Simone Romano
OECD
Cyrille Schwellnus
OECD
OECD Economic Surveys: Luxembourg 2025
Abstract
Luxembourg has made substantial progress in decoupling greenhouse gas emissions from economic activity. However, further efforts are needed to reduce emissions in sectors not covered by the EU Emissions Trading System by 55% by 2030 and to achieve net zero emissions by 2050. While policies need to continue to support the transition across a range of areas, the transport sector, which accounts for more than 60% of total emissions, is key. The use of public transport and alternative sustainable commuting options should continue to be promoted by increasing capacity, expanding the network and reserving road lanes for buses and carpooling. Setting a forward-looking trajectory for fuel taxes to bring prices more in line with those of neighbouring countries would reduce reliance on combustion engine cars and curb fuel tourism. Subsidies for the purchase of an electric vehicle should be phased out and made conditional on the sale or scrappage of a car with an internal combustion engine.
The climate law adopted on 15 December 2020 sets out Luxembourg’s climate goals, with achieving zero net emission by 2050 as the long-term objective. The medium-term objective is to reduce greenhouse gas (GHG) emissions in sectors not covered by the European Union’s Emissions Trading Scheme (EU ETS) by 55% by 2030 (relative to the 2005 level). Luxembourg's integrated national energy and climate plan (NECP) for the period 2021-2030 complements the climate law by adding two further intermediate objectives to be achieved by 2030: reaching a 37% share of renewable energy in gross final energy consumption and a significant reduction of final energy demand (42% compared to the EU PRIMES 2007 model baseline scenario).
Luxembourg has made significant progress towards the achievement of these objectives. First, the energy intensity of the economy (measured as total energy supply per unit of real GDP) has declined by around 52% over the past two decades (Figure 3.1, Panel A). Second, GHG emissions have decoupled from GDP growth, with the GHG intensity of GDP (measured as GHG emissions per unit of real GDP) declining by around 57% since 2005 (Figure 3.1, Panel A). Third, in 2022 total GHG emissions have been reduced by around 35% in comparison with 2005 levels (Figure 3.1, Panel B). Fourth, the share of energy produced by renewable sources in final energy consumption has grown significantly, from around 2% in 2005 to around 12% in 2023 (Figure 3.1, Panel C). Counting additional statistical transfers, the share rises to around 14% in 2023 Box 3.1.
Notes: In Panel A, the energy intensity of the economy is originally measured as total energy supply over real GDP (originally TJ/thousand 2015 EUR); while GHG emissions per real GDP is originally expressed in tCO₂e/kEUR/yr. Panel B shows the total GHG emissions for Luxembourg, expressed in Mt CO2eq/yr. Panel C shows the total share of energy consumed that comes from modern renewables sources (solar, wind, hydropower, biofuels, excluding traditional uses of biomass).
Source: OECD Green Growth database; and Eurostat.
Luxembourg has a number of unusual characteristics that affect how GHG emissions are accounted for. The Grand Duchy imports most of its electricity supply and this means that emissions due to the production of electricity that is consumed in Luxembourg are accounted for elsewhere, bringing the emissions from electricity production as low as 3% of total emissions (Box 3.1). At the same time, the emissions produced by the road fuels consumed in neighbouring countries by cross-border commuters, freight vehicles and fuel tourists that come to Luxembourg to fill their tanks are entirely accounted for in Luxembourg. These peculiarities distort the relative importance of different sectors in terms of GHG emissions. As a result, policy needs to be mindful both of measured progress against targets, but also contributing to real progress in reducing overall emissions, whether counted in Luxembourg or not.
Luxembourg imports almost all its energy, including electricity from its neighbours. In 2022, imports of natural gas from Belgium replaced imports from Russia, with most energy imports now coming from European partners, limiting the risk that geopolitical tensions directly disrupt energy supply. Pursuing the decarbonisation of the transport sector will strengthen energy security by reducing the reliance on imported oil products. Enhancing the electricity transmission grid; allowing for an efficient and increasing integration of renewable energy generation into the power grid in cooperation with neighbouring counties and ensuring import capacity is expanded in line with increasing electricity demand are key to ensuring reliable energy supplies.
Luxembourg has no large-scale electricity power plants within its borders and relies on imports from neighbouring countries. In 2022, net electricity imports (imports minus exports of electricity) reached 89.9% of the total electricity supply (Figure 3.2, Panel A). This means that the share of power generation in total energy-related CO2 emissions from production is very low, around 3% compared to a typical share of around 40% (IEA, 2024), despite per capita electricity consumption being higher than the EU and OECD averages. Electricity imports mainly come from Germany (2546 GWh in 2023), Belgium (2211 GWh in 2023) and France (107 GWh in 2023).
