Chapter 1. Key environmental trends1

Estonia has made significant progress in improving its environmental performance by decoupling economic growth from the primary environmental pressures. However, it still faces some challenges linked to the extensive use of natural resources, which results in high emissions intensities and low material productivity of the economy. This chapter presents the key socio-economic developments and considers Estonia’s progress in moving towards a low-carbon and energy-efficient economy, resource efficiency and sustainable management of natural assets, including biodiversity and water resources.


1. Introduction

Estonia is a small, sparsely populated country with large oil shale reserves and abundant forestry and water resources. Since 2000, Estonia has experienced strong economic growth, significantly higher than the OECD average. Still, gross domestic product (GDP) per capita remains lower than the OECD average.

Drawing on indicators from national and international sources, this chapter reviews progress towards the country’s national and international targets. It focuses on the period since 2000. To the extent possible, it compares the state of the environment with that of other OECD member countries. It highlights some of the main environmental achievements and remaining challenges on the path towards green growth and sustainable development.

2. Key economic and social developments

2.1. Economic performance

Over 2000-15, GDP in Estonia increased by about 65%, with an average annual growth of 3.6% per year in the last five years (Basic Statistics). The country enjoyed record-breaking growth between 2000 and 2007, in part driven by a credit-based boom in the construction sector. In this period, the economy grew at a rate much higher than the OECD average, although lower than the two other Baltic states of Latvia and Lithuania (Figure 1.1). In 2009, due to the global financial crisis, GDP decreased by more than 15% in just one year. A solid banking sector and a strong fiscal position contributed to economic recovery, and GDP is projected to reach 2.6% annual growth in 2017 and 3% in 2018 (OECD, 2015a; OECD, 2016a).

Figure 1.1. Estonia is a top-performing economy among OECD member countries

Economic activity is projected to accelerate gradually. This is largely due to the recovery of foreign demand and investment. However, the government’s strong financial position and planned structural reforms also play a role. Estonia’s fiscal balance improved in recent years – from a small deficit in 2013 to a narrow balance in 2014/15. The improvement was due to a broadened value added tax (VAT) base and higher taxes on alcohol and tobacco, even as the government raised spending on education and cut income tax. Public debt is the lowest in the OECD. It amounts to almost 14% of GDP, compared to the OECD average of almost 90% (Basic Statistics). Significant structural reforms are underway in the labour market, research and development (R&D), education and other areas to promote innovation, remove remaining barriers to entrepreneurship and competition, ensure access to finance for small and medium-sized enterprises (SMEs), upgrade infrastructure and raise energy efficiency. Despite the increase of R&D spending in recent years, its economic impact has been limited. Therefore, additional efforts would be needed to help revitalise productivity growth, especially with regard to innovation policy and knowledge transfer to firms. Further reforms of vocational education and lifelong learning programmes would help improve the skills level of the labour force (OECD, 2015a).

Estonian taxation levels are lower than the OECD average, but higher than in the other Baltic states. The labour tax wedge (the tax burden as a percentage of labour cost) remains higher than the OECD average, especially for low-earning workers. An effective way to reduce it would be to continue the green tax reform (Chapter 3). The share of environmental taxes has steadily increased over the last 20 years; in 2014, they accounted for 2.6% of GDP (Basic Statistics). Estonia is the least decentralised country in the OECD with regard to taxation, as sub-national tax revenue is only 1.6% of the total tax revenue (OECD, 2016b). Government spending accounted for 39.5% of GDP in 2015, lower than the OECD average (Basic Statistics). Sub-national governments were responsible for 24% of the total government expenditure (OECD, 2016b).

2.2. Structure of the economy, employment and trade

In Estonia, as in most OECD member countries, the services sector accounts for the largest share of GDP in terms of value added, followed by industry, construction and agriculture (Basic Statistics). In 2015, 72% of the population aged 15-64 was employed, a higher level than the OECD average; the rate was seven percentage points higher for men. Despite the labour tax wedge and skill mismatches between workers and jobs, unemployment has decreased in recent years. It stands at around 6% – below the OECD average (OECD, 2015a). Unemployment levels are similar for working-age women and men (25-64 years-old). Unemployment of young people (15-24 years-old) is higher compared to the rest of the active population. Significant differences exist in unemployment levels across the country. The two counties with the highest unemployment rate are Ida-Viru – one of the largest and most industrialised counties that is home to all oil shale mining fields – and neighbouring Lääne-Viru; both have large shares of Russian-speaking people (Statistics Estonia, 2016).

International trade plays a significant role in the economy. Estonia has a very open economy with a ratio of exports to GDP amounting to 80%, while the imports to GDP ratio is 76%. The country’s major trading partners are Sweden, Finland, Latvia and Germany. Weak growth in the euro area, as well as sanctions against the Russian Federation (hereafter Russia), have stalled Estonian exports and negatively affected the economy (OECD, 2015a). Core exports and imports are electrical machinery and equipment, and mineral fuels (Basic Statistics).

2.3. Quality of life and regional disparities

With 1.3 million inhabitants in 2015, and a surface area of more than 42 000 km2, Estonia has a lower population density than the OECD average. Compared to most OECD member countries, where the largest share of the population lives in urban areas, the majority of Estonia’s population (almost 80%) lives in intermediate regions,2 where rural communities account for 15-50% of the population (Basic Statistics). More than 70% of the population lives in Harju county where Tallinn is located (ESTEA, 2014b).

