In an election year when candidates from both major political parties are touting their respective energy policies, Americans would do well to look to one of our allies in the Middle East. Earlier this year, the Israeli government announced major tax rewards for purchasers of electric cars. This action is part of a larger government policy to promote an electric car initiative known as Better Place. The history of Better Place shows how governments and private industry can cooperate to produce an energy strategy that is both environmental and profitable.

Better Place was founded in 2007 by Shai Agassi, a native of Israel and a former executive at software giant SAP. Agassi left SAP with the goal of using the cell phone business model to sell electric cars. In this model, Agassi plans to sell the cars as part of a larger service package. Drivers will buy cars and a certain number of miles per year. Each driver will then receive a battery and access to a network of stations where he or she can re-charge the battery or exchange it for a fresh one.

Agassi was introduced to Israeli Prime Minister Ehud Olmert by former Prime Minister Shimon Peres, who had heard about Agassi’s idea at a meeting at the Brookings Institution in 2006. Upon hearing Agassi’s presentation, Olmert declared that, if Agassi could secure the support of an auto industry CEO and raise sufficient money, Olmert would provide the policy support necessary to execute Agassi’s plan. Within a year of this meeting, Agassi persuaded Renault CEO Carlos Ghosn to manufacture the electric cars and raised $200 million in venture capital financing from sources such as Morgan Stanley, VantagePoint Venture Partners, a Silicon Valley venture capital firm, and Israel Corp., an Israeli industrial holding company.

Olmert in turn held up his end of the bargain. He instituted a 72% sales tax on gasoline powered vehicles, while keeping the sales tax on electric cars at 10%, slashed import taxes on green vehicles, and pledged to buy up gasoline powered cars to get them off of Israel’s roads. Other branches of Israel’s government have begun formulating economic growth packages and research and development programs aimed at building Israel’s electric car industry. These policy changes both promote the Israeli government’s policy objective of decreasing the country’s dependence on oil and increase Better Place’s profitability. In fact, Israel’s willingness to provide tax incentives was crucial in persuading Ghosn to participate in the project.

After Israel, Agassi plans to set his sights on Denmark. Given the Danish government’s history of supporting clean energy, Better Place has a strong likelihood of success. But Agassi does not plan to stop there. On his blog, Agassi boldly predicts that, by the end of 2008, Better Place will be in five countries. Depending on the attitudes of the governments that Agassi encounters, Better Place could very well be the future of transportation.

For further information about this topic, please contact Akin Gump.