The Ministry of Economic Affairs has stated that the overall impact of the changes proposed in the draft Climate Resilient Economy Act has not been sufficiently assessed and requires further development. Additionally, the explanatory memorandum is not in line with the impact assessment methodology, according to a coordination letter signed by Minister of Economic Affairs Erkki Keldo (Reform).

The ministry highlighted significant shortcomings, particularly in assessing and analyzing the socioeconomic impacts.

"The presented estimates of economic impacts are inconsistent, often lacking relevant references to support specific claims, and there are simply optimistic future descriptions, such as 'a healthier and more human-scaled urban space that will attract foreign workers.' While there are valuable data points among the provided information, there is no comprehensive or coherent overview, including on investments and annual impacts," the ministry stated.

The explanatory memorandum also fails to offer a thorough evaluation of the law's impact on Estonia's regional development and rural areas. The existence of alternative scenarios is unclear, with no references provided. According to the ministry, some parts of the impact assessment process are still incomplete, but the memorandum contains no indication of this. Without the final results of the studies, it is impossible to assess the actual impact of the provisions, the Ministry of Economic Affairs noted.

The reliability of the data presented and the conclusions drawn from it also raise questions within the ministry.

For instance, the explanatory memorandum of the Climate Resilient Economy Act mentions the loss of 400-600 jobs in oil shale electricity production. However, according to Eesti Energia's annual report, the sector employs three times as many people, not counting supporting jobs.

In the section of the explanatory memorandum dealing with impact analysis, it is stated that to reduce greenhouse gas emissions in the energy sector, preference should be given to wind, solar and gas power plants, and electricity storage technologies should be utilized. However, the memorandum lacks information on when and what kinds of investments are required and whether suitable solutions, including storage technologies, are already available in the market, the Ministry of Economic Affairs pointed out.

Moreover, the ministry believes that the impact of reducing greenhouse gas emissions in the energy sector on electricity and heat prices and how this will affect the economic situation of Estonian companies and citizens should be evaluated.

In addition, the Ministry of Climate has not explained how it plans to support the renovation of private homes, given that the renovation of an entire house may be financially unattainable for the average Estonian household, according to the Ministry of Economic Affairs.

Overall, the ministry suggested that the costs necessary for the implementation of each proposed measure should be included so that businesses can make informed investment decisions and future plans.

"Additional time should be allocated to address these issues, amend the law and its explanatory memorandum and commission a socioeconomic impact analysis for the measures planned under the law, both individually and cumulatively. The impact on the state budget must also be assessed," the Ministry of Economic Affairs wrote.

More detailed criticism

In addition to broader critiques, the Ministry of Economic Affairs has raised more detailed concerns about the draft act.

The bill proposes banning the production of shale oil for use as transport fuel in Estonia. The Ministry of Economic Affairs argues that it is not reasonable to impose a blanket restriction. If a company can produce climate-neutral transport fuel, this should be allowed.

The draft also includes plans to reduce Estonia's annual logging volume by one million cubic meters and significantly scale back oil shale and peat extraction. According to the Ministry of Economic Affairs, such restrictions will reduce both the competitiveness of companies and state budget revenues.

The ministry suggests that when imposing resource restrictions, the Ministry of Climate should analyze their economic impacts, particularly in relation to the cost of covering trading units. If the costs of the restrictions outweigh the benefits, the ministry recommends against implementing them. Without thorough impact analysis, it is impossible to determine whether the proposed solutions are suitable and proportionate to the potential infringement on business freedom, the Ministry of Economic Affairs noted.

The draft also includes stricter land use requirements than those mandated by the EU's Land Use, Land-Use Change and Forestry (LULUCF) regulation. Specifically, it calls for the land-use sector to compensate for emissions from other sectors. The Ministry of Economic Affairs believes this contradicts the "everyone contributes" principle.

The ministry pointed out that the land-use sector can only be a net carbon sink if the forested area is significantly increased, or forest management is reduced to less than one-third of growth. However, this is not feasible in the long term and could cause various problems, including a reduction in logging volumes that would be inconsistent with the aging of forests.

