Boris Cournède
OECD
OECD Economic Surveys: Israel 2025
Abstract
Progress towards net-zero greenhouse gas emissions by 2050 will require important efforts across all sectors of the economy. While taxation levels are high in transport, they are much lower for electricity. Reducing overall emissions will therefore require decarbonising the production of electricity. Pricing the carbon content of fossil fuels used in power generation is key in this regard. In addition, improving the energy efficiency of buildings is essential. Policies that would help Israel achieve this goal include standards, energy performance certificates, competitive markets for efficient appliances and tight integration between land-use and transport planning. Preparing well in advance for the coming adverse effects of climate change reduces the cost of adaptation. Risk-mapping exercises provide a strong basis for the design of adaptation strategies. Public investment is needed alongside insurance markets, which can help to cover costs while providing price signals encouraging households and developers to adapt to changing climate risks.
The authorities have pledged to contribute to global efforts to curb greenhouse gas emissions. Greenhouse gas (GHG) emissions reached 11 tCO2e per person in Israel in 2022 against 6.8 tCO2e per person globally. In 2021, the government adopted objectives to bring emissions down to 58 MtCO2e of CO2e by 2030 and 12 MtCO2e by 2050. However, according to Israel’s first Biennial Transparency Report, the 2030 targets are unlikely to be met, although the report indicates that this gap could be closed, and even surpassed, if additional measures are implemented. A bill that passed its first reading in the Knesset in April 2024 sets a target of net zero emissions by 2050 but is not currently scheduled for final approval. Reaching this objective will require considerable action over business-as-usual developments (Figure 3.1). Irrespective of forthcoming global emission reductions, Israel will also have to adapt to the changes in climate that have started to occur and are set to intensify (see last section).
GHG emissions: trends, projections and targets, Mt CO₂ equivalent
Notes: GHG emissions excluding land use, land-use change and forestry (LULUCF). Dashed lines refer to emissions projections according to business-as-usual (BAU) scenario. Dotted lines refer to trajectories towards 2030 and 2050 GHG reduction targets with abatement measures according to Government Decision 171/2021.
Source: OECD (2023[1]) OECD Environmental Performance Reviews: Israel 2023.
The two largest single GHG emitting sectors in Israel are transport and buildings, when taking into account emissions from generating electricity used in these sectors (Figure 3.2). High fuel taxes imply high levels of effective carbon pricing in transport by comparison with other sectors and the OECD average, although road transport also entails local pollution and congestion (Figure 3.3). By contrast, GHG emissions occurring when producing electricity, 69% of which is used to power buildings, are not subject to GHG emission permits and before 1 January 2025 were untaxed. With the carbon tax on natural gas phasing in gradually at low rates (see below), power generators face very limited economic incentives to reduce emissions. The availability of large natural gas reserves means that before-tax gas prices are likely to remain lower than in many countries, where transport costs are bearing on gas prices.
Policy action to put power-generation emissions on a trajectory compatible with net zero is all the more important given forthcoming increases in electricity needs. The shift to electric vehicles, which is well underway in Israel, and the rise of power-hungry AI will boost electricity demand (see Chapter 2). Over time, many industrial processes will also have to electrify in order to decarbonise, further contributing to electricity demand.
Greenhouse gas emissions sector shares, 2021
Notes: Emissions excluding land-use, land-use change and forestry (LULUCF) and farming sources other than energy-related. Public-sector buildings are accounted for within the commercial category.
Sources: OECD Environment Statistics database; Ministry of Environmental Protection; and OECD calculations.
The buildings sector, the largest user of electricity, accounts for a third of overall GHG emissions. Making buildings energy efficient will help to contain electricity use, facilitating the transition of the power sector towards net zero. There is also a need to tackle built-sector emissions unrelated to electricity such as from construction and the use of fossil fuels (mostly liquefied petroleum gas - LPG) in buildings.
Furthermore, the urban fabric also has to undergo deep changes to attenuate the impacts of climate change. This chapter looks in turn at the power-generation sector, energy efficiency in buildings, other real-estate sources of emissions and policy avenues to adapt buildings to climate change.
