Jaak Aaviksoo: Billions instead of millions

Jaak Aaviksoo.
Jaak Aaviksoo. Source: ERR/ Kirke Ert

The European Union's political elite has run away with green transition enthusiasm, with just the menacing rumble of their administrative decisions reaching Estonia, academician Jaak Aaviksoo writes.

The European Parliament's recent green transition decision regarding mandatory renovation of buildings has merited plenty of criticism from various target groups. Justifiably so. An obligation this ambitious is simply unfeasible, whereas it remains questionable whether it is even sensible. We can be sure that closer analysis of decisions concerning the future of land use and transport would yield a similar conclusion.

It is no secret that Estonian politicians and officials have enthusiastically approved these initiatives in the past. Likely without realizing their practical consequences. Lack of adequate effects analysis and resulting public debate is the reason.

Even now, we can still hear optimism from our representatives – "Asked about renovation funding, [Ministry of Economic Affairs and Communications Undersecretary Ivo] Jaanisoo admitted that while support has come from the EU budget until now, contribution from the Estonian taxpayer needs to be considered in the future.

True enough, the Ministry of Economic Affairs and Communications just approved a program of renovation support in the volume of €80 million, while EU funds should yield an additional €366 million in the coming years. Why worry?

The reason is that sums needed stretch into billions rather than millions of euros. A TalTech analysis from 2020 found that fixing up all 54 million square meters of living space that is in need of renovation would cost over €20 billion. This is more than Estonia's annual budget, which is nearly a billion in deficit as it is.

And this is just one part of green transition expenses. The Green Tiger estimate for the transition in energy – Energy Roadmap – is also just in at over €20 billion. I'm sure we will soon learn of mandatory investments in the fields of land use and transport. Probably in billions rather than millions.

Let us admit that little of it can be taken seriously, while it is at the very least irresponsible on the part of decision-makers.

Climate warming is a serious global problem in need of solutions. The solution prescribed so far is to try and achieve zero net greenhouse gas emissions by 2050.

It remains unclear whether this target is even feasible – politically, socially, fiscally – while it at least serves as a clear goal ways of reaching which can be analyzed and debated.

The analysis should be centered around the cost of net zero. Universally, but also on the level of countries and individual households. What do we know? The McKinsey report puts the annual global need for investment at $9.2 trillion. That is 8 percent of the global GDP, very broadly speaking.

I do not know whether such an investment is politically possible, while it is probably merely extremely difficult as opposed to impossible in economic terms, provided there is sufficient political will. What would it mean for Estonia? For every household?

To make these astronomical figures more approachable, we can reduce the investment need to emissions quantities – it comes to around €200 per every ton of CO2 equivalent greenhouse gas emitted. Global average emissions are five ton per person, which rises to eight tons per person in Estonia. The cost, therefore, is €1,000 per person on average and €1,600 in Estonia every year until 2050!

That is the price of the net zero emissions target, which is, of course, approximate and could even be half or double that, while it gives us some idea of the difficulty of future decisions. It serves as a basis for serious plans or looking for alternatives. However, it would be irresponsible to start racing for the target at full speed straight away. I believe that the analysis first and foremost points to the urgent need to pursue R&D in order to bring these figures down considerably.

There is another important observation. The need for investment per a ton of CO2 is more or less the same it would cost to collect, sequester, store carbon using existing technologies. Therefore, it is possible to utilize emissions on a market basis, which could be made possible by laying down a universal emissions tax. This would allow consumers to choose whether to limit their emissions or, based on economic considerations, pay the tax and have emissions collected and utilized.

In summary. Whether in Estonia, Europe or in general, it always pays to talk abut real costs and consider ways of solving the greenhouse gas emissions problem through marked-based mechanisms that respect economic logic. However, it presently seems that the European Union's political elite has run away with green transition enthusiasm, with just the menacing rumble of their administrative decisions reaching Estonia.


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Editor: Marcus Turovski

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