Estonia has just under a year and a half left to meet its first major climate target. At that point, the first period for the forestry and land use sector (LULUCF) will be finalized, and calculations will begin on how much carbon Estonian forests, fields and grasslands stored from 2021 to 2025.

Countries that do not reduce emissions to the agreed extent must compensate for the shortfall by purchasing greenhouse gas emission units from other European Union countries. Although official summaries will be made in 2027, it is already clear that Estonia will not meet its own target and must prepare for an expenditure of several hundred million euros.

In fulfilling the forestry and land use target, the focus is on how much Estonian forests, farmlands and grasslands absorbed greenhouse gases compared to the past. The volume of forest logging plays a central role, as the more forest that is cut down, the less it can absorb greenhouse gases.

Forestation activities have a positive effect, while clearing for building construction or roads has a negative impact. Activities involving the peat sector do not count yet – they will be considered for climate target fulfillment starting in 2026.

The Environmental Agency calculated that if Estonia continues with all the activities currently planned, it will fall short of the EU-agreed target by at least 5.6 million tons of greenhouse gases. If other European countries also struggle with carbon binding, the shortfall could be much larger.

Options for the country to change this course and reduce the shortfall are largely exhausted, as the years 2021-2023 have already passed and many aspects of this current year, such as state forest logging volumes, have largely been agreed upon. The state can thus primarily influence how much greenhouse gases are bound in forestry and land use next year.

Experts note there is not much that can be done to significantly reduce emissions in forestry and land use next year.

The Ministry of Climate remains cautious in its assessments. "There is a possibility that we will have a shortfall, but we are still analyzing the data," said Laura Remmelgas, head of the ministry's climate department, a month ago in response to whether it is conceivable that no shortfall would occur.

"We do not yet know whether we will meet the target or not," responded Antti Tooming, undersecretary responsible for forestry, at the beginning of April.

Climate goals have previously been discussed with an eye towards 2030, when, in addition to forestry and land use, we need to reduce emissions in sectors like transport or agriculture. Here, government representatives are more optimistic: there is still time, much can change and whether the target is met or not largely depends on the upcoming climate law.

Reducing logging volume might end up having the opposite effect

One of the most effective measures to reduce emissions in forestry and land use is to regulate how much wood is cut down each year in both state and private forests. The more trees are felled, the fewer remain to sequester carbon.

Ministry of Climate Undersecretary Antti Tooming stated that the ministry estimates the logging volume this year and next to remain roughly the same as in previous years. The Environmental Agency assessed that the average logging volume from 2021 to 2025 is 10.5 million cubic meters.

Public discussions that took place a few years ago on the form the forestry development plan should take and what the annual logging volume should have largely stalled. Tooming explained that the ministry is developing a comprehensive climate law, and long-term logging volumes should become clear during these discussions.

Madis Raudsaar, a senior specialist at the Environmental Agency, said that one million cubic meters of logging is equivalent to about 1.2 million tons of greenhouse gas emissions. Ignoring socioeconomic impacts, one could thus calculate how many million cubic meters the logging volume would need to decrease next year to meet the forestry climate target. According to Raudsaar, for example, a seven million cubic meter logging volume next year might be too much.

However, such a calculation may not be very useful. Raudsaar pointed out that the desire to rapidly and significantly reduce logging volumes could increase logging in the short term because the forestry industry has already agreed upon orders that need to be filled. In this way, businesses might cut down forests at an accelerated pace and in larger volumes.

Moreover, logging volume might not decrease even if the state reduced the logging volume only in state forests. "If the State Forest Management Center (RMK) cuts less, then there will also be surplus labor and harvesters, and then probably the pressure on private forest owners increases. It would simply be compensated from there," Raudsaar commented.

Deforestation, or Rail Baltica and training areas

In addition to increasing or decreasing logging, the state could also reduce the emerging shortfall in greenhouse gases by clearing less land than planned this and next year. Clearing involves the complete removal of forests to repurpose the land for other uses, such as building roads or constructions.

