Assessment and recommendations
The Assessment and Recommendations present the main findings of the OECD Environmental Performance Review of Lithuania. They identify 43 recommendations to help the country make further progress towards its environmental objectives and international commitments. The OECD Working Party on Environmental Performance discussed and approved the Assessment and Recommendations at its meeting on 30 June 2021.
With fewer than 3 million residents, Lithuania is among the least populous OECD member countries. It is a relatively flat country rich in agricultural land and forest resources. Lithuania has many rivers, lakes and wetlands, and a Baltic Sea coastline. It joined the European Union (EU) in 2004, adopted the euro in 2015 and joined the OECD in 2018. Its gross domestic product (GDP) has grown quickly since transitioning to a market economy in the 1990s. GDP per capita is now around 80% of the OECD average.
Since 2005, Lithuania has made progress in decoupling environmental pressures – greenhouse gas (GHG) and other air pollutant emissions; municipal waste generation; energy and material consumption; water abstractions – from economic growth (Figure 1). It has also improved wastewater treatment and expanded the network of protected areas. However, progress remains insufficient to halt biodiversity loss and alleviate pressures from increasingly intensive agriculture. Although Lithuania performs well in economic, employment and educational dimensions of well-being, it ranks poorly in such areas as health, life satisfaction and inequality (OECD, 2020a). Progress towards the 2030 Sustainable Development Goals (SDGs) lags that of neighbouring countries. Any positive environmental outcomes (air quality, GHG emissions) from the COVID-19 crisis are likely to prove temporary. However, the recovery presents an opportunity to improve on the pre-COVID model.
Note: The air emissions index is an equal-weight index of carbon monoxide, nitrogen oxides, non-methane volatile organic compounds, particulates (PM10 and PM2.5) and sulphur oxides. LULUCF = land use, land-use change and forestry.
Source: EPA (2021), Lithuania’s Greenhouse Gas Inventory Report 2021; IEA (2021), IEA World Energy Statistics and Balances (database); OECD (2020), OECD National Accounts (database); OECD (2020), OECD Environment Statistics (database).
Climate ambition is high but is not adequately supported by policies
The government has set a long-term goal of carbon neutrality by 2050 in its National Climate Change Management Agenda. The National Energy and Climate Plan (NECP) for 2021-30 and dedicated plans for energy, climate and air have also set ambitious policy goals as national contributions to the 2030 and 2050 targets of the European Union to reach the goals of the Paris Agreement. Lithuania should maximise integration of climate change mitigation policies across different sectors to meet the new EU 2030 goal of cutting GHG emissions by 55%.
While the economy is less carbon- and energy-intensive than the OECD average, it is modestly more intensive than the OECD European countries’ average on both measures. Apart from domestic biomass and wind energy resources, the country relies on fossil energy and electricity imports to meet its needs. This makes energy efficiency and good connectivity strategically important for energy security. Oil dominates the energy mix with a 38% share. Indeed, this share has increased in the last decade to meet the growing demand from transport and to fill (along with natural gas) the energy gap after the country’s only nuclear power station closed in 2009. Energy supply from renewable sources has more than doubled from around 10% to over 20% during 2005-19. Renewables (dominated by wood used for heating) accounted for 25% of gross final energy consumption in 2018, achieving the 2020 objective of 23% (and exceeding the EU average).
Energy consumption has increased since 2005, driven mainly by increased demand from transport. The country is not on track to achieve its 2020 target for final energy consumption (IEA, 2021). The NECP expects final energy consumption to be reduced by 15% between 2020 and 2030.
GHG emissions have been mostly flat since 2009. As OECD average per capita GHG emissions have declined since 2005, Lithuania’s per capita emissions have been stable but remain lower than both the OECD and the OECD Europe averages. Energy (including transport), agriculture and industry account for two-thirds of total GHG emissions. Emissions from transport have risen remarkably quickly since 2013 and are up by 50% since 2005. This is mainly due to an increase in the volume of goods transported by road and greater emissions from passenger cars (Section 4).
Lithuania is a participant in the EU Emissions Trading System (ETS) for large emitters like power stations, refineries, large factories and aircraft operators. Together, these emitters account for just under a third of the country’s emissions. For non-ETS sectors, including transport, Lithuania met the 2020 target of +15% compared to 2005 levels. Lithuania needs to cut emissions for the first time based on its binding non-ETS target of -9% for 2030 and an even more ambitious national target of a 25% reduction. However, existing policies will be insufficient to meet climate targets for 2030 and beyond (Figure 2). For example, they are expected to lead to a 6% increase in emissions from non-ETS sectors, particularly due to transport emissions. Additional measures will be needed, including those to be funded by the European Union’s 2021-27 budget funds and its Recovery and Resilience Facility. These resources will support continued building renovation and upgrade of heating systems, alternative fuels in industry and transport, electric vehicles and rail freight, and renewable energy generation and storage.
Note: GHG = Greenhouse gas emissions excluding land use, land-use change and forestry (LULUCF); ETS = Emissions Trading System.
The dotted lines show GHG emission projections with existing measures (WEM). The dashed lines show GHG emission projections with the
additional measures (WAM) scenario. The 2020 target has been achieved using the flexibility mechanisms as defined by the EU
Effort Sharing Decision (ESD) and Effort Sharing Regulation. The WEM and WAM projections do not include the use of these flexibilities.
Source: EC (2021), "National projections of greenhouse gas emissions and removals”, submitted to the European Commission pursuant to
Commission Implementing Regulation (EU) No 749/2014 of 30 June 2014; MoE (2021), Lithuania’s Greenhouse Gas Inventory Report 2020.
Future air emission ceilings will likely be exceeded for several pollutants
Lithuania has been complying with its national emission ceilings for key pollutants. However, it will likely not achieve its 2020-29 National Emission Ceiling reduction commitments for ammonia, non-methane volatile organic compounds and nitrogen oxides (NOx). For NOx (from transport and agriculture), the distance to the target is among the largest in the European Union. Decisive actions to reduce emissions in these sectors are particularly needed.
