Structure and Efficiency of Energy Use in a Reforming Economy: The Case of Estonia

We have analyzed the structure and intensities of energy uses in Estonia, a small independent state formerly a republic in the (former) Soviet Union. Our analysis covers the period 1980-1993, with the most detail for the years since 1990. While we did not rigorously examine the structure of energy production and supply, we note that the reliance on oil-shale for electricity production and heavy fuel heat supply contributed to very high per capita emissions of most pollutants, particularly SO2, NOx, and CO2.These problems alone, plus the recent reliance of Estonia on imported ail and gas sold at world prices, create an enormous incentive for improved energy efficiency in Estonia.
We analyze the structure of energy consumption, noting that while the industrial and freight sectors play a strong role (as they did in other centrally planned economies), the Estonian economy was somewhat less oriented toward production of energy-intensive raw materials than were most other planned economies.
We find that most energy intensities are high, indicating a significant potential for energy savings. Comparing Estonia with Poland and economies of Western Europe confirms this finding. We lay out in detail steps that could permit a reduction in energy intensities of 25-50% in Estonia, depending on key factors such as timeframe, energy prices, overall economic reform, and a few important policy steps. We note, however, that there are many formidable barriers to improving energy efficiency. Some of these are related to the problems of Communist economies - lack of markets, lack of realistic prices, and lack of information - many of which have already begun to change. But other problems, particularly those plaguing the housing and building sector, hinder efficient use of resources in market economies as well. We call for policies that focus on accelerating the transition away from the older economy and those that address market barriers that are likely to remain.