In general, Estonians are less satisfied with their lives than the OECD average. Despite steady economic growth, Estonia scores well in only a few measures of well-being, according to OECD indicators. It ranks above most other countries on environmental quality, education and skills, and work-life balance. However, it is below average on housing, jobs and earnings, subjective well-being, personal security, income and wealth, health status and civic engagement (OECD, 2012).

Estonia is a top-performing country in terms of the quality of its educational system: 90% of the working-age population has at least upper secondary education, among the highest rates in the OECD (OECD, 2012). The share of tertiary graduates is also higher than the OECD average (Basic Statistics). The average student scored very well in the OECD’s Programme for International Student Assessment (PISA), making Estonia one of the strongest OECD member countries in student skills (OECD, 2012).

Since 2000, real GDP per capita has almost doubled and reached USD 24 200 (in current prices and purchasing power parity) in 2015, still lower than the OECD value (USD 36 900). The country also lags behind with respect to household disposable income. Ida-Viru county has the greatest share of residents with yearly disposable income below the at-risk-of-poverty threshold, compared to other counties (Statistics Estonia, 2016). In addition, Estonia is in the top quarter of OECD member countries in terms of inequality (as measured by the Gini coefficient) and relative poverty (Basic Statistics).

Life expectancy at birth is lower than in most OECD member countries. This is generally associated with modest health care public spending, although other factors may have an impact on life expectancy (OECD, 2015a). Similarly to other socio-economic indicators, there are regional differences in life expectancy: in the north-eastern region, life expectancy is nearly five years shorter than in other parts of the country (see Chapter 5, Box 5.4). The latest assessment of the World Health Organization (WHO) indicates that environmental factors represent 18% of the total burden of disease in Estonia, higher than the average level in the assessed countries (WHO, 2009).

A study by the University of Tartu indicates regional disparities in exposure to environmental health risk. Residents of Ida-Viru county had worse health indicators than residents of other regions (Chapter 5). In 2015, the share of population in Ida-Viru that registered good health status was the lowest compared to other counties and significantly below the country average. Consequently, Ida-Viru has the highest occurrence of long-term illness in Estonia (Statistics Estonia, 2016). The negative health status of residents in this area is due to emissions from oil shale production, but also to other sources of industrial pollution, as well as modest living standards.

3. Transition to an energy-efficient and low-carbon economy

3.1. Energy intensity and use

Carbon-intensive energy mix

Estonia has one of the largest shares of fossil fuels in the energy mix among OECD member countries – more than 80% of total primary energy supply (TPES). Estonia is one of the world’s largest producers of oil shale, a sedimentary rock rich in organic matter that, once extracted from the ground, can be either used directly as a fuel for power plants, or processed to produce shale oil or other outputs. Oil shale accounts for around 70% of TPES.

Since 2004, Estonia has been making reforms to integrate more effectively into regional electricity and gas markets. Its recent integration into the Nord Pool energy market guarantees energy security through greater diversity of energy suppliers without reliance on domestic fossil fuels (Box 1.1).

Box 1.1. Estonia’s energy security

Since joining the European Union (EU) in 2004, Estonia has significantly reformed its electricity and natural gas markets. It has fully transposed the EU Third Energy Package Directives and has a strong and independent regulator in place – the Competition Authority. The electricity sector has been liberalised. Estonia is now part of the Nord Pool wholesale electricity market, primarily due to Estlink 2 interconnection with Finland launched in 2014.

With funding from the EU, Estonia has made infrastructure investments to strengthen connections to regional electricity supply. The three Baltic states agreed in 2015 on a common strategic goal of de-synchronisation from the Russian power system and synchronisation with the Continental European Network, as a key priority of the Baltic Energy Market Interconnection Plan.

As a member of the Nord Pool, Estonia no longer bases its domestic electricity production solely on oil shale. However, with the same prices within Estonia and the Nord Pool countries, there is no market incentive for increased imports of electricity from cleaner sources. This may change with the eventual completion of additional nuclear capacity in Finland.

To address its isolation from the EU natural gas market and total dependence on imported gas from Russia, Estonia plans to build a regional Baltic liquid natural gas terminal and a pipeline connector between Finland and Estonia at an estimated cost of EUR 300-500 million.

Source: EC, 2015a; Kearns, 2015.

The total energy supply has increased since 2000, with shares of oil shale and renewables rising at the expense of natural gas and oil (Figure 1.2). Oil shale is the main source of electricity generation. Since 2000, however, the electricity mix has moved towards higher use of renewables (Figure 1.2).

Figure 1.2. Fossil fuels dominate the energy mix

Rapid development of renewable energy supply

Renewable energy supply (RES) has increased by more than 80% since 2000 and accounted for 17% of TPES and 14% of electricity generation in 2015. This was above the OECD average of 9.6% of RES over TPES, but below the OECD average of 34% of RES over electricity generation. The relatively high share of renewables in the total energy supply is due to extensive use of biomass in the heating sector. Estonia has increased wind power generation significantly since first tapping wind power in the early 2000s. However, wind still accounts for a smaller portion of renewable energy than biomass. Negligible shares of biofuels and hydropower (due to its limited potential in the country) account for the remaining renewable sources (Figure 1.3).

Under the European Union Renewable Energy Directive (2009/28/EC), Estonia has a target to increase the share of renewable energy in gross final energy consumption3 from 18% to 25% between 2005 and 2020. The country has largely surpassed the 2011/12 interim target reaching its 2020 target in 2011. With 24.8% of RES in 2012, Estonia has also exceeded the 2012 interim target under its National Renewable Energy Action Plan (NREAP) up to 2020. The electricity sector contributed the most to the early achievement of these targets. It is expected that Estonia will meet its 2020 overall target by implementing its current renewable energy policies (MEAC, 2013; EC, 2015b, 2013).