Net electricity imports
Source: Eurostat.
The main sources of domestic electricity generation are photovoltaics , bioenergy and wind. The aim is to increase renewable sources to enhance Luxembourg’s national contribution to the EU Member States’ collective endeavour to achieve the EU-wide target of a 45% share of total energy production generated by renewables. To this end, given the limited amount of land in Luxembourg, it has undertaken the first-ever cross-border agreement to support renewable energy in the EU in the framework of the renewable energy financing mechanism (RENEWFM). Luxembourg will contribute EUR 27.5 million to Finland and it will receive 80% of the production generated by the project as a statistical transfer for a period of 15 years, which will count towards Luxembourg’s targets for energy produced by renewables sources.
Despite the significant progress made so far, further efforts are needed to achieve Luxembourg’s medium- and long-term objectives. The national energy and climate plan (NECP) contains around 200 measures, ranging from the full implementation of the national mobility plan 2035 to the simplification of the authorization procedures for new renewable-energy power plants or the improvements of electricity grids. If all these 200+ measures were to be fully and timely implemented, Luxembourg would achieve its overall climate objectives. However, first, failure to fully implement measures beyond those already legislated at the end of 2021 would risk the reductions of GHG emissions in sectors not covered by the EU ETS up to 2030 falling short of the 55% reduction target by around 20 percentage points, and also the objective of achieving net zero emissions by 2050 would not be attained (Figure 3.3). Second, even in the case the measures contained in the NECP were to be fully implemented and the overall objectives attained, some sectors would anyway fail to achieve their sectorial targets, as for example the residential sector (Box 3.2).
Emissions reduction paths
Note: The scenario “With Existing Measures” (WEM) shapes the reduction path by taking into account only the policy measures adopted until the 31st of December 2021. The scenario “With Additional Measures” (WAM) models the emission reduction path under the hypothesis that all the measures contained in the NECP were to be fully and timely implemented. Before 2030, in line with the climate objective set in Luxembourg’s climate law, greenhouse gas (GHG) emissions do not include emissions from the European Union Emissions Trading Scheme (EU ETS) and emission from land use, land-use change and forestry (LULUCF), while after 2030 they are included in the total count of GHG emissions.
Source: STATEC.
Due also to its unusual characteristics, measured emissions in Luxembourg in recent years came mostly from three sectors: transport, residential and industry. Transport alone accounted for more than 60% of total emissions (Figure 3.4) and 51% of total measured energy demand. Industry accounted for around 12% of total emissions, which come primarily from burning fossil fuels to produce heat for industrial processes, such as making paper or steel. The plan laid out by the NECP to reduce emissions in the industry sector hinges on increasing energy efficiency of industrial processes and replacing fossil fuels with hydrogen and electricity.
CO₂e emissions by sector
Source: Eurostat.
In view of the key role in achieving Luxembourg’s climate objectives, this chapter focuses on the transport sector, although challenges related to the housing sector also play an important role and are discussed in Box 3.2, while adaptation to climate change is discussed in the final section (Section 3.5). The chapter identifies three main avenues for policy action. Section 3.2 discusses how to further promote the use of public transport by increasing capacity, expanding the network and reducing congestion. Section 3.3 discusses policies to reduce the reliance on internal combustion engine (ICE) cars. This requires using carbon price instruments to raise fuel prices and bring them closer to neighbouring countries; disincentivising the use and purchase of polluting private cars and continuing to promote the electrification of the car fleet. Section 3.4 proposes ways to promote alternative sustainable means of transport, such as carpooling or cycling, by increasing their attractiveness, while further reducing that of privately-owned cars.
Achieving the 2030 and 2050 climate targets in the housing sector, despite the expected continued growth of the population, will require additional efforts compared with measures contained in the NECP (Figure 3.5, Panel A). Phasing out of fossil fuel heating systems is the most important measure, while energy standards for new buildings, which since 2021 are among the highest in Europe with every new residential building required to be a Nearly Zero Energy Building (NZEB) (corresponding to AAA energy class), are going to increasingly contribute to reduce emissions as new buildings are constructed and the share of new buildings in the total building stock increases (Figure 3.5, Panel B). However, more than 50% of the current residential building stock in Luxembourg was built before 1970, implying that deep renovations of the existing building stock to improve energy efficiency still have a role to play.
