Chapter 2: Estonia

(continued)

2.3 Overview of the Environmental Market

Total Country Spending on Environmental Protection

Estonia's GDP was USD 1.73 billion in 1993, increasing to USD 4.32 billion by 1996 (Statistical Yearbook, 1997). Although official statistics do not calculate the share of environmental expenditures as a percentage of GDP, it can be estimated to range between 0.2 and 0.5 percent of the more recent figure. Within this amount, the total expenditures of enterprises and municipalities on the environment has shown a remarkable increase, almost doubling between 1995 and 1996 (see Table 2.4).

In 1993, total expenditure on the environment (by both businesses and local governments) was USD 26.8 million. Expenditures increased in 1994 to USD 27.7 million, USD 40.9 million in 1995, and to USD 77.7 million in 1996 (see Table 2.4).

In 1996, the total environmental expenditure was USD 77.7 million which includes investments by enterprises (USD 67.1 million and investments by municipalities of USD 10.6 million. Large enterprises (of more than 100 employees) made up almost all 97.3 percent the corporate investments into corporate environmental protection (ESA, 1997).

The trend that can be observed is that investments by enterprises are significantly increasing while investments from local governments, despite increasing are declining as a percentage of the total environmental expenditure.

Table 2.5 outlines the breakdown of environmental expenditures by sector in 1996. Over half of the total environmental expenditures made by enterprises and municipalities was channeled into water and soil protection in 1996. Enterprises also spent a significant amount on the air sector (end-of-pipe technologies and emission control) while municipalities spread the remainder of their expenditure evenly among waste, air and other sectors.

Table 2.6 outlines the major sources of project financing for enterprises and municipalities during 1996. Municipalities tend to rely on the local budget for the majority of environmental investments (contributing 28 percent of financing), while the state environmental fund also makes a significant contribution to expenditures. Other sources make a significant third category (28 percent). Within enterprises, bank credits and internal funds constitute 74 percent of the financial resources relied upon for environmental expenditures. Interestingly, the environmental fund in 1996 contributed only 1.5 percent to expenditures, while foreign capital only contributed 3 percent.

Priority Areas for Environmental Protection

State Environmental Policy

The National Environmental Action Plan (NEAP) was being prepared and was expected to be completed during the first half of 1998. Ten working groups were drafting concrete actions and financial proposals for the ten major areas identified for the National Environmental Strategy (NES).

The Estonian National Environmental Strategy (see Boxes 1 and 2) illustrates the trends and priority goals of environmental management and protection, and it outlines the main short and long-term goals to be achieved by the year 2000 and 2010 respectively.

The main causes of environmental degradation are associated with the use of outdated technologies, the consumption of large volumes of raw materials and the subsequent generation of large quantities of waste. These problems are combined with low levels of public awareness and an under-developed and environmentally unfriendly technical infrastructure, and they are exacerbated by the lack of financial resources and management instruments.

The NES formulates 10 major environmental issues needing to be addressed, and considers the raising of environmental awareness among one of the highest priorities followed by the modernization of technologies, and the optimization of raw materials and natural resources (see Box 2).

Under the Association Agreement made with the European Union in 1995, and which came into full effect on Feb. 1, 1998, Estonia has made a commitment to approximate its legal framework with that of the EU. Estonia's preparation for membership is now progressing on the basis of the Free Trade Agreement in place since October 1, 1997, and the European Parliament's decision of December 16, 1997 to include Estonia in the first group of countries to start negotiations for full EU membership by March 1998.

With respect to environmental protection and the EU approximation process, each department within the Ministry of Environment has drafted a work plan, timeline and priority actions up to 2005.

With regard to international pressure concerning specific environmental problems this, is generally concentrated on air and water pollution in the Baltic Sea region. Two of the country's oil-shale fired power plants located in the Northeast part of Estonia are responsible for approximately 70 percent of the SO₂, 40 percent of the NO_x and 50 percent of the particle emissions dispersed annually. As a result, Estonia is considered one of the highest emitters of these pollutants in Europe. Estimates for total SO₂ emissions in 1990 vary from 208,000 tons from stationary sources to 276,000 tons including mobile sources /23/. Estimates for total NO_x emissions in 1990 vary from 46,000 tons to 107,000 tons /23/. Another further cause of poor air quality in towns is the rapidly developing transport sector. By the end of 1985, the number of private cars in use was 177,000, rising to nearly 406,000 cars by the end of 1996 /20/.