Figure 1.3. Renewable energy supply increased

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. The exemption of certain biofuels4 from excise duty, aimed at promoting their use in transport, had no positive effect and was removed in 2011. Significant expansion of RES will be needed to achieve the EU target. To this end, under its NREAP, Estonia has planned a number of policy measures. These include mandating a 5-7% biofuel requirement for motor fuels, a shift to renewable energy in public transportation and an increase in the share of vehicles using alternative biofuels (other than biodiesel and bioethanol) (MoE, 2013).

High energy intensity

The energy intensity (TPES per unit of GDP) of the Estonian economy is the third highest in the OECD (Annex 1.A). Since 2000, the TPES has grown far slower than economic activity, showing relative decoupling from economic growth. The final energy intensity decreased, due in part to energy efficiency measures put in place pursuant to the EU Directive on Energy End-Use Efficiency and Energy Services. Estonia declared in its second Energy Efficiency Action Plan (EEAP2) to have reached its 2010 intermediate target of 2.3%. However, according to the European Commission’s progress report, it is not clear how the savings have been calculated and how they relate to the measures presented. The EEAP2 indicates that the 2016 forecast final energy savings are unlikely to be met, requiring a greater level of ambition to achieve the country’s energy efficiency targets (EC, 2014b). In 2016, Parliament approved the Energy Sector Management Act, which requires energy efficiency measures in public buildings, energy production and supply, as well as energy efficiency criteria for public procurement, among other provisions.

A similar trend can be observed for total final consumption (TFC), which increased between 2000 and 2013, but at a slower pace than economic activity. The residential sector accounted for the largest share of energy consumption in 2014 (31%), followed by transport and industry (Figure 1.4).

Figure 1.4. Energy consumption grew, while its intensity decreased

3.2. Greenhouse gas emissions

Estonia’s GHG emissions, excluding emissions/removals from land use, land-use change and forestry, have increased by 23% since 2000 – 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 (Figure 1.5). GHG emission intensity per capita and per unit of GDP was above the OECD average, reflecting the dominance of oil shale in the energy mix (Annex 1.B). Emissions per unit of GDP fell by about 25%, in line with the OECD average.

Figure 1.5. GHG emissions are decoupled from economic growth, but continue to increase

Estonia met its 2008-12 Kyoto Protocol target of reducing GHG emissions by 8% compared to the 1990 level. The Kyoto target was achieved through a structural reorganisation of key economic sectors (energy production, industry and agriculture), which occurred after the fall of the Soviet Union in the early 1990s. Estonia also relies on the Kyoto Protocol’s Joint Implementation mechanism, through which it has earned emission reduction units with a number of renewable energy projects, mostly on biomass and wind power (IEA, 2013).

The energy sector is by far the largest producer of GHG emissions (almost 90%). It is also the sector that has shown the largest increase in emissions since 2000 (27%), mainly driven by the boost of energy consumption and the increased share of oil shale in the energy mix. The agricultural sector also increased its emissions (by 25%), while emissions related to waste dropped by 40% (Figure 1.5). Agriculture-related emissions comprise methane from livestock and nitrogen compounds from fertilisers (MoE, 2013).

Emissions from transport, which accounted for 11% of total GHG emissions in 2014, have increased by 35% since 2000. Transport is the main source of CO2 emissions in the non-Emissions Trading System (ETS) sector (Figure 1.5). As in many other OECD member countries, road transport dominates the sector’s energy use. Public transportation is used less than in other European countries; between 2006 and 2012, the number of passengers travelling by train dropped as a result of obsolete rail infrastructure (MoE, 2013). Estonia has relatively low taxes on transport fuels, which means that it has significant potential to stimulate reduced energy consumption and related emissions in the transport sector (Chapter 3).

As in most OECD member countries, carbon dioxide (CO2) was the main source of GHG emissions, accounting for about 90% of the total in 2014, followed by methane (5%), nitrous oxide (4%) and fluorinated gases (1%). Consumption-based CO2 emissions (i.e. excluding emissions embodied in Estonia’s exports) increased less rapidly than production-based emissions and represented 10.5 tonnes per capita in 2011, slightly below the OECD average of 11 tonnes. Estonia is among the few net exporters of CO2 emissions in the OECD, reflecting its carbon-intensive export-oriented economy (Annex 1.B; Wiebe and Yamano, 2016). The electricity and heat generation sectors are responsible for the largest share of CO2 emissions, followed by transport, industry and construction. Emissions from the residential sector accounted for a very low share of the total (IEA, 2013). The use of F-gases has been growing in recent years due to their increased use in refrigeration and air conditioning as substitutes of ozone-depleting substances, such as chlorofluorocarbons (CFCs) (MoE, 2013).

The high emission intensity makes economic activities vulnerable to rising carbon prices in the framework of the EU ETS. Energy efficiency measures in the electricity and heating sectors, as well as processing of oil shale into lighter oil products instead of burning it, could help lower the emission intensity of the economy. Finally, taxing energy sources according to their carbon content could help decrease the emission intensity of the economy (Chapter 3) (IEA, 2013; OECD, 2015c).

Projections of the United Nations Framework Convention on Climate Change (UNFCCC) indicate that total GHG emissions, with currently implemented and adopted measures, are expected to decrease by 7% by 2020 compared to 2005, and by another 5% by 2030. An additional decrease of a few percentage points in both timeframes could be achieved in a scenario that includes policies and measures that are still in the planning stage (MoE, 2013).