Effective carbon tax rates across sectors, 2023 data and 2025 illustrative estimates
Notes: Panel A: Effective carbon pricing rates in Israel consist of fuel excise tax only on 2023 data (as explicit carbon tax and permit price were equal to zero; see Figure 3.6 for values from 2025 to 2030). Illustrative estimates have been added to indicate the 2025 effective level of the carbon tax, but it should be noted that, by contrast with the 2023 data, these estimates reflect a simplified fuel mix assumption and that the split between different fuels (such as coal and gas in electricity generation) has evolved between 2023 and 2025. The levels are exact however where a single fuel is involved (e.g. natural gas). Off-road refers to emissions from miscellaneous energy use (241 EUR per tonne of CO₂) Panel B, for each sector, effective carbon tax rates are average of the rates by energy source weighted by emissions. Residential and commercial also includes the public sector. The numbers shown for “explicit carbon tax” in Israel are estimates for 2025 based on simplified fuel mix assumptions for illustrative purposes.
Source: OECD (2024), Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/b44c74e6-en.
3.2.1. The carbon tax is an effective tool to accelerate electricity decarbonisation
Among OECD countries, Israel has the highest share of fossil fuels in its power-generation mix (Figure 3.2). Historically based on coal, the fuel mix since the turn of the century has switched to natural gas, with an acceleration since the discoveries of the large Tamar and Leviathan fields in 2009-2010 (Figure 3.7). The share of renewables in electricity production is among the lowest in the OECD area, reflecting lack of hydro resources and space for wind power compared with other OECD countries (Figure 3.2). However, with favourable climate conditions, Israel produces the second-highest amount of solar photovoltaic electricity per square meter among countries covered in IEA PVPS (2022[2]).
Electricity output by source, %, 2023
Source: IEA World Energy Balances database.
GHG emissions from power generation are strongly underpriced by international standards (Figure 3.5). According to OECD (2023[3]) estimates, only a tenth of CO2 emissions from the production of electricity in 2021 attracted taxes amounting to more than EUR60 per tCO2e, an estimate of the carbon pricing rate necessary to achieve net zero by 2050 and a mid-range benchmark of current carbon costs (OECD, 2021[4]).
Share of sources used to generate electricity priced above the benchmark rate, %, 2021
Note: A score of 100% means that all sources are priced at or above the benchmark rate.
Source: OECD Effective Carbon Rates database.
The new carbon tax provides a basis to encourage emission reductions, but its rate is low and uneven across fuels. The introduction of a carbon tax, which the previous Economic Survey recommended, is welcome (Table 3.1). Since 1 January 2025, this tax applies to fossil fuels used across the economy including in power generation. Carbon tax rates are below the above-mentioned EUR60 per tonne of CO2 benchmark. The rate on natural gas is particularly low and set to remain so, increasing very gradually to reach the equivalent of EUR 18 per tCO2e in 2030 (Figure 3.6).
Implied effective tax rate by fuel, EUR per tonne of CO2
Note: The implied effective carbon-pricing rates are taken by applying standard emission factors to the tax rates per tonne of product foreseen in Government Decision No. 1261 of 14 January 2024.
Source: OECD calculations.
The carbon tax needs to apply at sufficiently high rates across all fossil fuels used in power generation, including natural gas, to be environmentally effective and economically efficient. First, taxing all fuels according to their carbon content will penalise coal and fuel oil, which emit much more CO2 per unit of electricity generated than natural gas, accelerating their exit from the fuel mix. Second, taxing natural gas at a rate consistent with other carbon sources will avoid over-investing in natural-gas-based power generation. Third, applying a high-enough carbon rate will encourage the deployment of carbon-free technologies such as renewables or carbon capture and storage (CCS), provided that the carbon tax offers relief if CCS is used.