For the above reasons, Estonian environmental policy follows the requirements set by a number of environmental agreements and conventions to which Estonia is party to. For example, Estonia has been a signatory of the UNFCCC since 1994 and has assumed responsibility for reducing CO₂ emissions to 1990 levels by 2010.

Another issue of international concern is the radioactive waste landfill at Sillamae, in northeastern Estonia. The landfill contains 1,000 tons of radioactive substances buried at the base of a lake located on the coast of the Gulf of Finland. The Estonian Government as well as international financial institutions are working to close the landfill in the most practical way without compromizing the environment or human health.

Discharges into watercourses, which eventually reach the Baltic Sea, is another important international environmental problem for Estonia. The bilateral treaty between Finland and Estonia outlines the obligations for Estonia to remove 90 percent of its organic substances and phosphorus from wastewater, and to achieve 15 mg/l of BOD7 and 1.5 mg/l of phosphorus in wastewater in settlements of over 5,000 people. Despite a target deadline of 1996 and increased investments in wastewater management, most settlements will only meet this standard by 1998 /11/.

Tallinn, the capital of Estonia, with nearly 500,000 inhabitants, only initiated biological treatment of wastewater in 1996. The second largest city, Tartu, with nearly 100,000 inhabitants, is only now completing construction of its wastewater treatment plant. The construction of municipal wastewater treatment plants has become a country-wide activity, to which the local budgets, State Environmental Fund and international funds contribute. According to the MoE, construction and renovation of sewer systems, treatment plants and drinking water pipelines would need annual investments of some USD 17-18 million until the year 2000 /10/.

Environmental pollution from agriculture has decreased considerably during the past 10 years, mainly a result of the reduced use of mineral fertilisers and pesticides. For example, the application of mineral fertilisers totalled 250 tons per hectare in 1985, whereas in 1994 only 53 t/ha were applied /14/. The use of pesticides has shown similar tendencies: a fall from 1,033 t/ha in 1986 to 202 t/ha in 1993 /14/. This situation might further change along with the levels of production and an increase in farmers' incomes and subsidies to farmers.

With regard to international funds, Estonia has been particularly successful in attracting foreign assistance, with some 35-40 percent of environmental investments financed by international grants and loans (Agenda 2000; Mardiste, 1996), compared with an average of below 15 percent in Central and East European countries (OECD, 1995; Mardiste, 1996). Between 1991 and 1995, Estonia borrowed USD 82 million for environmental protection purposes and received some USD 65 million in grants. In this respect, Estonia leads the list of international assistance recipients per capita (USD 105.8) in CEE between 1991 and 1994 (OECD, 1995). Guaranteed loans for environmental projects were provided by the World Bank (USD 42 million in total) and by the EBRD (USD 40 million in total) (Mardiste, 1996).

Regional and Local Environmental Problems

The second most important problem is clearly related to waste management (particularly hazardous waste), the lack of modern environmentally sound landfills, and site operation, which fails to comply with environmental requirements and good management practices. Opinions were mixed in defining the third most acute environmental problem and ranged from improving the condition of past polluted areas, improving the drinking water quality, and renovating wastewater treatment facilities and sewers and sewerage systems.

According to the MoE, the completion of 24 wastewater treatment facilities by 1997 would decrease the overall water pollution level by some 15 percent /21/. A total of USD 14.26 million was thus spent on new facilities of which 4.65 million USD was funded by the state budget, 4.65 million USD by the Estonian Environmental Fund and 4.96 million USD allocated by local budgets. The largest project completed in 1997 was the Haapsalu project, with a loan from the World Bank and assistance from the Finnish and Swedish Governments, totalling some 2.33 million USD (a further USD 7.75 million will be spent on pipe and sewer systems and pumping facilities). Other water projects were finalized in Tapa (USD 1.63 million), Rapla (USD 1.24 million) and in a number of smaller settlements. It is important to note that apart from these expenditures in 1997, the city of Tallinn spent a further USD 23.35 million on the modernization of its drinking water and sewerage systems.

