Study: Climate neutrality to require investing 4 percent of GDP annually

Climate neutrality requires new wind farms and curbing of greenhouse gas emissions from agriculture
Climate neutrality requires new wind farms and curbing of greenhouse gas emissions from agriculture Source: TASS / Scanpix

Achieving climate neutrality in Estonia by 2050 would require investments and activities worth 4 percent of GDP over the next decade, 2 percent of GDP over the one after that and 1 percent of GDP in 2040-2050, said Lauri Tammiste, head of the Tallinn Center of the Stockholm Environmental Institute (SEI), based on the results of a recent study.

The study presented on Tuesday finds that activities required to reach climate neutrality will cost approximately €17.3 over 30 years. Around 76 percent of the cost would be the private sector's to bear, with the public sector responsible for 24 percent.

"While €17.3 billion is a lot of money, it will be required over 30 years, with much of the required investment happening anyway – new cars, renovation of buildings, wind farm developments," Tammiste said. "It's simply that all of these activities should include maximally climate-friendly choices," he added.

The head of the institute in Estonia said that the lion's share of expenses required to reach climate neutrality by 2050 should be made this decade, with lower volume of investment required down the line. "This would mean 4 percent of GDP annually for the next decade, 2 percent for the second decade and 1 percent of GDP for the final decade of the push," Tammiste explained. He emphasized that curbing CO2 emissions has a broader effect on living environment through cleaner water and air and through greater energy security and decreased dependence on world market instabilities.

Steps to achieve climate neutrality would also have a positive effect on the economy, even though some changes could initially impact GDP. "For example, switching to much more economical electric vehicles would reduce energy consumption, lower tax revenue, which would have a negative effect on GDP," Tammiste said. According to the SEI study, 500,000 of Estonia's total 700,000 vehicles should be electric by 2050. Better thermal efficiency of buildings would also help save on heating costs.

Accounting of direct costs of measures shows that while expenses would be greater than income during the initial investment phase, that would change in the decades to follow when income would outdo operational costs and investments, with total revenue outperforming costs in the end.

Tammiste said this means the state must consider how to favor private sector investments in a situation where they will become profitable in a very long time.

Of measures mentioned in the report, Estonia should concentrate on major problems first, take care of activities that can provide the greatest saving in energy and realize existing and feasible solutions. Measures that sport a more modest effect and are less cost-effective can be taken later.

The focus should be on cost-effective measures with the greatest potential in terms of cutting emissions during the 2021-2030 period. The most important thing is to accelerate investments into energy efficiency of buildings, transport and industry as such measures will not only curb greenhouse gas emissions but will also result in financial efficiency and reduce the need to invest in new energy production capacity. Secondly, power and heat generation needs to be switched to renewable energy in considerable part and the relative importance of low greenhouse gas emissions/climate neutral energy mediums in transport boosted. Thirdly, a goal for binding carbon needs to be agreed in the process of drafting the national forestry development plan and concrete measures to support the target planned and executed, the study details.

Provided enough future-oriented measures to curb emissions by a significant amount are realized over the next decade, it is not necessary or even practical to make all 2031-2050 period decisions based on current know-how. Instead, key activities until 2030 need to be agreed, their success regularly measured and decisions regarding the extent and necessity of remaining measures made later, considering new technological developments, regulation and market conditions, the report reads.

Differences of opinion regarding oil shale mill

Tammiste finds that Estonia would be better off abandoning plans for an oil shale pre-refining plant as it entails great risk and would not be in line with the goal of reducing CO2 emissions. "It will bring new emissions; production and sale of shale oil results in export of emissions on a grand scale that is not in keeping with climate targets," he said. Another risk is EU regulative framework that could change in just a few years' time. Tammiste said it is telling how oil companies want the state to have a stake in the pre-refinery to manage risk.

Deputy Secretary General of the Ministry of Economic Affairs and Communications (MKM) Timo Tatar said that shale oil production only creates a third of the CO2 emissions of burning oil shale in the furnaces of power plants. Considering that Estonia is set to cut CO2 emissions by 5-6 million tons this year. In this context, shale oil production would cut emissions and would be sustainable for the time being, Tatar said. "Even though it is clear the oil shale industry should pack up by 2040-2050, shale oil production would still be profitable over the next 20 years," he said, adding that forecasts suggest global oil consumption will grow until 2040. "We should harbor no illusions that the oil shale era will not come to an end, however, it remains profitable for now, based on the ministry's analysis," Tatar said.

Minister of the Environment Rene Kokk, who was present for the presentation of the study, said the government wants to tackle these issues but admitted there is no agreement regarding specific steps as the study has just seen the light of day.

Tammiste said at the presentation that steps that are currently being taken are not enough to achieve an 80 percent reduction in greenhouse gas emissions compared to the year 1990 by 2050, which obligation Estonia has adopted.

He also emphasized that every ministry and its partners – both companies and NGOs – should agree on a road map of activities to help achieve climate neutrality. Such road maps should be considered and followed in future decision-making processes and general progress monitored in the government's Climate and Energy Committee.

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Editor: Marcus Turovski

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