Creating appropriate conditions for other sources of electricity relative to natural gas is crucial for overall decarbonisation efforts. Emissions from power generation did not increase after the turn of the century despite massively increased production of electricity thanks to the substitution of natural gas for coal and oil. However, as the switch from coal and oil to natural gas comes to an end, a proper pricing of the carbon emissions from natural-gas turbines prepares the ground for the ulterior replacement of natural gas by carbon-free sources. In the short term, it is important to complete the phase-out of coal in electricity generation before 2026 as planned (State of Israel, 2022[5]).
Deviating from carbon content in fossil fuel taxation entails costs for the budget, purchasing power or both. If natural gas continues to be undertaxed relative to its carbon content, the expansion of renewables would require subsidies or feed-in tariffs to be deployed. Subsidies involve budgetary costs, while electricity users cover the cost of feed-in tariffs from their utilities bill. Budgetary support or feed-in tariffs are more costly to taxpayers than the pass-through of carbon tax to end users, because any miscalibration of subsidies or tariffs compared with the most cost-efficient mix will translate into higher costs for users, in addition to the costs of managing the schemes.
Taxing power-generation input fuels according to their carbon content creates incentives for deploying the most efficient technologies to reduce emissions. The subsidisation of carbon-free electricity through grants or guaranteed feed-in tariffs also biases the selection of these carbon-free sources. The reason is that these public supports typically target specific technologies (e.g. solar panels).
Electricity generated by source (left-axis) and GHG emissions from power generation (right-axis)
Note: TWh stands for terawatt hours while MtCO₂ for million tonnes of CO₂-equivalent.
Sources: International Energy Agency (IEA), World Energy Statistics database.
By contrast, market forces that operate in the presence of consistent carbon pricing allows for the spontaneous emergence of the most efficient technologies. A first step can be the substitution of more fuel-efficient combined-cycle technology for simple-cycle gas turbines. A much more transformative change would be the deployment of carbon capture and storage (CCS), which could provide an attractive option for the country given Israel’s large natural-gas reserves. Building a gas power plant including CCS was estimated on 2019 data to be economical when taxing CO2 emissions in the range of EUR40 to EUR115 (Baylin-Stern and Berghout, 2021[6]). This suggests that a tax set at EUR 60 per tonne of CO2 would fall in this range, making it more profitable to build a gas plant with CCS rather than without it (provided that the carbon tax exempts CCS-equipped power generation). Another important example is solar energy. Calls for tender for the establishment of 365MW power plants attracted in July and August 2024 bids at 20EUR per MWh, below half the wholesale price of electricity in Israel. The price information provided by these projects however does not allow determining a carbon-tax rate prompting solar energy to systematically replace natural gas at all times, as the question of nighttime power supply would remain given the limits of current electricity-storage technologies.
Taxing carbon involves costs for users of fossil fuels and electricity produced with them. These costs can exacerbate income vulnerabilities among households that struggle to pay their energy bills. For this purpose, the carbon tax framework incorporates plans to allocate a budget of NIS 700 mn (EUR 190 mn) to assist vulnerable populations. International survey evidence indicates that mitigating adverse effects on low-income households enhances support for carbon taxation (Dechezleprêtre et al., 2022[7]).
3.2.2. Dual use of land and grid investments can facilitate the spread of renewable power generation
With high population density, Israel has limited land available to install photovoltaic panels, which raises the benefits of using building rooftops for this purpose. Current regulation requires the use of solar energy in new multifamily buildings. Building standards require multi-family buildings to set up photovoltaic panels of 1.25kW per dwelling (capped at 45kW for high rises, since the roof surface does not increase in proportion to the number of units) or an equivalent amount of solar thermal. Further regulation is being prepared to extend these requirements to single-family units and non-residential buildings, which is welcome. Sunlight can also be used to heat water, as has since long been widespread in the country, which also reduces energy demand.
Other developed and farm land are other potential places where to produce solar power. Ongoing plans are considering easing rules to facilitate the construction of solar power generation capacity above wastewater reservoirs and parking lots. An initiative launched in 2022 by the ministries of Energy and Agriculture is experimenting the dual use of farmland for the simultaneous production of electricity and farm produce across 100 villages.