While expenditures on improving ambient air quality have remained stable over a three-year period, a remarkable increase in investment can be seen in water and soil protection activities. The major target area of these expenditures has been western Estonia, largely owing to World Bank assistance, in the construction and renovation of wastewater treatment plants in the Municipalities of Laane County (the Haapsalu-project).

There are also three funds, established as financial institutions to promote environmental biodiversity protection and to fund research on those areas in which they operate:

• The Fund for Nature Protection and Rational Use of Natural Resources (Environmental Fund) - accumulates fees and fines for the pollution and charges for resource use;
• Fisheries Fund - accumulates the fees generated by the issuing of fishing licenses;
• Forest Fund - accumulates the stumping charges.

These Funds operate independently of the state budget. The Fund for Nature Protection and Rational Use of Natural Resources was established under the Ministry of Environment to collect revenues from fines and noncompliance fees, and in turn provides project funding and support for environmental protection in Estonia. The Fund comprises two elements, a national fund and 17 regional funds. The funds' main sources of income are charges for pollution damage, donations, interest on loans provided by the Environmental Fund, allocations from national and local budgets and domestic financial resources obtained as grants. In 1996, the Fund's revenue was USD 6.68 million and total expenditures were USD 6.66 million. Projects in the field of water protection received 42 percent of these funds while 14 percent went to waste treatment, and 4 percent to air and radiation pollution control projects. The remaining 40 percent went to various projects related to environmental education, nature conservation, mineral resource programs and planning, building and investment.

Legislation and Enforcement The main laws that provide the framework for environmental protection in Estonia are listed in Box 3. The framework law on environmental issues dates back to 1990. As previously mentioned, the primary document for environmental policy is the Estonian National Environmental Strategy. The National Environmental Action Plan (NEAP) is being prepared, with some 10 working groups drafting concrete actions and financial proposals in a similar number of areas. The Act on Sustainable Development forms the framework for the sustainable use of resources by industry. It also states the need to conduct environmental impact assessments prior to project development, to develop policy documents and strategies, and stresses the importance of environmental management and environmental auditing at the corporate level.

As of January 1998, there was no Act on Environmental Impact Assessment (EIA). However, a draft document was submitted to the Government early in the year. The Act would follow the ideology of the EC Directive No. 337/85 and 11/97. The Act comprises two parts: EIA and (mandatory) environmental auditing. The latter would be imposed only on companies and sites with high environmental risks. The MoE is in the process of preparing other acts and regulations. The adoption of an Air Protection Act and a new Waste Act are among the most immediate priorities.

Some regulations related to existing legal acts are already compatible with those of the European Union; others have yet to be modified. For this purpose a special commission lead by one of the vice-chancellors of the MoE has been established. The commission coordinates the development of strategies within the MoE for the approximation of legislation with EU Directives.

Priority actions for the development of environmental legislation are already listed by the NES. By the end of 1995, approximately 70 percent of all legal acts necessary to regulate the use of natural resources, environmental protection and spatial planning in Estonia had been adopted. In the forthcoming few years, primary emphasis will be placed on the efficient organization of the legislative process, the systematization of legal acts, and the implementation of necessary measures for accession to the EU.

To achieve this goal, the NES states, it is necessary:

• to regulate those areas not currently regulated;
• to integrate relevant environmental concerns into economic objectives and then into economic and social legislation;
• to draw up and harmonize legal acts consistent with the EU's White Book by 1997;
• to carry out an analysis of legal acts in order to identify contradictions, variances and imbalances, and to propose amendments to current legislation;
• to establish environmental liabilities;
• to approximate Estonian legislative acts to those of the EU, and to integrate them into an Environmental Code by 2005.

