By now it is clear to everyone that there is no retreat from the European Union’s climate neutrality target — at least not under the current Commission. It is possible that things may change in the future, but it is equally possible that they will not. The cost of achieving climate neutrality in Estonia is so high that it is better not to think about it.
Armed with that knowledge, there would seem to be little one could do, since the decisions have already been made. As an entrepreneur who has had the opportunity to participate for some time as an expert in the inner workings of EU industrial policy, however, I cannot remain a passive bystander. From that vantage point, the question is not how to replace a retrograde fossil-fuel world with a progressive green one. The question is about the price tag — and about who will foot the bill.
It has now been accepted in Estonia as well that the true objective of climate neutrality is to safeguard industrial competitiveness. This argument was most recently advanced by Minister of the Environment Mölder in an article published in Päevaleht on 10 August 2021. At the same time, he reprimanded those who questioned its economic rationale and assured the public that no one would be left behind. The same assurance was given by European Commission President Ursula von der Leyen in an interview with Päevaleht, citing as an example the subsidies to be provided to lower-income households for the purchase of cars (note: not free public transport).
Substantive action is happening elsewhere
Europe is a pleasantly expensive market for finished goods, but in the most critical areas, technological developments are being driven from elsewhere. However many large and small Estonian success stories we may have, the substantive technological breakthroughs leading to climate neutrality are occurring elsewhere — through collaboration between major industries and research institutions, driven by forces of an entirely different magnitude. Since we all have to pay regardless — Estonia equally alongside other member states — this is the right moment to examine how we are going about it. The European Commission is in the habit of setting ambitious targets and pre-empting all sceptics: don’t worry, we will also provide funding for this collective effort.
To date, there exists only one study that attempts to calculate the cost of achieving climate neutrality — the 2019 analysis of options for raising Estonia’s climate ambition. Yes, reaching a climate-neutral Estonia by 2050 is technically feasible and, with strategically sound investments, potentially profitable in the long term. To get there, however, investments totalling 17.3 billion euros must be made during the period 2021–2050, with the overwhelming share coming from the private sector.
According to the study, the first ten years must focus on high-impact emission reduction measures in key sectors. These include investments in energy efficiency in buildings, transport and industry; the transition of electricity and heat production to renewable energy sources; increasing the share of low-greenhouse-gas energy carriers in transport; and genuine carbon sequestration in the forestry and agricultural sectors.
Since the first ten years coincide with the EU’s next funding period, every politician, entrepreneur, and interest group should now be asking how we plan to make progress. A quick comparison with the nearly one-billion-euro Recovery and Resilience Plan reveals that while we have plans, we have no strategy.
Let us abandon the winner’s mindset
Estonia’s recovery plan amounts, in substance, to a collection of individual actions worth close to one billion euros — unconnected to one another and pursuing different objectives. The considerable volume of investments planned for various green activities is notable. Looking more closely at the specific measures, however, it appears that we are simply continuing what we have always done and expecting success to follow. We have invested in information technology and start-ups, and we are counting on that to serve us in the green transition as well.
One of the most consequential miscalculations is the assumption that we are, in the climate neutrality game, too, leaders and winners. That we will show the world how to replace the tax revenue lost from an industry being throttled by the green transition with tax revenue generated by our own green technologies. Such a development would defy all market logic and is therefore unrealistic.
To answer the question of what development is realistic, we should begin by abandoning the winner’s mindset and stop dismissing those who question the economic rationale of climate neutrality. We must then develop a realistic strategy for achieving the climate neutrality target.
The green transition truly does depend on all of us. Unfortunately, in Estonia we have forgotten to specify who “we” are. The European Commission has not forgotten. In European terms, “we” means energy-intensive industry — that is, heavy industry: automotive, steel, and cement.
Achieving climate neutrality requires, above all, investing in the transformation of energy-intensive industry towards renewable energy. Estonia is a buyer of technologies in these supply chains and a price-taker. Certainly not a driver or a shaper, let alone a winner. In this situation, a comprehensive picture and a strategy are unavoidable — not a winner’s strategy, but an adapter’s strategy.
This article was published in Eesti Päevaleht on 14 August 2021.