Shifting the electricity mix massively towards renewables requires deep changes to the transmission grid, which are currently being planned. Solar photovoltaic energy, the central component of renewable energy generation in Israel, will for a large part develop in different areas from the ones where the largest current fossil-fuel power plants are based. More specifically, notwithstanding above-mentioned dual use, semi-desertic areas in the south of the country are better adapted to solar electricity generation than the more agricultural central areas where most existing plants are installed and around which the power grid is organised. Accommodating and facilitating this development involves developing high-capacity transmission capacity from the south to the centre, which, given the natural monopoly nature of transmission, requires strategic guidance by the public authorities. Such a process is underway, as the Electricity Authority has proposed a large-scale (NIS 20bn equivalent to EUR5.4bn) plan to reshape and upgrade the grid (Table 3.1).
Making buildings more energy efficient aims to reduce the amount of electricity required. Minimising energy consumption in buildings is important even if this energy is provided through low-carbon and ultimately carbon-free electricity, because large demand for electricity will come from transport and industry in the coming decades as they shift out of fossil fuels.
Energy efficiency means minimising the amount of energy used to provide the desired levels of cooling, cooking, heating, lighting, computing and other services. Most of the energy used in buildings serves to heat or cool them, with cooling the dominant use in Israel by contrast with the majority of OECD countries (OECD, 2024[8]). This implies that insulation and energy design are central to overall energy efficiency. The other component is the energy-efficiency of appliances and other electrical equipment used in buildings.
The first step for more energy-efficient housing is that new buildings comply with standards compatible with very long-term decarbonisation objectives. Buildings are among the longest-lived assets in the economy. Furthermore, improving the energy-efficiency of an existing building is much more expensive than at the construction stage, in addition to being disruptive for its users.
From this perspective, the green building standards that have recently been adopted in Israel are an important step in the right direction. Standards applicable to new construction are particularly important in Israel, where new construction is high relative to the existing stock comparatively with other OECD countries (Figure 3.8). Since September 2023, all new mid and large-sized constructions must exceed minimum levels of insulation and performance of appliances under Standard 5281. This regulation applies to all permits for new residential constructions of more than six units, and non-residential buildings (including for the public sector) of more than 1000 square meters. Specific thresholds of 1200 and 3000 square meters apply to hotels and hospitals. The requirement also applies to heavy renovations.
This standard marks an important, welcome step, which can be taken further.. Even if individual and small residential buildings make up little of new construction, it is desirable to apply efficiency requirements to buildings of fewer than six units. The additional costs associated with the regulation are estimated below 1% of construction costs. Technological innovation in construction can improve the energy-efficiency enhancements achievable at a given cost.
Existing building stock and annual construction rate
Source: OECD (2024[8]) Global Monitoring of Policies for Decarbonising Buildings: A Multi-Level Approach.).
The new regulation also mandates the energy rating of new buildings. This measure tackles the market imperfection that arises from the great difficulty for buyers, especially in the residential and small-office-space sectors, to evaluate on their own the energy performance of a construction (Hoeller et al., 2023[9]). Buyers of existing buildings and new renters face the same difficulty: this underlines the case for extending this energy certification requirement to sales and new rentals of existing real estate while monitoring costs and encouraging competition in the energy rating sector to keep the cost of certification low and minimise adverse effects on low-income households. Such a requirement is in place in France and will be mandated across the European Union under the EU Directive on the Energy Performance of Buildings (OECD, 2023[10]; de Mello, 2023[11]). In France, furthermore, minimum energy performance standards apply to rental dwellings, including on-going contracts, since January 2025 (OECD, 2024[8]).
Improving the energy efficiency of existing buildings requires large upfront investment that pays off through lower energy bills only over a long period of time, raising funding issues for liquidity-constrained owners. In the absence of a well-developed segment in the capital market to fund these investments, many countries have put in place subsidies, especially in the residential sector. These schemes however have often raised concerns about high budgetary costs, particularly when they are broad-based rather than aimed at lower-income households, for limited environmental efficacy(Box 3.1). From this perspective, it is welcome that the support schemes introduced alongside the carbon tax, use part of its revenue to increase energy efficiency in the homes of low-income households.
