Each year, Estonia auctions a fixed volume of CO2 emission allowances. This quota has to be bought by European companies and depends on how many tonnes of CO2 emissions they produce.

The expected amount of revenue brought into the state budget from the sale of the allowances is calculated by the Ministry of Climate. An initial forecast was written into the state budget strategy, which was approved last fall, explained Annika Varik, an adviser at the ministry.

"What we had planned was a little over €261 million. This is based on a price of €66 per unit, so if the price stays at an average of around €54 for the year, the revenue will be somewhere in the region of €215 million," Varik said.

Last year, the Estonian state earned €358 million from the sale of CO2 quotas. The reason being, that one year ago the CO2 quota price was at a record high, exceeding €100 a tonne, while for most of the year the price remained at €90.

However, with the quota price having fallen sharply since December, the state stands to earn well over €100 million less this year than it did in 2023. However, Varik stressed that remains too early to say whether the low quota price will stay that way for the whole year.

"International forecasts show that it should still be higher in the middle of the year and maybe after that, in the final quarter of the year, it will go to around 50 [euros per tonne]," Varik said.

The main reason for the drop in prices is falling industrial production in the EU. The amount CO2 emissions credits sold has been falling every year. Last year, Estonia sold 4.3 million tonnes of allowances. This year it will be 3.9 million tonnes, and is expected to be just over 3.4 million tonnes by 2025.

This could mean that the price per unit will increase due to there being less supply on the market. However, the demand for allowances will depend on EU industrial production levels and how much CO2 EU companies produce. If production is low or becomes increasingly environmentally friendly, the price of allowances could potentially fall further.

"What we know at the moment, is that we can expect lower revenues for a few years, but from 2026 onwards these revenues could start to increase again," Varik said.

As recently as last year, the revenue generated was divided into two parts. Half had to be spent on meeting climate targets, while the other half was added to the state budget, with no restrictions on how it could be spent.

"From 2024, a new rule will apply. All revenue collected must be channeled towards achieving climate and energy targets," Varik said.

In the past, the proceeds from the sale of the quotas have been used for other things, including to pay subsidies to consumers during periods when energy prices are high, to buy new trains and electrify thee railway system, or to renovate buildings, for example.

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