We would like to update you that the Ministry of Economy and Industry published another Director General Directive, numbered 4.80, regarding a grant program intended to support the industrial sector in emission reduction through greenhouse gas (GHG) capture and treatment (hereinafter: the Emission Capture Grant Program and Director General Directive 4.80). This publication follows the earlier publication of Director General Directive 4.79, concerning the grant program intended to support the industrial sector in adaptation in light of the expected increase in fuel tax – “Carbon Tax”(hereinafter: the General Grant Program), as we discussed in a . Both publications follow the approval of the mechanism for the taxation of GHG and local pollutants emissions by the Knesset on September 30, 2024, as detailed below (hereinafter: the Carbon Tax).

As we have updated in relation to the , and previously in January 2024 and in September 2024, according to Government Decision 1261, the Carbon Tax is expected to come into effect on January 1, 2025, through amendment of the Fuel Tax Ordinance (imposition of fuel tax), 2004, applicable to fuel producers, and of the Customs Tariff and Exemptions and Purchase Tax on Goods Ordinance, 2017, applicable to fuel importers. The mechanism will implement a gradual increase in fuel tax and purchase tax rates by fuel type, starting from 2025 until the beginning of 2030, when the tax rates will fully internalize the external cost resulting from fuel consumption (please find attached our previous correspondence regarding this matter).

The Emission Capture Grant Program, which similarly to the General Grant Program, was established through collaboration between the relevant government ministries, aims to provide additional support beyond the General Grant Program, but only to plants that perform GHG capture and treatment activities.

In other words, alongside the Carbon Tax which encourages the reduction of fuel consumption, there are two parallel and complementary programs:

1. The General Grant Program, which is based solely on the amount of fuel consumed and which will allow industrial plants to adapt to the new fuel prices which will incorporate the Carbon Tax.
2. The Emission Capture Grant Program, which aims to encourage plants that consume fuels to install technological measures that will enable GHG capture and treatment, leading to a reduction in the plant’s GHG emissions.

Director General Directive 4.80 sets threshold conditions that an application for an emission capture grant must meet, including in relation to the plant’s fuel usage, and clarifies that plants that generate electricity may also be eligible for an emission capture grant. A formula for calculating the grant amount per year has been established in Director General Directive 4.80, based on the amount of carbon (including carbon equivalent) treated after carbon leaks have been deducted, and on the Carbon Tax rate for natural gas in the relevant t year, regardless of the type of fuel used by the plant in practice.

Director General Directive 4.80 outlines (in Section 7) the conditions that a GHG emission capture project must meet in order to establish grant eligibility, including conditions regarding the methodology for quantifying the carbon involved in each stage of the project (capture, cleaning, transfer, storage and treatment), regarding compliance with relevant regulatory requirements and regarding the establishment, maintenance and implementation of a monitoring plan. Section 7 also mentions activities that will not be recognized by the Emission Capture Grant Program.

Furthermore, Director General Directive 4.80 states (in Section 6.4) that certain plants may be eligible for an additional 2% assistance, upon providing documentation showing that there is a risk of carbon leakage from Israel within their area of activity, meaning there are competing producers in countries without a carbon tax whose products could be imported to Israel.

According to Director General Directive 4.80, the emission capture grant will be calculated for each year separately, and the grant will be provided for a maximum period of five years until the end of 2030 (unlike the General Grant Program, which allows for up to six years of support). In any case, the grant amount shall not exceed the Carbon Tax paid by the plant in that year.

It is important to emphasize that a plant may receive both grants simultaneously: one grant through the General Grant Program and an additional grant through the Emission Capture Grant Program. However, a grant will not be provided under the Emission Capture Grant Program if another grant has been received from any government entity for expenses related to the same GHG emission capture project.

Director General Directive 4.80 further explains the procedure for submitting an application and for its approval by a designated committee that will be composed of representatives of the Ministry of Finance, the Ministry of Environmental Protection and the Investment and Development Authority for Industry and Economy in the Ministry of Economy and Industry. An administrative appeal mechanism for rejected applications has also been established

According to the publication on the Ministry of Economy and Industry’s website, and similarly to the General Grant Program, applications under the Emission Capture Grant Program may be submitted starting from December 19, 2024, along with a detailed project plan for 2025 (which may also be relevant for existing projects expected to continue in 2025). Applications will be reviewed by the committee in an order based on the expected amount of reduced emissions during the requested grant period. Namely, the more emissions are expected to be reduced, the earlier the application will be reviewed.

Comments on the Emission Capture Grant Program may be submitted until December 5, 2024.

To view the full publication on the Ministry of Economy and Industry’s website, including the Director General Directive and its appendices (in Hebrew) >> click here.

We are at your disposal for assistance in submitting comments on the Emission Capture Grant Program and in preparing and selecting a methodology for a GHG emission capture project as well as for questions and clarifications on this matter.

Additionally, we are at your disposal to examine the implications of receiving grants under these programs and their impact on carbon tax to be paid upon entry into the European Union (CBAM), as well as on your carbon strategy in the global carbon market.

Hoping for calmer days,

The Environment and Climate Change Practice

The above is intended to present the main issues and does not constitute legal opinion or advice.