Estonia bets on clean tech for its next wave of growth, innovation and social cohesion

"[European] Union future is being born right here in Narva [Estonia]", said EU Commission President Ursula von der Leyen on June 28th of Canada's Neo Performance Inc 100M EUR investment into a rare earth magnet refinery in Ida-Viruma, Estonia, which is the first Just Transition Fund investment by the Commission and the only such industrial facility outside of China.

Rare earths are a fundamental building block of a green transition as they are used to make more efficient motors for electric vehicles, more efficient wind turbines, electric pumps for water and air among other applications. This makes this investment a key part of developing a clean tech cluster in Eastern Estonia, a region known for its heavy and high carbon emitting industries such as oil shale.

I had the pleasure of meeting the architects of this investment at the 11th Annual Estonia's Friends International meeting last week where @VasileiosTsianos of Neo Performance Inc gave the example that if rare earth magnets were deployed to all the pumps Grundfos has installed in Europe we could save the equivalent energy of up to two large nuclear power plants. But what I learned from Estonia's Foreign Minister's Margus Tsahkna, this investment is only the beginning, in fact Estonia has ambitions of becoming a net exporter of clean energy, a key component of Estonia's transition to a low-carbon economy by 2050.

The meeting, which had as its patrons former President Toomas Hendrik Ilves and Sten Tamkivi, ex-Skype exec and hosts current President Alar Karis and President of the Parliament Lauri Hussar, was not short on ESG investors, start up CEOs and other important clean tech partners representing the wind, solar, nuclear and hydrogen industries.

As the three day event unfolded, some drivers and themes emerged which gave me plenty of confidence in Estonia's ability to successfully make this transition as it had done 20 years earlier when it made a similar tiger leap forward to become a leading digital economy which now boast a fully digital and secure government e-infrastructure called xRoad and a digital private sector that boasts 11 unicorns.

For context, Estonia's political-economy has been significantly impacted by the Russia's war in the Ukraine with high inflation, an energy crisis, loss of transit trade, and security concerns as an EU boarder nation to Russia. As a result it has accelerated plans to integrate into Europe's energy grid and clean tech ecosystem to drive renewed growth and encourage social cohesion.

Estonia has plans to phase out Russian fossils fuels by end of 2025 and also to phase out energy from oil shale, a carbon intensive source of low cost power that was used during the Soviet occupation to power the military-industrial complex in Eastern Estonia. This region of Estonia is home to a skilled workforce, which is predominantly Russian speaking.

According to Constantine Karayannopoulos, NEO's CEO, the rare earth magnet factory investment will lead to ~1000 new well paid jobs in the region. Political leaders in the EU, Estonia and Narva believe that this will lead to greater integration of the Russian minority into the Estonian economy as well as attract further investment from downstream users of magnets as well as other clean tech industrial projects such as wind, nuclear, solar and hydrogen.

Estonia's previous bet on a digital transformation helped Estonia become highly competitive and became home to a thriving digital ecosystem of tech companies. This helped the country become nimble, a laboratory for developing and scaling new technologies. It will build on this recent muscle memory, to drive the next wave of growth, innovation and social cohesion.