Oil shale producers warn EU plan would make oil production unprofitable in five years
The heads of Estonia's two major oil shale companies told Prime Minister Kristen Michal that without a European Commission exemption, oil shale production would stop being economically viable within five years. Yet on Thursday, a new oil plant will be formally opened in Auvere.
The European Commission released proposals a month ago on how to change the greenhouse gas emissions trading system. Among other things, the commission suggested reducing free carbon quotas intended for industry.
Eesti Energia chief executive Andrus Durejko and Viru Keemia Grupp (VKG) chief executive Ahti Asmann sent a letter to the prime minister a few days ago, noting that if the quota system were truly redesigned as the commission proposes, all oil shale production would become uncompetitive as early as 2031–2033.
Reducing emissions extremely difficult
Free quotas for the oil shale industry would not directly disappear, but companies would be required to invest in reducing emissions in oil production. Eesti Energia said the catch is that decarbonizing or greening oil production is extremely difficult.
"Free quotas do not actually disappear, but they must be invested in the same facility as a mandatory requirement, which makes it unreasonable in terms of production cost. [...] Oil inevitably contains carbon. It cannot be eliminated; it is a fossil fuel. We cannot make this technology better," Durejko said.
Oil shale industry representatives want an exemption for Estonia that would remain in place as long as the European Union imports liquid fuels. This means free quotas should remain at the same level next decade as they are now, the producers wrote.
VKG chief executive Ahti Asmann said that if Estonia does not receive an exemption from the European Commission's plan, the company's tax burden would multiply at the beginning of the next decade.
"It is clear that if we currently pay €50 million in taxes annually and our tax burden doubles or triples, then very few companies can operate efficiently in such an environment," Asmann said.
Against this backdrop, Eesti Energia plans to officially open its newest oil plant in Auvere on Thursday. According to Durejko, the plant is now operating at its nominal capacity.
"This five-and-a-half-year construction saga has come to an end. Now the goal is to produce oil at the lowest possible cost and to market it and promote Estonia's exports," Durejko said.
If the laws remain as they are now, Eesti Energia has calculated that the new oil plant opening Thursday will be economically viable for 14 years.
Heat production in Iru may also become unreasonable
Under the European Commission's proposal, the emissions trading system would also extend to waste incineration.
In a letter to the Climate Ministry, Eesti Energia's head of government and partner relations Triin Reisner noted that taxing waste burned at the Iru power plant with carbon quotas risks making landfill disposal cheaper than exporting waste.
Eesti Energia's analysis showed that if the carbon quota price rises above €105 per metric ton, Iru would lose its competitive advantage in waste incineration compared to biomass, meaning wood chips.
Right now, the carbon quota price is about €80 per metric ton. The European Commission itself expects, according to Eesti Energia, that by 2030 the price will rise to €110 per metric ton.
If Iru is pushed out of Tallinn's heat market, Eesti Energia said landfill disposal of waste would increase and the city would have to burn significantly more wood for heating.
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Editor: Mirjam Mäekivi, Argo Ideon