There are two major environmental inspection authorities: the Environmental Inspectorate and the Marine Inspectorate. As referred to in the previous section, the County Environmental Departments have the right to inspect the activity of the permit holder in order to establish compliance with the permit. Structural changes at the MoE foresee that the two present inspectorates will take on the primary role of environmental and nature protection supervision, while the role of the county environmental departments will be strengthened in the field of control over enterprises, particularly in the fulfilment of obligations set in licensed permits. The prosecution process rests with civil, administrative and criminal courts.

In carrying out their duties, state environmental protection inspectors have the following rights:

• to suspend construction or reconstruction of an economic or other facility, or to stop or limit activities if environmental protection acts are violated, or if the activities do not comply with environmental protection requirements;

• to enter the territory or premises of all enterprises in order to carry out control of environmental protection and to monitor the use of natural resources, and to perform control investigations and measurements;

• in accordance with the established procedure, to investigate cases where violation of administrative acts occurs and to impose administrative penalties.

Environmental Administration

Counties comprise towns and municipalities. There are 207 municipalities (vald) in Estonia. Town governments (47) together with municipal governments form the local governments (or self-governments), whereas the county governments are essentially an extension of the state role at the regional level.

The institutional system of environmental protection is shown in Table 2.8 and can be described as follows:

• Riigikogu, which serves as the highest legislative body. Within the Riigikogu exists a permanent Commission on the Environment.
• The government of the Republic of Estonia serves as the supreme executive body.
• The Ministry of Environment is the highest executive body, carrying out national environmental policy and communicating with other states and international environmental organizations.

The administrative issues under the jurisdiction of the Ministry of Environment include:

• environmental management;
• landscape and biodiversity protection at the national level - activities related to land, construction and regional planning;
• management and protection of natural resources and the maintenance of the relevant registers;
• supervision of the use of natural resources, environmental protection and building activities as well as the use of environmentally hazardous substances.
• guidance in the field of weather forecasting and geodesy as well as in the organization of research in the fields of geology, building, nature, and inland and marine waters.

As of September 1, 1997, the following boards and inspectorates fell under the jurisdiction of the Ministry of Environment: the Land Board, the Forest Board, the Fisheries Board, the Environmental Inspectorate and the Marine Inspectorate at the county level:

• Environmental Departments (17, i.e. 15 County Environmental Departments and two town environmental departments; those of Tallinn and Narva operate in the same way as CEDs, under the jurisdiction of the county governor);
• Land Boards;
• Forestry Boards;
• Building Departments;
• Architectural and Planning Departments;
• Marine Inspectorate Departments (6).

The responsibilities of County Environmental Departments include regulating:

• environmental, landscape and biodiversity management;
• the use and protection of mineral and water resources, and fish stocks.

According to the NES, until 2000, the environmental administration and supervision system will be regulated at the state level. Thereafter, the establishment of five regional services instead of the county environmental departments will be considered. Furthermore, the MoE will be reorganized, with its future tasks set to include the drafting of legislation, the coordination and implementation of environmental policy and development activities, international environmental cooperation, and communication with other ministries and the public. Various boards will be responsible for the implementation of environmental policy.

With the development of Estonian economic and administrative systems and structures, the role of municipalities will gradually increase. With further regulation and improvement to national environmental legislation, more attention will be paid to specifying the distinct obligations, rights, and liabilities of municipalities. This in turn will require the establishment of environmental units at the local government level (municipalities). Environmental management systems (EMS) at the corporate level will be introduced and the legal framework will be provided.

The growth in environmental awareness and legislative requirements for public involvement in the environmental decisionmaking increases the role of NGOs and individual citizens in environmental protection.

The NES also foresees the establishment of an ombudsman-like institution for the pre-court and formal resolution of environmental disputes, as well as an environmental court within the present administrative court system.

The following other ministries also share responsibilities in the field of environmental protection:

• Ministry of Social Affairs - together with the MoE establishes environmental quality standards,
• Ministry of Agriculture - responsibility for plant protection and the introduction of biodynamic agricultural practices,
• Ministry of Economy - responsibility in some areas for the management of mineral resources.