The need for a transition to sustainable energy is widely felt in Estonia, but after twenty years of talking, Estonia’s dirty oil shale industry is still carrying on. In fact, thanks to lower taxes, a boom in oil shale mining is expected. Estonian Green Movement, a member of Bankwatch, recently presented the national parliament with a proposal for a strategic oil shale exit plan. According to Teet Randma, national campaigner for Bankwatch in Estonia, the only way reform could be successful is by ensuring a “just transition” for oil shale workers, possibly with support from the EU.

 Estonia is the second largest emitter of CO2 per capita in the European Union after Luxembourg and by far the most carbon-intensive economy among the OECD countries (carbon intensity is measured by greenhouse gas emissions in relation to GDP).

CO2 emissions per unit of GDP. Sources: IEA (2016), IEA CO2 Emissions from Fuel COmbustion Statistics (database); OECD (2016), National Accounts (database)

The reason for that is oil shale, sedimentary rock that has been mined in Estonia for electricity generation since the fifties and, since recently, has also been used for liquid diesel fuel production.

Over 90 per cent of Estonia’s CO₂ emissions come from burning oil shale for electricity, and oil shale contributes significantly to other pollution and waste levels in the country. The high concentrations of pollutants create health problems for local people: children living in the oil shale area have more respiratory diseases and are projected to live four years less on average. The country’s energy development plan 2030 commits to reducing the number of early deaths resulting from pollution by 50 per cent by 2030.

The consultancy firm Praxis has analysed the socio-economic costs of using oil shale, without taking into account additional costs from pollution. I have calculated the total cost of emissions based on the Praxis report:

• NOx: €32 million
• SO2: €247 million
• Particulate matter (PM): €198 million (25 838 tonnes of PM annually at €7 677 / tonne)
• Water: €700 million for 1 700 million cubic meters of water used by the oil shale industry (the amount sufficient to provide the needs of 7-8 million people).
• CO2: €248 million in CO2 European allowances for 13.8 million tonnes of emissions.

When these costs are factored in, the total socio-economic cost of €1.4 billion for producing electricity from oil shale exceeds the oil-shale industry’s total revenue of €1.1 billion.

Oil shale industry’s contributions in Estonia as per cent of the country’s total output. Source: Praxis socio-economic study on oil-shale (2011).

The Estonian electricity grid is well connected with the neighbours, and large amounts of oil shale energy are for export. The costs of wasted resources, damage to health, and environmental destruction, however, stay in Estonia. The oil shale industry seems to provide very little economic benefit in exchange for a massive pollution toll.

Flogging a dead horse

The arguments used by politicians defending oil shale industry mostly boil down to providing job security in the mining region and cheap electricity.

The oil shale industry indeed provides lots of jobs – about six thousand people work in mining and energy production. They have relatively high-paying jobs in a region with already high unemployment rates. Associated social problems should be a national priority, and new investments in the region are required to implement a just transition.The price of electricity used to scare people, but Estonia’s richer neighbours Finland and Sweden have managed to lower prices for electricity while creating less emissions.

What’s more, rising CO₂ prices are making electricity production from oil shale very expensive and new renewable energy sources are becoming more competitive. Solar energy is booming in Estonia, although its share is still just around 1%. It is expected to intensify after 2020 due to requirements for near-zero energy buildings, but large-scale energy production is still hampered by lack of support. A 600 GWh per year subsidy for renewable energy delivered to the grid has already been used up, leaving few incentives for new projects.

European money

But even such favourable conditions created by the government are not enough to keep the oil shale business afloat: occasional large capital injections of Estonian and European taxpayers’ money are still required.

In 2012, the European Commission approved a grant of 18 million tonnes of free CO₂ emissions for state-owned company Eesti Energia to build a new 300MW oil shale and biomass co-firing electricity plant. At the time of the transaction, with a tonne of CO₂ costing approximately €7.50, this concession amounted to roughly €135 million.

The total cost of constructing the plant was €638 million, scheduled to be launched in 2014. As of April 2018, the plant is still not fully operational, as the contractor could not keep the pollution under the required levels. In 2016, the plant was devalued by €39.6 million.

The originally planned co-firing of 3.4 million cubic meters of wood would represent one third of the total Estonian forest output, and such a sudden increase of wood use would devastate the forests.

Thanks to strong citizen opposition to massive wood burning, a further devaluation of the power plant by €200 million is likely to follow, as the company cannot now sell ‘green’ electricity from wood burning.

In another project, in 2014, the European Bank for Reconstruction and Development issued a loan of up to €35 million to finance VKG, the largest producer of liquid fuel from oil shale. The total CO₂ savings with this loan have been estimated at 126,000 tonnes per year, but the company has increased CO₂ emissions from 801,000 tonnes in 2014 to 1,053,000 tons in 2016.

The company also laid off one hundred people in 2014 and another five hundred in 2016. This forced the government to further reduce the resource tax on oil-shale, which is in place until 2019.

Urgently needed reforms

Estonia still has not made plans to reduce its use of oil shale. The current oil shale development plan for 2016 – 2030 does not see a need for reducing mining quotas, and the current limit of 20 million tonnes is above the actual mining quantities. The new, lowered resource taxes are motivating the companies to ramp up production, and a boom in oil shale mining is expected in the coming years.

Estonian Green Movement, a member of Bankwatch, recently presented the national parliament with a proposal for a strategic oil shale exit plan, signed by 1079 Estonians. The first meeting in the parliament’s environmental commission was held on 5 June.

All who attended the meeting saw the need for a strategic plan to exit from the oil shale energy era, though this issue has been discussed for the past twenty years with no results. The trade union is also in favour of having a strategic plan that will replace jobs through new investments, but they argue that investments should come in the region before the existing plant closes to avoid hardships for workers.

The high unemployment rate is already a problem in the region. This might become an even bigger problem in 2019, when the state-owned energy company Eesti Energia will close three oil shale power plants  built in the seventies.

The required investments for a just transition could be provided by the European Union as part of the next Multiannual Financial Framework: most eastern European countries struggle with energy poverty and high emissions in the energy sector.

For example, Cohesion Policy instruments like the European Social Fund or the European Fund for Regional Development could prove instrumental in helping the transformation of Estonia into a much lower carbon-intensive economy. This would help improve the environmental situation in Estonia itself, while supporting the country to fulfil its European and international climate pledges.

The transformation from an energy stone age to renewable sources will require a comprehensive plan, political determination and hard work, but the benefits of such endeavour will provide a good basis for stable, sustainable, economic growth in the future.

Editor’s Note

This article is a somewhat revised version of an article that appeared first on the CEE Bankwatch Network, “Estonia’s Dirty Secret“. 

Teet Randma (teet.randma@bankwatch.org) is national Bankwatch campaigner in Estonia.

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