Estonia's forestry sector emissions shortfall bigger than believed
The greenhouse gas emissions reduction deficit emerging from Estonia's forestry and land use sector is projected to be a fifth larger than previously thought, according to a new forecast. However, estimates on how much the unfulfilled climate target might cost the country vary significantly.
In the spring, ERR reported that Estonia would likely fail to meet its climate target for the forestry and land use sector (LULUCF) for the years 2021-2025, and as a result, the country would probably need to purchase greenhouse gas emission allowances worth hundreds of millions of euros in the coming years.
According to the Ministry of Climate, the sector's deficit will be finalized in 2027, with transactions expected to take place the following year. Although the government finalized its budget strategy for 2025-2028 at the end of September, the purchase of emission allowances has not yet been factored into the plan.
Climate Minister Yoko Alender (Reform) said that she did raise the issue during budget strategy discussions, but because the figures are still only forecasts and the government does not yet have a clear understanding of the exact cost to the state budget, the expense was not included in the strategy.
However, the Ministry of Climate's new forecast indicates that the deficit in the forestry and land use sector is a fifth larger than previously estimated. While the spring estimate projected a shortfall of at least 5.6 million tons, the latest information suggests a deficit of at least 6.6 million tons.
Estonia's cost estimates several times smaller than Finland's
Estimates on how much Estonia will need to spend on purchasing emission allowances in the coming years vary widely. Forecasting is complicated by two main factors: the exact size of the deficit is still unknown, and the future price of emission allowances is uncertain.
Alender noted that, according to the Ministry of Climate, emission allowances traded between countries are expected to cost around €5 to €10 per ton. This would mean that covering the deficit in the forestry sector could cost Estonia between €33 million and €66 million.
About a month and a half ago, Finland's national broadcaster Yle reported that Finland is also facing a significant deficit in its forestry sector, which could cost the Finns up to €2 billion. Finland's Ministry of the Environment stated that traded emission allowances are expected to cost between €20 and €50 per ton, which is five times higher than Estonia's forecast.
Carbon markets expert Imre Banyasz also believes that the Ministry of Climate's estimate for the price of emission allowances is overly optimistic. He suggested that the price is more likely to approach €50 per ton. This view was echoed by the deputy head of the energy and climate unit at the Öko-Institut think tank in Berlin, who gave a similar assessment to ERR in the spring.
If the estimates from Finland's Ministry of the Environment or these experts are taken into account, the cost to Estonia for not meeting its forestry and land use climate targets would not be between €33 and €66 million, but rather between €132 million and €330 million.
Alender, however, said she believes these estimates are exaggerated.
ERR also inquired about the basis for Estonia's relatively optimistic estimate of the impact on the state budget. Laura Remmelgas, head of the climate department, stated that the ministry's estimate is based on an impact assessment by the European Commission, which was completed in July 2021, six months before Russia's large-scale invasion of Ukraine.
Logging pressure has grown noticeably since 2022
In the forestry and land use sector, the assessment focuses on how much carbon Estonia's forests, fields and grasslands sequestered during the years 2021-2025. A key factor is the volume of logging, as the more trees are felled, the less the forests can sequester greenhouse gases.
According to Yoko Alender, Estonia's significant deficit in the forestry and land use sector primarily stems from the increased logging pressure since 2022, when Russia invaded Ukraine.
"The main factor is the pressure to log forests, which rose significantly due to the war Russia started and the fact that wood imports from Russia and Belarus to our region were no longer possible. As a result, wood prices surged, creating heavy logging pressure, and indeed, logging volumes increased significantly in recent years. This is the main reason why we are unlikely to meet these targets during the first period," Alender explained.
Laura Remmelgas added that the war also increased the need to clear forests for constructing defense-related infrastructure, such as training grounds similar to Nursipalu.
Despite these changes, the Ministry of Climate does not believe that the pre-war impact assessment should be discarded when calculating the price of emission allowances.
"As we've repeatedly stated, speculating about the price of forestry and land use sector (LULUCF) units at this point is meaningless. The European Commission's estimate remains the best available. The actual cost will become clear in 2027, and we can then precisely plan for it in the 2028 state budget," Remmelgas noted.
Yle reported that there will be high demand for forestry-related emission allowances across Europe, as in addition to Estonia and Finland, countries like France, Slovenia, the Czech Republic and Portugal will also need to purchase these units.
Estonia plans to cover LULUCF shortfall in other sectors
In addition to the forestry and land use sector, EU member states will assess in 2027 how well they managed to reduce greenhouse gas emissions in several other sectors during the 2021-2025 period. These sectors include transport, agriculture, waste, buildings and small-scale energy. Officially, these are known as the sectors covered by the "Effort Sharing Regulation."
Unlike the forestry and land use sector, greenhouse gas emissions in these sectors have decreased more rapidly than the trajectory agreed upon within the European Union. According to the latest forecast, Estonia is expected to have a surplus of 1.8 million tons of greenhouse gases in these sectors for the 2021-2025 period.
Laura Remmelgas explained that the plan is to use this 1.8 million-ton surplus to offset the 6.6 million-ton reduction deficit in the forestry sector. Taking both sectors into account, Estonia would need to purchase 4.8 million tons of greenhouse gas emission allowances, based on the current forecast.
As a result, the Ministry of Climate, according to Alender, is currently estimating a smaller financial outlay in 2028 for both climate targets combined, amounting to between €24 million and €48 million.
However, all these estimates assume that the European Union as a whole also meets its forestry and land use climate targets, which would allow Estonia to apply a "discount" of up to 5 million tons. This, however, is not yet certain, and the actual financial outlay could potentially be twice as high as the estimates presented in the article.
A little over a year left for meeting initial climate targets
Alender acknowledged that there is little opportunity to significantly reduce the existing deficit, as only one year remains in the 2021-2025 period. She noted that most forest owners have already made their plans, and the logging notifications for the upcoming year have already been issued.
"How many of these logging notifications will actually be carried out remains to be seen when the time comes, and we can gather the statistics," the minister stated.
The climate minister also mentioned that the ministry's focus is now more on the upcoming periods. From 2026 to 2030, EU member states will again have ambitious climate targets to meet, not only in the forestry and land use sector but also in transport, agriculture, buildings and waste.
"The forestry development plan, as well as the new Climate Resilient Economy Act, the Nature Conservation Act and the Forest Act currently under review, are all aimed at slightly reducing logging volumes, moving towards more sustainable usage and achieving the agreed targets," said the minister.
Alender expressed confidence that if these legislative changes are implemented, Estonia will meet its climate targets for the forestry and land use sector for the 2026-2030 period.
"I won't make any firm promises regarding the transport sector just yet, but as far as LULUCF is concerned, yes," Alender concluded.
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Editor: Marcus Turovski