Assessment and recommendations

The Assessment and recommendations present the main findings of the Environmental Performance Review of Estonia and identify 30 recommendations to help Estonia make further progress towards its environmental policy objectives and international commitments. The OECD Working Party on Environmental Performance reviewed and approved the Assessment and recommendations at its meeting on 7 November 2016.


1. Environmental performance: Trends and recent developments

Estonia is a small, open economy with large oil shale reserves and abundant forestry and water resources. Between 2000 and 2007, Estonia experienced strong economic growth, in part driven by a credit-based boom in the construction sector. During the 2008-09 crisis, gross domestic product (GDP) dropped by more than 15%. However, it recovered quickly in the following years, rising above pre-crisis levels in real per capita terms in 2015. The country has made significant progress in improving its environmental performance by decoupling economic growth from the main environmental pressures (Figure 1). This objective was achieved primarily through the transposition and implementation of environmental legislation of the European Union (EU). However, Estonia still faces some challenges linked to the extensive use of oil shale, which continues to have environmentally harmful effects. In addition, regional disparities persist in population exposure to environmental health risks: residents of Ida-Viru county, where oil shale industry is located, register worse health indicators than residents of other regions (Statistics Estonia, 2016).

Figure 1. Selected environmental performance indicators

Transition to a low-carbon and energy-efficient economy

Estonia’s economy is the most carbon-intensive economy in the OECD and the third most energy-intensive one, partly due to its heavy reliance on oil shale (Figure 1). Although reducing the carbon intensity of the energy sector is a policy priority, progress has been limited. In 2015, oil shale dominated the energy mix, accounting for nearly three-quarters of the total primary energy supply (TPES) and almost 80% of electricity generation. Estonia has already achieved its Renewable Energy Directive’s 2020 target of 25% of renewable energy in the gross final energy consumption. The 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. Electricity generation from renewables, which comes almost equally from wind power and biomass, is one of the lowest in the OECD. Estonia is unlikely to meet its energy efficiency target for 2020 if additional measures are not put in place, including in the building and transport sectors (EC, 2014b). The government is planning to take such measures in accordance with the 2016 Energy Sector Organisation Act. In the transport sector, Estonia achieved only 0.2% use of renewable energy sources in 2010, far below the EU-wide goal of 10% by 2020.

Estonia’s greenhouse gas (GHG) emissions grew by 23% between 2000 and 2014 – the third-highest increase among OECD member countries after Turkey and Korea in contrast with the OECD-wide trend of declining GHG emissions. Nonetheless, as the GDP increased by about 64% over the same period, GHG emissions have been decoupled from economic growth. The energy sector remains the largest GHG emitter (almost 90%), showing a steep increase since 2000 (Figure 1), which was mainly driven by the boost of energy exports and the corresponding increase of oil shale’s share in the energy mix. Emissions from private road vehicles, which dominate energy use in transport, have increased the most and are expected to rise further in the future. Estonia met its Kyoto Protocol target for 2008-12 (MoE, 2013). As a member of the EU, Estonia is subject to the EU Emissions Trading System (ETS) and the Effort Sharing Decision (ESD) for non-ETS sectors.1 In 2013, Estonia was on track to comply with the ESD target.

Estonia’s current policy mix for climate change mitigation does not address its long-term GHG reduction targets. The General Principles of the Climate Policy until 2050 expected to be approved in 2017 establish a policy vision aimed at setting Estonia on a pathway consistent with the 2015 United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement and the EU targets to 2050. The General Principles do not stipulate specific measures to achieve these goals, but are expected to be implemented through sector-specific development plans (for energy, transport, agriculture, etc.). The National Development Plan of the Energy Sector until 2030, adopted in 2016, charts scenarios for reducing Estonia’s GHG emissions and the carbon intensity of its economy in line with the goals of the General Principles. However, specific policy measures for achieving these projected low-carbon pathways are yet to be elaborated. The country’s recent integration into European electricity markets could be an important element of a transition to a low-carbon economy, whereas continued reliance on oil shale risks leading to a GHG emissions trajectory inconsistent with the long-term aims of the Paris Agreement.

Estonia is also taking steps in climate change adaptation. A draft Climate Change Adaptation Plan, scheduled to be approved by the end of 2017, is a first specific plan aiming at designing actions across several economic sectors. It will cover land use and infrastructure planning, public health and biodiversity protection, and natural resource management.

Overall, the country enjoys good air quality, with exposure to particulate matter (PM10) and ozone being below the EU air quality threshold values (EEA, 2014). However, Tallinn and the county of Ida-Viru register relatively high levels of air pollution (NAO, 2014; OECD, forthcoming). The number of premature deaths caused by air pollution decreased by 30% in 2013 compared to the 2005 level (OECD, 2014) and is projected to decrease even further in 2060 (OECD, 2016c). Since 2000, emissions of all other major air pollutants have been decoupled from economic growth due to implementation of EU air quality legislation (Figure 1). In 2014, SOx and NOx emissions per unit of GDP were among the highest in the OECD, mainly due to emissions from oil shale-fired power stations. Overall emissions remained below the National Emission Ceiling for 2010 set in EU Directive 2001/81/EC. The two pollutants that have not already met the 2020 Gothenburg targets of the Convention on Long-range Transboundary Air Pollution are NOx and NH3, resulting from industrial power generation and agriculture, respectively.

