Marten Kokk: European climate policy and Estonia's chance

Marten Kokk.
Marten Kokk. Source: UNESCO/ERK

The European Commission published its vision of how to finance the European Green Deal the day before yesterday. The deal itself was published on December 11. Europe has clearly plotted a course for carbon neutrality by 2050 that is the only sensible and responsible reaction imaginable, considering what is happening to the planet.

Everyone knows that our climate is becoming warmer from when they went to school. That this warming is very likely anthropogenic was confirmed by the UN climate panel back in 2014. What lends the situation urgency is just how quickly these changes are taking place because the Arctic and West Antarctic ice sheets are melting far quicker than we expected and increasingly ferocious forest fires are destroying biomass that has so far helped us bind carbon. It will result in broader and irreversible change, and perhaps philosophizing about it while doing nothing is no longer the wisest course of action.

Because the planet's climate is no one country or even continent's concern, someone needs to take the lead, and the European Union seems about to. We are also moments away from the European climate law that will propose making achieving carbon neutrality by 2050 mandatory. This ambitious transition cannot, however, be planned without considerable investment. That in turn requires the creation of an environment that favors and promotes investments post haste.

We need to have the money we spend support climate targets. We also need to invest heavily in making sure the switch to a climate neutral economy will happen. While it might seem that 2050 is still far away, technological advantage and know-how in this transition belong to those that start moving sooner. The rest will become consumers of technology and know-how that will always be lower down on the value chain.

Estonia can also draw parallels here. We began the modernization of our administration through greater implementation of information technology in the late 1990s that has basically become Estonia's calling card. I see no reason the same couldn't happen in the energy sector. Estonia could be among the leading renewable energy solutions suppliers by the year 2040, in Europe and the world. We have what it takes. Our people have always been innovative and entrepreneurial, while Commissioner Kadri Simson and members of her cabinet hold the necessary positions in the Commission. All we need is a favorable environment.

Here is where the Green Deal investment plan (still a vision at this point) enters play in that it could mobilize EU funding, national and private investments for promoting climate neutrality and a competitive economy at the same time.

When it comes to the Green Deal, we need to make sure everything we are planning to do for climate in Europe would not harm our global competitive ability, looking at China, USA, India and other major players. Hitting both targets requires a relatively complicated equation. Luckily, they are no longer seen as contrary as investments into modern infrastructure are sure to grow the economy and help cut costs elsewhere. A simple example is that a complete switch to climate neutrality by 2050 will reduce our need for fossil fuel imports, saving the EU a total of over €2 trillion. Secondly, we are bound to save money on medical expenses. Air pollution comes with serious health risks not only in China and India but also in major EU cities. Some calculations suggest Europe could save up to €200 million a year.

The total volume of planned investments for the next decade is over €1 trillion. The EU is planning to spend more of its budget on climate and environmental activities than previously. This will result in growing private investments and the need for state and local government investments. The European Investment Bank, about to become the European Climate Bank, will play an important part in financing the Green Deal.

Another goal is to introduce simpler state aid rules to help coal and oil shale regions handle the transition better. The fact that oil shale is mentioned next to coal in the Green Deal investment plan and the Just Transition Fund proposal is a very important achievement for Estonia. Details that still need to be negotiated remain, but the general trend has been favorable for Estonia, and Ida-Viru County stands to benefit greatly from the change.

The Commission also wants to give member states practical aid as concerns planning, preparation and execution of environmentally sustainable projects and offers counseling for investors. In other words, it wants to support brainstorming so investments would end up in regions that are most affected by the transition and be aimed at activities that can ensure it goes smoothly.

The Just Transition Fund will be placed inside the Just Transition Mechanism to be created. The mechanism will offer targeted aid to regions the transition affects the most. The EU plans to invest at least €100 billion in 2021-2027, especially to help alleviate socioeconomic strain and create new jobs but also for new clean energy solutions. One of the mechanism's two clear goals is to help workers in areas that rely on the fossil fuel industry.

The mechanism will be made up of three main sources of funding. First, the Just Transition Fund (JTF) seed money for which in the volume of €7.5 billion will come from the EU budget. Member states are expected to add their contributions for a total of €30-50 billion. The fund is aimed at financing retraining in most affected areas, creating future skills and supporting startups and small and medium businesses that is very important in the Estonian context. We need more energy experts, engineers, designers, architects, city planners with modern know-how. They will play the critical role in switching to a climate neutral Europe in the next 30 years. It has not been forgotten that regions that have concentrated on fossil fuel production for decades need new technological solutions, which is why the fund also supports innovation and R&D activities as well as investments for clean energy solutions and their implementation.

Secondly, it is planned to use the existing InvestEU scheme to involve, through guarantees, €45 billion in private investments for solutions that help foster growth in affected regions through new solutions. Of course, the goal here is the diversification of the broader economy without overlooking possibilities of universal economic investments, including in social infrastructure.

Thirdly, with the help of the European Investment Bank the public sector will be offered €25-30 billion in favorable loans for renovation of buildings and modernization of district heating systems for example.

In summary, the Green Deal financing plan requires further analysis. But as the recent report by the Tallinn center of the Stockholm Environmental Institute found, it is technically possible to reach climate neutrality in Estonia by 2050 if all sectors participate, while it might be beneficial in the long-term in case of smart investment. The longer important strategic decisions and activities are postponed, the more difficult and expensive meeting the climate neutrality target and decisively curbing greenhouse gas emissions will become. Therefore, we should start right away, and the Green Deal financing plan is a good place for it.


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Editor: Marcus Turovski

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