1. Economic context and greenhouse gas emissions trends in Lithuania

Abstract

This chapter provides a brief overview of the Lithuanian economy and the country’s greenhouse gas emissions trends. It shows that Lithuania’s GDP has grown steadily and considerably since the 1990’s and has largely decoupled from GHG emissions, which decreased significantly from 1990-2000 but have since plateaued. The chapter provides specific detail on the transport, energy, industry, and agriculture and forestry sectors, discussing key challenges for decarbonisation. These include rising transport emissions and inefficient buildings as well as low fuel prices and increased use of synthetic fertilisers.

    

This chapter provides a brief overview of the Lithuanian economy and the country’s greenhouse gas emissions trends. The information depicted is sourced primarily from: OECD Environmental Performance Review: Lithuania 2021 (OECD, 2021[1]), OECD Economic Surveys: Lithuania 2020 and 2022 (OECD, 2020[2]; OECD, 2022[3]), the IEA’s Lithuania 2021 Energy Policy Review (IEA, 2021[4]), Lithuania’s 2021 Greenhouse Gas Inventory Report (Government of Lithuania, 2022[5]) and the EU’s recent assessment of Lithuania’s environmental policy implementation and National Energy and Climate Plan (European Commission, 2020[6]; European Commission, 2019[7]). More detail on Lithuania’s broad economic structure and performance, and its greenhouse gas emissions trends and decarbonisation challenges can be found in these reports.

Country profile

Lithuania’s GDP has grown considerably since its transition to a market economy in the 1990s, more than doubling over the past 20 years (Figure 1.1) (OECD, 2021[8]). GDP per capita is currently USD 38 743 (current PPPs), 80% of the OECD average, up from 38% in 2000 (OECD, 2021[1]). Lithuania has a diverse economy, with no particular goods or services dominating imports or exports. Industry (including energy) makes up around 20% of total value added and trade, repairs, accommodation, food services, and transport 30%. A further 16% of total value added comes from public administration, defence, education, health, and social work. Agriculture makes up 3.7% of total value added. The economy has shown considerable resilience during the COVID-19 crisis, with GDP contracting by only 0.13% in 2020, considerably less than the OECD average, and growing 5.15% in 2021 (OECD, 2021[9]). GDP growth is projected to continue at over 3% in the coming years (OECD, 2021[9]). Lithuania joined the EU in 2004, the Euro in 2015 and the OECD in 2018.

Lithuania has fewer than 3 million residents, making it one of the least populous OECD countries (OECD, 2021[10]). Its population is decreasing (Figure 1.1) and is projected to decline by 200 000 by 2030 (OECD, 2021[10]). Historically, migration has remained outward, with young people in particular leaving Lithuania. This trend has recently reversed, with net positive migration flows since 2019 (OECD, 2021[8]).

Figure 1.1. GDP has grown significantly despite rapid population decline

Source: (OECD, 2021[8]).

Greenhouse gas emissions trends

Greenhouse gas (GHG) emissions in Lithuania declined steeply between 1990 and 2000, however they have since plateaued at around 20 MtCO₂eq (excluding removals from LULUCF) (Government of Lithuania, 2022[5]). This accounted for around 0.55% of total EU emissions in 2019 (Jensen, 2021[11]), and around 0.04% of global emissions (Global Carbon Project, 2021[12]). Although emissions per capita are increasing, they remain below the OECD average. GHG emissions have largely decoupled from GDP growth, with the emissions intensity per unit of GDP decreasingly steadily since 2005 (Figure 1.2).

Figure 1.2. GHG emissions have decoupled from GDP growth, but per capita emissions are rising

Source: (OECD, 2021[8]).

Transport, agriculture, and industry make up two thirds of Lithuanian GHG emissions (Figure 1.3).The transport sector is the largest and fastest growing source of emissions, accounting for over 30% of emissions in 2019, up from less than 20% in 2005 (OECD, 2021[8]). This is in line with the OECD average, although here growth in emissions has been slower, increasing 3% from 2005-2019 (OECD, 2022[13]). Annual emissions from agriculture have also increased in Lithuania and were 3% higher in 2019 compared with 2005 levels (OECD, 2022[13]). Forests form an important carbon sink in Lithuania, with GHG removals from LULUCF equivalent to 19% of total reported emissions in 2018 (IEA, 2021[4]). Reported removals from LULUCF under the UNFCCC have, however, been declining since 2012 (IEA, 2021[4]).

Figure 1.3. Total GHG emissions are stable but emissions from transport are rising

Source: (OECD, 2021[8]).