The decentralised industrial base, absence of large cities and low population density help keep average exposure to air pollution low. Exceedances of chronic or acute air quality threshold values are relatively uncommon, and key EU limit values are attained. The reliance on solid fuel for heating in urban areas may raise risks of locally high concentrations of benzopyrenes and particulate matter in cold weather. Particulate matter concentrations in Vilnius and Klaipeda are within limits but increasing.
Impressive progress in waste management is a first step towards a circular economy
Lithuania has moved from landfilling almost all its waste to recycling and composting most of it in less than a decade (Figure 3). Multiple actions have produced good waste management results. These include implementation of separate waste collection, construction of sorting facilities, improved labelling requirements, near-complete service coverage, education and awareness campaigns, and expansion of deposit-refund schemes to cover glass, plastic and aluminium beverage containers. The Waste Framework Directive’s 2020 targets for recycling half of household waste (paper, metal, plastic and glass) and 70% of construction waste seem to have been narrowly achieved.
Lithuania plans to shift to a circular economy by 2050. However, the per capita municipal waste generation has been increasing since 2009. It remains slightly below the average OECD level. The country should expand efforts to reduce waste generation and work to divert more of the remaining quarter of municipal waste still going to landfill to other treatment methods.
Lithuania’s material productivity (GDP generated per unit of materials used) has not improved in the last ten years unlike in most OECD member countries. This is largely explained by the GDP-matching growth in the use of construction materials.
Agriculture has a major impact on water quality
Monitoring data reveal that nutrients are worsening water pollution across the country. The main reason for increased pollution with nitrogen compounds is that agriculture has intensified and shifted towards more fertiliser-intensive crops without mitigating the related environmental impact. More than half of monitored rivers in agricultural areas have not achieved “good” status under the EU Water Framework Directive in recent years. Nitrogen loads into the Baltic Sea have increased even as several other countries on the Baltic have reduced theirs.
A second important cause of nutrient water pollution is insufficiently treated wastewater, with significant phosphorus loads. There are plans and funding to connect more households to the sewerage network and upgrade the few remaining treatment plants that are not built to modern standards. Historically, these infrastructure upgrades have been successful in improving water quality. However, these measures have been financed primarily with EU funds. In the future, they will have to rely increasingly on self-financing.
The National Progress Plan adopted in 2020 includes longer-term objectives to improve water availability and quality. The government will promote more sustainable use of mineral fertilisers and pesticides and strive to reduce diffuse and point-source water pollution. A reform involving consolidation of small water utilities into larger ones is being considered. This would enable larger utilities to independently raise the funds needed to invest in adequate water supply and treatment infrastructure.
Biodiversity is under pressure from agriculture and forestry
As in much of Europe, biodiversity outcomes are not encouraging. The latest data show that almost four of every five assessed habitats had an unfavourable status. Only a few species and habitats were qualified as improving. Lithuania is located within the boreal biogeographical region and shelters megafauna like the elk, grey wolf, Eurasian lynx and beaver in forest and wetland habitats, and wintering birds and grey seals in its Baltic marine waters. As a welcome step, biodiversity monitoring of habitats and species of community importance has recently improved. However, Lithuania’s knowledge of conservation status is the lowest in the European Union (EEA, 2020) due to little surveillance outside of protected areas.
The expansion of more input-intensive arable farming, land abandonment in areas with small-scale farming, and forestry operations are the leading pressures on biodiversity. Both the arable area and the forest area, each accounting for about a third of the total land area, have increased over the last 15 years. Urbanisation pressures are modest by European standards: urban areas account for around 3.5% of the total land area. The land take (new land used for construction) since 2000 as a share of land area is the sixth lowest in the European Union.
Forests also play an important economic role, provide recreational opportunities and capture carbon dioxide. Their importance is recognised by national targets to expand the forest area from 33.7% in 2018 to 35% by 2030. The forest area has indeed been increasing in recent years, promoted through afforestation payments to private landowners and restrictions on converting forest land to other uses.
Protected areas cover 17% of the land area and 23% of the country’s exclusive economic zone in the sea. The country meets the Aichi 17% target for terrestrial areas and exceeds the 10% target for marine and coastal areas. However, protected area management is institutionally fragmented. Biodiversity protection efforts largely rely on project-based financial support from the European Union. Lithuania is considering a consolidation of numerous regional protected area agencies into a single national agency with more harmonised management.
Mitigating climate change
Support the ambitious goal of carbon neutrality by identifying and exploiting synergies between climate policies and national priorities in business development, energy security, air and water quality, quality-of-life and housing.
Optimise the use of EU funds, notably the recovery funding, to accelerate implementation of the NECP and other relevant policies; track progress towards the targets and closely monitor the performance of individual policies.
Improving air quality
Reduce ammonia emissions by regulating mineral fertiliser application and implementing good farming practices such as integrated livestock manure management.
Closely monitor air quality in dense urban areas with high levels of domestic solid fuel use for heating; introduce enforceable solid fuel quality requirements as necessary; strengthen control of household heating appliances.
Improving water quality
Reduce nitrogen loading from agriculture through requirements for planning of, and reporting on, fertiliser consumption, stricter limits for fertiliser application in targeted areas, voluntary approaches, awareness-raising initiatives and training for farmers.
Complete the upgrades of the wastewater treatment and water supply infrastructure to reduce the impact on water courses.
Conserving and sustainably using biodiversity
Mainstream biodiversity considerations across government policies; improve planning and implementation of biodiversity protection measures and surveillance of biodiversity status outside protected areas.
Consider introducing payments for ecosystem services and sustainable forest management; ensure financial sustainability of biodiversity protection programmes.
Lithuania has a centralised environmental governance system with a modest role of local authorities and a relatively low level of civic engagement in decision making compared to many other EU countries. The regulatory framework has been reinforced over the last 20 years through alignment of the country’s environmental legislation with EU directives. However, the adoption of good practices for implementing environmental law has been slow.
