The Cabinet is no longer debating whether to support the construction of a shale oil pre-refining plant but rather how to go about it, Postimees reported.
"The government believes the pre-refinery could be built and serve as an alternative to burning oil shale directly and as a way to add value to it," Minister of the Environment Rene Kokk said on Tuesday.
The government initially sought to support the plant by providing it with free pollution quotas in the form of state aid. Ministers decided to weigh other options after this Monday's energy and climate committee meeting.
"We thought about how the state could generate revenue with this project, instead of just providing aid," Minister of Economic Affairs and Infrastructure Taavi Aas said.
One option is for the state to provide a loan for the construction of the plant for interest income down the line. An alternative solution would see the state become a stakeholder.
One reason for the government's change of heart could be the fact that free quotas would require a state aid permit from the European Commission, while the new Commission to take office this fall has made fighting climate change a top priority. A major source of emissions such as a shale oil pre-refinery might not match-up with their plans.
"The Commission might not agree to state aid in this form," Aas said. Preliminary calculations by entrepreneurs suggest the plant would require funding of €600 million a third of which, or €200 million, would hopefully come from the state.
The price remains largely hypothetical as, while the government has all but greenlit the initiative, the project doesn't even have a preliminary plan yet.
Aas emphasized that the social situation in Ida Viru County is one aspect speaking in favor of building the plant.
"We have lofty goals - why not climate neutrality by 2050 - but we need to move in that direction with social guarantees intact," Aas said.
The plan for the pre-refinery is being mulled at the same time as climate neutrality debates. The government's energy and climate committee ordered a report from the Tallinn Center of the Stockholm Environmental Institute (SEI) that analyzed whether and how to achieve climate neutrality in Estonia by 2050, which is a country's ability to bind more CO2 than it emits. Estonia's current goal is reducing emissions by 80 percent compared to 1990 by the year 2050, while the European Commission wants more ambitious action through climate neutrality.
The report which was presented yesterday concludes that achieving climate neutrality by 2050 is possible and economically beneficial, provided decision-makers follow a scenario proposed by the analysis that outlines specific measures for hitting the target.
The problem is that the report's conclusions do not consider emissions from the planned pre-refinery.
Head of SEI Tallinn Lauri Tammiste said that the government can theoretically introduce both plans, greenlight the pre-refining plant and achieve climate neutrality by 2050.
"If the refinery is shut down in December of 2049, it will stop emitting CO2, and climate neutrality is feasible," Tammiste said.
Another possibility is that such efficient carbon trapping technologies will exist by 2050 that refineries can work without emitting CO2. Tammiste believes that from the perspective of achieving statistical goals, constructing the refinery would not rule out achieving climate neutrality.
There is another reason why it was not included in the analysis as authors of the SEI study doubt it would make financial sense.
"Processing and sale of oil shale constitutes major export of emissions that is not exactly in line with global climate targets," Tammiste said.
He added that considering the European Commission's political agenda, regulatory risks are forecast to become more serious.
Economy Minister Taavi Aas said that all signs point to the share of fossil fuels growing until 2040. The official decision of whether and how construction of the plant will be supported will be made during state budget strategy talks in spring.
Editor: Helen Wright