Züleyxa Izmailova: Shale oil plant brought out worst of state capitalism

Züleyxa Izmailova
Züleyxa Izmailova Source: Enryco Lill

The Supreme Court's decision to annul the construction permit for the Auvere oil processing plant shows very clearly the importance of environmental impact assessment. It is understandable that simply writing off the €350 million spent seems rather absurd, but in reality this decision would save our country around €68 million a year, Züleyxa Izmailova writes.

The decision to revoke the building permit for Enefit Power's oil shale oil plant revealed the worst of state capitalism. While fiddling around with the environmental impact assessment, taxpayers' money was fanned on a high fire in a burning cauldron, because financial institutions were reluctant to risk their clients' funds on the populist stance of EKRE, Isamaa, and the Center Party.

Now, four years later, the Supreme Court has given a very clear message in its decision to annul the construction permit for the oil plant: the actions of the Estonian state must fall within the limits of our binding climate commitments. Put simply, the actions of the Estonian state need to be consistent with a pledge to move towards a cleaner economy and projects need to be assessed for their environmental long-term impacts.

Secretary general for the Ministry of Climate Keit Kasemets estimated that by 2040, emissions from the oil plant, including extraction, and transportation would account for 25 percent of Estonia's total emissions. This essentially means that all other sectors as well as people will be required to pay higher living and working costs in Estonia.

I have been surprised by politicians' reactions to the court's decision to withdraw the building permit. The most striking are those who think that the ruling is a minor obstacle to the operation of the oil plant.

The latest example of populism damaging Estonia's economy is the EKRE-light style letter to the prime minister, in which Isamaa chair Urmas Reinsalu questions the competence of the Supreme Court in the knowledge of Estonian law and calls the court's decision to annul the building permit the result of the so-called telephone law.

Neither the representatives of the opposition nor the coalition, who, according to the letters, seem to be in the camp of the free-market economy, have so far found enough statesmanship to put the brakes on a project that would further lock up the Estonian economy. Instead, they are looking for reasons to pump revenues collected from businesses and citizens into a loss-making project.

Money that is desperately needed to provide a better energy deal for the people of Estonia – to vigorously increase renewable energy production capacity and modernize the electricity grid – is being given to a state-owned company to increase climate damage.

If any cost-benefit analyses for the Enefit oil plant have been carried out, I would love to see them. What CO2 quota price was used, and how many hundreds of millions of euros does the oil plant still need to start up? Even members of the Riigikogu are unaware of this as Eesti Energia AS, which is owned by the people, hides the information under the guise of commercial secret.

Estonia's greenhouse gas emissions must be reduced to eight million tons by 2035. At present, this broadly translates into a 50 percent reduction in the environmental footprint of all sectors. When the plant comes online, other sectors are expected to save 800,000 tons more than planned.

For the agricultural sector, for example, the start-up of an oil plant would essentially mean a commitment to zero emissions. Are farmers, food producers and society really ready to see their jobs replaced by miners'?

And I would be very curious to know how Eesti Energia intends to attain climate neutrality while growing its carbon emissions year after year. In 2020, Eesti Energia's CO2 emissions were half of the 2035 target, but two years later, last year, they were 6.7 million tons, or about 84 percent of the target. It's all very well to talk about the green turn, but the trend is in the opposite direction. If we continue in this way, we will not only face a delay in the start-up of one factory, but we will be forced to close the entire company.

Wasteful spending always comes at someone else's expense

The Estonian Supreme Court's decision to annul the construction permit for the oil refinery is a landmark decision and shows very clearly the importance of environmental impact assessment. And not just to tick the box, but also to assess the overall impact of the project on our national objectives.

You can read about the Supreme Court ruling in:

"The Court also considers it necessary to emphasize that the legislator must decide on the essential questions of the obligation to limit greenhouse gas emissions under Sections 5 and 53 of the Constitution on the basis of the best available scientific information and Estonia's international obligations in accordance with Subsection 3(1) of the Constitution. In the light of the Paris Agreement and the scientific knowledge on which it is based, the increase in the global average temperature must be kept well below 2°C and, if possible, within 1.5°C compared to pre-industrial levels.

The Constitution obliges the Estonian state to make a proportional contribution to this goal. This in turn requires the timely introduction of a realistic and legally binding phased and sectoral emissions allocation plan to achieve climate neutrality.

