Legislation, regulation, incentivization needed

Israel worked magic in cybersecurity. Can it do the same for climate tech?

Experts say Israel is late to the game but can still become a key player, as an opportunity worth many trillions may help save the planet; government seen moving in right direction

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Illustrative: A city showing the effect of climate change. (BenGoode via  iStock by Getty Images)
Illustrative: A city showing the effect of climate change. (BenGoode via iStock by Getty Images)

In 1999, Prof. Isaac Ben-Israel, at the time the head of R&D at Israel’s Defense Ministry, wrote a letter to prime minister Ehud Barak warning that the nation’s rapid digitalization could quickly become a liability, since anything digital can be hacked. He recommended that Israel prepare a strategy to defend itself in the cybersphere.

As a result, a national body was established, charged with protecting critical infrastructures – power production, water supply, the health system and transportation. That was 20 years ago this month. At the same time, veterans of the army’s cybersecurity units spotted opportunities amid increased digitalization worldwide and set out to find solutions for the civilian world.

Today, Israel is a cybersecurity powerhouse, with exports of its products at around $10 billion, accounting for 10 percent of global cybersecurity exports, and with its startups in the field garnering over 40% of total global investments. The success of the cybersecurity industry grew out of the perfect alignment of government initiative — the designation of the field as strategically important for the nation’s safety and economy — and developments happening on the ground.

Now, with climate change looming as a global threat, The Times of Israel has pondered with experts whether Israel can work the same magic it did for cybersecurity to help the nation meet its climate goals and also, as it does so, make the world a better and safer place to live.

The answer is not straightforward: Israel is late to the climate game, but can still catch up, the experts said. The government is moving to make it a national priority, but whether these moves are serious will be determined by legislation and funding still to come.

Unlike cybertechnology, climate tech generally requires huge investments, hardware components that require manufacturing processes, and long development times, which deter both investors and entrepreneurs.

Illustrative. Cybersecurity technology. (Stock Depot via iStock by Getty Images)

Nevertheless, there is interest fermenting, with Israeli entrepreneurs eyeing the multi-billion-dollar global opportunity ahead. But incentives and a regulatory framework are crucial if Israel is to truly find success in the field, the experts noted.

A time to pivot

When Bill Gates met with newly appointed Prime Minister Naftali Bennett at the sidelines of the Glasgow Climate Summit in November, the Microsoft co-founder  was blunt: Israel was known for its innovation, he said, “but not so much” in the field of climate technologies.

“Given the talent that you have and what we have seen in the digital space, how do we unleash more of that?” he asked Bennett. “So, I’d love to take that R&D innovation push and figure out where Israel can partner with us” on climate.

Prime Minister Naftali Bennett (right) meets with Microsoft co-founder Bill Gates on the sidelines of the COP26 climate change conference in Glasgow, on November 2, 2021. (Haim Zach/GPO)

As global tech giants besides Microsoft — including Facebook, Apple, Google, Amazon, Nvidia and Intel Corp. — set up R&D centers in Israel and snapped up local startups, their activities were focused on software, cybertechnology, artificial intelligence and semiconductors. Climate technologies have not been a big draw in Israel, until now.

“Israel is known as the startup nation,” Bennett told Gates at the meeting. “And I think that it’s time we pivot and channel our national energy – which is the energy of the people, the brainpower – to fighting climate change. We are going to take this as a national mission.”

Bottom rung

Bennett’s government, which came into office in June, is communicating a new urgency on the climate crisis.

The government recently set out zero-emission goals by 2050, and in October passed an environmental agenda that entails fostering new technologies to cut greenhouse gas emissions and help curb climate change. Bennett has also declared fighting climate change a national security interest, and his government approved a series of resolutions as part of a 100 Action Items plan set out by the Environmental Protection Ministry. The plan earmarked some NIS 15.5 billion ($5 billion) in new and old money to boost initiatives in the field.