Note: Panel A shows the CO2 emissions of the residential sector in kt CO₂e, projecting their evolution according to 2 scenarios: With Existing Measures (WEM), takes into account all the policy measures implemented before the 31st of December 2021. With Additional Measures (WAM), plots the emissions in the case all the measures contained in the NECP were fully and timely implemented. Panel B disentangle the contribution of the different policy measures to the reduction as projected in the second scenario (WAM).
Source: STATEC.
The authorities have put in place a structured plan (Klimabonus programme) of financial and non-financial incentives to encourage owners to undertake energy-saving renovations and phase out fossil fuel heating systems. Public incentives cover almost all kinds of interventions that can lead to an increase in energy efficiency, from the replacement of windows to insulation. The government also covers the cost of specialised consultants that visit the houses to help citizens assess the interventions with the highest potential and to guide them through the different existing financial incentives, together with a dedicated online simulator covering the different subsidy programmes. Financial incentives cover up to 50% of renovation costs for higher incomes, while the share could reach 100% for lower incomes.
However, the uptake of these subsidies and initiatives has been limited so far. One reason could be that owners are called to provide the financing upfront as the government’s financial aid can take the form of tax breaks in the following years or a direct reimbursement, but only a few months after the renovation works have ended. This could discourage low- and mid-income owners, especially in a period of higher interest rates. While the government pledged to introduce in 2025 a “prefinancing option” that will help to partially finance the cost covered by the public subsidy, France’s Éco-prêt à taux zéro (éco-PTZ) provides an example of an alternative and pragmatic policy option. The French system of incentives is quite similar in nature to that of Luxembourg, but thanks to the possibility of obtaining an interest-free loan, it features the possibility to avoid making upfront payments (France, 2024).
On top of financial incentives for energy efficiency-enhancing renovations, the authorities should consider stricter regulation on the replacement of heating installations in existing buildings to speed up the phase-out of fossil fuel-based heating systems. Replacement should be allowed exclusively with systems above a minimum threshold of renewable energy.
Encouraging greater use of public transport among residents and cross-border workers is key to reduce emissions in the transport sector and road congestion. Since March 2020, the government of Luxembourg has made public transport across the country, including both intra- and inter-urban buses, tram and trains (except first class), completely free of charge, for both residents and visitors alike. This measure goes in the right direction, but there is little evidence as yet that this measure has reduced the number of cars on the road, also considering that public transport was not expensive before in Luxembourg (EU Urban Mobility Observatory, 2022). To be more effective, this measure needs to be coupled with others aimed at improving users’ experience and make public transport a preferable alternative, as many passengers are discouraged by long waiting times, inadequate frequency and information, and overcrowded carriages, especially at peak times.
Expanding the public transport network and increasing its frequency and reliability is essential to attract commuters. The Plan national de mobilité 2035, introduced in 2022, foresees the expansion of the railway infrastructure through various projects, some of them still at an early stage of development, for a total investment of up to 1.7% of GDP between 2023 and 2027, maintaining roughly the same level of investment in public transport infrastructure as a share of GDP as between 2021 and 2024. The adaptation of the Luxembourg City main train station to better handle the new network is envisaged as well, together with the progressive introduction of 34 new railcars. The tram network in Luxembourg City will be extended as well, reaching strategic points like the airport, and longer tram trains will be introduced to reduce congestion of carriages, in conjunction with the needed supporting infrastructure. The infrastructure investments outlined in the Plan national de la mobilité should help to green the transport system, but it is important to ensure rigorous cost-benefit analysis is applied across the whole of public investment to ensure maximum effectiveness of public spending. Together with the expansion of the public transport network, integrating land-use and transport planning would allow to enhance the effectiveness of public transport by ensuring proximity of businesses and new, higher residential buildings to public transport network.
Increasing frequency and capacity of public transport should be coupled with complementary measures aimed at reducing congestion. This would allow to avoid inefficiency, with means of transport that are almost empty outside rush hours. Applying differentiated fares to better distribute travel demand over time and reduce congestion at peak times, as many cities in OECD countries have done, does not constitute a feasible or recommendable option, as Luxembourg has made all public transport free of charge since 2020, increasing its absolute and relative convenience. However, other solutions like staggered or flexible school and working hours, that have proved to be effective in reducing demand in peak times, might be applied (Eriksson et al., 2023). While imposing them to private businesses or schools might be cumbersome, applying them to public administrations and public schools would already have a concrete impact in Luxembourg, as the vast majority of pupils is enrolled in public schools and public administration accounts for more than one fifth of total employment.