Despite formal co-ordination mechanisms, better policy coherence is needed on the environment
The Ministry of Environment (MoE) as a policy-making body and its subordinated institutions with regulatory, compliance assurance and issue-specific management functions are in charge of the entire spectrum of environmental matters. Under the 2021-24 government programme, the MoE has declared an ambitious goal for Lithuania to become a carbon-neutral country with an established circular economy by 2050. Inter-institutional working groups collaborate on legislation and strategic documents, as well as on joint initiatives between relevant government stakeholders. However, the country does not yet have a whole-of-government approach to environmental issues. Better co-ordination is necessary for adequate integration of environmental considerations into sectoral policies.
Municipalities are supported by the state in their environmental efforts. Many have developed sustainable urban mobility plans (SUMPs, Section 4) but do not yet play an active role in other key policy areas, such as climate change mitigation and adaptation and circular economy.
Environmental regulation is becoming more efficient but should be further improved
The permitting process has been streamlined thanks to electronic submission of applications and permit issuance through the Lithuanian e-government gateway. The environmental impact assessment (EIA) and permitting procedures are linked: permit-issuing authorities cannot override a negative EIA decision but do not always incorporate its conditions into the permit.
Installations that are not subject to integrated permitting requirements receive simplified pollution permits with conditions covering specific impacts (waste treatment, air emissions or wastewater discharges). However, the country does not use activity-specific standard environmental requirements for low-impact installations. Applying this good international practice could reduce the regulatory costs for competent authorities and administrative burden for regulated entities.
Regulatory impact assessment covers environmental aspects of draft laws but evaluates them only superficially. A methodology for ex post assessment of the impact of laws and regulations is under development. Strategic environmental assessment is carried out at the national and municipal levels for plans and programmes with a potentially significant environmental impact. The quality control over local land-use planning and the integration of environmental considerations into it are not sufficient. For example, there is not enough co-ordination between land-use and transport planning.
High non-compliance calls for proactive inspections and stronger enforcement
Compliance monitoring is partially risk-based: it relies primarily on 12 risk-related criteria, including the operator’s compliance record. However, it must conform to the minimum and maximum inspection frequencies defined in the legislation. The share of planned inspections – slightly over half of the total – is lower than in most OECD member countries, indicating that compliance monitoring is largely reactive. The annual number of planned inspections has declined in recent years, while the number of those reacting to incidents and complaints has risen. The information on regulated entities is poorly maintained, which may lead to gaps in inspection planning (NAO, 2020).
Non-compliance is high, with over 60% of inspections on average detecting at least one violation. Despite the 2020 legislative changes to strengthen enforcement tools, administrative fines are still too low to have a deterrent impact, and their annual imposed volume dropped by about half over 2016-20. In addition, only about two-thirds of the amount of imposed fines is collected, further diminishing the effectiveness of administrative penalties. There are few criminal enforcement cases, only half of which end in conviction.
Environmental damage remediation needs to be strengthened
Lithuanian law requires that the damaged environment be restored to the extent possible through implementation of remediation measures. However, like in the two other Baltic states, the responsible party typically pays a monetary damage compensation to an earmarked budgetary fund instead of clean-up. Such compensation does not reflect real damage to the environment or encourage remediation.
Financial security mechanisms are scarcely used to ensure clean-up of current and historic contamination. This creates a significant burden on the state for environmental remediation in case the responsible party is insolvent. As a result, Lithuania relies almost fully on EU funding in addressing old contaminated sites. A much larger effort is required to clean up about 800 sites that need remediation across the country.
Green practices could be promoted better through guidance and public procurement
Providing guidance and assistance to the regulated community has not traditionally been part of compliance assurance efforts of Lithuanian environmental authorities. This is slowly changing with financial incentives for small and medium-sized enterprises to adopt an environmental management system and conduct environmental audits. However, guidance on good environmental practices is largely lacking. Voluntary agreements with industry aimed at achieving environmental goals have not been widely used.
Green public procurement (GPP) as a tool to promote sustainable products and production practices has also been underused. The government has recently increased the policy profile of GPP. Still, its implementation remains far off targets, and the environmental compliance record of suppliers is not part of procurement criteria. The MoE is planning to review, update and increase the number of GPP criteria, streamline GPP reporting and establish a GPP competence centre to provide direct support to public procurement officers.
Public participation would benefit from enhanced access to information and education
The MoE and its subordinate authorities routinely involve civil society representatives in high-profile law drafting and policy decisions. However, there is no active dialogue with civil society on key environmental policy priorities, particularly at the local level. Public involvement in EIA, permitting and land-use planning is low. Environmental awareness of the population is also below the EU average. Environmental authorities and several non-governmental organisations (NGOs) are active in the field of environmental education, but their efforts are falling short of the need to boost public participation in environmental decision making. There is no consistent approach to environmental education in secondary schools.
Most environmental information is accessible to the public but is fragmented across different authorities’ websites, making it more difficult for users to find and navigate. Consolidated state of the environment reporting was discontinued in 2015 due to lack of resources. Compliance monitoring and enforcement information on individual economic entities is not publicly available.
Administrative courts can rule on both procedural and substantive legality of a government action. Administrative court judges undergo regular international and domestic trainings in environmental law. However, NGOs cannot benefit from legal aid, and potentially high litigation costs are a barrier in access to justice.
Institutional and regulatory framework
Promote the whole-of-government approach to environmental management through better integration of environmental issues into sectoral policies, more effective inter-ministerial co-ordination and more efficient use of available resources; empower municipalities to be more proactive in advancing the country’s agenda on climate change, circular economy and sustainable mobility.
Strengthen the environmental aspects of ex ante and ex post assessment of laws and regulations; ensure better integration of environmental considerations into land-use planning.
Improve regulatory efficiency by introducing general binding rules based on best available techniques for facilities with low environmental impact in activity sectors with multiple facilities and similar processes.