Bennett’s statements at the global summit came as the state comptroller, Matanyahu Englman, issued a scathing report that same month on the country’s preparedness to deal with the climate crisis. The report said that in the past decade Israel had neglected climate issues by not properly budgeting for them and not implementing the decisions that had been made.

Prime Minister Naftali Bennett at the COP26 climate conference in Glasgow, Scotland, on November 2, 2021. (Oli Scarff/AFP)

“Israel is unprepared for the climate crisis, and there has not yet been a change of perception in Israeli policies on the matter,” Englman wrote. Per capita emissions in Israel are high compared to other countries, he said, with Israel, similar in size to New Jersey, emitting greenhouse gases “at a magnitude similar to that of a medium-size state.”

Israel was also missing its climate targets, the comptroller’s report said: energy efficiency is 62% below the 2020 target, and the use of renewable energy, which is just 6.1% of total energy production in 2020, is well below a 30% target for 2030. Not meeting these goals has cost the economy a potential NIS 217 billion ($70 billion), the report said.

Israel is also “at the bottom of the ladder” compared to other OECD nations regarding climate-related technologies, the report said. The Israel Innovation Authority, in charge of fostering the nation’s tech ecosystem and setting out innovation policies, invested just 4% of its 2018 budget to promote energy, water, environment, and sustainability technologies, compared to 14% for software, 32% for health technologies, 11% for communication technologies and 8% for robotics and automation technologies, the report showed.

In this photo taken October 3, 2018, smoke rises from the chimney of Serbia’s main coal-fired power station near Kostolac, Serbia. Chinese companies are the world’s largest investors in overseas coal plants.
(AP Photo/Darko Vojinovic)

Data presented in the comptroller’s report showed that as of 2019, just 8% of all Israeli startups dealt with climate-related technologies.

“Both the public and politicians don’t take the subject seriously enough,” said Prof. Yohay Carmel, a professor of civil and environmental engineering at the Technion-Israel Institute of Technology, in an interview. “Until recently they did not feel that the earth is burning under their feet.”

That seems to be changing, with environmentalists saying the government’s actions are a step in the right direction. But implementation and funding will be key.

“Israel is late to the game,” said Prof. Yoav Yair, dean of the School of Sustainability at Reichmann University (formerly IDC). What the government is doing now “should have been done 10 years ago,” he said. “We lost 10 years. But it is not too late. We can catch up. The 100-step plan is a good plan, but it will be tested by action and not words.”

The 100 Action Items plan envisages setting up a task force that will help jumpstart the development of new climate technologies and remove regulatory obstacles to both research and development and the implementation of these technologies locally. These will help Israel cut its greenhouse gas emissions and prepare for climate change, a government statement said. The Prime Minister’s Office will encourage investment in climate technology R&D and promote binational R&D funds in the field, the statement said.

Israel has a dual goal, said Ari Siegmann of the Israel Innovation Authority: get its entrepreneurs to create technologies that can help heal the world and preserve it from the worst of nature’s wrath, and at the same time enable Israel to meet its climate targets. “This is the push by the new government,” Siegmann said. The plans are still fledgling and the way forward is “still a work in progress,” he added.

‘Just imagine’

Israel’s tech industry posted a bumper year in 2021, with firms raising a whopping $25.6 billion from investors, up 146% over 2020, itself a record year, according to a report by IVC Research Center and attorneys Meitar Law Offices. Tech exits — defined as initial public offerings of shares, merger and acquisition deals and buyouts — also surged, to $22.2 billion last year.

The three sectors that attracted the most investment last year were financial technology firms; enterprise IT and data infrastructure; and cybersecurity firms, according to data compiled by Start-Up Nation Central, which tracks the industry. These three sectors attracted 66% of the total equity invested in Israeli tech firms last year.

A recent State of Climate Tech 2021 report by PwC mentions five top global investment hubs for climate technologies. These are San Francisco, London, Berling, New York City and Boston. Notably, Israel is absent from that list.

