The National Institute for Climate and Environmental Policy Research at Ben-Gurion University of the Negev: The Israeli public paid for an ineffective green tax benefit for 15 years, it's time to review
A study conducted by the National Institute for Climate and Environmental Policy Research at Ben-Gurion University of the Negev indicates that the green tax reform implemented in Israel for 15 years with the aim of reducing air pollution and greenhouse gas emissions has not achieved its goals.
Based on the findings of the study, the institute published a surprising recommendation: to abolish all tax brackets for polluting vehicles and leave only one broad tax benefit for the purchase of electric vehicles.
Transportation is one of the human activities with the most severe impact on the environment and climate. The main reason for pollution and emissions from transportation stems from the fact that modern transportation relies heavily on fossil fuels, which exacerbates the effects on global warming and environmental damage. Additionally, the global economic damage from air pollution is estimated at hundreds of billions of dollars per year. Economic losses include medical treatment costs, lost workdays, and decreased productivity.
One of the policy tools for reducing vehicle emissions and changing public behavior in this context is a new vehicle purchase tax. Many countries around the world impose high taxes on vehicle purchases to reduce the number of cars on the roads and reduce air pollution.
In Israel, unlike the rest of the world, the green tax system on new vehicle purchases determines benefits in tax rates based on emission level. Thus, vehicles with low pollution ratings receive a benefit of up to 16,530 shekels, while vehicles with high pollution ratings receive no benefit at all. In 2023, there was a significant increase in the purchase of electric vehicles in Israel, from 45,270 in 2022 to 95,761, accounting for 27.4% of all new vehicles. This is a significant increase compared to previous years and reflects a clear trend of changing public preferences.
Fifteen years after the green tax reform, a research group led by Prof. Ofir Rubin and Prof. Stav Rosenzweig from the Guilford Glazer Faculty of Business and Management and the Goldman Sonnenfeldt School of Climate Change at Ben-Gurion University of the Negev examined its impact and found that from 2016 onwards, the impact of the green tax was offset and became virtually meaningless. It appears that drivers who purchased efficient cars gradually increased their mileage, creating a "rebound effect" that grew until it completely nullified the impact of the tax.
Between 2016 and 2023, the state granted benefits totaling over NIS 34.5 billion, but did not create the desired savings in energy or pollution levels.
In addition, they found that the money invested in green taxation in Israel does not achieve its public goals. Instead of reducing pollution, greenhouse gas emissions, and encouraging electric vehicles, it has become a strategic pricing tool used by car importers to influence their profits. The lack of government oversight over vehicle pricing has allowed importers to generate high profits from tax benefits without fully passing them on to consumers. Therefore, the consumer response to tax benefits was minimal and did not generate a meaningful change in purchasing habits, which is one of the reasons why there was only a partial impact on the environment.
The National Institute for Climate and Environmental Policy Research recommends a simpler and more focused policy, which will include, on the one hand, the abolition of purchase tax benefits for polluting vehicles and, on the other hand, the imposition of a distance-based road tax, where the price will be calculated according to distance and travel time, with higher rates during peak hours. Such a tax can help reduce traffic congestion and reduce emissions.
"These measures offer a practical and focused tax system that will directly impact the reduction of air pollution and encourage the transition to electric vehicles, while maintaining simplicity and flexibility in the tax system, without the need for oversight of the pricing strategy of car importers," explained Tamar Zandberg, head of the National Institute for Climate and Environmental Policy Research at Ben-Gurion University of the Negev and former Minister of Environmental Protection. "These recommendations are designed to encourage the transition to clean energy and reduce air pollution and greenhouse gas emissions more effectively," she concluded.