Transition to efficient resource management

Estonia has one of the OECD’s highest levels of material consumption per capita and per unit of GDP, due in large part to the mining of oil shale for energy. Between 2000 and 2014, the material productivity (economic wealth generated per unit of material used) decreased by 26% (Eurostat, 2015). This was due to both rising oil shale consumption, as well as rapid growth in the consumption of construction materials over 2005-07 (Figure 1).

The large majority of Estonia’s primary waste is produced by oil shale mining and related energy production, which also generates almost all hazardous waste. Since 2005, municipal solid waste generation has decoupled from GDP and its treatment has changed quite significantly, moving almost all municipal waste away from landfilling. In 2014, incineration with energy recovery was the main treatment method, followed by recycling and composting.

Agricultural inputs did not show significant decoupling from agricultural production. Since 2002, both phosphorus and nitrogen balances have increased. As a consequence of this extensive use of nutrients, agriculture was the third-most significant source of GHG emissions in 2012, and one of the few sectors that has increased its emissions since 2000 (Figure 1). Organic farming accounted for 17.5% of total agricultural land in 2015, which is significantly higher than the OECD average of just over 2% (OECD, 2015b).

Management of natural assets

Estonia has an abundance of natural assets, and forests cover half of the territory. Both the total forest area and the types of tree species have remained stable over the review period. The intensity of forest resource use is one of the highest in the OECD (Statistics Estonia, 2015). In 2010, 10% of the forest area was under strict natural protection.

The gross freshwater abstraction per capita, mainly for electricity production, increased by about one-fifth since 2000; it was one of the highest in the OECD in 2014. Water pollution has significantly decreased, and most surface water and groundwater bodies registered good ecological and chemical status in accordance with EU guidelines (EC, 2012a). However, challenges with surface water and groundwater quality persist in some areas. These are mainly due to water discharges from oil shale mines that affect the chemical composition of water bodies in Ida-Viru county and diffuse pollution from agriculture.

Protected areas have progressively expanded in Estonia, achieving ahead of time the 2020 Aichi targets of the United Nations Convention on Biological Diversity, which call for protecting at least 17% of the terrestrial area and inland waters, and 10% of the coastal and marine areas. Natura 2000 sites cover about 17% of the territory, which is almost in line with the EU average. More than half of the Estonian habitats and species of EU importance are in a favourable condition (compared to the EU average of 16% of habitats and 23% of species), while the other half had an insufficient, bad or unknown status (MoE, 2015a).

Recommendations on climate change, air pollution, biodiversity and water management

Climate change

  • Develop and implement specific climate change mitigation measures to achieve GHG reduction goals for 2030 and 2050, consistent with the aims of EU climate policy and the UNFCCC Paris Agreement; identify the expected contribution of each sector to these measures; set intermediate targets to track progress towards the goals and adjust measures as necessary; adopt a climate change adaptation strategy; ensure adequate implementation and monitoring of the planned actions.

  • Reduce the GHG emission intensity of the economy by taking advantage of Estonia’s integration into European electricity markets, reducing the share of oil shale in the energy mix and encouraging the use of renewable energy sources and energy efficiency; promote cost-effective measures to reduce emissions in the non-ETS sectors, particularly by increasing the use of low-carbon energy in transport; continue efforts to further improve public transportation networks, including rail infrastructure.

Air quality

  • Strengthen measures to reduce emissions of SOx, NOx and NH3 from the industrial power generation sector, transport and agriculture, respectively; consider promoting more efficient residential space heating; raise awareness about the negative environmental impacts of waste burning in households.


  • Promote better co-ordination in this field between the Ministries of the Environment, Rural Affairs and Finance to strengthen sustainable forest management; enhance the dissemination of knowledge on good forestry practices among private forest owners.

Water resources

  • Address diffuse water pollution from agriculture and promote environmentally friendly farming practices with the use of EU funding and other sources of finance and through better inter-ministerial co-operation; develop and manage high-quality data on agricultural discharges; design and implement measures to reduce pollution of surface water and groundwater in the oil shale mining area.

2. Environmental governance and management

Institutional framework

Estonia has a centralised system of environmental governance. National authorities, led by the Ministry of the Environment (MoE), are responsible for all environmental management areas except for provision of local environmental services and spatial planning. The government’s strategic planning is the principal mechanism for horizontal policy co‐ordination. However, this arrangement may not be sufficient to integrate environmental considerations effectively into sector-specific policies and ensure coherent actions in several policy areas, such as water quality management and land use and transport planning.

County governments perform the role of vertical co-ordination between the national and local governments. The collaboration across local governments is expanding in several areas, including water and waste management (where their role needs to be reinforced). However, insufficiency of financial resources and technical capacity hampers their environmental performance in land-use planning and environmental infrastructure services. The government is carrying out a territorial reform aimed at significantly reducing the number of municipalities by 2018, which would help alleviate these resource and capacity constraints.

