Executive summary

Estonia needs to accelerate transition to a low-carbon economy

Estonia has made significant progress in decoupling economic growth from air pollution and energy consumption. However, its economy is the most carbon intensive and the third most energy intensive in the OECD, largely due to its heavy reliance on oil shale. In 2014, oil shale accounted for nearly three-quarters of the total primary energy supply and almost 90% of electricity generation. Use of renewable sources of energy has increased by more than 80% since 2000 due to extensive use of biomass in the heating sector and has almost reached the OECD average. However, the country’s overall greenhouse gas (GHG) emissions increased by 23% between 2000 and 2014, with the energy sector remaining the largest GHG emitter.

Estonia’s strategic environmental and energy policy framework stops short of a comprehensive climate change mitigation strategy. The projected low-carbon pathways are consistent with the 2015 Paris Agreement and the European Union (EU) targets for 2030 and 2050. However, specific policy measures for achieving them are yet to be elaborated. Estonia needs to develop and implement specific climate change mitigation measures to support its long-term GHG reduction goals. Developing renewable energy and taking advantage of integration into European electricity markets will allow Estonia to reduce the share of oil shale in the energy mix and the GHG emission intensity of the economy.

The country needs to further streamline regulatory requirements and improve compliance

EU directives govern much of Estonia’s environmental legislation. While formally satisfying EU requirements, the transposition of directives into the national law has been largely unsystematic. This has created a considerable degree of regulatory inconsistency, where new provisions coexist with remaining elements of Soviet-era regulation. Notably, the environmental liability system includes multiple contradictory regimes and does not serve as an effective tool for environmental remediation. The codification of environmental law, underway since 2007, needs to be completed to improve the coherence of requirements and reduce the administrative burden on businesses.

The detection of non-compliance with environmental requirements has improved, primarily as a result of recently introduced risk-based planning of inspections. However, compliance monitoring remains largely reactive to complaints and incidents. Sector-oriented compliance promotion among small and medium-sized enterprises has not yet received the attention it deserves from the environmental authorities. Estonia would benefit from more extensive use of information-based tools and regulatory incentives to promote green business practices.

Environmental democracy is flourishing, but access to justice could be expanded

The Estonian public has a clear right of access to environmental information, which is widely available. Over two-thirds of Estonians consider themselves well informed about environmental issues, even though the completeness and quality of information could be improved. Environmental non-governmental organisations receive unconditional financial support from the government. Moreover, the government is actively engaged in environmental education and awareness raising. However, citizens’ access to justice could be expanded beyond contesting administrative decisions.

Green taxes are increasing, but need to provide better incentives for pollution abatement

The government has an ambitious agenda for a green tax reform, which aims to shift part of the tax burden from income to consumption, use of natural resources and pollution of the environment. Revenues from environmentally related taxes increased from 1.6% to 2.6% of gross domestic product (GDP) between 2000 and 2014, putting Estonia in the upper third of OECD member countries on this indicator. Energy taxes account for almost 90% of these revenues, but still do not fully account for environmental impacts and fail to provide a consistent carbon price signal. Pollution taxes are applied to dozens of pollutants, but their current rates are too low to encourage pollution abatement. There is significant potential for increasing taxes on CO2 emissions for sectors not already covered by the EU Emissions Trading System.

Municipal solid waste management has improved, but recycling rates are still low

Since 2005, Estonia has moved from reliance on landfilling of municipal solid waste (MSW) to a high level of energy recovery via waste incineration, due to major private sector investments and incentives provided by the waste disposal tax. Separate collection of recyclable MSW has increased, but the country is not yet on track to achieve the EU’s 2020 targets for recycling. Leaving MSW collection in the hands of private companies chosen via municipal tenders has kept fees for households low, but has not ensured continuous collection of all MSW.

Increasing the efficiency of oil shale mining and processing is key to the sector’s survival

In the near term, Estonia needs to invest heavily in improving the efficiency of oil shale extraction, combustion and processing, which account for 4% of GDP. The efficiency of oil shale mining is decreasing as open quarries get depleted and extraction shifts to more expensive and less efficient underground mining. The National Development Plan for Oil Shale Use 2016-30 identifies increasing mining efficiency as one of its main goals. It also supports development of reference documents on best available techniques in oil shale processing and assigns priority to expansion of applied research and development in the oil shale sector.

Pollution and social issues in the oil shale mining region need to be addressed

Oil shale mining and most of its processing are concentrated in north-eastern Estonia. Although emissions of almost all major air pollutants generated by the mining sector have declined since 2011, actions are needed to address local environmental and health problems. In addition, measures to mitigate the potential social impacts of diversification away from oil shale (creation of alternative jobs, retraining, etc.) are required. These should be taken through active collaboration between the central government, municipalities, employers and trade unions.

Reuse of oil shale mining and processing waste needs to be expanded

Waste rock from oil shale mining constitutes 70% of Estonia’s non-hazardous waste, while oil shale combustion and processing account for over 90% of the country’s hazardous waste generation. Estonia’s hazardous waste generation per capita is the highest in the EU, 35 times the average. The recovery and reuse of waste rock and oil shale ash have increased significantly in the last decade. Still, most oil shale-related waste goes into landfills. Increasing landfill disposal taxes for oil shale mining and processing waste would create a much-needed incentive for its reuse.