Total final energy consumption has been rising in Lithuania since 2015, driven primarily by the transport sector, whose consumption rose from 1.4 Mtoe in 2005 to 2.1 Mtoe in 2019, accounting for 32.4% of total consumption (Figure 1.4) (OECD, 2021[8]). In its National Energy and Climate Plan (NECP) Lithuania targeted 4.3 Mtoe of energy consumption by 2020 (Government of Lithuania, 2019[14]). This target has been missed, with total final energy consumption standing at 6.4 Mtoe in 2020 (IEA, 2022[15]).

Figure 1.4. Increasing energy consumption is being driven primarily by the transport sector

Source: (IEA, 2021[16]).

Oil and natural gas filled the energy gap resulting from the closure of Lithuania’s Ignalina nuclear power station in 2009 (Figure 1.5). The share of natural gas has since declined, with biomass often providing a viable substitute, particularly in heat supply (see subsection on energy below). Oil demand has increased however, reaching 40% of total energy supply in 2019, driven primarily by increasing consumption in transport.

Figure 1.5. The share of renewables is in the top 15 OECD countries and increasing, but oil supply is also increasing

Source: (OECD, 2021[8]) (IEA, 2021[16]).

Renewable energy sources (RES) contributed 21% of total primary energy supply in 2019, up from under 10% in 2005, driven by extensive use of biomass, particularly in district heating (OECD, 2021[8]). Renewables make up 74% of domestic electricity generation, the bulk of this coming from wind energy. Electricity production increased considerably in 2020, driven by an increase in the use of natural gas (Figure 1.6) However, domestic production makes up only a fraction of total supply, with Lithuania importing three-fourths of its electricity, primarily from Latvia, Sweden, and Russia (IEA, 2021[4]). Lithuania has considerable offshore wind capacity potential, estimated at around 3TWh per year, comparable with current levels of domestic electricity production.

Figure 1.6. Renewables make up the bulk of domestic electricity generation, although natural gas remains prevalent

Source: (IEA, 2021[16]).

Key challenges for decarbonisation

In accordance with the EU, Lithuania has targeted net-zero emissions by 2050. Achieving this will require considerable acceleration of GHG emissions reductions, in line with the proposed the EU Fit-for-55 package. Considering the emissions trends detailed, several key challenges to achieving these targets emerge. Lithuania’s considerable progress in decoupling GDP growth from GHG emissions needs to be built upon, and plateauing emissions reductions reaccelerated. This will rely in particular on reversing emissions trends in the transport sector. Expanding domestic renewable energy production will reduce reliance on electricity imports. However, decarbonising economic sectors through electrification will also significantly increase electricity demand. Energy efficiency is therefore key and will require innovation support, particularly in hard-to-abate sectors.

These challenges will need to be met with ambitious climate policies. The planned update of Lithuania’s National Energy and Climate Plan (NECP) in 2023, which this report aims to support, thus provides an important opportunity to ensure that increased climate policy ambition is met with commensurate action. In order to ensure proposed policies are as effective as possible, they will need to consider specific sectoral challenges. The remainder of this chapter thus discusses emission trends in the transport, energy, industry, and agriculture and forestry sectors in more detail.

The war in Ukraine has proved to be a critical juncture for Lithuanian energy policy. Lithuania was the first EU country to entirely halt all imports of Russian energy, including coal, oil, gas, and electricity (Ministry of Energy of the Republic of Lithuania, 2022[17]). This was made possible by an existing multi-year energy policy plan to reduce reliance on imports of Russian fossil fuels, including the construction of an LNG terminal on the Baltic Sea coast and more recently of a natural gas pipeline connection with Poland (Ministry of Energy of the Republic of Lithuania, 2022[18]). In April 2022, Lithuania further adopted the renewable energy “Breakthrough Package” to accelerate solar and wind energy projects, with in particular offshore wind development to play a key role in helping Lithuania become self-sufficient in electricity supply in the coming decade.1

Transport

The transport sector accounts for 30% of total GHG emissions in Lithuania (OECD, 2021[8]), and for more than 50% of energy-related emissions (IEA, 2021[4]). Emissions in the sector are growing, doubling from 3.0 Mt CO₂ in 2000 to 6.3 Mt CO₂ in 2019 (Figure 1.7) (IEA, 2021[4]). Growth in emissions is driven by an old and inefficient vehicle fleet, increasing road freight transport, low fuel taxes, and growing urban sprawl.

Lithuania’s vehicle fleet is amongst the oldest in the European Union. Second-hand vehicles account for 77% of the current fleet, with over 60% of cars between 10 and 20 years old and almost 20% more than 20 years old (OECD, 2021[8]). What is more, 68% of the fleet is powered by diesel, versus only 23% by petrol. On average, the fleet emits between 160-170 g/km of CO₂ (OECD, 2021[8]).

