Oil shale, mined and refined in Ida-Viru County has long been used in electricity generation in Estonia but has come under increased pressure in recent years due to EU climate goals.

The decision to phase out its use in Estonia by 2040, made without public consultation, plans for oil shale-generated electricity production to end by 2035, and comes as part of Estonia's Recovery and Resilience Plan.

While updates made to a national recovery plan which has put in place the 2035-2040 deadline reference the coalition agreement, coalition agreements from the time decisions were made do not contain such clauses or deadlines for phasing out oil shale in Estonia.

Enefit Power, a subsidiary of the state-owned Eesti Energia, is still going ahead with an oil shale production plant in Ida-Viru County, reportedly set to go online next year as things stand.

The entire sector provides direct employment to over 3,000 people, projected to earn approximately €1.1 billion in wages during the period 2020-2040.

Eesti Energia told ERR that they had not been consulted on the commitments in the recovery plan, and so could not comment on the rationale behind the decisions.

Eesti Energia spokesperson Lennart Komp said: "It is still too early to assess the impacts associated with fulfilling these commitments, as they may vary significantly depending on developments that occur in the intervening time.

VKG has many questions

Estonia's largest private sector oil shale producer, Viru Keemia Grupp (VKG), also said it has many questions about the recovery plan and its provisions.

VKG spokesperson Irina Bojenko said: "It is still not clear why the state was willing, figuratively speaking, to give up a strong economic sector for such a measly sum; a sector which generates significant added value, a positive balance of trade, and ample tax revenues to the state budget.

"Instead, the state will see declining tax revenues for local governments, a reduced capacity to provide public services, and additional pressure on the state budget due to rising unemployment," Bojenko went on.

The government submitted an updated version of its Recovery and Resilience Plan to the European Commission in March last year. This was approved by the council in June this year.

This document also clearly states: "As for phasing out oil shale, the Government of the Republic of Estonia has decided in its coalition pact that oil shale electricity production will end in Estonia by 2035; oil shale use in energy as a whole by 2040."

This means within 16 years from now, Estonia will have phased out the use of oil shale in energy production entirely.

The plan highlights that the decision to build the under-development oil plant was made in 2020, which was before the EU's Just Transition Fund regulation was established.

While the facility when online will produce liquid fuels as initially planned, the intention would be for it to switch to producing basic chemicals by 2035, with its oil shale output being incrementally reduced year-by-year.

Former minister: Member states required to include pledges in their plans

Mart Võrklaev (Reform), Minister of Finance at the time the recovery plan was updated, said on June 17, 2021 that the government approved the recovery plan which was subsequently agreed upon with the European Commission.

The basis was the national long-term strategy "Estonia 2035" and also sectoral development plans and political agreements in effect at the time, he said.

The implementing decision was formalized and approved by the European Council in October 2021.

Võrklaev said: "To receive recovery fund allocations for investments related to digital and green transitions, all states had to include pledges or reform commitments in their plans and implementing decisions approved by the council."

However, the "Estonia 2035" strategy, referenced by the former minister, was adopted by the Riigikogu in May 2021, with its update approved in April this year, yet neither version of the document contains specific dates for phasing out oil shale.

Võrklaev noted that negotiations with the European Commission led to a proposal, based on recommendations from the Ministry of Economic Affairs and Communications, to update the energy sector development plan by the end of 2025.

Estonia's Recovery and Resilience Plan is funded to the tune of €953 million from the EU's Recovery and Resilience Facility, and outlines goals, reforms, and investments to accelerate Europe's clean energy transition.

This plan as noted must outline actions to reduce oil shale use for electricity and oil production by 2040.

Coalition shifts and policy updates

The Ministry of Finance prepared the plan in 2021, incorporating the coalition goal of phasing out oil shale electricity by 2035 and oil shale energy by 2040, but changes in government coalitions, including Kaja Kallas' second (Reform-Isamaa-SDE, June 2022 to March 2023) and third administrations (Reform-SDE-Eesti 200, April 2023 to July 2024), occurred before the plan was approved by the European Commission.

Minister of Finance in 2021 when the government approved the plan in 2021 was Keit Pentus-Rosimannus (Reform), now Estonia's representative on the European Court of Auditors. Minister of Economic Affairs and Infrastructure at the time was Taavi Aas (Center).

Kaja Kallas is to be the EU's new High Representative of the European Union for Foreign Affairs and Security Policy.

VKG CEO Ahti Asmann had in a letter to the Ministry of Finance highlighted that there are no current laws or bills with deadlines to end oil shale-based electricity and oil production.

Asmann pointed out that the descriptive component of the recovery plan suggests that these deadlines were taken from the Reform-Center coalition agreement, in office January 2021 to June 2022.

He stated that the measure relies on an outdated political document without legislative backing, making it impossible to regulate economic activity through a coalition agreement.

Asmann noted that the Chancellor of Justice has stated a coalition agreement holds no legal weight and a transition period can only start with a law's publication in the Riigi Teataja, the state gazette.

VKG spokesperson Bojenko emphasized that the state has not assessed the socio-economic impact of exiting oil production, despite a 2020 study by KPMG which forecast the oil shale sector could generate over €8.2 billion in national wealth by 2040.

Officials' responses leave questions unanswered

When asked if missing targets might require Estonia to return support funds, the Ministry of Climate gave no clear answer.

Jaanus Uigas, who headed up the energy department at the Ministry of Economic Affairs and Communications at the time the recovery plan was being developed and is now deputy secretary general f at the Ministry of Climate, holding the energy and mineral resources portfolio, said that the recovery plan includes adopting an updated energy sector development plan by 2025, detailing ongoing and planned reductions in oil shale use.

However, Uigas did not directly address potential financial repercussions for missing deadlines.

Triin Toomingas, head of the Ministry of Finance's external funds department, told ERR that Estonia's recovery and resilience facility payments depend on fulfilling agreed activities, including submitting an energy sector development plan to be reviewed by the European Commission in 2026.

She noted that payments may be reduced if the plan is not submitted or is not in line with the recovery plan, though the exact wording is still being determined.

Via its Just Transition Fund, the EU provides support to member states for areas expected to be the most negatively impacted by the transition towards climate neutrality, which in Estonia's case is Ida-Viru County.

Shale oil has other applications in addition to being a fuel for power stations, for instance in plastics and other chemical industries.

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