“There was a gap in understanding the importance of climate,” said Jonathan Aikhenbaum, the director of Greenpeace Israel. “Today Israel is a powerhouse in cybersecurity. Just imagine how the world would look today had we done for climate what we did for cybersecurity.”

Climate tech is defined by PwC as technologies focused on reducing greenhouse gas emissions or addressing the impacts of global warming. These could be technologies to mitigate or remove emissions, to help nations adapt better to the impact of climate change, and to increase our understanding of the climate, the PwC report says.

Illustrative image of drought and global warming (neenawat; iStock by Getty Images)

Israel may lag far behind other nations but Avi Hasson, CEO of Start-Up Nation Central, is sanguine.

That is “because of our agility and our capability, proven over and over again, to create a mass of solutions in a short period of time. Indeed, just like for cyber, we know how to punch above our weight,” Hasson said.

Hasson is a former chief scientist at the Ministry of Economy and Industry, and was the founding chairman of the Israel Innovation Authority, the government entity in charge of setting out the nation’s tech policies.

Already, Hasson said in a phone interview, the database of Start-Up Nation Central includes some 700 climate-related companies, many of them with existing technological solutions that are “quickly shifting to reposition themselves for the climate challenge. We are not starting from zero.”

Climate tech is now on Israel’s agenda, he said, which is good both for the local innovation ecosystem and for so-called “innovation diplomacy,” in which Israel works with other countries and foreign companies to come up with joint solutions.

Whether Israel can do for climate what it did for cybersecurity is “a big question,” Hasson said, however.

“In cybersecurity we gained unthinkable achievements. I can’t say we will achieve the same market share in climate. But there are things with climate that are similar to cybersecurity: it is a big general problem that is relevant to almost everyone and it is here to stay. It is not something that will disappear in two years. It is the problem of the next generation,” Hasson said.

Multi-trillion-dollar window

In the run-up to the Glasgow CPO26 confab, the Intergovernmental Panel on Climate Change (IPCC) issued an unequivocal warning: humans are warming the world’s atmosphere and our window to limit warming to an increase of 1.5°C this century, and avoid catastrophic climate change, is narrowing rapidly.

Climate activists hold a demonstration through the venue of the COP26 UN Climate Summit in Glasgow, Scotland, Friday, Nov. 12, 2021. (AP/Alastair Grant)

Meanwhile, amid floods and fires, governments, corporations and the public are paying attention, and climate has become part of the political, corporate and social discourse. “When this happens, entrepreneurs take notice,” said Hasson. “Suddenly the tech people say, ‘Hey, here is a significant business opportunity.’ And they realize that Israel can play a part in this.”

There was a total of $87.5 billion invested in climate tech worldwide in the second half of 2020 and the first half of 2021, the PwC report said, with the first half of 2021 showing record investment levels of over $60 billion, a 210% surge over the $28.4 billion invested in the 12 months prior, the report said.

Climate tech now accounts for 14 cents of every venture capital dollar, and megadeals and unicorns — private companies valued at over $1 billion — are becoming more common in the sector, the report said.

Even with the jump in investment, the PwC report said, “there are still significant areas of untapped potential — so-called ‘carbon $5 notes lying on the ground.’

“This tells us that an opportunity is being missed, as capital is not being deployed in line with climate impact potential, with a handful of mature technology areas instead attracting the majority of investment,” the authors of the PwC report continued. “Though funding is needed across all challenge areas, targeting funding to nascent technology areas can enable breakthrough innovations, trigger sectoral tipping points to accelerate adoption and achieve meaningful financial returns as well as sectoral decarbonization.”

Gates said last year that climate technologies will spawn “eight Teslas, ten Teslas” in the future. BlackRock’s CEO Larry Fink said in October that “the next 1,000 unicorns, companies that have a market valuation over a billion dollars, won’t be a search engine, won’t be a media company, they’ll be businesses developing green hydrogen, green agriculture, green steel and green cement.”