As a member of the EU, Estonia is subject to the EU ETS and the Effort Sharing Decision (ESD). The EU ETS sets an EU-wide target to reduce 21% of emissions by 2020 compared to the 2005 levels. The ETS covers 71% of Estonia’s GHG emissions. The ESD allows Estonia to increase its emissions from non-ETS sectors5 by 11% by 2020, compared to the 2005 level. In 2013, EU ETS-verified emissions had increased by more than 20% compared to 2005. Emissions from non-ETS sectors, on the other hand, had decreased by more than 7% compared to the base year. As Estonia is part of the EU framework for post-2020 commitments, it is bound to a 40% decrease in GHGs by 2030; it seeks an 80-95% reduction by 2050 from the 1990 level. In addition, to implement the UNFCCC Paris Agreement, Estonia needs to pursue ambitious domestic mitigation measures (MoE, 2013; EEA, 2014a; OECD, 2015d).

Estonia’s current policy mix for climate change mitigation does not address its long-term GHG reduction targets. In 2017, the Ministry of the Environment (MoE) is expected to adopt the General Principles of the Climate Policy until 2050. The General Principles were drawn on the basis of the 2005 National Strategy on Sustainable Development “Sustainable Estonia 21” and the 2007 Estonian Environmental Strategy to 2030. The draft General Principles establish a vision for all sectors aimed at setting Estonia on a pathway consistent with the 2015 Paris Agreement and the EU targets to 2050. The document declares policy goals of reducing GHG emissions by 70% by 2030, by 72% by 2040 and by 80% by 2050, compared to the 1990 level. The General Principles do not stipulate specific measures to achieve these goals, but are expected to be implemented through sector-specific development plans (energy, transport, agriculture, etc.).

One key sectoral strategic document is the National Development Plan of the Energy Sector (NDPES) until 2030, which was developed with wide stakeholder participation and adopted in 2016. It superseded the earlier plan (2009-20). The draft NDPES-2030 describes the goals for the Estonian energy policy until 2030 and presents a vision up to 2050. It focuses on the three main objectives of security of supply, increased energy efficiency and improved competitiveness. It also states that in 2030 renewable energy sources are to contribute 50% of electricity production and 80% of heat generation, as well as make all new buildings energy neutral.

The draft NDPES presents optimistic scenarios for reducing Estonia’s GHG emissions and the carbon intensity of its economy in line with the goals of the General Principles of the Climate Policy. These scenarios, based on modelling work in 2012-15, indicate that emissions would peak before 2015 and then begin to decline. However, the plan does not specify measures to achieve the low-carbon pathways. It states that the public sector’s intervention will be reduced to a minimum and that development of the oil shale sector will largely depend on investments of oil shale companies.

The 2011 National Reform Programme “Estonia 2020” established two key priorities for the country: restructuring the energy sector in line with Estonia’s energy security and energy efficiency goals, and reducing the country’s resource intensity, with a particular focus on energy. The related Action Plan for 2014-18 listed a number of measures without assessing their mitigation capacity.

To address Estonia’s growing climate change-related challenges (Box 1.2), the MoE has prepared a Climate Change Adaptation Plan that is expected to be adopted in 2016. The plan focuses on eight priority sectors, including energy, industry and biodiversity. However, the cross-sectoral goals and measures set out in the draft plan are not sufficiently specific and the funding needs are not broken down by task. In addition, a number of sector-specific plans already deal with adaptation issues. Estonia also participates in several Baltic Sea Region adaptation projects.

Box 1.2. Climate change adaptation challenges in Estonia

Climate change is not expected to result in extreme environmental consequences in Estonia, compared to many other countries. Indeed, some of its effects can be considered positive. Some of the key projected climate change consequences for Estonia are temperature rise, increase in precipitation (especially in winter) and sea-level rise. Among the most affected sectors are water management, energy and coastal infrastructure.

Water management

Climate change is projected to affect water management both positively and negatively. On the one hand, increased precipitation and the corresponding rise of groundwater supply will augment the safe yield of wells in Upper Estonia (i.e. the level at which groundwater can be withdrawn without causing depletion of the aquifer); this will make public water supply cheaper and more reliable (OECD, 2013a). On the other hand, increased groundwater levels may hamper agricultural production, due to excessively moist land, and make it easier to transport pollutants and contaminate wells. Addressing these challenges would require the development and improvement of drainage systems (Baltadapt, 2013; MoE, 2013).

With regard to surface water, increased flow in winter would improve water quality of rivers and benefit fish farming. Yet reduced flows in the spring may deteriorate water quality and have a negative impact on aquatic habitats (OECD, 2013a).

The major risks related to a sea-level rise and increased precipitation are seasonal flooding and inundation of mines, as well as riverbank and seashore erosion. Addressing these impacts requires coastal and inland infrastructure development (MoE, 2013).

Energy sector

Climate change is also expected to have a mixed impact on the energy sector. The rise in winter temperatures is projected to reduce the heating needs in the cold season. Conversely, warmer summers and more frequent heat waves would increase electricity production for cooling (MoE, 2013).

With regard to oil shale production, the primary concern is an increased risk of mine flooding (SEI, 2015). At the same time, warmer temperatures may create favourable conditions for increased growth of herbaceous biomass and their use as biofuel (MoE, 2013).

Wind power will benefit significantly from climate change, as wind speeds are expected to increase in the cold half-year – when demand for energy is high. However, fast changes in wind direction might result in energy losses, if wind turbines are incorrectly designed (SEI, 2015).

Source: Baltadapt (2013); MoE (2013); OECD (2013a); SEI (2015).

