The European Union’s new environmental policy will significantly affect agriculture and transport. Latvia has been allocated 10 billion euros for the transition to the new course, which is currently equivalent to one year's budget for our country, yet the expansion of protected areas in the forestry sector alone will reduce export income by at least 800 million euros annually. Employment in the sector and related fields will also decline.

The topic is analysed by “Dienas Bizness” in cooperation with the portal zemeunvalsts.lv, discussing the European Union’s new environmental policy, its potential risks, and opportunities for the Latvian national economy. The transition will take place over many years, but for it to result in the achievement of the EU's climate goals while ensuring the economy does not face unpleasant surprises, politicians, officials, and entrepreneurs working in the specific sectors must participate in the development of relevant decisions.

Identifying the sectors that will feel it most

“The identification of the sectors that will be affected by the new EU environmental policy is currently underway. Several ministries are involved here, and over time, those sectors that will be most affected will also be identified,” explains Gatis Zamurs, Parliamentary Secretary of the Ministry of Environmental Protection and Regional Development. In his view, transport and agriculture are facing the greatest changes, as they are responsible for a large portion of greenhouse gas emissions. “It is a horizontal change that will affect everyone; there are many ‘challenges’, and it is impossible to record them all. For example, we were moving towards the Green Deal, thinking green thoughts, but then COVID-19 ‘arrived’, which left us burdened with plastic packaging,” says G. Zamurs. He admits that in this context, we must understand what goods and services will cost in the future. “All transport will have to use greener vehicles and we will also have to travel less, and thinking that one can achieve climate neutrality while buying a shirt for 5 euros will not be possible. Producing goods at a great distance from consumers and transporting them means that there will be a fee for importing them into the EU, so as not to distort competition with those who produce more greenly within the EU,” says G. Zamurs. This will mean a CO2 emission tax on goods imported into the EU. Of course, it is not currently known when such a tax will be introduced. “Over the next few years, we will understand when and how this will happen,” G. Zamurs emphasised.

Fine nuances

“Everyone will have to pay not only for emissions, but every company and person will also have to compensate for their lifestyle’s impact on the environment – clean air, biodiversity, water resources, pollution,” explains Dagnis Dubrovskis, a Doctor of Forest Sciences, regarding the complex approach of the European Green Deal. He stresses that in the context of the European Green Deal, land resources – forests (a source of CO2 sequestration), bogs, and watercourses – serve as assets that mitigate and compensate for human impact. “Agriculture must be designed on the principle of minimising the sector’s impact on the environment and maximising its ability to compensate for the pollution generated by other sectors,” says D. Dubrovskis. He does not deny that one of the ways to increase CO2 sequestration is by planting forests, but there are three different approaches and methodologies for assessing the potential contribution of forestry. “Looking at the IPCC (Intergovernmental Panel on Climate Change) methodology – forestry (tree felling) creates emissions and therefore is not highlighted in CO2 sequestration; however, from the perspective of land use, both emissions caused by economic activity and the fact that trees sequester CO2 as they grow are assessed. A third factor is bioeconomy considerations: that the forest not only sequesters CO2 during its growth but also has the ability to replace some fossil energy and building materials such as metal and concrete,” explains D. Dubrovskis. He points out that these issues are currently being discussed in Europe, the result of which will be specific European regulations. “In the context of the forest, on one hand, there is a contradiction – it is possible to increase carbon sequestration. On the other – the protection and conservation of biodiversity, because an increase in tree felling can change the CO2 balance (sequestration minus emissions). At the same time, there is a risk that replacing old forests with more productive young stands can worsen biodiversity,” says D. Dubrovskis. For these reasons, there is no simple answer that planting forests is the only solution to increasing CO2 sequestration. “Climate neutrality does not mean that at some point the generation of greenhouse gas emissions will be zero, because such a situation will not arise in nature. We will achieve this through compensatory mechanisms,” G. Zamurs emphasises.

Risks seen in unification

Currently, the EU Climate Law and the EU Biodiversity Strategy are in the approval process. In D. Dubrovskis’s opinion, the greatest attention should be paid to taxonomy (a system designed to assess the environmental impact of production and to determine which activities are recognised as sustainable and which are not). “According to the intention of the taxonomy authors, the inspection criteria will be identical for the entire EU, regardless of whether it is Spain, Latvia, or Sweden. It is precisely because of this that in this unified approach I see great risks, which could make the northern region a place that serves as a ‘confession of sins’ for other regions for the pollution they have created,” notes D. Dubrovskis. G. Zamurs urges looking more at the opportunities and advantages that would arise if we generated new ideas and solutions ourselves and were more active, rather than focusing on the risks in cases where a member state does not comply with something. “I don’t see that anything in this EU course could be changed much, although, of course, there is the question of timing,” says G. Zamurs. In his view, we should not look at where to do things last, but rather the opposite – to be the first, thus making ourselves richer and wiser.

