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					Country Study for Estonia, Heidrun Faninger-Lund, Solpros

04. 12. 2001

PUBLIC PROCUREMENT ON ENERGY SAVING TECHNOLOGIES IN EUROPE (PROST) – OVERVIEW ON THE SITUATION IN ESTONIA
Heidrun Faninger-Lund SOLPROS, Finland solpros@kolumbus.fi

Background The Republic of Estonia is a candidate state for integration in the Europea n Community. In the frame of Estonia’s Accession Partnership that provides the basis for a number of policy instruments which will be used to help the candidate states in their preparations for membership, the European Commission has defined short and medium term priorities and intermediate objectives for Estonia in 2000. The priority areas address also actions that will be of outstanding importance for the implementation of energy efficiency and rules of public procurement in Estonia. Short-term priorities concerning public procurement and implementation of energy efficiency include: 1. Economic criteria:  Adopt a restructuring plan for the oil-shale sector and ensure transparency in privatization of the energy sector.  Establish a medium-term economic strategy and agree on a joint assessment with the European Commission. 2. Internal Market:  Public procurement: amend the public procurement law in order to cover the utilities sector and align the remedies system.  Free movement of goods: speed up the transposition and implementation of European Standards and in particular New Approach directives, in particular a new conformity assessment act, and adoption of corresponding EN standards, introduce an accreditation system; develop markets surveillance and pursue alignment of technical legislation.  Free movement of capital: align laws on direct investment in those sectors still restricted.  Free movement of services: reinforce supervision of financial sector, in particular of securities markets.  Competition: align merger control and state-aids legislation, reinforce the competition board, set up state aids inventory, and continue preparation of annual state aid reports.

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Country Study for Estonia, Heidrun Faninger-Lund, Solpros
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04. 12. 2001

Taxation: continue efforts to align VAT-legislation and excise duties; confirm acceptance of the principles of the Code of Conduct for business taxation and ensure that new tax measures are in conformity with these principles.

3. Environment:  Complete transposition and enforce the Environmental Impact Assessment, accelerate the transposition and enforcement, in particular in the water and waste management, air pollution, nature protection and industrial related directives.  Further develop the plans for financing investments (directive specific), based on estimations of cost of alignment and realistic sources of public and private finance year-by-year and continue to invest in the heavy investment directives in air, water and waste. Medium-term priorities of importance for the implementation of energy efficiency and energy conservation include: 1. Economic criteria  Establish an annual fiscal surveillance procedure aimed at bringing the reporting, monitoring and control of public finances, specifically fiscal positions, in line with EU procedures.  Continue efforts to improve the conditions for the creation and development of private enterprises, with particular attention to small and medium-sized enterprises. 2. Internal markets  Competition: ensure the full enforcement of competition and state aid rules, ensure compliance of state aid schemes and state aid legislation, increase training at all levels.  Taxation: complete alignment with the fiscal acquis; adopt VAT transitional provisions; review existing laws and ensure compatibility with the Code of Conduct for business taxation; complete the reform of fiscal administration. 3. Energy  Prepare for the internal energy market, notably the electricity and gas directives (including adaptation of energy prices to cost levels; and the establishment of a regulator).  Align oil stock requirements and energy efficiency. 4. Environment  Continue to the implement legislation according predefined timetable, in particular in air, waste management, chemical and radiation protection, nature protection, water sector and industrial related legislation.  Ensure institutional strengthening in the area of environment, in particular at the local level.  Integrate sustainable development principles into the definition and implementation of all other sectoral policies.

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Country Study for Estonia, Heidrun Faninger-Lund, Solpros

04. 12. 2001

The Estonian Energy Market In late 1998, when Estonia’s membership in the World Energy Council was restored, the Republic of Estonia made a commitment to meet the following internationally accepted principles in the energy sector:
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Achieving maximum efficiency in energy production. Ensuring optimal conservation in energy consumption. Maximum reduction of environmental impact from the energy sector. Maximum use of educational, scientific and development potential to ensure efficient energy production. Liberalization of the energy sector.