3.3. Air emissions and air quality

The country enjoys relatively good air quality except in Ida-Viru county, where emissions from oil shale combustion and processing represent a health hazard to residents (Section 2.3). In Tallinn, a relatively large share of the population (47%) is exposed to high levels of PM2.5,6 while in Narva and Tartu, the level is much lower, at 23% and 4%, respectively (OECD, forthcoming). In 2013, 502 people were estimated to have died prematurely from PM2.5, a 30% decrease compared to the 2005 level. Projections for 2060 indicate a further decrease, with the number of premature deaths dropping to 445 per year (OECD, 2016c). The cost of such deaths7 increased slightly (by 2%) over 2005-13, reaching more than USD 1.3 billion8 (OECD, 2014).

Emissions profile

Since 2000, emissions of major air pollutants have been decoupled from economic growth. Emissions of sulphur oxides (SOx) decreased by the largest share (almost 60%), followed by non-methane volatile organic compounds (NMVOC) (-42%), carbon monoxide (CO) (-35%) and nitrogen oxides (NOx) (-24%) (Figure 1.6). In 2014, SOx and NOx emissions per unit of GDP were among the highest in the OECD (Annex 1.B). Ammonia (NH3) emissions, which increased by around 17%, are mainly caused by livestock manure management and use of fertilisers (ESTEA, 2014a).

Figure 1.6. Air emissions have decreased

Stationary sources account for the majority of SOx and NOx emissions, with power stations contributing the largest share. Non-industrial combustion, mainly burning both wood in the residential sector and municipal solid waste in domestic heaters, represents one-third of small particulate emissions and around one-fifth of NMVOC and NOx emissions (Figure 1.6).

Emissions of particulate matter declined over the review period. PM2.5 emissions decreased by around 50% over 2000-14 (Figure 1.6), while PM10 emissions decreased by around 60% over 2000-14. PM and ozone (O3) are Europe’s most dangerous pollutants in terms of harm to human health and are mainly caused by anthropogenic emissions (EEA, 2014c).

Average PM10 concentrations9 dropped, achieving the 2012 target set by the EU legislation two years early (EEA, 2014b). Reduced road traffic, caused by the economic recession, could have contributed to this outcome; emissions are likely to rebound as economic growth picks up. Since the formation of ozone requires sunlight, O3 concentrations are generally lower in northern countries. In Estonia, exposure to urban air pollution from ozone was below the EU threshold value in 2011 (EEA, 2014c).

Main policies and measures

The main factor influencing overall trends in air quality has been implementation of the EU Air Quality Directives 2008/50/EC and 2004/107/EC, which set legally binding limits for concentrations of outdoor air pollutants. Estonia’s Ambient Air Protection Act regulates polluting activities, as well as data reporting and collection. It entered into force in 1999, was amended numerous times and is supported by a large number of implementing regulations. The Air Protection Act set emission standards and pollution control requirements, including, in its latest amendment of 2012, those related to F-gases. The Environmental Charges Act, in force since 2006, establishes emission taxes10 for several pollutants released into the air from stationary sources, for all installations required to have an air pollution permit (Chapter 2). Most pollutants, except methane and F-gases, are subject to emission taxes (MoE, 2013).

Estonia has met the 2010 target under the National Emission Ceiling Directive (NEC) for all pollutants. Estonia is on track to comply with the Gothenburg Protocol of the Convention on Long-range Transboundary Air Pollution (LRTAP), which sets reduction targets for 2020, compared to 2005 levels. By 2013, all pollutants except for PM2.5, NOx and NH3 had already met the Gothenburg targets. In addition, among the requirements of Estonia’s 2004 accession to the EU, it was agreed that sulphur dioxide (SO2) emissions from oil shale combustion plants would not exceed 25 kilotonnes after 2012. The main reason for the significant decrease in SOx emissions since 2000 has been technology improvements in the oil shale-fired Narva power plant, the largest power generator in the country. However, a number of energy-intensive industries (shale oil and cement production) are expected to expand their operations in the near future, which may increase air emissions in those sectors.

European standards on sulphur emissions have drastically reduced the sulphur content in motor fuels, which is currently very low in Estonia. This contributes to a decrease in particulate, carbon monoxide and NMVOC emissions. Other measures in the transport sector include an increased use of catalytic filters on motor vehicles. As a result, there has been a reduction of NOx emissions, mostly from power generation and road transport. Moreover, the expansion of diesel fuel at the expense of petrol caused a decline in CO and NMVOC emissions. European directives on limitations on NMVOC from solvent use have been responsible for reduction of those emissions.

4. Transition to a resource-efficient economy

4.1. Material consumption

Between 2008 and 2015, the material productivity of Estonia (the amount of economic wealth generated per unit of material used) increased by 4%. Nevertheless, it is the fourth lowest level in the OECD (Annex 1.C). The National Reform Programme “Estonia 2020” (discussed above) focuses, among other things, on seeking to increase material productivity by 10% by 2019. Other measures are foreseen in the Multiannual Financial Framework 2014-20, including financial support schemes for more than EUR 100 million to support investment in resource-efficient initiatives. Trends in material consumption are further discussed in Chapter 4.

4.2. Waste management

Estonia generated almost 22 million tonnes of primary waste in 2014, corresponding to more than 16 000 kg per capita – more than double the average of other OECD member countries. Mining and quarrying are responsible for the largest shares (36% of total waste), followed by energy production (33%) and manufacturing (20%). Water treatment and construction waste account for small shares of primary waste. Hazardous waste represents a large share of primary waste (42%). Almost all hazardous waste is produced by oil shale processing (Chapter 4).