US Treasury Secretary Janet Yellen has estimated that the global climate-change transition presents businesses with a $100-$150 trillion opportunity over the next three decades.

Israel “has an asset” that forms the basis of its thriving tech sector, SNC’s Hasson said — its entrepreneurship. “There is something very good in our entrepreneurs, who know how to identify opportunities and shift, repurpose their focus to this new direction.”

But the government needs to play a key role in fostering the ecosystem, he said, being both a consumer of these solutions and a regulator — just as it did for cybersecurity. The government must set out clear regulations and enable firms to implement their technologies locally, to prove their validity and efficacy.

For its part, Start-Up Nation Central will be appointing a head of climate technologies for the first time, Hasson said, and has set up a number of climate-related initiatives, including a Climate Innovation Festival set to take place in Israel in October this year, and a $1 million fund prize, together with the Jewish National Fund of Canada, to motivate not-for-profit researchers and organizations in Israel to work on executable ideas. SNC has also set up a multi-track competition for Israeli startups in which the winners will work with corporate partners to test out their climate-related technologies.

All of this activity bubbling on the ground has been mapped by a first report of its kind.

The State of Climate Tech 2021 report, published by the Israel Innovation Authority and PLANETech, shows that there are some 1,200 companies, of which 637 are startups, most of them less than seven years old, currently dealing with climate technologies including smart agriculture, clean energy systems, smart mobility, alternative proteins, food waste and green construction.

Illustrative: Solar panels in the desert near Eilat, Israel. (Moshe Shai/FLASH90)

The number of new climate tech-related Israeli startups jumped in 2014 and their share of all new startups has increased each year, reaching 9% in 2020, the report showed.

“The key message of our report is that there is already a climate innovation ecosystem in Israel and a good one, and there are growth opportunities, but also many significant challenges,” said PLANETech’s Uriel Klar, one of the authors of the report.

Climate tech startups in Israel have received investments from over 560 investment groups, of which two-thirds are headquartered abroad. In 2018-2020, investments in climate tech reached $2.97 billion, growing at a compounded annual rate of 14%, the Climate Tech report said.

Initial data suggests that the capital invested in climate tech startups during the first half of 2021 was nearly 40% more than the total amount invested during the previous three years, the report said.

Among the largest climate-tech deals, according to IVC, was that of SolarEdge Technologies Ltd., a Herzliya, Israel-based maker of inverters for solar systems, which raised $550 million in a PIPE transaction in 2020. Private investment in public equity (PIPE) refers to the purchase of stock by an institutional or an accredited investor directly from a public company below market price. SolarEdge in December became the first Israeli company to enter the S&P 500 index.

Food tech firm Future Meat, a developer of cultivated chicken, lamb, and beef, raised over $300 million in December, the single largest investment in the cultivated meat sector. Aleph Farms, also a maker of cultivated meat, raised $105 million from investors in July 2021., a weather security platform, formerly ClimaCell, will be going public on the Nasdaq at a $1.2 billion valuation via a SPAC deal, and H2Pro, based in Caesarea, which seeks to make low-cost hydrogen in large quantities, said it raised $22 million in funding from Gates, Korean carmaker Hyundai, Japan’s Sumitomo, and Hong Kong billionaire Li Ka-shing.

Let the market decide

Since the report was published, said Klar of PLANETech, much has happened. “In the past two months things have moved at an unbelievable pace,” he said. “It feels like everyone understands that climate is a field that needs addressing.”

In 2021 Israel saw record investments in climate technologies of over $2.2 billion, 57% more than in 2020, he said.

And in the first week of 2022 there were four funding rounds for a total of $340 million, he added. These included Remilk raising $120 million to develop animal-free milk and dairy products; StoreDot, a maker of fast-charging electric car batteries, raising $80 million; and Tipa, a maker of compostable packaging, raising $70 million.