Regulatory framework

Much of Estonia’s environmental legislation is governed by EU directives. While formally satisfying EU requirements, their transposition into the national law has been largely unsystematic and created a considerable degree of regulatory inconsistency. This inconsistency, together with the Soviet legacy of fragmented issue-specific environmental permitting, has been driving the process of codification of environmental law. This process, underway since 2007, is still incomplete.

Regulatory impact analysis (RIA) has been required since 2012 as part of preparation of any new legislation. However, it remains predominantly qualitative and does not include fully-fledged cost-benefit analysis. Similarly, ex post evaluation of all new major primary laws is required, but does not yet happen in practice.

The General Part of the Environmental Code Act, which entered into force in 2014, integrated the application and delivery process for issue-specific permits. However, these permits continue to impose a significant administrative burden on the regulated community, particularly on installations with low environmental impact (most of which are small and medium-sized enterprises, or SMEs). In addition, pre-treatment standards for industrial wastewater discharges into municipal sewerage systems are outdated and do not cover many important hazardous substances.

Environmental impact assessment (EIA) has been a key tool of environmental regulation of economic activities since the early 1990s. However, responsibilities for EIA approval related to building permits were recently transferred to municipal authorities. This is risky because these authorities have low capacity for, and objectivity in, making sound EIA decisions.

Estonia has a well-developed system of spatial planning at all administrative levels, which is designed to incorporate environmental considerations through strategic environmental assessment (SEA). At the same time, SEA is often too general to have a meaningful impact on land use and sector-specific strategic planning (Veinla and Relve, 2012). Maritime spatial planning is emerging as a practice on the basis of recently adopted methodology. There are also challenges in ensuring consistency between the national, county and local land-use planning and in making transportation policies an integral part of spatial planning.

Compliance assurance

The Environmental Inspectorate has introduced risk-based planning of its activities, which has helped improve detection of offences, even though compliance monitoring remains largely reactive to complaints and incidents. Compliance monitoring of waste management in oil shale mining and processing, including the verification of mining companies’ self-reporting data, appears to be insufficient (NAO, 2015a).

The size of monetary penalties against environmental violations, including fines and penalty components of pollution taxes, has increased substantially over the last decade, but their deterrent impact is uncertain. Sanctions are not always proportionate to the seriousness of non-compliance.

The government is actively pursuing a programme of cleaning up abandoned contaminated sites, even though the lack of financial resources makes progress slow (Living Environment, 2015). With respect to current damage to soil, water resources and biodiversity, the environmental liability system combines disparate provisions in issue-specific national environmental legislation, targetting monetary compensation from the responsible party to the state, and a remediation-oriented regime resulting from the transposition of the EU Environmental Liability Directive. The system lacks coherence, does not impose strict liability on polluters and does not serve as an effective tool for environmental restoration (Veinla and Relve, 2012).

The government has engaged in efforts to promote green business practices through voluntary agreements, recognition awards, environmental management systems certifications and public procurement policies. However, these initiatives remain limited. Sector-oriented compliance promotion among SMEs has not been used sufficiently by the environmental authorities.

Environmental democracy

The 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 (EC, 2014a), even though the completeness and quality of information may not always be reliable (NAO, 2013).

Environment and sustainable development is a mandatory topic in the national curriculums of primary and secondary education. The government is actively engaged in environmental education and awareness raising. The Environmental Investment Centre, local governments and universities also contribute to the financing of environmental awareness-related activities.

The legal framework provides for public participation in policy making, environmental assessment, permitting and spatial planning. Environmental non-governmental organisations (NGOs) receive unconditional financial support from the government.

Access to justice is largely limited to contesting administrative decisions of government authorities, with an explicit right of appeal provided to environmental NGOs. However, apart from going to administrative courts, citizens have little judicial recourse over environmental matters.

Recommendations on environmental governance and management
  • Strengthen inter-ministerial co-ordination on environmental and sustainable development issues, including climate change, to better incorporate environmental concerns into strategic planning, sectoral policies and spatial planning; encourage collaboration between local governments in all areas of their environmental competence.

  • Complete the process of codification of environmental legislation to improve its coherence and reduce the administrative burden on the regulated community; reinforce the ex ante evaluation of environmental regulations and policies through rigorous regulatory impact analysis, including extensive use of economic analytical tools; encourage ex post evaluation of their implementation.

  • Consider replacing bespoke permits with sector-specific general binding rules to simplify the regulatory regime for installations with low environmental impact; update pre‐treatment standards for industrial wastewater discharges into municipal sewerage systems; ensure close MoE oversight and evaluation of EIA implementation by municipal governments.

  • Improve the co-ordination and consistency between national, county and local land-use plans; increase the capacity of local governments to conduct spatial planning and related strategic environmental assessment; integrate sustainable mobility issues into spatial planning at the local level.

  • Further enhance risk-based planning of environmental inspections; reform the system of penalties for environmental violations by adopting a sound methodology for the determination of fines, based on the gravity of the offence and economic benefit from non-compliance; develop an enforcement policy with clear guidance on applying administrative and criminal sanctions proportionately to the seriousness of non‐compliance.

  • Scale up government efforts to promote environmental compliance and green business practices through a range of information-based tools and regulatory incentives; strengthen voluntary agreements with industrial associations by setting ambitious sector-specific environmental targets and encouraging investment in eco-innovation.