Meelis Seedre, the head of the forestry department at the Ministry of Climate, explained that in the coming years, forests are primarily cleared to build the Rail Baltica railway or military training grounds. For Rail Baltica, it would be necessary to clear 860 hectares of forest in the coming years. For the central military range and Nursipalu, Sirgala and Soodla training grounds, a total of 1,100 hectares would need to be cleared in 2025-2026, according to information provided to ERR by the Center for Defense Investments (RKIK).

If the state wishes to significantly reduce clearing next year, it would need to postpone or cut back on the clearing work planned during these projects. For example, it can be calculated that the climate impact of clearing at the Nursipalu Training Area in 2025 is about 80,000 tons of greenhouse gases.

The completion schedule for Rail Baltica is already tight. However, larger training grounds are needed so that the military can practice with more powerful weapon systems in conjunction with allies.

Deputy Secretary Antti Tooming mentioned that starting in July, the state plans to introduce a clearing fee, which should make clearing more expensive in the long run. However, he also stated that the largest clearer is still the state through defense ranges or Rail Baltica.

"These are long-term processes that have been put in place, and they cannot be changed so quickly," he reported.

Extent of shortfall depends on other countries

As stated by Tooming, the Ministry of Climate does not plan to reduce logging this year and next, and reducing clearing for Rail Baltica and military purposes is complex. This raises the question of how large the shortfall will ultimately be and how much it will cost the state. Interestingly, the size of the shortfall depends not so much on Estonia itself but on other European Union member states.

Countries have agreed that if the European Union as a whole meets the climate target for 2021-2025, member states can also receive a "discount" on reporting their shortfall. This is known as forest land flexibility, which allows countries to account for some of the forestry shortfalls as emissions reductions.

If the Union meets the target, Estonia's shortfall is projected by the Environmental Agency to be 5.6 million tons of greenhouse gases. However, if member states struggle with emissions reduction and the Union fails to meet the target overall, the shortfall could be as high as 7.6 million tons.

The European Commission told ERR that it is currently impossible to predict whether the Union will meet its goal or not, and a clearer picture will emerge in the autumn when the greenhouse gas inventories submitted by countries for the year 2022 have been reviewed.

However, the climate ministry believes that the European Union is likely to meet its target. Tuomo Kalliokoski, a senior advisor at the Finnish Ministry of the Environment, also shared this view. He noted that the situation remains uncertain, and the opposite outcome is entirely possible.

CO2 emissions unit price difficult to forecast

In addition to the uncertainty about whether Estonia can use the "discount" for shortfall calculation, experts say it is also challenging to predict the price of tradable greenhouse gas emission units in 2027.

This will be the first time that LULUCF units have been traded, and unlike the emissions trading system in energy sectors (ETS 1), there will be no unified market for forestry and land use sectors; instead, countries will engage in bilateral transactions.

The European Commission has stated that they do not intend to forecast the price of LULUCF units. Similarly, Estonia's Ministry of Climate responded that speculating on the price is currently pointless.

Tuomo Kalliokoski mentioned that the lowest forecast suggests that units should start at about €20 per ton. However, he also noted that prices could range between €50-100 per ton.

The regulation and development of the forestry and land use sector in the European Union has previously been analyzed by the Berlin-based think tank Öko-Institut. Sabine Gores, the deputy head of the energy and climate division at the Institute, estimated that €50 is a more likely unit price than €20.

Imre Banyasz, an expert on carbon markets, also believed that €20 per ton is an optimistic forecast and it is more realistic to expect that the price will approach €50 per ton.

Both Gores and Banyasz pointed out that carbon sequestration in the forestry sector is decreasing across the European Union as a whole. Additionally, the fact that LULUCF units can be traded in the transportation and agriculture sectors – where member states are likely to experience shortfalls in meeting targets – will likely make these units more expensive.