Involving the financial sector is a condition to mobilise the large investment amounts required to retrofit existing buildings and to sharpen incentives to build new construction according to high energy performance standards. The Israeli authorities have since 2024 been developing a taxonomy to classify sustainable activities as a way of facilitating the emergence of financial products that can provide investors with certainty over the environmental quality of the underlying asset (Ministry of Environmental Protection, 2024[12]). It is important that, as planned, this taxonomy includes a building chapter with clear energy-performance criteria, as this can provide a strong legal basis on which green building finance can develop and accelerate the energy transition of the building sector.
One way of easing access to capital for energy-efficiency investment is to increase the international comparability of the green building standard. In its current form, the standard, which is specific to Israel, cannot be directly compared to the requirements applicable in the United States or the European Union. Greater comparability would make it possible for owners of green-standard-complying buildings, and their lenders, to resell, securitise or develop asset-backed products that could be then marketed internationally to investors looking for green investments.
Given the size of Israel, access to international green debt markets is much facilitated if local standards can be translated into global benchmarks. Creating conditions for interest by buyers of green assets could broaden demand for new construction and deep retrofitting of buildings according to high energy efficiency standards (OECD, 2023[10]). One straightforward way of easing cross-country comparability would be for Israel to adopt the same letter-based energy-performance rating of buildings as the European Union. Furthermore, although this has to be balanced against regulatory costs, gradually broadening the requirements to all buildings would also magnify the size of the potential pool of collateral against which green financial products could develop (de Mello, 2023[11]).
Another obstacle to energy-efficiency improvements can arise for rented residential real estate. In this situation, retrofitting incentives are split between renters, whose horizon in the dwelling is too short or uncertain to allow them to benefit from the payoff of enhancing energy efficiency, and owners, if they cannot recoup part of their investment from renters (de Mello, 2023[11]). The current dwelling rental contract flexibility in Israel allows landlords to adjust rent levels if they want to do so after conducting improvements, by contrast with many countries where rent regulation is more rigid. While framework conditions are currently revisited for the Israeli rental market, it is important to maintain this possibility of increasing rent levels following energy-efficiency improvements by an amount equal to all or part of energy bill savings from lower consumption.
Using highly efficient appliances also matter, especially for heating and cooling, the major sources of real-estate energy requirements. In 2024, Israel shifted from a specific domestic energy labelling for appliances to the EU system, a move that greatly enhances competition for the most efficient equipment given that most manufacturers globally get their products labelled for the EU market given its size. Moreover, it is important to keep zero tariffs and facilitate import procedures for heat pumps, which have huge potential to make cooling and heating more efficient (IEA, 2021[13]).
Energy-renovation subsidies aim to speed up the deployment of high-performance insulation and technologies by filling a financial gap. The programmes vary in structure and amount across countries (Table 3.2). The programme providing the largest support is Italy’s Superbonus 110, which offers a 110% tax credit for improvements raising the dwelling’s energy-efficiency level by at least two notches on the energy-performance certification scale. This programme has been very costly, involving government expenditure of around 4% of GDP to renovate only 3% of the housing stock (OECD, 2024[14]).
Notes: The programmes are described as of 2023. United Kingdom has a £3,500 cap on landlord participation in the financing of energy retrofits in rented properties, which means that the rest of the costs are borne by the renters or the state. The vouchers for the UK’s “Green Deal” cover up to ⅔ of any chosen improvement.
Source: Hoeller et al. (2023[9]), “Home, green home: Policies to decarbonise housing”, OECD Economics Department Working Papers, No. 1751.