  • Streamline the environmental liability regime by integrating liability provisions of issue-specific environmental laws into the Environmental Liability Act, while assigning priority to remediation of damage to the environment at the expense of the responsible party over monetary compensation; accelerate the programme for the clean-up of contaminated sites by securing adequate financial resources for its implementation.

  • Expand citizens’ access to justice beyond the review of administrative decisions related to the environment in order to guarantee broader human rights on environmental matters in county courts of general jurisdiction; enhance the completeness and quality of environmental information available to the public.

3. Towards green growth

Estonia’s overarching framework for sustainable development is set out in the National Strategy on Sustainable Development “Sustainable Estonia 21”, adopted in 2005, with progress monitored via a set of sustainable development indicators. There is no dedicated green growth strategy, but green growth initiatives can be identified in various governmental strategies and plans.

Greening the tax system

The government has an ambitious agenda for a green tax reform, which aims to shift part of the tax burden from taxation of income to taxation of consumption, use of natural resources and pollution of the environment. The MoE is leading a multi-year process to evaluate the external costs of all main forms of pollution with the intent to adjust environmental taxes. The project is expected to finish in 2017, with changes to the tax system made by 2020.

Revenues from environmentally related taxes increased from 1.6% of GDP in 2000 to 2.9% in 2010, before declining to 2.6% in 2014. Estonia is in the upper third of OECD member countries on this indicator. The overall increase was due mainly to a significant increase in energy tax rates and the introduction of an excise tax on electricity. As in most OECD member countries, revenue from energy taxes makes up the largest share, accounting for close to 90% of revenues from environmentally related taxes, well above the OECD average of 69% (Figure 2).

Figure 2. Environment-related tax revenue has declined since 2010

Energy tax rates vary considerably across energy sources and uses. There are a number of exemptions and reduced rates for various users, which weaken incentives for energy efficiency and result in tax revenue losses. Households bear a significant share of the fuel and electricity tax burden. Current energy tax rates do not fully account for negative social and environmental effects and fail to provide a consistent carbon price signal. Estonia has a CO2 pollution tax, which covers energy producers (except electricity generation). However, the low rate of EUR 2 per tonne of CO2 has had a negligible impact on carbon abatement. The EU ETS covers a large share of Estonia’s GHG emissions – an estimated 75% of emissions in 2013 (EEA, 2014); this makes the country’s economy vulnerable to eventual increases in the ETS carbon price.

Road transport accounts for a significant and rising source of air pollution and carbon emissions. However, Estonia has few taxes on motor vehicles (apart from a heavy goods vehicle tax and a registration fee for personal cars). In 2014, revenue from these taxes amounted to 2.5% of environmentally related tax revenues, well below the OECD average. The government has analysed options for vehicle taxation, including based on environmental characteristics. It is planning to introduce road charges for heavy duty vehicles, but not taxes on passenger cars. Estonia is among the ten OECD member countries that capture the fewest taxable benefits of company cars.

Estonia has a range of environmental pollution and natural resource extraction taxes.2 Pollution taxes, in particular, are imposed on a large number of parameters, e.g. air emissions of heavy metals or their compounds, discharges of a wide range of hazardous substances into water, most of which are not directly monitored. While rates have increased significantly since 2000, they remain too low to have an impact on the environmental performance of firms. For example, the oil shale industry accounted for 72% of the revenue collected via the environmental tax systems in 2013 (MoE, 2015b). Although significant pollution abatement investments have been made in the oil shale sector, a recent assessment concluded that environmental taxes applied to oil shale activities do not, at their current rates, motivate companies to prevent or reduce potential environmental damage (NAO, 2014). In the area of biodiversity conservation, Estonia compensates private owners of protected forests, but does not use other forms of payments for ecosystem services.

There is no comprehensive assessment of the scope or magnitude of environmentally harmful subsidies in Estonia. These subsidies include exemptions and reduced rates for certain users. Support for oil shale-based electricity and heat production has dropped drastically in recent years with the removal of several tax exemptions. However, the agricultural sector enjoys reduced fuel tax rates (which could be phased out easier in the context of low oil prices) and is exempt from the water abstraction tax (OECD, 2015a).

Green investment

General government expenditure on environmental protection rose from 0.7% to 0.9% of GDP between 2000 and 2012, just above the EU-28 average of 0.8%; waste and wastewater management accounted for 35% of the total (Eurostat, 2016b). Pollution abatement expenditure by production enterprises more than doubled over 2010-13 (with a 71% share of investments), although it focuses more on end-of-pipe than process-integrated technologies (MoE, 2015b). Waste management accounts for the largest share of business sector expenditure.

Estonia has several support schemes to stimulate green investment. The Environmental Investment Centre is channelling significant amounts of finance towards environmental projects: more than EUR 1.3 billion to over 18 000 (mostly small) projects since its establishment in 2000. Other investment schemes are targeting energy efficiency in buildings and the development of export-capable firms, with apparently positive results. However, there are concerns about the effectiveness of government investments in energy efficiency.