Israeli startup Remilk uses a yeast-based fermentation process to produce animal-free milk proteins that, the company says, are indistinguishable in taste and function from cow milk proteins, but free of lactose, cholesterol, and growth hormones. (Remilk)

“I believe we will see the merger of two ecosystems, the digital and that of climate,” Klar said. “And if you are talking about replicating our success in cybersecurity, then what we have built in cybersecurity and the digital ecosystem can be pivoted to the climate ecosystem.

“Those founders that have made an exit in cybersecurity should set up startups in the climate field, not just for [social] impact but also for the business opportunity, which is a $150 trillion opportunity. We need leaders in the field of cybersecurity and other digital sectors, from investors to founders, to come and say climate is the field I want to tackle. This is the type of leadership we need at the moment.”

To meet the opportunity ahead, however, the PLANETech report said, Israeli startups in the sector need more access to capital to develop their solutions, regulatory hurdles must be scrapped, and startups must be able to test their technologies locally. The companies also need professional guidance and help with modeling their climate impact, the report said.

A key way to boost the local climate tech ecosystem, the authors of the report said, is to draw the attention of global climate-dedicated funds, like Amazon’s $2 billion “Climate Pledge” venture fund and Microsoft’s $1 billion Climate Innovation Fund, which are currently absent from the local playing field.

The Israel Innovation Authority is seeking to set up a model that allows the government to “share the risk” with these funds so as to incentivize them to come to Israel, said the authority’s Siegmann.

At an investors conference held by PLANETech in Tel Aviv this month, HSBC’s Idan Mor announced a new $200 million fund that will invest in climate technologies, including in Israel.

Anath Levine, the CEO of BlackRock Israel, said that those in the Israeli VC community who “don’t wake up to the urgency of investing based on a climate change perspective will miss the opportunity to follow the tectonic shift in the financial world,” according to a PLANETech social media post.

The government’s recent steps on climate were heading in the right direction, said Amit Bracha, the executive director of environmental advocacy group Adam Teva V’Din, in an interview. But without regulation, legislation, and targeted funding “all of these statements will remain on ice, and won’t obligate anyone to comply.”

It is essential that Israel pass climate legislation that would create economic incentives and tax breaks for the adoption of green technologies, Bracha said. In addition, it should set up a dedicated environmental agency and governmental climate authority to track implementation and make sure targets are met, Bracha said.

Prof. Ben-Israel, the guru who helped create Israel’s thriving cybersecurity industry, thinks Israeli entrepreneurs can make an impact in climate but it will be much harder to replicate the success of the cybersecurity industry.

With climate, Ben-Israel said, in an interview with The Times of Israel last month, “we can do a lot. But if you think that we may be a major player in the world, I am not sure at all. We can contribute, this is true. It is a noble and good goal, but it will not make Israel one of the centers as it is today in cybersecurity.”

In cybersecurity, he said, all that’s needed to get an idea off the ground is a couple of bright minds, $100,000 in seed money and a computer. In climate, he said, there is often hardware involved, which can require large industrial plants, for example for the manufacture of turbines and rotors; development takes longer; and more money is needed to get off the ground, along with more employees and infrastructure, such as massive solar fields and open spaces.

For a nation like Israel, constrained by a lack of natural resources, small spaces, and a population of just over 9 million, cybersecurity is a better fit than climate technologies, Ben-Israel concluded.

But Start-Up Nation Central’s Hasson said climate tech has “very many aspects. It is not just solar fields.”

“There are also a lot of IT solutions that are climate,” Hasson said. “And it could be that our specific niche will be in these worlds of IT… Let market forces decide what we are best at.”

“The timing at the moment is unique,” Hasson added. “I think that Israel is not a proven winner in climate technologies, but has a good chance to be there, so that in five years we can say — like we said for cybersecurity — that Israel ranks among the top three countries globally in climate tech as well. We can get there.”

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