Ex-post analyses, though relatively rare, have cast doubt on the efficiency of renovation subsidies in reducing emissions. First, the rebound effect (better insulation leads to higher inside temperatures in the winter and lower ones in the summer) eats up some of the savings. Second, subsidies also fund renovation work that would have been undertaken anyway: empirical estimates put the proportion of deadweight losses at 40 to 85%. Third, there is a discrepancy between the energy savings anticipated before renovation and the ones observed afterwards. A recent assessment of 2.7 million energy retrofits subsidised by the French authorities over 2017-2019 found that these interventions achieved less than a third of the anticipated energy-efficiency improvements, implying marginal abatement costs of EUR 300 to EUR 600 per tCO2 (Wald and Glachant, 2024[15]).
These schemes are also sometimes justified from an employment perspective through the anticipation that they will lead to strong job creation. The above-mentioned renovation subsidy programme conducted by France appears to have increased employment, however at a cost of above EUR 700k per job created (Wald, Cohen and Kahn, 2024[16]).
Source: OECD (2023[10]), Brick by Brick (Volume 2): Better Housing Policies in the Post-COVID-19 Era.
Local governments occupy a central position in the decarbonisation of the building sector. Urban policies always have a strong local component, critically regarding land planning and use decisions. Policy tools such as the OECD checklist for Public Action to Decarbonise Buildings in Cities and Regions can help national and sub-national policymakers to align national and local actions to decarbonise buildings (OECD, 2022[17]). Examples in Canada, Japan and Korea underline the benefits of such coordinated approaches across government levels (Box 3.2).
Greener Neighbourhood Pilot Program in Canada
To accelerate the retrofitting existing buildings, a Canadian programme aims to retrofit homes and other buildings in an entire neighbourhood all at the same time. In 2022, CAD 35 million was allocated for five years starting from 2022-2023 to implement such retrofitting in up to six community housing neighbourhoods. This initiative follows the Dutch “Energiesprong model”, which relies on prefabricated facades, insulated roofs with solar panels, computer-controlled heating and ventilation.
Renewable energy use district in Japan
The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) introduced a new system called “renewable energy use promotion district” in 2022 under the revised Building Energy Efficiency Act. Under this system, local governments can designate a specific district where to promote the installation of renewable energy facilities such as solar panels. A selected district or neighbourhood can receive a special permit that allows builders to be exempted from height restrictions, floor area ratio restrictions, and building occupancy rate restrictions to facilitate the renewable energy facilities installation.
Zero-energy pilot districts in Korea
The Ministry of Land, Infrastructure and Transport (MOLIT) and the Korea Land and Housing Corporation (LH) jointly coordinate “zero-energy pilot districts”. For instance, the Dangsu District 2 in Suwon was equipped in 2021 with novel heating technologies including heat pumps using hydrothermal energy with the objective of achieving a 50% energy-sufficiency rate. The ministries monitor outcomes together with local governments, academia and the private sector with the aim of scaling up up the measures, especially governance arrangements, to other districts.
Source: OECD (2023[18]) Decarbonising homes in cities in the Netherlands: A neighbourhood approach.
3.4.1. Reducing direct emissions from buildings implies a shift away from fossil fuel use
The use of gas for heating and cooking entails direct CO2 emissions. Many households use liquefied petroleum gas (LPG) for cooking. A safety regulation mandates contractors to ensure that new residential buildings can be connected to LPG systems. Since decarbonisation implies a shift away from LPG towards electricity, this regulation will become obsolete, involving unnecessary costs. The authorities should consider repealing this regulation while maintaining safety.
A limited number of buildings, mostly in central urban areas, are connected to urban natural gas networks. Overall, gas (and oil) use in homes is much narrower than in other OECD countries (Figure 3.9). However, following the gas-field discoveries, the natural gas network has been extended to previously unserved urban areas. These extensions are questionable in relation of the decarbonisation objective, which requires that the burning of gas in buildings should ultimately be phased out.
Share of each response option
Note: This survey item asked respondents: "Which of the following energy sources do you use for space heating/cooling? Please select all that apply”.
Sources: OECD (2023[19]), How Green is Household Behaviour? Sustainable Choices in a Time of Interlocking Crises, OECD Studies on Environmental Policy and Household Behaviour.
