Commission plan could make Estonian shale oil unviable by 2031

Estonia’s shale oil producers say production could become economically unviable within five years if the European Commission does not grant the sector an exemption from proposed changes to the emissions trading system, ERR reports.

Eesti Energia chief executive Andrus Durejko and Viru Keemia Grupp (VKG) chief executive Ahti Asmann told Prime Minister Kristen Michal that the entire shale oil industry could become uncompetitive between 2031 and 2033 if the system is changed as proposed.

The European Commission published proposals a month ago to change the greenhouse gas emissions trading system. Among other measures, it proposed reducing free carbon allowances intended for industry.

Free allowances for the shale oil industry would not disappear outright. However, companies would be required to invest them in reducing emissions from their oil production facilities.

Durejko said decarbonising shale oil production was extremely difficult because oil is a fossil fuel and carbon could not be eliminated from the product.

Shale oil industry representatives are seeking an exemption for Estonia that would remain in force as long as liquid fuels are imported into the European Union. They said this would mean keeping free allowances at their current level during the next decade.

Asmann said VKG’s tax burden could increase several times over at the beginning of the next decade if Estonia does not receive an exemption from the Commission’s plan. He said the company currently pays about 50 million euros in taxes a year.

Against this backdrop, Eesti Energia plans to officially open its newest oil plant in Auvere on Thursday. Durejko said the plant was now operating at its rated capacity after five and a half years of construction.

He said the company’s goal was now to produce oil at the lowest possible cost, market it and promote Estonian exports.

If current legislation remains unchanged, Eesti Energia estimates that producing oil at the new plant will be economically viable for 14 years.

Waste incineration could also become uneconomical

The Commission’s proposal would also extend the emissions trading system to waste incineration.

Triin Reisner, Eesti Energia’s head of government and partner relations, warned the Climate Ministry that imposing carbon allowances on waste burned at the Iru power plant could make landfilling waste cheaper than exporting it.

Eesti Energia’s analysis found that if the carbon allowance price rises above 105 euros per tonne, burning waste at Iru would lose its competitive advantage over biomass, including wood chips. The price is currently about 80 euros per tonne.