Consumers won’t sacrifice to alleviate global warming, but as governments force technological change, Startup Nation could be a big beneficiary.
David Rosenberg Dec 17, 2015
The debate roiling Israel over the strategic value of its natural-gas reserves (or lack thereof) is just so 20th-century. Having a pool of oil or gas beneath you is still a big advantage to a country, but it will be less and less of one.

Thus, as the Knesset Economics Committee was winding up its kangaroo hearings on natural gas – the one in which lots of experts were called up and valuable time wasted on a foregone conclusion, that the framework agreement is no good and should be renegotiated – in Paris the nations of the world adopted a long-awaited climate accord that could well set a new era of renewable energy and green economics into motion.

So we are treated to the spectacle of Startup Nation – the legendary home of innovation and forward thinking – obsessing over the details of policy toward fossil fuels, while the rest of the world is planning a future without oil, coal and gas.

It’s not that issues about the gas found in Israeli territorial waters aren’t important. But what happened in Paris was a strategic shift that Israel should be celebrating.

Provisos about Paris and the moon landing

A few provisos about the Paris accord are in order. There’s the stupid one, namely that climate change isn‘t for real or, if it is, it isn’t caused by human activity and therefore can’t be stopped. Then there’s a more reasonable one, which is that the accord is a voluntary agreement with no sanctions, standardized benchmarks or enough money pledged to give it teeth.

Another reasonable criticism of COP21 is that short-term interests like economic growth and oil profits will prevail over long-term ones, like preventing humanity from being fried to death. This is especially relevant as the long-term benefits are what economists call a “public good,” i.e., one where everyone benefits but only a few bear the cost, for example, utilities putting scrubbers on smokestacks to control the release of acid gases: Everyone enjoys cleaner air but only the power company pays for it.

The argument that climate change is a conspiracy of left-leaning scientists and media is silly, but more important it’s irrelevant so long as governments and businesses are prepared to invest in stopping it. You might believe the moon landings were faked, but so what? Whatever you believe, NASA still spends billions of dollars a year on space exploration.

China on board

In the real world, it’s clear now that China has accepted the idea that something has to be done to control emissions, and anyone reading analysts’ reports on “green” bonds and the money to be made in solar power and electric cars can easily discern that Wall Street is on board, too.

The public-good obstacle is a big one, especially with oil prices so low and likely to stay that way for a while, making alternative energy less economically competitive. But what emerges from Paris is that the fight against climate change will be fought top down with governments and big business leading the charge and the masses following.

Polls routinely show that ordinary people believe something has to be done to save the environment, but on a personal level they are loathe to give up driving their cars for public transportation or running the air conditioning at anything but a setting that would drive away a penguin. The solution is government forcing car and air-conditioner makers to meet environmental standards. That in turn will set off a frenzy of technology innovation and investment and produce a greener car and more energy-efficient air conditioner, whether consumers like it or not.

And that’s where Israel could be a big beneficiary of the Paris climate-change accord.

That Middle Eastern balance of power

In the new era, control of fossil fuels is going to be less important as the world’s economies wean themselves of oil. For Israel, it means the balance of power in the Middle East will gradually shift in its favor. It will go a long way to undermining Iran’s pretensions to regional hegemony (although hurts the Saudis, who are sort of our new friends, even more). Israel also has a small stake in the fossil-fuel economy with the discoveries of natural gas offshore.

But on balance, Israel is a net gainer. Gas is a clean fossil fuel and it isn’t nearly as important to its economy as oil is to the Arab-Persian world.

The climate-change accord will also shift the balance of energy power to countries with lots of sun and wind, of which Israel has a lot of the former, though not as much as you would think. To run seriously big solar farms, you need a lot of land, not just a lot of sunshine, and we don’t have that.

But, where Israel stands to gain the most is from surging demand for energy technology.

No technologies exist today that can efficiently replace fossil-fuel technologies. But Israel is among the few countries in the world with the scientific knowhow to develop alternatives to fossil fuel, and there are quite literally trillions of dollars to be spent.

Renewable-energy sources account for just 10% of the world’s energy supply, and most of that comes from old-fashioned hydroelectric power, according to the Wall Street research firm Sanford C. Bernstein. Solar and wind account for 1.6% of total energy.

Goldman Sachs estimates that the combined market size of low-carbon technologies like wind and solar power and electric and hybrid vehicles exceeded $600 billion last year, about the same as the entire U.S. defense budget.

Startup Nation has been focused on apps for smartphones and chips for everything. Cleantech captures just a few percentage points of venture capital investment in Israel. But if Israel seizes the moment, the opportunity is immense.
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