Tax policy has a role to play to encourage the shift away from residual fossil fuel burning in buildings while preventing a potential spread of natural gas use in the current context of abundant domestic supply. To this end, the carbon tax would need to apply in full to all fossil fuels potentially used in buildings with equal rates per tonne of released carbon dioxide. The new carbon tax however applies a much lower rate to natural gas than liquid petroleum gas (LPG). The higher effective rate planned to LPG will encourage the end of LPG, but there is a risk of a switch by a number of buildings from LPG to natural gas rather than electricity. Increasing the carbon-tax rate on natural gas would mitigate this risk. Another condition for a switch away from burning fossil fuels in buildings is to keep the use of electricity untaxed or at levels ensuring that it remains competitive relative to natural gas. A more direct way of avoiding this risk is, as mentioned above, to stop new natural-gas distribution networks and over time retire existing ones.
3.4.2. Construction and demolition also have to reduce emissions
Additional CO2 emissions occur when building as a result of the making of cement and other construction materials as well as their transport. Reducing CO2 emissions from cement-production is intrinsically difficult since they stem not only from the large required amount of energy, but also from the chemical reaction leading to cement. Demolition also has a GHG footprint, especially if refrigerant gases in cooling equipment are improperly captured.
The most direct way of reducing emissions from building is to use low-carbon materials. A number of countries have put in place requirements to account for all building emissions over their full life cycle (Box 3.2). To this end, one policy option is to require, as in Sweden since 2022, that new buildings come with a climate declaration which registers carbon emissions from producing and installing the materials used for construction (OECD, 2024[8]). Such a climate declaration, which also incorporates plans, facilitates the recycling and reuse of materials when the building ultimately gets demolished (OECD, 2022[17]). It also provides a basis for regulating or taxing the use of materials with high embedded carbon content. The Ministry of Environmental Protection has developed a database assessing the environmental impacts of construction materials (Ministry of Environmental Protection, 2024[20]). This initiative is welcome, as a national database gathering environmental declarations for construction products is an effective way of ensuring consistency and comparability in life-cycle assessments across the country (OECD, 2025[21]).
Evidence from the OECD Survey on Buildings and Climate
The OECD conducted in 2024 a broad survey on policies dealing on GHG emissions from buildings as well as their adaptation to climate change. One of the findings was that, in addition to more established policies that target emissions from the use of buildings, a group of countries are already regulating GHG emissions from buildings over their life cycle or including their construction stage (upfront carbon). Table 3.3 provides examples of such regulations.
Note: Countries that have reported having regulatory measures (mandatory declaration or limit value) for embodied/life cycle carbon in place.
Sources: OECD Global Survey on Buildings and Climate and (OECD, 2024[8])
3.4.3. Building patterns influence transport emissions
Urban form determines commuting patterns, facilitating or complicating public transport. Increased reliance over time on public transport is a central condition of the success of decarbonisation, as highlighted in the previous Economic Survey (OECD, 2023[22]). The prevalence of multi-family buildings in the residential stock puts Israel in a favourable position from this perspective by comparison with countries where housing is more spread across single-family houses surrounded by gardens. Public planning should continue to facilitate high-density new development and the densification of already built areas: these ways of increasing supply (see Chapter 4) also facilitate public transport. Land-use planning and the allocation of building permits should be linked with transport planning to encourage higher-density development in proximity to existing or planned nodes of the public transport system (OECD, 2018[23]).
Buildings also need to contribute to the decarbonisation by allowing transport electrification. Since 2022, new residential buildings of six units and above need to be equipped with charging stations for every parking space, a requirement that also applies to commercial buildings since 2024. These are important regulatory advances, since the usual electrical fitting of large buildings is incompatible with charging many electric vehicles.
Climate change has already started to impact Israel with effects that are going to intensify over coming decades, with buildings, especially homes, at the core of many sources of impact. The main threats to human well-being include extreme heat events, droughts and flash floodings, which are all becoming more frequent as well as more severe. The number of nights per year when the temperature stays above 20°C is anticipated to increase in Israel by 20 days over 2020-2050 from around 110 currently (Yosef et al., 2024[24]). Over the same period, the number of hot days - above 30°C- should rise by 12-20 days from 63 currently. The sea level could rise by more than one meter between 2020 and 2100 with a possible increase of nearly 1.9m in a worst-case scenario. Rainfall could fall by 10-24% over 2020-2100, especially in the northeast of the country. A systematic economic assessment of the impacts of climate change remains however lacking (State Comptroller of Israel, 2024[25]).