Estonia is actively promoting the use of renewable energy via a feed-in premium scheme introduced in 2007. In 2014, total subsidies for electricity produced from renewable sources were worth EUR 65 million: almost half of funds were allocated to wind energy generation, and over a third to electricity production from biomass at large power plants (Elering, 2015). Achieving the current level of wind power generation has required subsidies. However, the economic viability of additional wind projects is uncertain at the current carbon price in the EU ETS and low electricity price more generally, as the government plans no further subsidies in this sector. Over 95% of electricity generated from biomass comes from subsidy-eligible combined heat and power plants.

Estonia has promoted sustainable transport with a few targeted initiatives, including investments in public transport infrastructure and biomethane use in public transport and private vehicles. The Electromobility programme provided (until 2015) support for the purchase of electric cars and the establishment of a nation-wide system of electric charging stations. However, the uptake of clean passenger vehicles has been slower than planned.

Promoting eco-innovation

There is no specific eco-innovation policy in Estonia, but eco-innovation measures are incorporated into strategic development plans of various ministries. Public research and development (R&D) spending allocated for the environment has followed the upward trend of public R&D spending since 2000 with a peak in 2010 due to considerable one-off investments in the oil shale industry. In 2014, Estonia ranked second among OECD member countries in terms of environment-related R&D as a share of total public R&D budgets (about 6%) (OECD, 2016b). The share of environment-related technology in patent applications went from 0.7% in 2000-02 to 21.2% in 2010-12, exceeding the OECD average of 12% (OECD, 2016a).

While Estonia has reached EU average levels of eco-innovation inputs and activities, it is considerably behind on eco-innovation outputs, GHG emission reduction, socio-economic outcomes and resource efficiency outcomes – key components determining overall performance (Eco-Innovation Observatory, 2016). Access to finance appears to be a limiting factor. Many firms remain either unaware of R&D grants or complain that the application is long and bureaucratic (Eco-Innovation Observatory, 2016). In addition, there is poor co‐ordination between different ministries responsible for innovation in their respective areas.

Expanding environmental markets

There are no official statistics on the environmental goods and services (EGS) sector. However, a pilot project recently estimated that value added in the sector could account for as much as 6% of GDP (Statistics Estonia, 2016), compared to the EU average of 2.2% (Eurostat, 2016a). Energy saving and management and renewable energy generation are the main contributors to the EGS sector, in terms of both value added and employment. In 2013, the share of direct and indirect renewable energy-related employment in Estonia’s total employment was 0.71%, above the EU average of 0.53% (EC, 2015). To promote EGS, the government relies mainly on green public procurement (GPP), whose share in the total volume of public procurement (6% in 2014) remains well below the OECD average of 26% (EC, 2012b).

Recommendations on green growth
  • Continue green tax reform by further shifting the tax burden from labour towards environmentally harmful activities without increasing the overall tax burden on the economy; regularly evaluate its economic impact; focus air and water pollution taxes on a limited number of priority pollutants whose emissions or discharges are monitored; increase the tax rates for these pollutants to provide a real incentive for their abatement; develop a methodology for setting resource extraction tax rates based on the value of extracted resource; expand the use of economic instruments for biodiversity protection, including payments for ecosystem services.

  • Raise and adjust tax rates on negative environmental externalities of energy production and use, including the tax on CO2 emissions for sectors not already covered by the EU ETS; set tax rates for diesel at least at the same level as for petrol; strengthen incentives for energy efficiency in both heating networks and buildings by broadening the use of metering and introducing penalties for heating network operators when they fail to meet heat loss targets.

  • Consider introducing policy measures to address the environmental damage from road transport via a road pricing system or taxes on motor vehicles adjusted to reflect the environmental characteristics of the vehicle; continue investments in the use of biofuels in motor vehicles; eliminate fiscal incentives for the use of company cars.

  • Develop a comprehensive assessment of the extent and magnitude of environmentally harmful subsidies and set priorities for phasing them out; continue to phase out exemptions and preferential rates (of energy excise taxes, water abstraction taxes, resource extraction taxes, etc.) for certain economic sectors, such as agriculture.

  • Monitor the effectiveness of the Environmental Investment Centre and other investment support schemes to ensure they support government priorities, add value in addressing environmental problems and reflect the principles of sound public finance.

  • Strengthen eco-innovation by improving access to finance by raising firms’ (in particular SMEs’) awareness about existing support mechanisms and reducing their administrative complexity; improve co-ordination between government institutions, enterprises and academia on research and development; enhance green public procurement by expanding the range of procurement categories with green purchasing criteria and designating and training procurement officials in public institutions on effective use of such criteria.

4. Waste and materials management

The EU membership has brought significant changes to Estonia’s legal and policy framework for waste management. These comprise new standards for waste facilities, including landfills, as well as ambitious targets for recycling. National waste policies make it a priority to achieve the EU objectives of reducing landfilling of municipal solid waste (MSW) and to increase the country’s recycling and composting.