The last principle includes energy policy measures like transparency of energy prices and taxes, basic conditions for a free energy market (e.g. market regulation, fair competition, access of new energy producers to the market, international cooperation) as well as energy sector restructuring and privatization. Estonia has the potential for supplying all its own electric energy needs due to  Abundant domestic fuel resources (oil shale).  A good infrastructure for natural gas and liquid fuel imports.  A well-developed national power system and distribution networks. The current production capacity of the oil shale mines exceeds Estonia’s predicted domestic demand in the coming decades. The long-term electricity consumption forecast shows that Estonia’s domestic consumption will remain moderate in the near future with a maximum of 2-3 per cent annual increase. Figure 1 shows consumption statistics of fuels for electricity and heat generation.

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Country Study for Estonia, Heidrun Faninger-Lund, Solpros
Consumption of fuels for electricity and heat generation (TJ, 1998)

04. 12. 2001

3,338 14,306 14,554 4,307 800 Coal Oil-shale Peat Firewood Natural gas Heavy and light fuel oil 6,156 1,742 98,839 Shale oil Other fuels

Figure 1: Consumption of fuels for electricity and heat generation in Estonia (TJ, 1998). Source: Statistical office of Estonia, Energy Balance 1998. Due to energy efficiency improvements and the restructuring process of the industry during the last years, the use of fossil fuels has decreased from 31 million t/yr to approximately 17 million t/yr currently. Accordingly, CO2 emissions decreased from 38 million t/yr in 1990 to 21 million t/yr in 1997. A rapid decrease of both total fuel consumption and per capita use of fuels was achieved during the first years of Estonia’s regained independence and stabilized thereafter. Oil shale has a share of over 60% in fossil fuels and is responsible for about 70% of Estonia’s total carbon emission caused by the use of fossil fuels.
Decrease of fossil fuel consumption and share of oil shale (million tons, 1991-1997)
35

30

25

20

total consumption of fossil fuels share of oil shale
15

10

5

0 1991 1997

Figure 2: Decrease of fossil fuel consumption and share of oil shale (1991-1997).

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Country Study for Estonia, Heidrun Faninger-Lund, Solpros

04. 12. 2001

Decrease of CO2 emissions from fossil fuels and share of oil shale (million t, 1991-1997)
40 35 30 25 20 15 10 5 0 1991 1997 total CO2 emissions from fossil fuels share of oil shale

Figure 3: Decrease of CO2 emissions from fossil fuels and share of oil shale (19911997). Despite the rapid decrease in both fuel use and CO 2 emissions, the carbon emissions associated with fuel use are exceeding the carbon fixation potential of the Estonian forests almost 3 times. Ida-Virunmaa, the highly industrialized oil shale region in the North-East of Estonia, is even exceeding the carbon fixation potential of the district about 20 times. The CO2 emissions from energy production for Estonia are about 11 kg-C/day/person and about 45 kg-C/d/person for the region of Ida-Virumaa, respectively. The oil shale industry is an important foundation pillar of Estonian’s economy. Main users of oil shale are power industry and chemical industry. The Government regulates the price of oil shale that has been kept artificially low due to economical and social reasons. In addition, resource taxes and pollution charges for oil shale industry have been kept at a lower level than for other industry sectors. Environmental questions associated with oil shale industry have not yet been seriously addressed and the motivation to reduce emissions in this industry sector is low. All other fuel prices except oil shale fuels have increased constantly and are currently quite close to the world price level. As a result, also consumption of these other fuels decreased rapidly. It is reported that among Estonian society there is a high level of general environmental awareness. Due to social questions, improvement of living standards and the high employment rate of the oil shale industry, Government has kept the price for oil shale and associated taxes low. The low level of current electricity prices inhibits collection of funds for investments in energy efficiency. The situation is going to change, when Estonia prepares for the opening of the national energy market under the conditions the European Commission has set in the frame of the Accession framework priorities. In the frame of these changes, the Estonian energy sector will face restructuring and changes in overall attitude.

