The shortfall in reducing greenhouse gases arising from forestry and land use could cost Estonia up to €750 million by 2027.

Currently, broader discussions are underway at the Ministry of Climate on how to sensibly reduce greenhouse gas emissions and meet the climate targets that we have set for ourselves. This includes sequestration targets in forestry and land use for the period 2021-2025. How do you evaluate our progress toward achieving this goal?

If we look back in history, the targets for the years 2021-2025 were agreed upon in 2019. These targets are assessed periodically, and the interim evaluation for 2023 could be available by this summer. Last year's assessment indicated that Estonia does not meet the forestry and land use regulation (LULUCF) targets for this first period. This means we are emitting more than we should, which is the current reality. Now, the course and trend need to be evaluated. We can assess this from this summer or autumn and then look ahead to determine the steps the country will need to take.

In other words, Estonia is already counting on being unable to hit the reduction target, and we're discussing how to put out the fire?

Indeed, the current forecast indicates that we are emitting more than our set targets. To change this, the most immediate actions that could have an impact within this time period would be either a drastic reduction in logging volumes or a cessation of clearing.

There has been substantial public debate about logging volumes, and undertaking something as drastic as significantly reducing them would need to be discussed in another forum – such as the government or elsewhere. As of today, no such decision has been made. The prevailing stance has been that logging volumes are gradually decreasing. We have been signaling this for a long time to provide certainty to the sector, as well as to conservation efforts.

Reducing clearing is another option, and steps have already been taken in this direction by implementing taxes on clearing activities. However, Estonia is engaged in large infrastructure projects, with significant impactors of clearing being projects like Rail Baltica and the Nursipalu Training Area. We are not planning to halt such initiatives.

Thus, one option could be to weigh whether the socioeconomic impact or economic benefits from the forestry sector offset the costs of purchasing emission units later. Or whether we should consider halting essential projects like Rail Baltica, which is crucial for transportation and security, or Nursipalu. Neither of these projects is planned to be discontinued. This is the current situation, and once we evaluate this year's figures, we will have a basis to decide on future directions.

What should be the logging volume for next year then? Undersecretary Antti Tooming suggested that, according to forecasts, the total logging volume for next year will match this year's.

Looking back through Estonia's history, there have indeed been periods when logging volumes were quite low, but also times when they were higher than today. Currently, logging volumes have been approximately the same for a few years and are on a decreasing trend.

Currently, there is also an ongoing debate about the climate law, and I assume this debate could move to the government in the spring and summer, and then to the parliament in the autumn. This would be an opportunity to define our broader objectives and set goals for the next period. Even if we fail to meet the forestry and land use climate targets for this period, we are working to ensure that these goals are met for the 2026-2030 period, and to mitigate the risk of having to purchase additional emission units.

I take it then that the government is already making preparations for having to buy greenhouse gas emissions units in 2027?

Those knowledgeable about the matter are morally prepared for it. As a nation, we also need to discuss exactly what this entails. However, we should wait for the 2023 figures to come in and then examine them closely.

Society, as well as the government and parliament, will need to consider whether to drastically reduce logging volumes, cease clearing for the construction of major projects or assess the revenue from forest management as substantial enough that it could, for example, fund reserves or prepare us to purchase additional units if needed. The current trend, facing reality, indicates that there is a high probability of this.

I do not support postponing Rail Baltica and Nursipalu. Every year of delay means a gap in defense capabilities, and the cost of Rail Baltica increases with each passing year.

Regarding logging volumes, my message is that, at least for state forests, we are planning a hundred years ahead. The State Forest Management Center (RMK) can manage this, and we define it in five-year periods. Currently, the reduction is gradual, not abrupt. This means that the revenue from the economy and management must compensate for the potential need to purchase additional greenhouse gas units. This summer, once we have the 2023 figures, we will definitely review the current trend and state, and likely discuss it in the government as well.

According to the Environmental Agency's forecast, the greenhouse gas reduction deficit in forestry is so substantial that if converted into financial terms, the most optimistic estimate is just over €100 million, while the most pessimistic estimate could reach around €750 million. Is this also your information?

I would say that I cannot imagine who exactly knows the possible price per unit of emissions today. This is speculation. The price per ton could well be one euro, five euros or 10 euros.

