wish to join the OECD.
This is the first time that the Ministry of Finance recognizes the principle of taxing the external costs (air pollution) of energy use, whether for the production of electricity or for other purposes. If Section 81 is approved, the long-term cost will be hundreds of millions of dollars a year. It could also lead to higher electricity rates because the external costs of electricity production from coal, for example, are not currently included in the calculation of rates. A carbon tax levy will make it more worthwhile to produce electricity from renewable sources.
Section 81 is grounded in the argument, "A tax will result in energy consumers directly seeing the real price (of energy from non-renewable sources), and reflect the external cost of the production of electricity from fossil fuels, which will encourage conservation by households and the adoption of technologies to reduce the use of heavily polluting fuels and the switch to other fuels by industry."
Published by Globes [online], Israel business news - www.globes-online.com - on May 11, 2009
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