The European Green Deal

In December 2019, the European Commission (EC) established the European Green Deal the aim of which is to achieve climate neutrality in the European Union using political, economic and social measures. In December 2020, the representatives of the Member States agreed on an enhanced intermediate goal of the Green Deal by 2030, with which a political guideline was adopted to reduce GHG emissions by 55% instead of the former 40% compared to 1999. The EC presented the package of measures and legal acts necessary for achieving this goal, the Fit for 55 package, in July 2021. The more significant aspects of the agreement that influence VKG’s activities are the following:

The green policy of the European Union is based on the taxation of carbon emissions via an emission trading system. The most harmful part of this Union-wide taxation system is its openness to speculators, which has caused an exponential growth in the taxation rate. While in March 2020 the CO₂ taxation rate was 15 euros per tonne, it grew by 550% over two years and neared 100 euros per tonne in February 2022. The energy crisis that came with the war called the European green policy in question for a moment and speculators rushed to liquidate their positions, causing the CO₂ taxation rate to drop to 58 euros at the beginning of March. The statement of the leading European politicians that the energy crisis was not caused by the nature of the European green policy, but by the fact that the policy has not been implemented with sufficient aggressiveness, raised the CO₂ price back to 80 euros in a week, and in August, when the French and German electricity price futures for the following year floated at the level of 1,000 €/MWh, the CO₂ tonne price again flirted with the 100 euro line. In 2022, Estonian consumers and undertakings paid more than 540 million euros in CO₂ taxes to the EU treasury via the higher than ordinary price of electricity. On the one hand, this has entailed an increase in the mass of money being re-distributed for the implementation of certain policies, but on the other hand this impairs the competitiveness of European production enterprises and the wellbeing of people, as the money for the implementation of the Green Transition is taken namely from their pockets. VKG’s CO₂-related expenses amounted to a total of 10 million euros in 2022. Even if we were to presume that the CO₂ taxation rate will not rise anymore, the CO₂ expense will multiply in the coming years due to a reduction in the quotas allocated free of charge. VKG could undertake some investments in order to reduce its footprint, but as the level of the CO₂ taxation rate is unclear, there is a risk that the increasing CO₂ taxation burden may regardless of the reduced footprint put a stop to the company’s activities before it manages to re-earn the investments.

In addition to the reduction of emissions, a proposal was also made to increase the net removal of greenhouse gases (GHG) in the EU’s forestry and land use sectors (LULUCF) to at least 310 million tonnes of CO₂ equivalent by 2030. Estonia has been made a proposal to remove 434,000 tonnes of CO₂ by 2030. How this goal should be achieved and what effect this will have on the Estonian forestry sector is currently still unclear. This proposal concerns VKG in connection with the planned bioproducts production complex investment project. Although the said production complex would entail capturing thousands of tonnes of CO₂ into the bioproducts to be produced, which would help fully fulfil Estonia’s LULUCF obligation, implementing the investment would be impossible, if a decision is made to abruptly reduce felling volumes in order to achieve short-term goals by 2030, as there would be no raw material in the market to supply the production of products that would replace oil-based products.

The negotiations of the European Parliament, the European Council and the European Commission with regard to the Fit for 55 package continued in 2022 and no final decisions were made as yet. Concrete decisions are expected to be adopted in 2023. The impact of those proposals on VKG is currently difficult to assess, but it is clear that those proposals rather impair the competitiveness of the Estonian shale oil industry on the global fuel market.