Financing Alternative Fuels: How Israel Can Catalyze Global Oil Independence

Description

Eugene Kandel, right, head of the National Economic Council in the Israeli Prime Minister′s Office, discusses how Israel can position itself on the cutting edge of the oil substitutes industry as a way to fuel its economy.
Israel is in a unique position to catalyze a shift away from global oil dependence. With strong intellectual property and patenting experience, coupled with the vast expertise of its venture capital community, Israel can deploy a variety of policy and financial instruments to accelerate the development of its alternative fuel industry. This strategic decision could position Israel as a technology, innovation and financial center for the industry.

Toward that end, this Financial Innovations Lab was convened to design economic models to speed the development and usage of fossil fuel substitutes. The session, held in conjunction with the National Economic Council of the Israeli Prime Minister's Office, explored specific, replicable policies and strategies to channel financial capital into alternatives to oil. The Lab focused on encouraging cross-border collaborations to develop and implement these solutions around the world.

Lab participants recommended a systematic approach to expanding the nascent industry and creating viable, competitively priced alternatives to oil. This is accomplished in part by financial incentives and regulatory support that are specific to each stage of development. By building a research consortia focused on innovations, investing in emerging technologies, and scaling up more mature products, Israel can become a global leader in the sector while creating thousands of jobs and driving economic growth.

Currently Israel's burgeoning clean-tech sector - alternative fuels, storage, wind, and solar technologies - faces a series of challenges in accessing capital. Across the innovation value chain are "valleys of death," where companies become trapped and unable to move to the next level of development because the tradeoff of risk and reward is not sufficiently attractive to investors.

To bridge these valleys of death, Lab participants discussed how to best leverage public funding with private capital to scale up the overall industry. The focus is on a series of regulatory and financial mechanisms, including government incentives, funds, and public-private partnerships that would promote access to capital along every stage of the value chain.

These steps were deemed the most critical to implementation:

  • Create a tax environment that would give Israel the most favored investment status globally for fuel substitutes
  • Early stage: a prize contest and a database to develop partnerships to leverage Israeli capital
  • Mid-to-late stage: incentives to attract foreign capital, including a venture capital (VC) fund and government incentives
  • Project stage: a fuel substitute financing facility that can benefit cross-border partnerships to drive scale

    For more information, contact Caitlin MacLean, manager of Financial Innovations Labs, at cmaclean@milkeninstitute.org.