Compliance assurance
Increase the number of risk-targeted inspections; expand use of administrative fines for environmental violations and raise their levels to reflect offenders’ economic benefit from non-compliance; improve the collection of imposed fines.
Facilitate full implementation of environmental liability regulations to ensure remediation of damage to the environment at the expense of the responsible party; accelerate the clean-up of old contaminated sites by securing adequate financial resources.
Enhance the promotion of compliance and green business practices through information-based instruments; include compliance in a streamlined set of GPP criteria and ensure their implementation by all public organisations.
Environmental democracy
Expand environmental awareness raising and adult education, and engage the general public more actively in environmental decision making at the national and local levels.
Consolidate public sources of environmental information and ensure regular reporting on the state of the environment; open public access to compliance-related information about individual polluting installations.
Remove cost barriers in access to justice by requiring the government to cover its share of the litigation costs irrespectively of the eventual court decision; provide access to legal aid for NGOs.
Lithuania is a small, open economy that has shown rapid economic development over the last decades, with GDP per capita rapidly converging towards the average of OECD’s upper half. However, skill shortages and low productivity in parts of the economy create vulnerabilities. Following a relatively mild contraction in 2020, GDP is projected to grow by around 3% in 2021 and 2022 on average, as confidence strengthens and investment picks up slowly with the rollout of vaccinations (OECD, 2020b). The country’s dependence on energy imports (Section 1) is a strong driver for energy transition and green growth more generally.
In response to the COVID-19 pandemic, the government swiftly set up a programme supporting households and firms, representing almost 10% of GDP, and plans new investments to support long-term growth (OECD, 2020c). Measures include wage subsidies that ensure that workers receive at least the minimum wage, a flat benefit for the insured self-employed, increased sickness benefits for employees infected by the virus and an apartment building renovation programme to improve energy efficiency. Special COVID-19 recovery support measures were in place for “green” firms, but these have ended with the economy on a recovery path. More attention is needed on environmental performance of firms receiving help to recover from the crisis.
Better co-ordination of strategic planning is warranted
Every agency in Lithuania is guided by the overarching Progress Strategy “Lithuania 2030”. A National Voluntary Review of the implementation of Agenda 2030 found that Lithuania’s strategic planning documents reflected most SDGs and their targets (UN, 2018). Although the review assessed progress on all SDGs, it did not identify the environment as a priority. The planned update of Lithuania 2030 in line with Agenda 2030 is ongoing (Blöchliger and Strumskyte, 2021).
The country has prepared a wide range of environmental policy plans over the past few years. In 2019, the government presented its long-term National Climate Change Management Strategy in line with EU regulations, setting a net-zero carbon emission target for 2050. The NECP laid out medium-term (2021-30) mitigation and adaptation measures to support implementation, with a special focus on transport and agriculture. The National Air Pollution Reduction Plan was adopted in 2019. The 2016 National Environmental Protection Strategy put forward a range of principles, objectives and targets until 2030 along four main axes: sustainable use of natural resources and waste management, improvement of environmental quality, maintenance of ecosystem stability, and climate change mitigation and adaptation. Additional green economy measures are expected under the National Progress Plan for 2021-30, the new government programme and the 2021 New Generation Lithuania recovery plan.
In 2020, the prime minister established a government working group to better co-ordinate NECP implementation and address topics on the European Union’s Green Deal agenda. The working group includes vice ministers and other high-level representatives of key ministries in charge of NECP implementation. It co-ordinates, among others, the transfer of NECP measures and indicators into national investment planning documents. Such high-level co-ordination of related policy measures is useful.
Private funding is needed to support large investments in greening the economy
Public (mostly local government) expenditure on environmental protection decreased from 1.3% of GDP in 2000 to 0.3% in 2018, less than half the EU average of 0.8%. A reversion of these trends is needed. For example, according to OECD projections, compliance with EU legislation on water supply and sanitation will require a 40% increase in annual investment by 2030 (OECD, 2020d). To implement the measures laid out in the NECP, Lithuania anticipates a total investment need of EUR 14 billion, most of it coming from public funding.
Lithuania has in the past benefited from major funding from the European Structural and Investment Funds. Over 2014-20, the country received EUR 8.4 billion in a range of policy areas, many of which are of environmental relevance (e.g. environment protection and resource efficiency, low-carbon economy, climate change adaptation and risk prevention) (Figure 4). The EU funding in these theme areas has been complemented by EUR 1.6 billion in national funding.
Note: European Regional Development Fund (ERDF), Cohesion Fund (CF), European Agricultural Fund for Rural Development (EAFRD), European Social Fund (ESF), European Maritime and Fisheries Fund (EMFF) and Youth Employment Initiative (YEI), including national co-financing (EUR 1.6 billion of EUR 10 billion).
Source: EC (2020), European Structural and Investment Funds (database), accessed on 20 November 2020.
Investment needs in sustainable energy and climate policies are estimated at 3% of the 2019 GDP annually over the next decade (EC, 2020). Lithuania intends to rely on EU funds and other external sources (50%), state funding (21%) and the private sector (29%) to finance these investments. The EU Recovery and Resilience Facility requires that use of its funds be consistent with six defined environmental objectives. This will help ensure that investment-related recovery measures by Lithuania contribute to greening the economy. However, there are no clear plans to mobilise the required private funding.
Electricity production from renewable sources is supported through price premiums and priority access to the grid. Private persons and firms can receive financial support for scrapping old, highly polluting cars and purchasing lower-emission vehicles. Support is also available for energy efficiency measures and installation of renewable energy systems in private houses, as well as for replacement of old boilers with heat pumps or eco-design solid biofuel boilers. Such schemes might reduce energy use and reduce air emissions of particulate matter. However, ex post assessments of similar subsidy schemes in other countries have rarely found that net benefits to society have exceeded the costs.
