In September 2015, Israel undertook  part in the global effort to achieve the goal of the UN Framework Convention on Climate Change. Israel  commitment was expressed, among other things, in setting a national goal for energy efficiency for 2030: Reducing electricity consumption by at least 17% compared to expected electricity consumption in this year according to the “business as usual” scenario.

 In light of the significant leap forward in Israel’s energy efficiency, this research examines the application of another significant policy tool to promote energy efficiency: internalization of the external costs of electricity production at the electricity price by determining pollution levy on fossil fuels used to generate.