Municipal solid waste management

Since 2005, Estonia has undertaken a major transformation in the treatment of MSW: the country has moved from reliance on landfilling to a high level of energy recovery via waste incineration. Recycling and composting have increased, though less dramatically (Figure 3). Private sector investments have played a major role in financing new waste treatment facilities: the national waste disposal tax provided incentives for these investments. In parallel, Estonia has used public resources, including EU funds, to close 150 old, substandard landfills and to build 5 landfills that meet standards. By 2015, however, Estonia had overcapacity of waste treatment facilities. Nonetheless, the country is not on track to achieve the EU’s 2020 targets for recycling: while separate collection of recyclable MSW has increased, further progress is needed as a high share of MSW now goes to incineration.

Figure 3. Transformation of municipal waste management

In Estonia, private companies collect MSW. Although they are chosen via municipally organised tenders, they collect fees directly from households. The system has kept fees for households low. However, many municipalities lack capacity and resources to manage tenders effectively and more generally to ensure proper waste management. Although municipalities can join their efforts, this is voluntary, and few inter-municipal collection areas have been set up. If a legal challenge overturns a tender decision, each household can choose its waste collection company until a new tender is organised. This provision does not assure continuous collection of all MSW. The role of local government in overseeing MSW management has been the topic of ongoing debate. The resulting uncertainty hinders the development of a stable policy and management framework that can support the attainment of higher levels of separate collection and recycling and ensure that all MSW is collected.

These issues reflect the weak role of government planning for MSW management: national waste management plans have set out broad goals, but have not specified all the instruments and actions for their implementation. As a result, key decisions left to waste management companies and to the local level have not sufficiently supported national objectives, such as the 2020 recycling targets.

Estonia has set up extended producer responsibility (EPR) for six waste streams, including packaging waste, electronic and electrical waste, and end-of-life vehicles. Multiple producer responsibility organisations (PROs) operate for four waste streams, including waste from packaging and batteries. The EPR schemes face several issues, including “free riders” that put products on the market outside EPR requirements and scrap dealers that collect waste with resale value (e.g. metal from home appliances), separately from the PROs. Insufficient government oversight of PROs and the lack of a clearinghouse mechanism among competing organisations create further problems, including questions about the accuracy of data and the actual achievement of targets. Moreover, PROs could play a stronger role in supporting local government on awareness raising and actions to achieve recycling targets.

The overall accuracy of waste data needs to be further improved and information systems better integrated and tied to stronger enforcement. This is the case for many waste streams, including those under EPR schemes, as well as hazardous waste. For example, information systems for hazardous waste permits and reporting are not integrated, hindering checks of data accuracy (NAO, 2015b). Further work is also needed to identify the amount of MSW not collected.

Hazardous waste management

Estonia’s hazardous waste generation per capita is the highest in the EU, 35 times the EU average (Eurostat, 2016c). The combustion and processing of oil shale generates high volumes of material classified as hazardous waste, nearly all of which is deposited in landfills. After many decades, these activities have also left a legacy of contaminated sites. Estonia has spent significant domestic resources, bilateral support and EU funds to ensure that landfill disposal sites now meet standards and to promote reuse of mining waste.

Estonia has several treatment facilities for hazardous waste from activities outside the oil shale sector. A cement plant plays a key role in the incineration of other hazardous waste and refuse-derived fuel (RDF). The cement industry in the Baltic Sea region has overcapacity, however, creating uncertainty about whether this waste treatment option will continue. A state-owned hazardous waste landfill reopened in 2016 with a new leachate treatment plant.

Materials management and circular economy

Estonia has established policy objectives to improve material productivity, both overall and for key sectors such as biomass, construction materials and oil shale: the objectives include an overall national target for material productivity. From 2014 to 2020, Estonia plans to invest EU funds in resource efficiency and materials productivity to support these policy objectives. However, the continued combustion of oil shale – the single largest type of material consumed – does not allow significant productivity improvement or recovery of waste materials. The lack of a comprehensive policy framework for a circular economy is a barrier to achieving sustainable use of resources throughout the entire product value chain.

Recommendations on waste and materials management
  • Establish a stable, long-term institutional framework that can ensure the achievement of European requirements and targets for MSW management, including by strengthening the institutional role and financial and technical capacities of local authorities to oversee MSW management more effectively; consider establishing inter-municipal entities for this purpose.

  • Consider the introduction of economic instruments such as a tax on domestic mixed waste and possibly an incineration tax to better support recycling targets, which would create incentives for separate collection at source, for mechanical-biological treatment facilities to separate materials for recycling, and for waste companies to send all recyclable waste to recycling facilities.

  • Strengthen the role of PROs in supporting the achievement of waste management goals, including those for recycling, by establishing a stronger framework for co-operation between PROs and government bodies responsible for MSW management; encourage PROs to raise public awareness of benefits of separate collection and recycling, and ensure sufficient infrastructure for the separate collection of recyclable waste at the local level.

  • Take steps to implement an independent clearinghouse mechanism to oversee the multiple PROs to help ensure their long-term viability, as well as the accuracy and transparency of their reporting; extend government accreditation and auditing requirements, now in place for packaging waste PROs, to the other EPR schemes.

  • Further strengthen data gathering and information systems for waste management in such key areas as packaging waste, hazardous waste and the monitoring of potential impacts of existing and former waste sites.

  • Continue to explore options to improve material productivity, including by enhanced research and development on oil shale use and its waste products, drawing on EU initiatives for a circular economy; ensure the effective use and monitoring of planned investments of EU funds in resource efficiency.