Ambitious innovation targets have been set but their achievement is uncertain
The country’s eco-innovation performance is modest. The government’s research and development (R&D) budget on the environment decreased in the past decade. The public budget on energy-related R&D per unit of GDP is among the tenth-lowest across the IEA member countries (IEA, 2021). In 2019, the public budget on energy-related R&D per unit of GDP was in the bottom third among OECD member countries. Renewable energy sources, mostly solar energy and biofuels, accounted for one-fourth of total spending.
The share of environmental patents in total patenting in Lithuania is broadly in line with such shares in other Baltic states and the OECD average. However, in absolute terms the number of patents is small. There has been a recent increase in patents related to environmental management, but the number of patents related to climate change mitigation and adaptation has decreased.
The National Energy Independence Strategy lists 9 priority areas and presents 11 measures to stimulate export growth and creation of new forms of business. The National Reform Programme has also set a target to increase substantially the share of renewable energy in the energy mix. Lithuanian businesses and R&D institutions have built up important competences in the fields of solar energy, biomass, geothermal energy and liquefied natural gas (LNG). Although Lithuania also wishes to invest in developing new fields, it may not have sufficient human and financial resources to achieve these ambitions. Systematic application of cost-benefit analysis of potential investments is therefore important.
The Ministry of Energy is implementing a 2020 action plan to strengthen Lithuania’s energy innovation. The plan sets out more than 50 measures in the areas of infrastructure, human resources, products and services, the regulatory environment, science and technology. Most measures are planned to be implemented by 2023. In addition, a law on the Innovation Promotion Fund was adopted in June 2020. The Fund will provide loans, guarantees and risk capital for start-ups and R&D projects.
The Smart Specialisation Programme seeks to significantly increase innovation activity in the country. The goal is to increase investment in R&D from 1.04% of GDP in 2015 to 1.9% in 2023 and to double the number of patent applications over the same period. However, R&D investment has not yet recovered from a sharp drop in 2016, so it is unlikely these objectives will be met. An impact assessment of the programme is planned at the end of 2021.
More should be done to green energy taxes
The tax structure is skewed towards labour, which penalises growth and employment. Revenues from the less distortive environmentally related taxes were equal to around 2% of GDP in 2018. This was below the 2000 level and lower than the OECD Europe average of 2.3%. Almost all the revenues (90%) stem from excise duties on oil and oil products, with pollution and natural resource use taxes accounting for the remaining share.
Lithuania has one of the lowest excise duties on petrol and diesel in the OECD. The country also has one of the largest “diesel differentials”, i.e. the gap in the tax rate on diesel compared to petrol. The low tax rate on diesel has contributed to a rapid dieselisation of the passenger vehicle fleet over the past decade. This has increased emissions of local air pollutants, with negative impacts on human health. In 2019, 69.2% of all passenger vehicles in Lithuania were diesel-driven, up from only 15.2% in 2010. This makes it the highest diesel share in all EU countries (Section 4). In one positive development, the tax on diesel used in agriculture almost tripled from July 2015 to January 2020.
Taxes on energy products do not fully reflect environmental costs of energy use. Effective tax rates on carbon dioxide (CO2) emissions from energy use are low, especially in the road sector (Figure 5). Lithuania does not impose an explicit carbon tax. Legislation in 2021 is expected to revise excise duty and value-added tax (VAT) rate reductions for fossil fuels and introduce a CO2 component in fuel prices, linking tax rates for all fuels to CO2 emissions.
Note: Tax rates as applicable on 1 July 2018. CO2 emissions are calculated based on energy use data for 2018 from IEA (2020), World Energy Statistics and Balances. The average effective carbon tax rate in 2015 is the sum of the average explicit carbon tax rate in 2015 and the average fuel excise tax rate in 2015.
Source: OECD (2019), Taxing Energy Use 2019: Using Taxes for Climate Action.
Support to fossil fuel consumption was equal to 34% of energy tax revenue in 2019. It is mostly made up of tax preferences for the use of oil products, in particular lower taxation of heating oil and diesel used in agriculture. These tax preferences narrow the tax base and undermine carbon prices. Support to fossil fuel consumption rose significantly in the past decade as forgone revenue from tax concessions increased.
Positive changes have been made to motor vehicle taxation but more needs to be done
In a positive development, Lithuania introduced a new tax on passenger car registrations in 2020. Its rates are differentiated according to the vehicle’s CO2-emissions and fuel used. However, the tax only applies to vehicles emitting more than 130 grammes of CO2 per kilometre (gCO2/km) driven. The rates for vehicles with higher emissions are relatively low, especially for non-diesel vehicles. In another sign of progress, Lithuania plans to replace the time-based Eurovignette road use charge for heavy-duty vehicles with a distance-based road use charge differentiated according to the vehicle’s Euro class. Lithuania is also considering an annual tax on passenger vehicle ownership that would vary depending on environmental performance of the car but not on the distance driven.
In 2015, the gap between the cost and benefits of a company car in Lithuania was among the highest in the European Union (Princen, 2017). Removing the favourable tax treatment of company cars, which is costly and particularly benefits high-income persons, would help internalise environmental and social costs of road transport.
Taxes on air and water pollution are low but cover a large number of pollutants
Lithuania applies taxes on certain air and water pollutants emitted from stationary sources. Tax rates for air emissions and wastewater discharges were last increased in January 2021. For some air pollutants, such as particulate matter, heavy metals and volatile organic compounds, gradual increases in the tax rates are foreseen until 2023. However, even the increased tax rates (e.g. for ammonia) are low compared to both estimates of the social costs of the respective pollutants and the costs of their abatement.
The financial support under the EU Common Agricultural Policy has led to a 20% increase in the area of agricultural land since Lithuania's accession to the European Union in 2004. This has had a negative impact on the environment through increased use of synthetic fertilisers and fossil fuels, and reduced grassland and pasture areas. At the same time, support measures under Lithuania’s Rural Development Programmes have encouraged farmers to implement environmentally friendly practices such as organic farming, forest ecosystem services and water quality protection.