Municipal waste per capita was 357 kg in 2014, among the lowest levels in the OECD (Annex 1.C). Since 2000, the treatment of municipal waste has changed significantly from landfilling. In 2014, incineration with energy recovery was the main treatment method (52%),11 followed by recycling (29%) and composting (5%). Landfilling represented only 7% of the total volume. The remainder was used for backfilling (filling excavated areas with mineral waste, such as sand and stones).

Estonia’s waste management strategy is built on EU directives, which have been transposed into national legislation. With about 30% of municipal waste recycled,12 the country is facing a significant challenge to meet the 50% recycling target for 2020 set in the EU Waste Framework Directive. The National Waste Management Plan 2014-20 aims at harmonising the different waste targets and introducing new ones for local administrations. The main focus has been on reducing landfilling and increasing waste prevention and recycling. Most recovered materials come from oil shale mining waste, oil shale ash from power generation, wood production, and construction and demolition industries. Waste management policies are discussed in detail in Chapter 4.

4.3. Agricultural inputs

Agricultural inputs did not show significant decoupling from agricultural production. While the latter increased by 34% over 2002-13, spurred by EU support, phosphorus consumption (measured as the amount of nutrients per hectare of agricultural land) increased by almost 30% and nitrogen use was up by 46% (Figure 1.7). However, the gross nutrient balance (the difference between nitrogen and phosphorus inputs and their uptake by crops and pasture), was lower than the OECD average, showing a moderately negative impact of fertiliser consumption on the environment. As in most OECD member countries, the amount of phosphate fertilisers used per hectare of agricultural land is much lower than that of nitrogen fertilisers, the latter being higher than the OECD average (OECD, 2015b). Over the past decade, growth in agricultural production has not been completely decoupled from the sale of pesticides, which grew by a yearly average of 8%, compared to an overall average decrease in OECD member countries (OECD, 2013b). However, the quantity of pesticides sold per square kilometre of agricultural land is one of the lowest in the OECD (Annex 1.C).

Figure 1.7. Nitrogen inputs did not decouple from agricultural production

Agriculture was the third most significant source of GHG emissions in 2012. Opening the market to cheaper imported products had caused an overall decline in the sector after 1991, but agricultural production picked up in 2005 (Figure 1.7). Since then, the cropland area has been growing as a result of EU subsidies, increased exports in the sector and expansion of organic farming. 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).

5. Managing the natural asset base

5.1. Fossil fuels

Estonia has considerable reserves of oil shale, which it has been mining for almost a century. These reserves are estimated at more than 4 billion tonnes, which represent 1% of the global and 17% of European deposits (IEA, 2014). Oil shale mining, which is extracted either through open-cast mining or underground mining, has a negative impact on the environment. Following extraction, oil shale is transported to a processing plant, where it is crushed and heated to produce shale oil or used directly as feedstock for heat or power generation. There are two oil shale types in Estonia – dictyonema argillite and kukersite. Dictyonema argillite is more abundant, but is a poorer source of energy, yielding 3-5% of oil. Kukersite, on the other hand, can yield 30-47% of oil (IEA, 2013). The environmental aspects of mining are discussed in depth in Chapter 5.

5.2. Biodiversity and ecosystems

Land cover and forests

Estonia’s average annual urban land expansion over 2000-06 was higher than the EU average. Housing, services and recreational activities took up most of the new urban land. Mining, landfills, industrial sites and transport infrastructure accounted for the remainder (EEA, 2015).

Forests cover almost half of Estonia’s territory. Both the total forest area and the types of tree species have remained stable over the review period. Pine and birch are the most common species, followed by spruce and grey alder (Statistics Estonia, 2015). Arable land and croplands account for 14% of the territory, and meadows and pastures for 7% (twice as much as in 2000) (Figure 1.8).

Figure 1.8. Forests are intensively used

The intensity of forest resource use is one of the highest in the OECD (Figure 1.8).13 The share of exports of forestry products in total national exports is also significantly higher than in most OECD member countries (OECD, 2015b). In 2010, 10% of the forest area was under strict natural protection. One-third of the protected forest area is privately owned, with compensation mechanisms in place only for Natura 2000 areas. Further efforts are needed to ensure a greater variety of forests covered by protected areas (Statistics Estonia, 2015). This would also contribute to the implementation of Sustainable Development Goal 15 “Life on Land”.

Protected areas

In 2014, 18% of Estonia’s terrestrial area and 27% of the territorial sea were under protection (MoE, 2015a). The highest level of nature protection is provided in nature reserves and wilderness areas (World Conservation Union [IUCN] category I), which cover some 4% of the territory, more than in most OECD member countries. Other IUCN categories of protected areas (habitat or species management areas, protected landscapes and managed resource protected areas) cover around 15% of the country’s territory. However, due to different national and international definitions of protected areas and sometimes overlapping categories, the actual share of protected land is difficult to establish (OECD, 2015b).

Natura 2000 sites represent around 17% of the territory, almost equal to the EU average of 19%. Terrestrial and marine areas each make up approximately half of Estonia’s Natura 2000 network (MoE, 2015b). Estonia has already reached the 2020 Aichi targets of the United Nations Convention on Biological Diversity (CBD), which call for protecting at least 17% of the terrestrial area and inland waters, and 10% of the coastal and marine areas.

As in many other OECD member countries, protected areas have grown in Estonia, contributing to increased connectivity between habitats, which has helped animals move from one area to another. Estonia’s policy on protected areas seeks to avoid fragmentation of ecosystems through sustainable management of forests and grasslands and the creation of corridors between these areas.