5. Mining and the environment

The energy sector is dominated by one indigenous primary energy source: oil shale. The oil shale sector accounts for 4% of GDP (IEA, 2013) and 1.5% of employment (Praxis, 2014). It is heavily concentrated in one county in north-eastern Estonia; four companies hold mining permits, among which state-owned Eesti Energia accounts for 75-80% of total oil shale extracted. Estonia is one of the most energy-independent countries in Europe. However, with Estonia’s recent integration into the Nord Pool energy market and continuing integration into the Continental European Market, energy security can be guaranteed through increased diversity of energy suppliers without heavy reliance on domestic fossil fuels.

The policy framework for the management of mineral resources in Estonia is extensive. It includes sectoral and environmental strategies and legal acts, which generally address environmental issues of the mining sector. The newly adopted National Development Plan (NDP) for Oil Shale Use for 2016-30 (MoE, 2015c) identifies increasing mining efficiency, while minimising the sector’s negative environmental impact, as its main goal. The new NDP defines a number of indicators and respective 2020 targets with respect to efficiency and environmental impact of oil shale mining and use. However, these targets are not ambitious and commonly call for maintaining the 2013 performance levels. In addition, the NDP and other relevant strategies are not always coherent in their measures, particularly in addressing the growing challenge of oil shale waste management.

Extraction and use of mineral resources

The oil shale sector is ageing and facing economic challenges. The efficiency of oil shale mining is decreasing as open quarries get depleted, and extraction shifts to more expensive and less efficient underground mining, where more rock needs to be extracted per unit of produced energy. The NDP 2016-30 sets a target of keeping losses of oil shale in underground mines below the 2013 base of 29% (MoE, 2015a). Low global energy prices since 2015 make the sector’s financial sustainability especially vulnerable: Eesti Energia’s net profit fell by 66% over 2014-15 (Eesti Energia, 2016). The low mining efficiency leads to increased environmental impacts, and the unfavourable economic situation impairs the sector’s ability to mitigate them.

To keep the oil shale sector profitable and mitigate negative environmental impacts, the Estonian government is examining measures aimed at reducing the use of oil shale for electricity production (given its low efficiency) and increasing oil shale processing into shale oil and chemical products valued in the international market. Yet approximately 75% of the oil shale processing capacity will reach the end of its economic lifetime in the coming years (Ernst and Young, 2014). Some investments into replacing it with more efficient and environmentally friendly processing technologies have been made, others are under consideration. The NDP 2016-30 assigns priority to increasing applied R&D in the oil shale sector and the development of reference documents on best available techniques in oil shale processing (MoE, 2015c).

Sand, gravel and limestone are the most widely used construction minerals in Estonia. The economic crisis in 2008 resulted in a decrease of mining volumes of all minerals. Since 2011, they have started to gradually increase, largely driven by investment of EU structural funds into transport infrastructure. However, volumes have not reached pre-crisis levels.

Environmental impacts of mineral resources extraction and use

Oil shale mining and use are the dominant source of environmental impacts in the country. The industry (including state-owned Eesti Energia) spent EUR 366 million in 2011-14 alone to reduce pollution caused by oil shale mining and processing (Statistics Estonia, 2015), and the environmental situation related to oil shale mining and use has been improving over the last decade. However, major challenges remain with respect to waste management, air and water quality. Furthermore, the government does not seem to have full information about the environmental impact of the oil shale industry, as mining companies’ self-reporting data are poorly verified (NAO, 2015a).

Waste rock from oil shale mining constitutes 70% of Estonia’s non-hazardous waste. Due to the increased extraction of oil shale from underground mines, which generates more waste, the amount of waste rock is increasing despite the stable extraction rates. The reuse of waste rock is encouraged, but the actual reuse has been less than 50% (except during the years of high construction activity) due to the low quality of the gravel produced from it, as well as the high costs of its transportation (Figure 4). The NDP 2016-30 sets the waste rock reuse target for 2020 at just 40% (MoE, 2015c).

Figure 4. Oil shale mining waste recovery rose until 2012, but has since declined

The NDP for mineral resources used in the construction industry for 2010-20 encourages expanded use of waste rock from oil shale mining as an important resource for construction. Government policies identified the mining sector’s efficiency gains as the key means for improving environmental performance and the key challenge for the industry. However, the efficiency goals have not been achieved.

Oil shale combustion and processing account for over 95% of hazardous waste generation in the country. This includes ash from oil shale combustion and semi-coke and retorting waste from its conversion to shale oil. While the oil shale ash recovery has more than doubled since 2005, it remains at a low level; most hazardous waste goes into landfills, which leads to air pollution with toxic organic substances. The government is setting only a modest target of 4.5% ash recovery for 2020 in its oil shale NDP (MoE, 2015c).

The impact of the mining industry on water resources manifests in acid discharges with mine water. In addition, river water temperature increases from discharges of mine water and cooling water discharges from power plants. The mining sector is the largest water consumer in the country. Mining operations have considerable impact on the hydrological regime in the region. They influence groundwater infiltration and affect river run-off and flow feed, causing land subsidence in north-eastern Estonia. The contamination of groundwater in the oil-shale mining area has a direct impact on public water supply.

