Opportunities & Barriers to Climate Tech in Israel

In this section we reflect on the existing and potential strengths of the Israeli climate ecosystem and the global impact of the various climate tech domains. We highlight a number of technologies that provide solutions to global climate challenges and in which Israel is well positioned. This list is by no means exhaustive, and there are certainly additional technologies that could, and should, be promoted. For example, green hydrogen – its availability, storage, distribution, and implementation – is a crucial component of current and envisioned transformations in the energy and transportation sector, as it enables high temperature processes, long duration energy storage, and long-haul heavy-duty transportation for which electrification is not a solution. Israel has a prolific academic community with research focused on electrolyzers and fuel cells from which a number of startups have emerged. Joint R&D and collaborations with international players (from academia and industry) could further promote this field. Carbon capture, storage, and utilization (CCUS) is another field considered a global imperative for reaching net zero emissions, mitigating temperature increases caused by carbon pumped into the atmosphere in the past, and for achieving deep decarbonization in the industrial sector as it transitions to lower emission processes. CCUS requires both capture from point sources as well as direct air capture (to date, there are only 15 direct air capture plants in the world),16 and innovations that can progress to cost effective scale ups are essential.
Israel’s point of departure is similar to most other countries, and success would have an immense global impact.



Artificial Intelligence as a Technology Driver

Artificial Intelligence (AI) contributes to the fight against climate change across a wide variety of sectors including electricity, transportation, industry, buildings, forestry, land use, and many others. By supporting distributed energy grids, precision agriculture, sustainable supply chains, environmental monitoring, energy-efficient buildings, and enhanced weather and disaster prediction, AI-based innovations reduce greenhouse gas emissions and resource consumption, and aid in climate adaptation. By accelerating scientific discovery and improving computational simulations, AI acts as a primary technology driver in many additional cross-cutting domains from which climate innovations evolve.

Israel has proven capabilities in AI, is home to successful AI startups in a variety of fields and is ranked 6th in the 2020 The Global AI Index.17 This unique expertise can act as a platform to accelerate climate tech startups and provides opportunities for AI companies to pivot towards advancing solutions to fight climate change.

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Barriers to Climate Tech in Israel

The challenge of decarbonization encompasses all areas of the economy and requires both technological advances and ways to contend with scaling complexity of the technologies. Climate tech entrepreneurs must navigate an intricate web of regulators and incumbent corporations, as well as existing infrastructure, manufacturing processes, and supply chains. They need to develop a product that meets and exceeds the specifications, standards, cost-effectiveness, and requirements of an existing integrated system and, in many cases, be ready for a changing industry landscape and new value chain. Success requires the collaboration of a wide set of partners and investors.

A survey conducted among nearly 200 Israeli climate tech companies revealed the main challenges that companies face during their development and growth stages (Figure 15). The three dominant self-reported challenges are:



Access to Capital

Climate tech startups face difficulties in obtaining venture capital investments. Although attracting a significant amount of capital and investment groups, the climate tech ecosystem still suffers from lack of diversity in type and focus of such investment groups. 85% of the survey respondents have hardware at the heart of their innovations. Capital requirements for hardware are higher than those for software at all developmental stages (i.e., product, proof of concept and pilot projects), and product development and physical system transformations simply take much longer and are more complex than software deployment. Large investments may be required before products are proven, and companies must often survive longer, while sustaining losses, before achieving scale or profitability. Because investors need to consider returns on a time vertical of decades rather than years, and the path to an exit is not always clear, a generalist VC partner finds it difficult to sign a term sheet.

figure 15


Regulatory Hurdles

Regulation can be overly complex and can inhibit innovation. Utilities and public infrastructure are prominent clients for climate tech sectors such as energy and water and are tightly regulated markets, making it difficult for startups to navigate their way through the list of requirements. In Israel for example, more than 10 different regulatory approvals are necessary for an energy startup to deploy its solution. In addition, regulatory markets are fragmented and differ geographically making rapid expansion difficult.


Scaling up

The main barrier to deploying and scaling up a climate solution is the need for a mature value chain. A startup needs to consider many different players and stakeholders to successfully launch a product. Furthermore, scaling up climate tech often requires enormously large capital. This is often facilitated by financing mechanisms structured as project- or asset-based investments provided by debt or infrastructure investors or via dedicated large scale climate tech financiers. The barriers to companies’ scale up can exist even after a successful pilot, when technical risks have been overcome and unit economics are promising.