The absence of such a plan would create uncertainty for individuals as to the permissibility of many activities in the coming years. In the absence of such a legal framework, it is also difficult to rule out with sufficient certainty that the final authorization of the start-up of a large-scale project such as the plant at issue in the complex environmental permit will not result in excessive restrictions on the fundamental rights and public interests of persons in other areas of activity."

To provide such a framework, a draft climate law is being developed. The cumulative effect of previous actions has raised the carbon footprint of the Estonian economy while decreasing national income and economic competitiveness. For at least 10 to 15 years, it has been clear that there is no future for the oil shale industry, which is why the idea of building an oil plant was unconstitutional from the start.

In the world of finance and in the context of large energy investments, since the beginning of climate change awareness, the term "stranded assets" has been used to refer to assets that are more expensive to keep in operation than to shut down. I argue that the government's decision in 2019 to put hundreds of millions of euros of taxpayers' money to sleep under yet another oil shale oil processing plant was an ill-considered decision that did not take into account the interests of Estonian society.

For comparison, the group of early-stage cleantech startups "Cluster Cleantech Estonia" sent a public letter to the Minister of Climate, which states that in the last two years nearly €300 million have been invested in Estonia in more than 100 companies offering innovative green technologies, processes or services, of which 70 percent are industrial, hardware-producing companies and 30 percent offer digital green solutions that create high-quality jobs.

These businesses are creating new industries that help reduce the impact of traditional sectors on nature and support Estonia's national environmental and climate goals.

Instead of wasting €350 million on a dwindling shale industry, we could have doubled investment in green technologies, the only way to build a successful, clean economy. I strongly resent this choice by our establishment and conservatives.

Another oil shale plant is not what Estonia needs

For decades, local politicians have consistently kept renewable energy out of Estonia. During Juhan Parts' time as minister of economic affairs, a brake was put on wind energy investments. A brake whose effects are still being felt today.

At the same time, the green light was given to the €640 million Auvere power plant, which has an energy production efficiency of less than 40 percent and was only put into operation in the spring of this year, a decade later and after the energy crisis. This plant is strangling and has already strangled the national budget. This plant is and has been damaging the health of the local population through heavy pollution, thus increasing the cost of medical treatment to the state, which in turn has pushed medical access further away from those in need.

Emitting 800,000 extra tons of carbon will not bring us closer to new technologies or reduce the country's dependence on fossil fuels, but it is what our country needs to restore the competitiveness of a rapidly declining economy.

The Eesti Energia management's talk of zero carbon emissions from this plant by 2035 is on clay feet and will require further risky investments in technologies that essentially do not yet exist. The head of Eesti Energia himself admits this.

I would like to see the moral compass of Estonian politicians start to work and take into account not only money, but also damage to the environment and human health, which, by the way, are usually one and the same thing, because what harms nature also harms people.

Until now, the fossil industry has overlooked environmental problems because of excessively low pollution and resource costs. Low resource and pollution charges have encouraged the fossil industry to pollute more and have discouraged investment in clean industrial technologies.

The bill that has passed to the second reading in the Riigikogu provides for an increase in these charges, but it is not ambitious enough to cover, or even come close to covering, the costs to society of using and damaging the environment. Hopefully, the necessary changes will be made to the bills before the final vote, and the Riigikogu will be able to pave the way for a resource-efficient and thus competitive economy.

An environment conducive to the sustainable use of resources would support entrepreneurs to create faster and smarter jobs and generate more resources for education, social sectors and high-speed connections. Deviating from the principles of a free market economy and supporting the fossil fuel industry with state capital is detrimental to the Estonian state.


In 2023, cynical politicians will tell us that what we're doing is too big to sink, and let's make a deal with the climate ministry. Such statements damage the image of the country as a whole and portray Estonia not as a Nordic aspiring member of the European Union, but as a black economy on the periphery of the eastern border. A country where decisions on the use of public money are not driven by the public interest and commonly agreed science-based objectives, but by the power of the "oligarchic lobby." Fortunately, this has been pointed out. Young people are shouting, "The king is naked!" Are we listening?

It is understandable that simply writing off €350 million seems rather absurd, but in reality this decision would save our country around €68 million per year. The only compromise solution to the current impasse, in my view, is to close one or more older boilers with at least the same total emissions as the new Enefit oil plant on the day of it starts up. And then, indeed, we should continue to strive to reduce the carbon emissions of Enefit 280, so that in 2035 we will be able to say that the operation of this plant will contribute a big round zero to the national carbon balance, as promised by the head of Eesti Energia, Andrus Durejko.


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Editor: Kaupo Meiel, Kristina Kersa

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