GHG emissions from road freight also increased 50% between 2013-2019 (OECD, 2021[8]). This is despite the export value of goods transported to Russia decreasing significantly between 2014-2016, with Lithuanian companies instead reorienting export flows to Western-Europe.

Figure 1.7. Emissions from private vehicles and road freight are steadily increasing

Source: (OECD, 2021[8]).

Fuel taxes in Lithuania are amongst the lowest in the EU (for more detail see Chapter 4). This encourages the purchase of older and less-efficient vehicles, with the high diesel differential (the difference between taxes on diesel and petrol) in particular incentivising the purchase of diesel cars.

A further factor driving emissions in the transport sector is increasing urban sprawl. Population density in Lithuania is decreasing significantly, countering the OECD average trend (Figure 1.8). This encourages the use of private vehicles, further driving emissions increases. For example, the capital Vilnius has one of the lowest population densities of large Lithuanian cities, with only 1400 inhabitants/km2 (OECD, 2021[8]).

Figure 1.8. Contrary to the OECD average, urban population density in Lithuania is decreasing rapidly

Source: (OECD, 2021[8]).

Energy

Lithuania has approximately 90 installations that are regulated under the EU ETS. These installations span both the energy and industrial sectors, and account for around 30% of total GHG emissions, of which around 17% are from public electricity and heat generation (IEA, 2021[4]). Beyond the EU ETS, the energy sector includes; public sector buildings, smaller district heat suppliers (less than 20 MW) and household accounts. Bioenergy has proven critical to progress on decarbonising these subsectors.

Despite 70% of domestically generated electricity coming from renewable sources, a high reliance on electricity imports results in renewable energy making up only 18% of total electricity supply. Nonetheless, renewable energy has grown significantly in the past decade. Renewable district heat, produced through biomass and waste, has increased more than threefold, from 144 kilotonnes of oil equivalent (ktoe) in 2009 to 456 ktoe 2019 (IEA, 2021[4]), largely displacing natural gas (Figure 1.9). Renewable electricity production increased even further, from 34 ktoe in 2009 to 664 ktoe in 2019, driven by wind power and bioenergy use for electricity production. With a potential 3TWh a year of offshore wind capacity, renewable energy is projected to grow further (OECD, 2021[8]). To ensure the necessary stability and flexibility needed for increased participation of renewable energy, cogeneration capacity will further increase in importance, particularly powered by biomass and waste (IEA, 2021[4]).

Figure 1.9. Bioenergy and waste are displacing natural gas as a source of heat

Note: The source category “Heat” concerns primarily combined heat and power installations and is made-up primarily of bioenergy and waste.

Source: (IEA, 2021[16]).

Lithuania’s electricity grid currently remains linked to the Russian, Baltic and Belarusian grids. Plans are in place for shifting the grid connection to the European grid in 2025, and already now, electricity imports from Belarus have ceased due to concerns over the safety of a Belarusian nuclear power plant near Vilnius.

The buildings sector will be key to decarbonising Lithuania’s energy sector. Despite the prevalence of renewable energy (primarily biomass and waste) in district heating, energy efficiency could be significantly improved. Of 18 000 apartment buildings supplied with district heat, only 4 200 are new or renovated buildings (OECD, 2021[8]). Average annual heat consumption in Lithuania is 160 kWh/m², far more than the 80-90 kWh/m² for newly renovated buildings (OECD, 2021[8]). Heating systems in rural areas are similarly outdated and energy poverty is an issue, with 30% of Lithuanians reporting difficulties in keeping their homes warm (OECD, 2021[8]).

Industry

In 2020, the four most important industry subsectors were: manufacture of refined petroleum products, accounting for 13% of total production; the manufacture of food products and beverages, accounting for 20% of total production; manufacture of wood products and furniture, accounting for 16% of total production; and manufacture of chemicals and chemical products, accounting for 11% of total production. Together these four subsectors accounted for 60% of production volume (Government of Lithuania, 2022[5]).

GHG emissions from industry have remained largely stable from 2013-2019 (OECD, 2021[8]). Chemical and mineral production, dominated by ammonia production, oil refining and cement production together make up more than 85% of ETS-regulated installations (Government of the Republic of Lithuania, 2022[19]). However, industrial processes rely primarily on natural gas as an energy source (Figure 1.10), and energy prices in non-ETS sectors in Lithuania historically remained too low to incentivise a shift to renewable energy (IEA, 2021[4]). The impacts of the war in Ukraine and the ensuing energy crisis in Europe have changed this context considerably. Current high gas prices have dramatically increased incentives for industry to decarbonise their energy supply. However, the shift to renewable energy will take time and may require further innovation in particularly hard-to-abate activities.