In an effort to reduce landfilling of municipal waste, the landfill tax is set to increase by EUR 5 per tonne each year until 2024, when it will reach EUR 25 per tonne of waste. A further tax rate increase, in line with the government’s original proposed rate of EUR 50 per tonne, would be appropriate.
Promoting low-carbon investment and eco-innovation
Improve coherence among different green economy investment programmes and create a concrete plan for mobilising private investments.
Assess Lithuania’s comparative advantages and increase government spending on R&D related to the environment and low-carbon energy transition in the most promising areas.
Greening the tax and subsidy system
Gradually increase the tax rate on diesel at least up to the current level of the petrol tax rate, and consider if further increases in both tax rates could be appropriate to promote the sales of zero-emission vehicles.
Introduce a carbon tax on all fossil fuel uses not covered by the EU ETS, including coal use in households, and increase the tax rates gradually over time, while providing measures to alleviate the burden on the most affected households.
Extend the new CO2-differentiated registration tax to all passenger vehicles, including classes with CO2 emission levels lower than 130 gCO2/km; increase the tax rates for all vehicles without giving an advantage to diesel-driven ones.
Introduce an annual motor vehicle tax for passenger vehicles, with tax rates depending on CO2 and air pollutant emissions of the vehicle; consider adding a distance-based component to this tax.
Implement the planned kilometre-based road use charge for heavy-duty vehicles and consider possibilities of differentiating the charge rates by the time of the day and week to address road congestion.
Further increase the rates of the air and water pollution taxes to better reflect social damages of emissions, while creating incentives for shifting to cleaner technologies; focus on a much smaller number of pollutants.
Phase out all fossil fuel support measures, including the VAT rate reduction for central heating, while taking appropriate measures to limit the burden on the most affected firms and households.
Establish a multi-stakeholder mechanism to track and support the reform of environmentally related taxes and subsidies; swiftly develop a plan to phase out fossil fuel and other environmentally harmful subsidies.
Gradually increase the tax on landfilling of municipal waste beyond the levels envisaged at present.
Lithuania faces challenging 2030 decarbonisation targets for non-ETS sectors. The newly adopted 2030 national target of a 25% GHG emission reduction (compared with 2005) for non-ETS sectors goes beyond the 9% cut mandated by the EU Effort Sharing Regulation (Section 1). The National Climate Change Management Agenda calls for a 14% reduction for the transport sector, the largest emitter. To achieve this target, Lithuania needs to change the trajectory of both urban development and transport. A broad set of measures will need to be implemented fast to advance sustainable mobility and reduce emissions from road transport in particular. Some measures are part of the NECP, while others have yet to be designed and implemented.
Decarbonising the transport sector is critical for meeting national climate mitigation targets
Transport accounted for 30% of Lithuania’s total direct GHG emissions in 2018, making this sector the largest emitter, followed by agriculture (21%). The transport sector’s emissions have increased by 38% over the last decade and are projected to rise steeply until at least 2024 without additional measures (Government of Lithuania, 2020). The transport sector is also the principal source of NOx and fine particulate matter (PM2.5), contributing to 71% and 23.5% of their total respective national emissions.
The country’s dispersed settlement pattern and low population density make road transport the dominant transport mode for both passengers and freight. As a result, road transport is the most important source of GHGs, contributing 96% of the sector’s emissions in 2018. Cars represented 58% of the total transport energy consumption in 2018, followed by trucks (38%), which is a rather high share by international comparison.
Since 2013, Lithuania has seen 26% growth in energy demand in the transport sector and an associated increase in GHG emissions, which are up by 50% since 2005 (Figure 6). Car use has declined since 2005 due to falling demand for long-distance travel. This, in turn, has alleviated the negative impact caused by an ageing vehicle fleet and the increasing share of imported second-hand, highly polluting cars. In 2019, 70% of registered vehicles were diesel cars with an average age of 15 years and average CO2 emissions of 160-170 g/km (Government of Lithuania, 2020). The high share of diesel cars in the vehicle fleet also raises health concerns associated with urban air pollution.
The growing share of diesel vehicles has largely been a result of tax rates for diesel being historically lower than for petrol. Until July 2020, Lithuania was one of few EU countries that did not levy a registration or an ownership tax for non-commercial vehicles. Lithuania has recently reviewed its taxation system and introduced a CO2-based vehicle registration tax on motor vehicles. However, the tax rates remain low compared to other EU countries (Section 3).
Lithuania faces challenging 2030 decarbonisation targets for non-ETS sectors. It is not on a pathway consistent with the gradual decarbonisation envisaged in the NECP. Projections indicate that, compared to 2005, GHG emissions in all transport sub-sectors will increase or remain stable. In the rail sub-sector, the ongoing electrification of railways could reduce fossil fuel consumption by 47% by 2040. However, reducing GHG emissions from the road sub-sector remains problematic. Existing measures may not contribute to significant reductions in the petrol and diesel consumption. By 2040, road transport will account for an estimated 96.6% of GHG emissions in the transport sector. The planned modernisation of the transport fleet will also not be enough to reach the national NOx emission targets. To meet both national and EU targets, Lithuania will need to move at a faster pace and employ additional measures to reduce emissions from mobility and freight.
A clear strategy with a more ambitious target is needed to ensure progress of the transport sector towards carbon neutrality by 2050
To reach its 2030 GHG emission reduction target for the transport sector, the country plans to increase the use of alternative fuels and innovative transport technologies, electrify its railways and strengthen relevant tax instruments (Section 3). The 2021 Law on Alternative Fuels mandates support of biofuels, biomethane and hydrogen to raise the share of renewable energy sources in the sector’s final energy consumption by 2030.
Following the 2021 provisional agreement on the European Climate Law, Lithuania will need to set a more stringent target for the transport sector with a view to the transition to a carbon-neutral transport system by 2050. This revision, discussed under the National Climate Change Framework, will require faster implementation of all measures identified in the NECP. It will also require additional measures to address the increasing car ownership and incentivise a shift to sustainable transport modes.
