3. OIL SHALE
Beyond its role in securing energy security of supply, the oil shale sector delivers important employment and social outcomes. It employs over 7 300 people directly and is the largest employer in the country’s second-largest county, Ida-Viru, a region that does not offer many alternative employment opportunities. Revenues from the oil shale sector constitute significant revenues for the local governments. Moving along the value chain of oil shale is therefore an important contribution to maintain employment and social cohesion in a structurally weak region, once oil shale-based electricity generation is phased out.
Assessment
Estonia’s energy supply relies mainly on domestically produced oil shale, which gives the country a unique position among IEA members. In 2018, oil shale accounted for 72% of Estonia’s total domestic energy production, 73% of total TPES and 76% of electricity generation.
Oil shale is the most important mineral of Estonia and oil shale resources belong to the state. Oil shale mining comes with considerable environmental impact, both in aboveground and underground mining. A lot of water is used or pumped away, dust and other emissions occur, and recovery rock is piled up in the flat landscape, while alternative uses are possible.
The Ministry of the Environment through the Environmental Board provides permits to mine oil shale. For environmental reasons, the production of oil shale is capped at 20 Mt per year. Four companies hold permits. The permits reflect historical rights of the holders. If a company in a given year does not fully use its allowance, the remainder can be used by another permit holder via informal agreements. As this system can create uncertainties over future quantities to mine, it would be preferable to rearrange the quantities under the license, based on a use-it-or-lose it principle.
A comprehensive review of the current taxation and fee system levied on the oil shale sector is ongoing and should be completed in 2019. The government is considering a modification to the fundamental principles of taxation of mineral resources to more clearly distinguish between fees for the use of the resource and environmental charges that address the externalities of the extractive activity and compensate for the environmental damages caused by the oil shale sector.
The policy framework for the oil shale sector is set by the National Development Plan for the Use of Oil Shale 2016-2030, which focuses on the mining side of the oil shale sector, paying less attention to the use of oil shale in electricity and conversion into shale oil. This leaves a gap for the future development of the sector as a whole.
Once extracted from the ground, oil shale can be used directly in a power plant (pulverised or in a fluidised bed boiler) or processed to produce shale oil. In 2017, heat and power generation accounted for 59% of total oil shale consumption in Estonia, while one-third was used for shale oil production. Remarkably, oil shale accounts for around 76% of electricity generation.
Oil shale has by far the highest CO2 intensity in Estonia’s heat and power generation. The emission factor for oil shale in heat and power generation is 1 110 gCO2/kWh, this compares to Estonia’s average emission factor of 660 gCO2/kWh.
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3. OIL SHALE
The power and heat sectors in Estonia are covered by the European ETS. The CO2 price under the ETS has risen sharply over the last two years, from EUR 5 to EUR 20 per tonne in 2018. The high CO2 emission factor of burning oil shale for power and heat implies that using oil shale for power and heat is becoming less competitive; this may become more urgent if the CO2 price were to rise further. This provides opportunities for market penetration of renewables, and indeed, where possible, biomass is co-fired with oil shale in power generation.
As the use of oil shale in power and heat is becoming less attractive, the government is looking to transform the oil shale sector, shifting from power generation towards liquid shale oil production. Since the previous In-depth Review in 2013, four new shale oil liquefaction plants have been commissioned, and in 2017, Estonia produced 1.2 Mt of shale oil. As a by-product, some retort gas is produced, that is used on-site for power or heat generation and has a positive impact on emissions reductions and resource efficiency.
The further transformation of the Estonian oil shale industry will happen gradually. But the government is cognisant that market forces and CO2 reduction policies will make the use of oil shale in power generation increasingly unattractive. This will make an increasing share of oil shale available for alternative uses and could eventually be sufficient to justify the construction of an oil refinery in Estonia with a positive impact on security of supply.
Given the substantial negative environmental impact of oil shale mining and use and the current lack of adequate technologies to mitigate those impacts, it is prudent that the government maintains the current annual mining limits.
Recommendations
The government of Estonia should:
Further reduce the environmental impact of oil shale mining, by designing and enforcing stricter regulations on water use, emissions and recovery waste rock.
Review the role of oil shale in future power generation, as CO2 prices are set to further increase, and together with the power sector design a pathway to a low-carbon electricity generation system while maintaining electricity security.
Regularly assess the allocation of mining rights on a use-it-or-lose it basis, to align them with the actual needs of (potential) licence holders.
References
EE (Eesti Energia) (2019), Technology, EE, Tallinn, https://www.energia.ee/en/tehnoloogia/avaleht.
EE et al. (Eesti Energia et al.) (2018), Estonian Oil Shale Industry Yearbook 2017, Tallinn, https://www.ttu.ee/public/p/polevkivi- kompetentsikeskus/aastaraamat/Polevkivi_aastaraamat_ENG_2018-06-27c.pdf.
IEA (International Energy Agency) (2019), World Energy Balances 2019 (database), IEA, Paris, www.iea.org/statistics.
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KAS (Konrad-Adenauer Stiftung) (2018), Oil Shale in Estonia: Fossil Fuel Policy in a Pioneering Country, KAS, https://www.kas.de/laenderberichte/detail/-/content/oelschiefer- in-estland-fossile-politik-im-vorreiterland.
MEAC (Ministry of Economic Affairs and Communications) (2017), National Development Plan of the Energy Sector until 2030, MEAC, Tallinn, https://www.mkm.ee/sites/default/files/ndpes_2030_eng.pdf.
MoE (Ministry of the Environment) (2016), National Development Plan for the Use of Oil Shale 2016-2030, MoE, Tallinn, https://www.envir.ee/sites/default/files/2016_2030ak_ingl.pdf.
Riigicontroll (2014), Actions of the State in Directing the Use of Oil Shale, Riigicontroll, Tallinn, https://www.eurosaiwgea.org/audits/Audit%20documents/Actions%20of%20the%20 state%20in%20directing%20the%20use%20of%20oil%20shale.pdf.
Riigi Teataja (2017), Earth’s Crust Act, Riigi Teataja, Tallinn, https://www.riigiteataja.ee/en/eli/513022017001/consolide.
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