The draft law calls for the Ministry of Climate to work with the Ministry of Economic Affairs and Communications, as well as the Ministry of Finance, to identify economic measures that run counter to environmental goals and to terminate them. However, the Ministry of Economic Affairs finds this proposal unclear. It argues that most measures supporting entrepreneurship and the economy may have some negative impact on the climate, even green technologies, but this should not be sufficient grounds for ending these measures.

"It must be recognized that entrepreneurship provides the financial resources necessary to fund activities that are essential for achieving climate goals. Moreover, the positive economic impact may far outweigh the negative environmental impact. Environmental burden alone is not enough to justify the prohibition of certain activities; the impact must be significant enough to warrant such a decision," the ministry noted.

"Furthermore, the evaluation of measures should not only consider their direction of impact but also the extent and broader implications. Policymakers must retain the discretion to implement measures, taking into account goals that are not directly related to climate and the environment," the ministry wrote, recommending that future measures be evaluated on a case-by-case basis.

The Ministry of Economic Affairs also questioned the effectiveness of setting specific climate targets for each sector. The ministry believes that the reduction in emissions resulting from the decline in shale oil production could create a buffer, which would be better used to offset emissions from other sectors.

"However, the draft law is too rigid and lacks flexibility. It is unlikely that all goals can be achieved in the desired manner, and the targets are not aligned with cost-effectiveness – achieving goals in certain sectors is easier and cheaper than in others," the ministry noted.

Furthermore, the Ministry of Economic Affairs criticized the extensive additional reporting requirements outlined in the draft. It noted that the potential burden of these requirements has not been adequately assessed, especially in a context where the coalition has agreed to reduce regulation and bureaucracy.

The ministry also believes it is not practical for all government agencies, and government-established NGOs or foundations, to constantly prepare climate reports. Instead, reporting could be centralized in one agency where experts with the relevant knowledge would be responsible for compiling these reports.

Social cohesion

After the 2023 elections, there was a slight reorganization of ministry duties, and the ten-member equality policy department, which had previously been part of the Ministry of Social Affairs, was transferred to the Ministry of Economic Affairs and Communications. This department also took the opportunity to comment on the draft Climate Resilient Economy Act.

The main message from the department is that the law should include declarative statements aimed at promoting equality.

For instance, instead of the ambition stated in the draft that future generations should not be left with an unjustifiably large burden of reducing greenhouse gas emissions, the department suggested a simpler version: that future generations should not be left with a larger burden.

The department also proposed that the promotion of equal opportunities should be included among the goals of adapting to climate change, as well as within the public sector's obligations in mitigating and adapting to climate change.

Additionally, the department recommended that the law should specifically address the most vulnerable groups "who are most at risk from the negative effects of climate change, including reducing or mitigating the negative health impacts, illnesses and mortality caused by extreme weather conditions and other climate risks, as well as the poverty risk arising from climate change or climate measures."

The department further called for the inclusion of gender equality and equal opportunities as part of the just transition principle. It also argued that accessibility should be a condition for the use of zero-emission vehicles, ensuring that all people, regardless of their circumstances, can use such vehicles.

Moreover, the department criticized a provision in the draft law that would require municipalities with populations of 50,000 or more – namely Tallinn, Tartu, Narva and Pärnu – to operate taxi services exclusively with zero-emission vehicles by 2035 and bus services by 2040. According to the equality policy department, this is unfair.

"As a result of the restriction presented in the draft, residents of these four cities would have better opportunities than the rest of Estonia's population, including the vulnerable groups mentioned. People deserve equal opportunities regardless of where they live. No one should be forced to change their place of residence or limit their movement if local public transport does not accommodate assistive devices," the authors of the commentary noted.

The department suggested either removing the 50,000-resident threshold and requiring all municipalities to offer bus services using only zero-emission vehicles by 2040, or providing a more precise explanation of the restriction.

The Ministry of Climate introduced the draft Climate Resilient Economy Act on August 5, offering a month for amendments to a law that could hypothetically have broad impacts across the country.

The draft has received largely critical feedback. According to the ministry's original plans, the bill is scheduled to be presented to the government for approval in October and to the Riigikogu in November, with the law potentially taking effect in February of next year.

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