Innovation may be the beating heart of the Israeli economy, yet its relative contribution to achieving national and global net zero emissions targets remains largely unexplored. Could Israel be on the verge of a transformative shift, emerging as a pivotal contributor to the decarbonization technology landscape? Or could it be missing out on a critical opportunity to play a central role in shaping the emissions-free economy?
According to Mile Advisory’s recently released 'Israel Decarbonization Tech Ecosystem Report 2023' by Mile Advisory, the answer to this question is multifaceted and complex. On the one hand, Israel’s success in addressing its nascent tech scene’s decarbonization potential depends on its own willingness to build an intelligence-driven, long-term strategy that will match capabilities with global needs. On the other hand, it requires a nuanced understanding of the country’s unique value proposition when it comes to building viable climate tech and energy solutions. The report explores Israel’s readiness to answer these and other challenges that may stand in its way of becoming a global decarbonization power.
The unique methodology that Mile Advisory developed, and which is explored in detail in the report, correlates existing data from the Israeli ecosystem with the International Energy Agency (IEA) clean energy technology database, which encompasses over 500 technology components and metrics across the energy landscape. The result is a comprehensive overview of Israel's potential contributions to the global decarbonization effort, at scale.
As its main area of focus, the report identifies two distinct categories of start-ups in Israel's climate-tech ecosystem: 'Decarbonizationists' and 'Enablers'. ‘Decarbonizationists’ are those that directly meet the IEA’s criteria of clean energy technologies to power the global race towards net zero. 152 ‘Decarbonizations’ were identified in the context of the report, directly supplying 15% of the IEA’s 500 in-demand technologies.
Those companies that cannot directly mitigate, should focus on adaptation, which is where the 268 ‘Enabler’ companies come into the picture, developing solutions using existing strengths and innovative capabilities to bring us closer to an emissions-free world. 46% of the companies identified as fitting this category are developing tech that holds high or very high importance to achieving net-zero emissions by 2050.
How are they doing this, you might ask? Predominantly, by supporting and streamlining renewable energy generation, transmission, electrification, and sequestration/industrial utilization of CO2. Furthermore, half of these companies are using software, cybersecurity, and artificial intelligence knowledge and skills to contribute to Industry 4.0 and energy transformation.
Furthermore, the report highlights the extent of decarbonization opportunity that Israel could tap into, and its potential impact on the country’s economy. As outlined in the report, the forecasted annual addressable market for decarbonization technologies is estimated to reach $1.5 trillion (on average) by 2030 (McKinsey). However, despite the promising potential, the report references recent research from PlaneTech and the Israel Innovation Authority finding that the Israeli government's investment in R&D in the energy sector is five times lower (as a ratio of GDP) compared to other OECD countries. This staggering figure clarifies the urgency with which Israel must realize this opportunity, especially if it wants to continue attracting foreign investment and to prevent ‘brain drain’ of key climate and energy innovators in the future.
The report envisions a positive future for realizing the inherent value of Israel’s innovative climate and energy tech sectors on the horizon. For investors, it means honing in on their decision-making by getting behind an impressive cohort of Israeli companies that are directly or closely addressing globally in-demand decarbonization needs. For government actors, it means crafting a robust strategy that considers a wide array of demands across the energy and decarbonization value chains, while focusing on meaningful multi sector collaboration. Finally, for Israeli startups, it means embracing the methodology laid out in the report and its key findings to continue attracting international funding, empowering human capital to lead the charge in achieving net zero goals, while meaningfully contributing to robust and economically-viable climate change mitigation and adaptation strategies.
To summarize, the 'Israel Decarbonization Tech Ecosystem Report 2023' paints a picture of a nation on the cusp of a significant pivot. Will Israel bank on its opportunity to become a notable global decarbonization power, or will it miss out on this window for critical action?