Banyasz expressed that it is realistic to expect that the shortfall in countries may be larger than previously thought, as achieving carbon sequestration in forestry is a long-term process.

"Current trends indicate that meeting the forestry and land use target could pose a problem for several countries, especially considering that targets must also be met in transportation and agriculture," said Banyasz.

Under favorable conditions, Estonia would only need to purchase greenhouse gas units from other countries worth about €100 million in 2027. This assumes that the European Union meets its overall target and the demand for units is generally low.

However, if member states find it challenging to sequester greenhouse gases in forestry and land use and there is high demand for units, this would drive up the price of the units. In such a scenario, Estonia is unlikely to be able to access the discount, known as forest land flexibility, and the cost to the state budget in 2027 could even reach as high as €750 million.

Transport and agricultural sectors could help offset the deficit

After the 2021-2025 period, countries are required to reduce greenhouse gas emissions in the forestry and land use sectors for the 2026-2030 period as well. Additionally, discussions continue within the country on how to reduce greenhouse gas emissions in sectors covered by the so-called Effort Sharing Regulation (ESR).

These sectors include transportation, agriculture, waste, buildings and small-scale energy. The Ministry of Climate is currently developing a climate law that will specify the exact emission reduction requirements for each sector.

Although Imre Banyasz believes that major trading in these sectors will not begin until 2032, after the 2030 greenhouse gas inventories have been published, Estonia and other countries have already agreed on a trajectory for reducing emissions. If a country is ahead of this trajectory, it accumulates a surplus of units; if it falls behind, a deficit accumulates.

The ministry noted that, according to the latest information, there should be a surplus of about one million units in the transportation and agriculture sectors for the 2021-2025 period. This surplus could potentially be used to cover any deficits in forestry and land use.

Banyasz commented that such cross-sector trading might not always be advisable, as it becomes increasingly difficult for countries to meet climate targets over time. The ministry also confirmed that with current measures, Estonia is expected to have a deficit in the transportation and agriculture sectors – part of the effort-sharing sectors – by 2030.

"This surplus can also be carried over to subsequent years, which I think many countries will do because the closer we get to 2030, the harder it becomes to meet these targets. If efforts to meet the climate goal are not started early, the gaps eventually become so large that it becomes more costly for countries," Banyasz explained.

Effects of reforestation will not manifest for a long time

Expanding the forest by planting trees on less valuable farmland or former mining areas is another strategy to increase forest cover.

If the country decided to reforest much more land in the next few years than currently planned, it would help meet the nation's climate goals in the long term, such as by 2040 or 2050. However, reforestation would not immediately help reduce the shortfall for the next period locking in next year.

Ain Kull, assistant professor of natural geography at the University of Tartu, explained that planting a tree involves digging holes, which stirs the soil, exposing the organic matter in the soil to air, causing it to decompose. "A young tree becomes a carbon sink only after a couple of years," Kull said. Young stands bind carbon most effectively at around twenty years of age – broadleaf trees like birches or aspens absorb greenhouse gases faster, while conifers do so more slowly.

Shortfall calculation already factors in new methodology

Calculating emissions in forestry and land use is complex, requiring member states to refine their methodologies annually. The Environmental Agency recently adopted a new methodology for calculating greenhouse gas emissions on forest land, as detailed by Priit Pärnapuu in Õhtuleht.

The European Commission is expected to send additional calculation guidelines soon for estimating greenhouse gas emissions from forest land.

According to the Environmental Agency, following the new guidelines, Estonia's deficit in the forestry and land use sector should decrease, and the deficit calculations published in ERR already account for this anticipated reduction.

The agreement among member states to reduce greenhouse gas emissions in the forestry and land use sectors for the period 2021-2025 was reached during Estonia's presidency in October 2017.

EU leaders agreed on a target to achieve climate neutrality by 2050 at the summit held in December 2019. The government of the Center Party, EKRE and Isamaa was represented by Prime Minister Jüri Ratas at the summit.

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