10 billion euros

“Innovation, research, and education are a challenge in almost all sectors, because we produce things that others have invented, and thus we expose ourselves to the middle-income trap,” G. Zamurs answers when asked to mention the most important directions. He points out that by summing up all the funding in the European Green Deal, Latvia is looking at approximately 10 billion euros, which is one year’s Latvian state budget. “That is a large sum of money allocated to the Green Deal, which creates opportunities for entrepreneurs to invest their own money with the firm conviction that this direction will not stop and there will be corresponding demand,” says G. Zamurs. Jānis Eglīts, Head of the Office of the Minister of Agriculture Kaspars Gerhards, believes that EU funds alone will not be enough and that one must also think about funding from the state budget. “In 2023-2027, 150 million euros are needed from the budget, because Latvia is already currently in an unequal situation, for example, compared to Finland, where this proportion is 70% (state budget) to 30% (EU money). In Latvia, this ratio is the opposite, with EU funding dominating here,” says J. Eglīts. In his view, one situation is if investments are made in technologies that will have to be changed, but another is in research. “Every programme will have its own support intensity, just as it is now – when one has 40% and another has 60%,” explains J. Eglīts.

A gap of at least 800 million euros

D. Dubrovskis believes that investments in technology and research are necessary, but that land must be revalued as an asset. “The EU Biodiversity Strategy contains a requirement that 10% of the land territory must be strictly protected, which means that no economic activity takes place there. Another 30% of Latvia’s territory must be protected. This means that production costs in these assets will become significantly more expensive,” D. Dubrovskis points out regarding the potential consequences. He shows the assessment by the Thünen Institute of Forest Ecosystems in Germany on the impact of the EU Green Deal on the forestry sector and its conclusion – that the volume of wood production in Europe will shrink by a third. “In Latvia’s case, this would reduce wood product exports by 800 million euros, thus reducing the number of employees in the forestry sector itself as well as in the spheres that serve it, so other jobs must be sought,” explains D. Dubrovskis. And furthermore – additional funding will be needed for the monitoring of protected areas. “Funding for this purpose has not been resolved either in Latvia or in the EU, and discussions about its potential sources are taking place at the EU level,” says D. Dubrovskis. J. Eglīts adds that previous studies (for example, the VARAM assessment on the situation in protected areas) point to a dangerous trend. “The moment a natural area is excluded from economic activity, its biological value declines. The question arises, what will we do – increase the areas of protected territories (exceeding the 10% required by the EU), or renew economic activity in some of these areas where there are no natural values. These are the unanswered questions,” emphasises J. Eglīts. It is a matter of responsible, not formal, conservation of natural values. “As long as a forest is growing, up to a certain age (it differs for deciduous and coniferous trees), it sequesters CO2, and after that, it becomes a CO2 emitter,” notes J. Eglīts. Latvia has many old forests, but in his opinion, there is no mechanism to interest forest owners so that they earn a profit and contribute to the green policy. “For example, reviewing historical restricted areas if the reason for their implementation, say, a specific bird, has not been present in a specific place for several years. Currently, such a mechanism does not exist,” concludes J. Eglīts. He reminds us that at one time the Ministry of Agriculture proposed reviewing the cutting diameter, which would give the owner greater opportunities to assess under what conditions they would have the right to cut the forest earlier and gain economic benefit not only for themselves but also for the state, while at the same time demanding an obligation for mandatory forest regeneration with high-value planting material. The initiative remained on paper. “Other EU member states include in their protected areas (10% of land) those lands where economic activity is not possible due to natural conditions (cliffs, mountains, etc.), whereas there are people who believe that the area of unmanaged territories in Latvia must be significantly increased,” explains J. Eglīts. He admits that a lot of effort is currently being devoted to minimising potential losses to the Latvian economy as much as possible. “Forestry + agriculture + peat extraction make a huge contribution to the Latvian economy – 40% of total export income – therefore we cannot afford to simply ‘tear off’ a sector,” believes J. Eglīts. G. Zamurs acknowledged that discussions are continuing and the question of how to balance economic interests with those of the Green Deal is neither an easy nor a quick process.
The video of the discussion is available here:
https://www.youtube.com/watch?v=rrv1T4hUExs&t=1s