Threatened habitats and species

The 2013 monitoring report under EU Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora (Habitats Directive) revealed a small improvement in the status of habitats since the first assessment in 2007. More than half of habitat types are in a favourable condition – much higher than the EU average of 16%; the remaining habitat types in Estonia registered an insufficient or bad status (MoE, 2015a). In Estonia, the main pressures on natural habitats come from changes in land use and the presence of alien species.

The 2013 Habitats Directive monitoring report registered an improvement in the status of species since 2007, with the majority recording favourable status, compared to an EU average of only 23% (MoE, 2015a). The main pressures on species come from human activity that made their habitats unsuitable and forced them to retreat to certain areas. According to the 2013 report under the Birds Directive (2009/147/EC), the short-term population trend of breeding birds is either stable or improving for most assessed species (MoE, 2015a).

Most freshwater and marine fish species are not threatened. Compared to other countries, aquaculture is a small-scale activity, with the rainbow trout and carp being the main species bred. Fish farms are also used to replenish the fish stock of endangered species (Statistics Estonia, 2015).

Biodiversity policies

The Estonian Nature Conservation Act (2004) promotes the preservation of biodiversity by defining natural objects under protection and the main provisions for their management. In 2012, to implement the nature protection objectives of the Environmental Strategy to 2030, the government approved the Nature Conservation Development Plan to 2020. This plan draws from international and European objectives and establishes specific and often quantitative targets to achieve favourable conservation status of species and habitats (MoE, 2015a). Strategies and plans guide biodiversity conservation in specific sectors. The Estonian Forestry Development Programme until 2020, for example, promotes forest productivity, reforestation, protection and diversity of forest species (Statistics Estonia, 2015). These documents also make biodiversity protection an important factor in strategic and environmental impact assessment (Chapter 2).

5.3. Water resources

Water use

Estonia is a country with a medium level of water stress, abstracting around 14% of the total available renewable freshwater in 2014. Gross freshwater abstraction has increased by 17% since 2000 and was around 1 310 m3 per capita in 2014, one of the highest levels in the OECD (Annex 1.D). Overall, freshwater abstraction has shown relative decoupling from economic growth over 2000-14, increasing slower than GDP. As in other OECD member countries, cooling in electricity production represents the largest share of freshwater abstraction (85%), which in Estonia is favoured by low rates of abstraction taxes. Other sectors that abstract freshwater are public water supply (4%) and manufacturing industry (1%) (Figure 1.9).

Figure 1.9. A medium-stressed water country, with most freshwater abstracted for power plant cooling

Water management

Estonia’s water policies and legislation stem from EU requirements,14 which are transposed into national legislation through the Water Act and implementing regulations. The main strategic document on water management is the Estonian Environmental Strategy to 2030, which aims at improving the status of surface and groundwater bodies. Following the requirements of the Water Framework Directive, Estonia has put in place River Basin Management Plans (RBMPs) for the three river basin districts, two of which are international. The RBMPs of the first cycle were adopted in 2010, with revisions planned every six years. They contain provisions for regulating agricultural production, wastewater collection and treatment, and water use. Moreover, the plans envisage infrastructure development such as the construction of wastewater treatment plans, sewerage systems and water distribution networks. RBMPs of the second cycle were adopted in January 2016.

In addition to water management plans, local authorities establish public water supply and sewerage management plans at the municipal level. These plans must be consistent with RBMPs and revised every four years. In areas vulnerable to diffuse pollution from agriculture, a nitrate pollution reduction action plan foresees specific measures to limit nitrate pollution of groundwater.

Two of the three river basin districts, East Estonia and Koiva, are international, but no comprehensive transboundary water management plans are in place. Concerning surface waters, a joint transboundary monitoring programme between Estonia and Russia was established in 2011 for the East Estonia river basin and regularly reviewed ever since. The current programme, which runs until 2018, will be used to evaluate the status of surface waters. Co-ordinated monitoring activities for transboundary groundwater aquifers are lacking (EC, 2012).

Estonia is party to the Helsinki Commission (HELCOM) for the protection of the marine environment in the Baltic Sea area. The government approved a 2008-11 implementation programme of the Baltic Sea Action Plan, which was renewed until 2015. Since 2016, the action plan is implemented within the framework of Estonia’s Marine Strategy to 2020. The government is engaged in international co-operation with other Baltic countries in the areas of eutrophication, hazardous substances and marine biodiversity.

Water quality

Since 2000, water pollution has decreased significantly; in 2009, the majority of freshwater bodies registered good status. According to Estonia’s first cycle of RBMPs, around 70% of surface water bodies had good ecological and chemical status. Groundwater quality is also good, with more than 90% of bodies having good chemical and quantitative status (EC, 2012). The only groundwater body in poor status is the aquifer in the East-Viru oil shale basin in eastern Estonia: oil shale mining causes water drainage (due to pumping water from the ground to prevent mine flooding) and pollution (due to infiltration from ash fields and contaminated semi-coke landfills). According to the second cycle of RBMPs, 62% of surface water bodies and 79% of groundwater bodies had good status. The deterioration of the status of water bodies was a result of improved assessment methodologies and additional monitoring data. The relatively good status of water quality in Estonia shows the country’s commitment to Sustainable Development Goal 6 “Clean Water and Sanitation”.

The most significant pressures in all river basin districts come from non-point source pollution from agriculture. The European Commission conducted an inquiry on water pollution from nitrates in Estonia and urged the country to enforce tighter rules on fertilisers to comply with EU law in this area (EC, 2016). As a result, Estonia introduced more stringent conditions for fertilisers in its regulation on water protection requirements.