Improved policy coherence would help mitigate impacts of transport on climate and air quality
In the last decade, Lithuania has developed a variety of national and local medium- and long-term policy documents that declare principles for reducing environmental impacts from different sectors. The NECP is the main medium-term strategic document guiding the country’s climate change objectives. To support the plan’s implementation, the National Climate Change Management Policy Strategy for 2013-50 sets specific sectoral targets to reduce GHG emissions. The NOx reduction targets for transport are set in the National Progress Plan for 2021-30. Cities and towns across Lithuania have developed SUMPs to foster integration of all transport modes, while encouraging a shift towards more sustainable modes of transport.
Ensuring the consistency of all these strategies remains a challenge. The alignment of policies towards low-carbon mobility is often hindered by lack of co-ordination between institutions in charge of transport and other complementary urban policies (e.g. land use) and between the national and local governments. To date, Lithuania is lacking mechanisms to monitor the performance of cities towards climate change mitigation objectives set out in a variety of national strategic documents.
Lithuania is striving to create better links between national strategic documents and local SUMPs. The Ministry of Transport and Communications (MTC) is planning a national monitoring and evaluation scheme, as well as funding for sustainable mobility measures. It would be valuable to link these national funds to the progress of urban areas towards reducing environmental impacts of mobility and provide guidance for project evaluation.
Lack of integration between land use and transport planning hinders the effectiveness of sustainable urban transport policies
Lithuania’s urban sprawl and low-density development have contributed to unsustainable travel patterns and over-reliance on private vehicles. The 2021 Law on Municipal Infrastructure Development is a positive step in counteracting urban sprawl. This law stipulates that by 2023 municipalities need to adjust their general plans to define priority and non-priority infrastructure. Until then, all real estate developers will have to pay higher development fees that will be earmarked towards necessary transport infrastructure improvements.
SUMPs have brought more attention to sustainable transport and urban planning. However, despite the growing endorsement of SUMPs from the national government, the implementation of these plans has been problematic. In the vast majority of cities, land-use and transport planning remains the responsibility of separate authorities with limited or no co-ordination between them. This means that transport and spatial plans function separately. As a result, many development projects continue being car-centric. They are frequently located on the fringes of cities, far from transport links or services, thereby exacerbating car use and associated environmental impacts. Lithuania needs to shift to a more integrated approach to sustainable urban and transport planning based on enhancing people’s access to goods, services and activities. Full implementation of actions identified in SUMPs would require tighter planning regulations so that all new developments promote compact settlement and have easy access to transport links, as well as safe walking and cycling routes.
National investment priorities are skewed towards road infrastructure
Policy emphasis on private vehicles has been reflected in the allocation of public investment, with roads receiving the bulk of land transport funding. Investment for transport infrastructure projects comes from EU funds and the national budget. The amount of EU funds allocated to rail and road infrastructure projects is of a similar magnitude. The state investment in the railway sector is expected to increase significantly in 2021-23. To date, however, the budget funding allocated to road infrastructure projects has been dominant. Much of this investment is directed at paving the still widespread gravel roads in the countryside that have a negative impact on road safety.
To avoid “locking in” an emission-intensive development pathway and exacerbating car dependency, Lithuania needs to ensure that investment in public transport and sustainable modes remains a priority. This means limiting road investment to necessary improvements of gravel roads, maintenance and construction, while prioritising high-quality rail and bus links to achieve inter-regional connectivity. Rural public transport, especially buses, will need significant investment to reduce car dependence for local journeys and enhance connectivity with inter-regional transport modes.
Necessary improvements in climate impact and air quality require additional effort to improve public transport and non-motorised modes in urban areas. While SUMPs include plans to improve public transport, walking and cycling conditions, the implementation of these measures remains incomplete due to limited funding. Municipalities have few own tax revenues and rely heavily on transfers from the central government. Earmarking revenues from parking fees for improvement in cycling and walking conditions could be an important additional source of local funding that would complement the necessary reorientation of the national funding towards low-carbon transport modes.
Lithuania needs better incentives to steer user behaviour towards sustainable modes
Starting in 2019, Lithuania has taken positive steps towards reducing environmental damage from mobility. Incentives for choosing lower-emission cars have been introduced, including a motor tax and grants for purchasing low-emission and electric vehicles. The new Law on Alternative Fuels introduces a biofuel blending scheme that increases the overall blending obligations of fuel suppliers to 16.8% in 2030. The law also requires that all publicly procured passenger cars and buses use alternative fuels from 2029 and that cities establish low-emission zones (LEZs) by no later than 2023. These measures are expected to reduce the number of vehicles powered by internal combustion engines, as well as passenger cars. Yet the transport fuel taxes remain among the lowest in the European Union and do not sufficiently incentivise energy efficiency and lower consumption of fossil fuels (Section 3).
At the same time, the under-pricing of parking results in inefficient use of space and excessive parking demand. Not all car users have to pay for parking at their origin and destination, either because of free on-street parking or because their employer or shop offers them free parking off street. Furthermore, building codes include minimum parking regulations for buildings that mandate the number of parking spaces in a development. This often leads to excessive parking in residential and commercial buildings (ITF, 2021). Ideally, parking pricing structure and road space prioritisation should discourage unnecessary private vehicle use and promote public transport and non-motorised mobility.
Promoting electric vehicles remains a challenge
Increasing the uptake of electric vehicles (EVs) is one of the pillars of Lithuania’s strategy to curb GHG emissions from transport. The country has an ambitious target of 230 000 battery EVs by 2030, which represents 15% of the current fleet of passenger vehicles. However, EVs are a relatively new policy priority. Until 2020, Lithuania had only two non-fiscal incentives for choosing an EV: access to dedicated public transport lanes in Vilnius and reduction of parking fees. In 2020, the Climate Change Programme introduced important fiscal incentives for purchasing low-emission vehicles, including a scrappage scheme and a purchase grant. In parallel, Lithuania introduced a registration tax for high-pollution vehicles powered with fossil fuels.