Figure 1.10. Natural gas still dominates energy consumption in the industry sector

Source: (IEA, 2021[16]).

In addition to shifting away from fossil fuels, decarbonising the industrial sector will require technological change and innovation. Certain industrial processes are particularly hard to abate and cannot simply rely on renewable energy sources for decarbonisation. Here, innovation to increase the energy efficiency of processes and to develop new processes, e.g. relying on hydrogen as an energy source, will be needed to reach net-zero GHG emissions. As discussed in more detail in Chapter 7, public investment here is critical.

Agriculture and forestry

Emissions from agriculture have been rising in Lithuania, driven primarily by increasing use of synthetic fertilisers for crop cultivation (OECD, 2021[5]). Meanwhile, emissions from livestock have been decreasing. For an overview of emissions trends in agriculture, see Figure 1.11.

Figure 1.11. Emissions from agriculture are rising whilst removals from LULUCF are decreasing

Source: (Government of Lithuania, 2022[5]).

Fossil fuel subsidies in agriculture make up almost 30% of total fossil fuel support in Lithuania despite taxes on diesel use in the sector tripling between 2015-2020 (OECD, 2021[8]).

Forest area is increasing, however growing demand for forest products driven particularly by demand for biomass, has increased active forest management, reducing the role of forests as a carbon sink (Figure 1.11) (OECD, 2021[8]).

Conclusions

The Lithuanian economy has successfully decoupled its growth from GHG emissions. However, emissions reductions have stalled, and increasing emissions in the transport sector are cause for concern. Decarbonising the Lithuanian economy will require far-reaching measures. Reducing transport emissions should be a priority, with an old and inefficient car fleet, increasing road-freight and urban sprawl requiring urgent attention. Ensuring the energy efficiency of buildings is a further challenge, with inadequate building stock negating the considerable progress made in decarbonising heating through biomass and waste. In the industry sector, historically low fuel prices have inhibited a swifter shift to renewable energy, although the current energy crisis is shifting incentives. Finally, in agriculture, the growing use of synthetic fertilisers for crop production should be regulated.

References

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[7] European Commission (2019), The EU Environmental Implementation Review 2019 Country Report - LITHUANIA, European Commission, Brussels, https://ec.europa.eu/environment/eir/pdf/report_lt_en.pdf (accessed on 1 March 2022).

[12] Global Carbon Project (2021), Lithuania: CO2 Country Profile - Our World in Data, Supplemental Data of Global Carbon Project 2021, https://doi.org/10.18160/gcp-2021.

[5] Government of Lithuania (2022), Lithuania’s National Inventory Report to the UNFCCC, Government of Lithuania, Vilnius, https://unfccc.int/documents/461952 (accessed on 21 February 2022).

[14] Government of Lithuania (2019), National Energy and Climate Action Plan of the Republic of Lithuania for 2021-2030, https://ec.europa.eu/energy/sites/ener/files/documents/lt_final_necp_main_en.pdf (accessed on 21 February 2022).

[19] Government of the Republic of Lithuania (2022), Territorial Just Transition Plan.

[15] IEA (2022), World Energy Balances, https://www.iea.org/data-and-statistics/data-tools/energy-statistics-data-browser?country=LITHUANIA&fuel=Energy%20consumption&indicator=TFCShareBySector.

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[11] Jensen, L. (2021), Climate Action in Lithuania, European Parliamentary Research Service, Brussels.

[18] Ministry of Energy of the Republic of Lithuania (2022), Lithuania completely abandons Russian gas imports | Ministry of Energy of the Republic of Lithuania, https://enmin.lrv.lt/en/news/lithuania-completely-abandons-russian-gas-imports (accessed on 27 June 2022).

[17] Ministry of Energy of the Republic of Lithuania (2022), No more Russian oil, gas and electricity imports in Lithuania from Sunday | Ministry of Energy of the Republic of Lithuania, https://enmin.lrv.lt/en/news/no-more-russian-oil-gas-and-electricity-imports-in-lithuania-from-sunday (accessed on 27 June 2022).

[13] OECD (2022), “Air and climate: Greenhouse gas emissions by source”, OECD Environment Statistics (database), https://doi.org/10.1787/data-00594-en (accessed on 28 February 2022).

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[8] OECD (2021), OECD Environmental Performance Reviews: Lithuania 2021, OECD Environmental Performance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/48d82b17-en.

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[2] OECD (2020), OECD Economic Surveys: Lithuania 2020, OECD Publishing, Paris, https://doi.org/10.1787/62663b1d-en.

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