Point sources such as industrial plants, wastewater treatment facilities and landfills also discharge pollutants into the water (ESTEA, 2014b). However, according to the 2012 Estonian report under the Water Framework Directive, it is not clear from the first RBMPs how pressures on water bodies were identified and measured (EC, 2012). The fourth implementation report of the Water Framework Directive shows that measures applied since 2012 have not been effective in tackling pressures from point and diffuse sources or from water abstraction and morphological alterations in surface and groundwater bodies (WRc, 2015). Revised RBMPs were approved in January 2016. Many planned measures are voluntary, which makes it particularly difficult to put them into practice in the farming community – a major source of diffuse water pollution.

Almost all coastal waters are failing to achieve good status. This is a particular concern since half of all bathing waters in Estonia are on the coast. Coastal waters represent around 16% of the total area of water bodies. They are affected by eutrophication due to nutrient loads from diffuse and point sources. Nonetheless, in 2014, the quality of more than 80% of coastal bathing waters (compared to over 90% of inland bathing waters) met at least sufficient15 water quality standards; bathing water quality in Estonia, however, could still be improved (EEA, 2014d). In addition to national measures, this would require more concerted actions among the countries bordering the Baltic Sea.

Water supply and sanitation

Groundwater is the main source of drinking water. Surface water is used for water supply in Tallinn and Narva (ESTEA, 2014b). Public water supply decreased by 14% between 2000 and 2014, accounting for only about 4% of total freshwater abstraction in 2014.

The share of the population connected to public wastewater treatment plants has increased by 13 percentage points since 2000. After reaching 82% in 2010, the share has remained stable. Around 80% of urban and industrial wastewater is treated using facilities with tertiary treatment, while the remainder goes through secondary treatment. Since 2000, the government has invested extensively in wastewater treatment facilities and public water supply and sanitation. It has drawn primarily on EU funds and, to a lesser extent, on revenues from pollution and resource taxes.

A share of the population still does not have access to drinking water of acceptable quality; challenges also persist with the quality of wastewater treatment, which is sometimes inferior to EU requirements (NAO, 2013). One of the main challenges is the discharge of hazardous substances into the public sewer, as municipal wastewater treatment facilities do not have adequate technologies to treat them. In addition, industrial pre‐treatment standards do not cover all discharged hazardous pollutants (Chapter 2). There are no reliable data on hazardous substances reaching water bodies with storm water and agricultural runoff.

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.


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Annex 1.A. Energy and transportation data
Figure 1.A1. Energy Structure and Intensity

Figure 1.A2. Road transport

Annex 1.B. Climate change and air pollution data
Figure 1.B1. GHG emissions and intensity

Figure 1.B2. CO2 emissions and intensity

Figure 1.B3. SOx emissions and intensity

Figure 1.B4. NOx emissions and intensity

Figure 1.B5. PM2.5 emissions and intensity

Annex 1.C. Waste and resource management data
Figure 1.C1. Waste generation and management

Figure 1.C2. Domestic material consumption

Figure 1.C3. Agricultural inputs and livestock density

Annex 1.D. Biodiversity and water data
Figure 1.D1. Fish catches and threatened species

Figure 1.D2. Water abstraction and wastewater treatment


← 1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

← 2. This term is part of the OECD typology, based on the percentage of regional population living in rural or urban communities, which allows for meaningful comparisons among regions of the same type.

← 3. The gross final consumption of energy from renewable sources is calculated as the sum of a) gross final consumption of electricity from renewable energy sources; b) gross final consumption of energy from renewable sources for heating and cooling; and c) final consumption of energy from renewable sources in transport (Directive 2009/28/EC).

← 4. The following biofuels are exempt from excise duty: non-synthetic biodiesel, vegetable oils made from biomass and bioethanol made of agriculture products or plant products (MoE, 2013).

← 5. Non-ETS sectors include transport, agriculture, waste, buildings, fuel combustion in small installations, industrial processes and solvents.

← 6. Defined as the proportion of people living in areas with annual concentrations exceeding the WHO guideline value of 10 μg/m3.

← 7. Exposure to PM2.5 is measured as the number of deaths from ambient air pollution multiplied per the value of a statistical life (VSL), which is calculated as an aggregation of individuals’ willingness to pay to secure a marginal reduction in the risk of premature death (OECD, 2014).

← 8. Deaths from ambient air pollution are calculated based on data from the Global Burden of Disease assessment (Brauer et al., 2016) and on OECDmethodology (OECD, 2014).

← 9. Average PM10 concentrations are measured as an equivalent annual average rate of microgrammes per cubic metre [μg/m3] of air.

← 10. While defined as charges by Estonian law, these instruments are referred to as taxes in accordance with the OECD definition.

← 11. Amounts treated reflect waste actually treated that year, and do not match amounts generated because of temporary storage.

← 12. Recycled municipal waste includes only recyclable MSW, i.e. paper, metal, plastic and glass.

← 13. In Estonia, these data refer to the intensity of the use of forest resources available for wood supply. Such resources represent over 80% of the total forest cover (Eurostat, 2016).

← 14. The main directives on water issues are the Water Framework Directive (WFD) (Directive 2000/60/EC), the Drinking Water Directive (Council Directive 98/83/EC), the Marine Strategy Framework Directive (2008/56/EC) and the Urban Wastewater Directive (Directive 91/271/EEC and Directive 98/15/EC).

← 15. The category “sufficient” is the minimum quality threshold that all EU Member States should attain by the end of 2015.