To date, the uptake of electric vehicles has been low, with battery EVs representing only 0.2% of the total fleet, compared to 3.5% (2019) in the European Union (IEA, 2020). Lithuania has faced several issues with encouraging the purchase and use of EVs. One of the obstacles has been the absence of a common EV strategy at the national level, which in turn limits local initiatives.
The government has put in place additional support for buying EVs, including a purchase allowance of EUR 5 000 for a new EV and EUR 2 500 for a second-hand EV less than five years old. The Law on Alternative Fuels mandates financial support for EVs until one of ten light-duty vehicles in the country is electric. However, a substantial purchase price advantage of conventional diesel and petrol cars has been one of the reasons for the low uptake of EVs (Lindberg and Fridstrøm, 2015). Even second-hand EVs are likely to be more expensive than fuel-powered cars.
Lithuania has a limited EV-charging infrastructure, especially for intercity travel. The MTC has initiated development of EV-charging stations along highways and main roads. The Law on Alternative Fuels requires building 6 000 public EV-charging stations by 2030. Additionally, Lithuania plans to install 54 000 private EV charging points in residential and office buildings. Lithuania plans to continue financial support for the purchase of EVs, with additional support for the purchase and installation of charging points. In this context, the cost to the state of maintaining and further increasing the level of EV support could grow significantly and should be monitored in the long term. In addition, as EV financial support tends to benefit the wealthier households, it will also be important to mitigate potential social costs of the EV promotion strategy, for example, through special rebates for low-income car-dependent households.
Decarbonising freight transport is necessary to reduce the environmental and climate impacts of the transport sector
Lithuania relies heavily on road transport for freight activity. In recent years, the country has taken steps to reduce environmental impacts of road freight. The government is planning to replace the time-based road use charge (Eurovignette) for the use of main roads with an e-toll, distance-based system by 2023. This would be an opportunity to substantially increase revenues from road use charges and reduce losses due to cross-border fuel tourism.
Lithuania is also planning to create a necessary infrastructure to improve efficiency and multi-modality of freight operations. Building intermodal terminals and improving connections between different modes will encourage operators to combine different modes of shipping instead of transporting intermodal units just by road. The aim is to shift 5% of freight to multi-modal transport by 2030. This is projected to reduce GHG emissions by 19% compared to moving freight only by road.
To improve the efficiency of rail operations and reduce GHG emissions, Lithuania is planning to electrify its rail network. Today the share of electrified railways is only 8% – one of the lowest in the European Union. It is envisaged that 25% of the rail infrastructure will be electrified by 2023. The ongoing Rail Baltica project will open a new high-speed railway line for freight transport. After the completion of Rail Baltica and electrification of existing railways, Lithuania would be able to transport as much as 70% of cargo by rail (Government of Lithuania, 2020).
The government is planning an allowance for the purchase of commercial vehicles fuelled by LNG to encourage their uptake as an economically and environmentally friendly alternative to diesel. In parallel, the government is investing in the installation of an LNG distribution system. While LNG is promoted as a transitional measure for its lower carbon content, GHG emissions of LNG trucks are considerably underestimated. This makes the technology potentially incompatible with the country’s climate-neutrality goals (Mottschall, Kasten and Rodríguez, 2020). Testing technology developments, while reducing barriers for road freight electrification in the long term, is largely preferable from the perspective of a low-carbon transition.
Given limited resources, road freight decarbonisation also requires implementing low-cost, easy-to-adopt elements that have already shown their efficacy in quickly reducing emissions in the sector. Fuel consumption could be reduced due to changes in driving and intelligent transportation system technologies. Lithuania is already planning to introduce financial incentives for eco-driving in 2021-30. Additional measures, such as standardisation and sharing of logistics data, could accelerate collaboration between organisations and contribute to reducing CO2 emissions (ITF, 2018). Examples of initiatives that could improve efficiency of logistics are centres that reduce freight traffic circulating within a target area by fostering consolidation of cargo at a terminal.
Defining a long-term decarbonisation strategy for the transport sector
Develop a coherent roadmap for the low-carbon transition that specifies the role of all modes of transport; ensure that policies across modes are aligned with low-carbon mobility objectives and the Law on Alternative Fuels; set more ambitious, time-bound targets to support medium- and long-term decarbonisation targets for the non-ETS sectors.
Ensuring coherence between transport and land-use planning
Strengthen links between transport planning and land use; tighten planning regulations to ensure that all developments promote compact settlement with easy access to transport links, as well as a network of safe walking and cycling routes.
Develop a national scheme to monitor and evaluate implementation of SUMPs and overall performance of cities in meeting transport-related climate change mitigation objectives.
Steering user behaviour and promoting sustainable travel
Promote the use of non-motorised transport by improving walking and cycling conditions; put in place significant investments and time-bound targets to support implementation.
Follow through with incremental implementation of LEZs in urban areas; carefully monitor the impacts and adjust the levels of charges accordingly; envisage limited, targeted financial support to car-dependent and low-income households.
Phase out free parking at the workplace; increase parking tariffs for in-street parking in urban areas; consider making public transport and emerging transport services (such as bike-sharing) eligible for workplace benefits; eliminate minimum parking requirements for new residential and commercial buildings.
Promoting electric vehicles
Increase the taxation of purchase and use of internal combustion engine vehicles with a view to gradually removing the price difference between them and EVs; continue to extend the network of charging stations; carefully monitor potential distributional impacts on low-income, car-dependent households.
Shifting to low-carbon freight transport
Advance the integration of road, rail and maritime freight, while rebalancing economic incentives in favour of rail freight.
Improve efficiency of logistics operations by providing incentives for increased collaboration between freight carriers.
Reassess the economic and environmental benefits of promoting LNG technology in road freight transport.
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