Public authorities launched in 2022 a vast whole-of-government effort to set up adaptation strategies. Government Decree 1902 foresaw that all ministries, as well as local governments, prepare adaptation plans by end-2024. The preparation of the plans led to a number of pilot initiatives including the incorporation of tree planting and shading in urban planning. Out of 258 municipal-level governments, 70 already finalised their adaptation plans in 2024 despite the difficult environment created by the war. Another 32 municipal-level governments are receiving financial and advisory support to complete their plans in 2025.
Adaptation is an important dimension of the newly mandatory green building standards alongside mitigation. The standards demand onsite rainwater run-off treatment to reduce the risk of flooding. They also encourage planting vegetation, which absorbs water and locally reduces temperature, and incorporating shading in the design of the building and its surrounding. Furthermore, the insulation requirements central to the standards have a dual function: while reducing energy needs for heating and cooling, they also provide a degree of protection against extreme heat events.
Urban planning also needs to evolve to prepare cities for climate change. The Israeli Planning Administration (IPA) in 2024 published a National Spatial Strategic Plan including a chapter on climate change adaptation to rising sea levels, precipitation reduction and extreme storms, desertification, and extreme heat. As laid out in the Planning for Urban Heat Guide also released in 2024, mitigating extreme heat requires adapted street geometry, shading, vegetation and the choice of light-reflecting materials. Land-use planning is also evolving to adapt the shoreline to a rising sea level and rivers’ flood plains to an increasingly acute risk of flooding. The National Committee for Coastal Protection in 2024 updated its sea-level reference forecast implying specific construction restrictions in areas within 300 meters from the sea. Looking ahead, planning also should take account of the northward movement of the desert line and a rising risk of dust storms.
A large-scale risk-mapping exercise is underway to prepare these adaptations. Actively disseminating the results to the population can help people make forward-looking choices, which incorporate forthcoming effects of climate change, reducing subsequent adaptation costs. It is important that the results of the risk-mapping exercise, together with cost-benefit assessments of adaptation options, shape adaptation plans.
Furthermore, the management of run-off water is not only a matter for building standards but also for urban planning. The ratio of benefits to costs seems highly favourable for investment in this area (Israel Planning Administration, 2024[26]). Over 2013-2020, open claims filed against drainage authorities added up to NIS 793 billion (EUR 192 billion) while the estimated amount of required projects to manage them stands at NIS 6,6 billion (EUR 1.6 billion). Although projects of this nature typically cost more than initial estimates, often by a large factor, the benefits still appear to be large, even more so given the expected trend rise of flooding events. Nature-based solutions foreseen in the IPA Policy Guide for Run-Off Water Management, such as ensuring the presence of green space that can absorb run-off water, within urban areas combined with effective drainage systems, contribute to the management of run-off water for limited investment cost.
Besides public investment, adapting to flood risk is also a private-sector matter where insurers can facilitate action by providing price signals. Flood protection fully provided through public investment would prevent adjustment by builders and crowd out adaptation by landlords. Results would include unnecessary costs to the public purse and de facto subsidisation of building values while crowding out private insurance. Insurance markets can provide households with ways to buy protection from this risk while risk-based premiums create incentives to implement preventive measures or favour less exposed locations.
To the extent that intensifying climate damages imply increasing insurance premia over time, difficulties to afford home insurance can however arise for low-income households (Table 3.4). There can be scope for targeted public support to help low-income households to maintain coverage. It is important that insurance assistance does not blunt incentives to adapt. One way of doing so is to limit the amount of support to a fixed sum below the insurance premium so as to maintain incentives to implement protective measures and disincentives to build in highly exposed areas.
References
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