OECD Economic Surveys: Estonia 2022
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Since its independence, Estonia has made tremendous progress towards greater economic prosperity. Estonia enjoys solid institutions, political stability, a strong and credible fiscal policy, as well as a robust financial sector. Estonia is also a frontrunner in digital governance and innovation. Stable and secure digital services are in fact one of the factors that have allowed Estonia to cushion better than others the sanitary and economic shock from the pandemic. After an impressive post-pandemic rebound, a renewed focus on structural reforms will help Estonia remain on a path of rapid convergence and cushion the new shock entailed by the war in Ukraine. Reforms should focus on addressing labour shortages and skills mismatches, while protecting the existing flexibility of the labour market. Very high inflation could aggravate an already high-level prevalence of poverty, and social transfers could be better targeted towards people left behind. Spending on health and infrastructures should also be made more efficient to deliver better value-for-money. The oil shale sector is highly energy intensive and is the main culprit behind Estonia’s high greenhouse gas emissions, but reducing dependence on the sector is challenging. This Economic Survey of Estonia assesses the country’s macroeconomic performance and proposes policy measures to promote higher, greener, more resilient and inclusive growth.
SPECIAL FEATURE: CLIMATE POLICY CHALLENGES
Estonia’s climate policy: challenges and opportunities
Estonia has a relatively carbon-intensive economy among OECD countries. The government has committed to reducing greenhouse gas emissions by 70% in 2030 relative to their 1990 levels and is aiming to achieve climate neutrality by 2050. Considerable progress has already been made and almost one third of Estonia’s energy is now produced from renewable sources. However, a deeper transformation will be needed. Estonia has committed to phase out oil shale and will need to diversify its sources of renewable energy. There is scope to substantially reduce the use of fossil fuels in the transport sector and to increase the energy efficiency of buildings across Estonia. To achieve this will require a comprehensive approach that significantly expands carbon pricing, public investment and private-sector incentives. Adopting an inclusive approach will be essential to secure the support of consumers and workers.
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