Israel
In 2021, Israel imported almost all its coal as well as its primary and secondary oil product needs, with almost all coal supply used to generate electricity. Despite the current dependence to imports, the share of indigenous natural gas production is expected to increase following the relatively recent discovery of one of the largest known gas reservoirs in the world (the Leviathan), with production ramping up beginning in 2013. As of 2020, the field began commercial production of gas. Production levels from this field in 2021 were around 13 434 ktoe, about seven times the amount registered in 2012. In 2021, the country’s electricity output was mainly generated from natural gas (69%) and coal (23%), while at least 7% of it is generated from renewables. In 2019, the Israeli government announced its target to phase out coal-fired power generation by the end of 2025, five years earlier than the original target. To achieve this, the government plans to convert the Ashkelon coal-fired plant to natural gas by 2024 and the other two coal-fired electricity generation units at Hadera’s Orot Rabin plant to gas by the end of 2025.
Israel’s energy sector is yet to become fully competitive. Electricity generation and distribution are dominated by the state-owned Israel Electric Corporation (IEC), although the share of electricity generated by private operators is expected to increase further as the country shifts towards increasing renewable generation, which in Israel is entirely private. Coal imports for electricity generation falls under the National Coal Supply Corporation, established, and owned by the IEC. The development of offshore gas fields is conducted by the private sector, much of it by a consortium of companies headed by a US oil company (Noble Energy) and Israel’s Delek Drilling. Gas transmission, on the other hand, is carried out by the Israel Natural Gas Lines Company (INGL), a government subsidiary established in 2003.
Israel’s concession-based regime for taxing hydrocarbon production, dating from 1952, was revised in April 2011. The new law provides that royalties on hydrocarbon discoveries will remain at 12.5%, according to the Oil Act, and another profits levy (in addition to regular corporate tax) will begin after the developers have paid back investment outlays plus a return allowance. The rate of such levy increases gradually up to 60%.
Over the last decade, Israel has advanced reforms to deregulate its oil sector, particularly the gasoline industry. Some price controls for end users of petroleum products were eliminated and the country’s two oil refineries were privatised. Excise duties on motor fuels are relatively high in Israel, making prices reach levels comparable to several European countries. In September 2009, a five-year fuel tax reform was concluded, with excise-tax rates on diesel and gasoline almost made equal and the diesel annual car licensing fee reduced to equal that of gasoline engine cars. Excise duties are also imposed on fuels used for stationary purposes. Taxes on coal are now substantially higher than the excises on heavy oil (mazut) and natural gas, which may further encourage a shift away from coal-fired generation.
In 2022, Israel reduced duties on coal from NIS 105 to NIS 1 per tonne; reduced the tax on diesel by NIS 0.43 per litre; and reduced the tax on gasoline by between NIS 0.27 to NIS 0.87 per litre.
A Value Added Tax (VAT) applies to all energy product purchases and is currently set at 17%.
The bulk of fossil fuel support measures observed in Israel can be traced to the following measures: (i) Excise Tax Exemption on Diesel Fuel, (ii) Reduced Royalty payments, and (iii) Gas Agreement Between Israel Electricity Company and the Tamar Gas Field. The exemption on diesel was stipulated in the Excise Tax on Fuel Order of 2005. This measure provides for tax rebates on diesel fuel used in buses, taxis, fishing boats, and working vehicles such as tractors. The fuel tax reform concluded in 2009 considerably increased the revenue foregone resulting from the tax rebates on diesel fuel, from ILS 2.4 million in 2011 and now stands at ILS 3.6 million in 2018.
The fiscal cost of support measures for fossil fuels in Israel was estimated at ILS 6.75 billion in 2022 (Table 1). Ninety-four per cent (94%) was directed at end user beneficiaries, as opposed to 6% directed to firms. Support was mainly given out in the form of tax expenditures (ILS 6.35 billion) accounting for 94% of the total fiscal cost of support measures. Direct transfers amounted to ILS 0.40 billion.
The fiscal cost of support measures for fossil fuels has increased by 71% since 2017. Since last year, tax expenditures have increased by 86%, from ILS 3.47 billion to ILS 6.35 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.