Currently, it's impossible to put an exact monetary number on this, but a deficit could become a reality at some point. This means that funding will have to be found in the budget or some other financing process, whether it's 10 million, 50 million or 100 million.

We need to assess the revenue we get from forestry. If we look at the broader picture, on the government side, there is the RMK, which earns income from forestry, and private enterprise also contributes to economic growth by adding value, hopefully increasingly so. The alternative in this case of future obligation would be a drastic reduction in logging volumes, and we certainly have not made that decision today.

How long have you known we would have such a substantial deficit in the forestry and land use sector?

I believe the problem has been perceived in the area of the Ministry of Climate for quite some time. There have been efforts to address it. But I believe that previous governments were also aware of the problem.

Perhaps the government that assumed the obligation in 2019 (Jüri Ratas was prime minister – ed.) did not, but the cabinets that came after it have been aware and it has been covered in the media before. In the end, we'll need to weigh economic benefits against the future payment. And this weighing needs to be done by different governments.

And yet, it is quite likely that the 2024-2027 state budget strategy does not reflect or factor in this expense. Why is that?

I said that after we receive the 2023 data this summer, we can then consider it with the government, and summaries will only begin to be made in Europe in 2027. It's best to ask the Ministry of Finance about the technical side of the budget, specifically which year they might account for this cost, which we actually don't know yet.

Should the deficit forecast stand, will it be reflected in the next state budget strategy to be put together this fall? For Estonia to be able to count on what would be a considerable expense in the coming years.

Again, the important thing to realize today is that we don't know what an emissions unit will cost. It is pure speculation at this point.

Well, I asked the Finnish Ministry of the Environment and they said that the most optimistic forecast is €20 per ton. This comes to a minimum obligation of €100 million.

Again, it is a speculation, and everyone provides their own estimate.

We can estimate the figures in different ways, depending on how large we want the number to appear. However, the possibility of this becoming an obligation will become clear in the summer when we review these numbers, and if this results in a budgetary obligation for 2027, 2028 or 2029, naturally, the Ministry of Finance will manage it according to its methodology.

Have you tasked officials with negotiating preliminary agreements with other countries or launching discussions with other countries on what this transaction might look like in a few years and how much it might cost?

Today we have at least a preliminary idea of what the market might ideally look like, but there have been no additional pre-contractual agreements made. As I've said now perhaps four times – we are waiting for the 2023 numbers this summer, and after that, we will be able to assess what the potential shortfall could be.

This potential future deficit, or possible payment, can then be evaluated against what the economy gains from forestry. In forestry, there are two sources: one is reducing clearing, and the other is a drastic reduction in logging volumes, which could provide a short-term opportunity to avoid this future payment.

In addition to the 2021-2025 period, Estonia also has climate targets for 2030 – in forestry and land use, but also transport, agriculture or waste economy. Are we planning to realistically hit those targets, or is it possible that the socioeconomic cost of achieving them, for example, in the form of lost jobs, is just too great?

I would say that the initial forecast in forestry and land use is helped by the Effort Sharing Regulation (ESR). This means that if we manage to hit certain targets in waste management, small-scale energy or transport, we can use it to offset other future [climate] obligations. That is how European mathematics works.

But looking at other sectors – industry, for example – we are not just meeting, but are exceeding targets there as we switch from a very pollutive source of energy to renewable alternatives. In general, I believe we will hit the target in most sectors. There will likely be problems with transport, but that is something we'll assess moving forward.

So, the goal is to hit the targets then? A source revealed to me that they've been told by leading Ministry of Climate officials that these "climate fines" are like parking tickets one should not take too seriously.

People may use different expressions, but my recommendation is to take everything seriously and to analyze the socioeconomic side of things and the potential extent of the future payment.

Let us take the forestry sector – one option is to shut it down or rein it back considerably to avoid having to pay in the future. But if we look at added value estimates of a stacked cubic meter of timber adding €250 to the economy, we need to run the numbers. The value added this way is greater than any potential sum we would have to pay.

Estonia's logging volume is around 11 million cubic meters. That amounts to €2.5-3 billion in value added, which is a lot more than what we would have to pay. RMK is making good money from forestry, which can be used to pay these sums or create a reserve.

It is a fiscal calculation, and we cannot just shut down the economy because we're on course to miss a target. We are doing very well in other areas, such as energy.

--

Follow ERR News on Facebook and Twitter and never miss an update!