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Country Study for Estonia, Heidrun Faninger-Lund, Solpros

04. 12. 2001

Public Procurement and Energy Efficiency Legislation in the field of public procurement is regulated by the Public Procurement Act, which first entered into force on January 1 st, 1996. This version of the Act has been amended three times; the last amendments date from July 1 st, 1998. The Public Procurement Act in force until end of year 2000 together with the relevant secondary legislation partly harmonized the provisions of the EC Directives 93/36/EEC, 93/37/EEC, 92/50/EEC, and 89/665/EEC. In early 1999, the complete text of the new Public Procurement Act was drafted with the assistance of a PHARE public procurement project. This draft law covered also utilities and brought the legal acts on public procurements of the Republic of Estonia into full compliance with the relevant EU directives and the WTO Public Procurement Agreement GPA (Government Procurements Agreement). The final Public Procurement Act entered into force 1 April 2001 and covers purchasing of goods, contracting for construction work and services, granting of construction work concessions, and contracting for design solutions. The Public Procurement Office of the Republic of Estonia was established to fulfill the following tasks:
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Exercise state supervision to verify compliance of public procurements with the requirements established by legislation. Implement an information system relating to public procurement and organize the activities of the state register of public procurements. Provide information relating to public procurements to international organizations pursuant to international agreements signed by the Republic of Estonia. Assess the functioning of the public procurement system and submit proposals for improving the system. Consult on issues relating to public procurement. Review protests. Have the right to receive all necessary information concerning a public procurement and the original or copies of documents relating to a public procurement from the contracting authority in the exercise of state supervision.

The energy saving potential in Estonia is estimated to be about 25 % of the amount of the primary energy (ca. 200 PJ) used today. There are no special instructions on environmental or energy efficiency aspects in the public procurement of products and services available, but energy efficiency aspects are included in the requirements of the “Building and Planning Act” that have to be fulfilled. Environmental aspects need to be approved by the environmental institutions under the Ministry of the Environment. The “Energy Efficiency of Equipment Act” regulates purchase of household equipment and also applies for respective purchases by the public sector.

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Country Study for Estonia, Heidrun Faninger-Lund, Solpros

04. 12. 2001

The most important barriers for energy efficiency in Estonia are presently insufficient financing of energy efficiency programmes by the state budget and lack of soft loans schemes. In public housing and government-owned building stock, the main motivation for energy conservation measures is not energy efficiency per se, but the need to raise the average living standard. There are only limited funds for public investments available what limits the range of energy conservation measures that can be applied. Currently, procurement of energy efficiency in the public industry sector seems to be a rather difficult matter, as current taxation policy does not give decision-makers any motivation for energy saving investments and efficient use of energy. Furthermore, it is feared that policy measures like e.g. a substantial increase in both price and taxes of oil shale could jeopardize the development of national economy and raise problems with increasing unemployment in highly industrialized regions. In 1998, the government established a committee of experts to assess the problems in the economic sector related to the production and use of oil shale in order to meet the requirements set by the European Commission. The Estonian Energy Conservation Target Programme The first energy conservation programme started in 1992 and aimed to reduce fuel import by 50% in 4-5 years time and to improve energy efficiency. As a results of this activity, the electricity consumption in Estonia dropped from 7.2 TWh/a in 1991 to 5.8 TWh/a in 1998. The heat consumption dropped from about 24.5 TWh/a to 9.5 TWh/a, respectively. The public sector electricity use is about 1.5 TWh/a and heat consumption 1 TWh/a. The new energy conservation target programme was drafted in early 2000 and is quite in line with the EU SAVE directives and recommendations. The main points of proposed activities are the following:
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Certifying of building energy consumption. Energy auditing schemes. Improved energy metering. Revised building code. Boiler testing. Optimization of heating systems Training, campaigns, international cooperation.

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Country Study for Estonia, Heidrun Faninger-Lund, Solpros

04. 12. 2001

References Estonia: 1999 Accession Partnership. Estonian Ministry of Foreign Affairs, Press and Information Department, 2000. Evaluation of the changes of the substance flows as an attempt to estimate the ecoefficiency and sustainability of Estonia. Tiina Randla et al., Tallinn Technical University, 2000. Private Conversation and interviews with representatives of Estonian governmental institutions, 2001. The Public Procurement Act of the republic of Estonia, 2001. Villu Vares, Planned activities in the frame of energy conservation target programme in Estonia. OPET Estonia, 2000.

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