The government has discussed the construction of a shale oil pre-refining plant and the state's support thereof. Estonian state-owned energy group Eesti Energia is likewise interested in building a new oil shale plant.

Over the years, however, the National Audit Office has repeatedly highlighted the need to take into account the potential economic risks of investing in fossil fuels arising from the EU's increasingly ambitious climate policy.

In his inquiry, the auditor general noted that the Estonian oil shale sector has recently been increasingly influenced by the allowed emission unit price of the EU Emissions Trading System (EU ETS).

"The price increase cannot come as a surprise, as the European Commission has been changing the rules of the trading scheme since the launch of the system already to increase the cost of trading units," Holm said. "Nevertheless, the unit price has increased more slowly than the European Commission itself had set as the goal."

The European Commission wants the unit price per ton to increase even further by 2030 compared to the current €25. An analysis published late last year suggests that if the implementation of a scenario reducing greenhouse gas by 80 percent is to be expected, the unit price will increase to €250 per ton by 2050. Under the carbon neutral economy scenario, meanwhile, the price of the quota would be €350.

Ministry of Economic Affairs and Communications Deputy Secretary General for Energy Timo Tatar has said that, considering the projected increase in the price of the greenhouse gas trading units, investments in oil shale processing will be profitable for another 15 years.

The National Audit Office is thus inquiring from the ministry regarding at what emission unit price the production of shale oil and its refined products would no longer be profitable, and how long the payback period for capital-intensive investments would be considering the unit price.

Meeting climate targets may be more difficult

It is also not certain that the European Commission would grant Estonia a state aid permit for the establishment of a pre-refining plant.

If Estonia obtains a permit for state aid from the European Commission and is allowed to allocate free greenhouse gas trading units to the establishment of a pre-refining plant,  it may be difficult for the state to meet climate targets, such as the electrification of railways, the auditor general said.

Holm also drew attention to the rules of the EU ETS Directive's Modernisation Fund, according to which a project selected for the allocation of free quotas must not increase demand for emission-intensive fossil fuel.

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