Estonia - Fourth Annual Workshop on Greenhouse Gas Emission Trading by IntlEnergyAgency


                    of recent developments on Emissions Trading.
                            By Tiit Kallaste, SEI-Tallinn

Estonia has performed successfully in the preparation phase to European Union
Emission Trading Scheme (EU ETS) to be launched 01.01.2005. The Ministry of
Environment plays a key role in the process, also The Ministry of Economic Affairs
and Communication has significant role to carry out. The national allocation plan
(NAP) of Estonia for greenhouse gas emission (GHG) allowances for the years 2005-
2007 pursuant to Article 9 of Directive 2003/87/EC of the European Parliament and
of the Council has been prepared by SEI-Tallinn in cooperation with Tallinn
University of Technology under general coordination of Climate Expert Commission
on Implementation of UN FCCC, it’s Kyoto Protocol and EU ETS established in The
Ministry of Environment.

Estonia’s NAP is published on the European Commission web-site since 20th of April
2004. Estonia’s proposal on NAP has been accepted by Government and presented to
EC in May 2004. The basic principles and allocation plan were presented at Climate
Working Group session, also at Climate Committee meeting in June. NAP has been
translated into English by EC in June. The national allocation plans of Member States
of the European Union must be reviewed and definitively approved by the European
Commission before trading commences. EC has requested additional information and
explanations on proposed NAP, the package of answers were passed to EC in the
beginning of September. At present the process of negotiating the final version of
NAP is underway.

The Estonia’s NAP includes, at present, a total of 43 installations, two of which are
classified in the group of “other activities” (in case – the paper and pulp industry),
five in the mineral industry and the remaining 36 in the energy production sector.
District heating installations with a capacity exceeding 20 MW, as provided for in the
directive, form the largest group on the list, 20 units, while five major power
producing installations owned by AS Eesti Energia produce electricity and there is
also one combined heat and power station. The pulp plant in Kunda, North-East coast
of Estonia, utilising aspen mechanical wood pulp, one of the installations covered by
the directive and included in the national allocation plan, will commence operations in
the first trading period. No other installations that could be classified on the list of
installations provided for by directive 2003/87/EC have submitted applications to

The grandfathering principle based on historical emissions provided for by the
directive, where projections of emissions for the three-year trading period of 2005-
2007 are calculated from previous periods, was taken as the basis for preparation of
the national allocation plan. Reference periods of different lengths were used for
obtaining primary data on different sectors — a longer, nine-year period of 1995-2003
for installations that produce heat, the four-year period of 2000-2003 for installations
that produce electricity and the same four-year period of 2000-2003 for industrial
plants as well. Bottom-up approach was used to compile the NAP.
The national allocation plan applies the terms provided by the directive to take into
account “early action”, i.e. voluntary action by installations to reduce greenhouse
gases pending submission of this allocation plan. Early action has been applied for
CO2 emission reduction activities undertaken during the reference period 1995 –2003
in subgroup of boiler-houses, and the reference period 2000-2002 in electricity
generation subgroup. To compensate for their early action, additional emission
allowances have been allocated in the allocation plan to electricity producing
installations and to installations in heating sector that have replaced their more
polluting fossil fuel (usually heavy fuel oil) to local biomass or natural gas, or
installed new technology.

The emission allowances have been allocated to the installations free of charge, as
provided for by Article 10 of the directive, i.e. without organising bidding. The
reserve comprises 3% of overall allocation and is foreseen to allocate for new entrants
free of charge. The general principle first come, first served applies. When the reserve
is exhausted, new entrants have to buy allowances from market. Unused reserve will
be sold. Benchmark approach in industrial processes will be applied – i.e. the lowest
specific-emission coefficients of similar technologies in Estonia for the recent 5 years
period will be used.

The Estonia’s NAP for greenhouse gas emission allowances applies for the right to
emit ~ 65 million tonnes of carbon dioxide during 2005-2007. This amount is based
on satisfying the continuously increasing electricity consumption in Estonia (growing
by up to 10% per year in recent years) as well as increasing the share of electricity
exported in the near future. The abovementioned amount also includes a reserve of
emissions of 1.9 million tons for new entrants. The reserve will be divided between
the three years in proportion to the emission allowances for each year. Any residual
emission reserve for new entrants may be carried over to the next trading year. No
targeted allocations will be made in the national reserve for potential new

Special issues of Estonia’s NAP. No auctioning of allowances during the first trading
period, no banking foreseen. It has the comprehensive environmental permit. Equal
treatment! Inside sectors the same principles apply. No pooling during the first
trading period. Estonian NAP does not allow opt-in and opt-out.

Beside of participation in EU ETS Estonia is a counterpart in BASREC Joint
Implementation Testing Ground Facility (TGF). Future potential JI projects belong
mostly to energy sector, i.e. energy efficiency, energy conservation and fuel switch
projects are proposed to JI TGF. Wider deployment of renewable energy sources, in
particular wind and biomass is to be prioritised by the government to achieve
Estonia’s 5,1% EU target of RES based electricity consumption to 2010. In
implementing JI projects Estonia co-operates with several donor countries in Europe;
Finland, Denmark, Sweden, The Netherlands, Austria. As for linking the project
based GHG emission reductions, ERU-s to ETS, the merging of the Linking Directive
with the ET Directive will have good potential for Estonia. Estonia has rather diverse
and long experience in JI pilot phase, AIJ.

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