Air quality issues associated with oil shale are mainly related to emissions of SO2, NOx, particulate matter and CO2 from oil shale-based electricity and heat production. While the impact of mining itself is relatively small, oil shale processing is carbon-intensive and causes local air pollution. Estonia has taken measures (such as installation of desulphurisation equipment at the Narva power plant) to comply with the EU air quality standards, and SO2 emissions have fallen sharply since 2010. However, the situation in Ida‐Viru county – the main area for oil shale mining and use in eastern Estonia – remains worrisome. While emissions of almost all major pollutants have declined since 2011 (ESTEA, 2016), the incidence of respiratory and heart diseases is significantly higher in Ida‐Viru than in any other region of the country (Orru et al., 2015).

Policy instruments and their effectiveness

Extraction permits, issued by the MoE or the Environmental Board, and issue-specific environmental permits issued by the Environmental Board, are the main instruments for regulating environmental impacts of mining activities. An annual oil shale extraction limit of 20 million tonnes per year as of 2008 was established in the Earth’s Crust Act. However, the utility of the extraction limit for limiting waste generation is questionable: oil shale companies operate well below the limit, while the amount of waste is increasing due to the shift to underground mining. Moreover, mining companies have been allowed to extract additional amounts of oil shale as compensation for the years 2009-14 when they did not reach the established extraction limits. This may lead to a further increase of the sector’s environmental impacts.

There is also evidence (NAO, 2015a) that extraction permits do not include financial requirements and guarantees to conduct remediation. According to the Earth’s Crust Act and an MoE regulation, the extraction permit holder is required to restore the land disturbed by the mining of mineral resources on the basis of a restoration project. There are excellent examples of effective land restoration when open-cast waste deposits have been redesigned into multipurpose recreational areas. However, there are also persistent problems with land subsidence around Soviet-era underground oil shale mines that have been abandoned.

Environmental taxes are the main instrument of environmental policy affecting the mining sector, in addition to the required participation of power sector enterprises using oil shale in the EU ETS. They include a mineral resource extraction tax and taxes on air and water pollution, as well as on waste disposal. The largest share (almost 80%) of environmental taxes is paid by enterprises active in mining, production of shale oil, electricity and heat supply (Statistics Estonia, 2015).

Rates of all environmental taxes increased significantly between 2005 and 2015. For example, disposal taxes rose seven-fold for non-hazardous mining waste and more than eight-fold for oil shale ash and semi-coke. However, they have had no impact on the level of mineral extraction volumes and limited impact on the environmental effects of the mineral mining and processing industry. Air emissions and wastewater discharges have been reduced, but mainly due to investments made to comply with stricter EU environmental standards. The low water abstraction tax rates create a perverse incentive for extensive water consumption by the mining industry and hamper the necessary efficiency improvements.

In general, businesses perceive environmental taxes as generating revenues for the government rather than as serving their principal purpose of stimulating the reduction of environmental impacts. Amendments to the Environmental Charges Act (approved by Parliament in June 2016) tie extraction taxes for oil shale to the oil price retroactively from July 2015, effectively reducing their rate by more than five-fold until the end of 2017. This reform, aimed at alleviating the tax burden on the oil shale mining and processing industry, will deprive the government of significant environmental tax revenues and runs contrary to the green tax reform pursued by the Estonian government.

Recommendations on mining and the environment
  • Align the policy of oil shale extraction limits with the sector’s overall efficiency and environmental goals stated in relevant strategic documents; make the NDP’s efficiency and environmental targets for 2025 and 2030 more ambitious in view of reducing the share of oil shale in the energy mix, and plan measures for achieving them; strengthen the information base on the sector’s environmental and health impacts, including through establishing standard monitoring and reporting procedures and more diligent verification of companies’ self-reporting data by the Environmental Inspectorate.

  • Encourage deployment of more efficient oil shale mining and processing technologies; develop partnerships between government and industry to facilitate cost-effective transition to cleaner and more efficient oil shale extraction and use; develop a reference document on best available techniques in energy generation and oil production and rational use of extracted resources.

  • Consider additional actions towards the diversification of the Ida-Viru region’s economy away from oil shale mining and use, envisaging measures to mitigate the potential social impacts (e.g. improving labour mobility and training) through active collaboration between the central government, municipalities, employers and trade unions.

  • Reinforce efforts to increase the recovery of mining waste, including ash and semi-coke from oil shale processing, by investing in research and development in collaboration between the government, research institutions and enterprises; consider increasing landfill disposal taxes for oil shale mining and processing waste; improve the monitoring of air and water pollution in mining areas.

  • Strengthen the permitting regime for the mining industry by ensuring that extraction and environmental permits contain clear conditions for waste minimisation and post-operation land remediation; better enforce land restoration requirements, particularly for construction minerals mining sites; provide financial support for innovative land restoration projects.


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← 1. The EU ETS target is a 21% reduction in greenhouse gas emissions by 2020 compared to the 2005 level; Estonia’s ESD target is an 11% increase by 2020 compared to the 2005 level.

← 2. While defined as charges by Estonian law, these instruments are referred to as taxes in accordance with the OECD definition.