Car ownership in Luxembourg is very high (Figure 3.6) and car transport is the preferred way of commuting. While Luxembourg is the EU country with the highest share of passenger cars that are younger than 2 years, it is also one of the few EU countries in which the share of small petrol engines is lower than the share of the medium- and large-sized ones, with the average weight of newly registered cars that has increased by 15% in the last 20 years (Eurostat, 2024). Moreover, more than 80% of the cross-border workers rely on private cars to commute, contributing to making cars responsible for almost the 70% of the total energy consumption of the entire transport sector (Odyssee-Mure, 2022). Reducing the reliance on cars, especially internal combustion engine (ICE) vehicles, as well as switching towards public transport, alternative sustainable commuting options or more energy-efficient vehicles, is therefore key to reduce emissions in the transport sector.
2023
Note: The figure shows the number of passenger cars per 1000 inhabitants, where passenger car are road motor vehicles, other than a moped or a motorcycle, intended for the carriage of passengers and designed to seat no more than nine persons (including the driver).
Source: Eurostat.
3.3.1. Bringing fuel prices closer to neighbouring countries through carbon price instruments
Fuel excise taxes are the main implicit form of carbon pricing used in Luxembourg, while emission permits through the EU ETS and national carbon taxes are the explicit carbon price tools. ETS and the national carbon tax together covered 88.9% of GHG emissions in 2021. The EU ETS applies to GHG emissions from companies and firms (large emitters) operating in electricity and heat generation, energy intensive industry sectors, aviation, and maritime transport. The unusual structure of GHG emissions in Luxembourg, where road transport (which is currently not included in the EU ETS) is the sector with the highest GHG emissions, makes the proportion of emissions covered by the EU ETS relatively low in Luxembourg, at 16.4% in 2019 against an average of 36.1% in the neighbouring countries. However, 75% of GHG emissions are covered by the national carbon tax, a share that is higher than in other EU-OECD countries.
When the national carbon tax was introduced in 2021, the carbon price was set at EUR 20 per tonne of CO2, based on the average value of carbon pricing in neighbouring countries. An annual increase of EUR 5 per tonne of CO2 was foreseen and applied, bringing the price of carbon to EUR 35 per tonne of CO2 in 2024. The annual increase is set to be implemented each year until 2027, bringing the carbon price to EUR 50 per tonne of CO2 in 2027. 2027 has been selected as the endpoint of the rising carbon tax trajectory because in 2027 the EU will introduce the new ETS2, which will expand the existing emission trading scheme to fuel combustion in buildings and road transport. However, EU legislation gives member states with a national carbon tax the option to decide whether they want to keep their domestic carbon tax instead of using the ETS2. Luxembourg has informed the European Commission that it might opt for a temporary derogation and join the ETS2 at a later date, continuing to apply its national carbon tax in the meantime. However, a final decision has not yet been taken.
Even though fuel prices for professional use have recently been close to (and sometimes above) those of Belgium and France, fuel prices for final consumers have historically been lower in Luxembourg than in neighbouring countries due to lower overall taxation (Figure 3.7). This has resulted in motor fuel sales per capita that have been much higher than in any other OECD countries, with most of the fuel (almost 75%) being sold to non-resident drivers filling their tanks in Luxembourg (OECD, 2020). The introduction of the ETS2, with the European Commission that will set the reference carbon price may result in an increase in final consumers’ fuel prices in neighbouring countries and thus widen the price differential with Luxembourg.
Source: CEIC data.
In view of this, and in line with policy recommendations of previous Economic Surveys (Table 3.1) and the commitments in the NECP, Luxembourg should establish a clear, forward-looking path for fuel taxes that goes well beyond 2027, aiming to bring final fuel prices more in line with those of neighbouring countries. This means that continued increases of EUR 5 per annum in the national carbon tax would constitute only a minimum, with the government standing ready to use the implicit and explicit carbon price instruments at its disposal to ensure that the price gap with neighbouring countries gradually closes, regardless of whether and when Luxembourg joins the ETS2.
Increasing carbon prices through both implicit and explicit tools would reduce distance traveled with internal combustion engine (ICE) vehicles, curb incentives for foreign residents to refuel in Luxembourg, and encourage the use of more energy efficient vehicles or alternative means of transport, reducing both measured and actual emissions, as the price elasticities of both residents and cross-border fuel tourists are estimated to be negative. The price elasticity of fuel sales for residents is estimated to be around -0.4 (STATEC, 2020). This means that increasing the price of motor fuels would effectively reduce consumption among residents, although substantially curbing the demand will also require complementary policy measures. Increasing carbon prices to bring fuel prices in Luxembourg closer to those of neighbouring countries would be even more effective to discourage fuel tourism, as the price elasticity for cross-border residents is estimated to be below -1 and become more negative in a non-linear way as the price differential with neighbouring countries diminishes (STATEC, 2020).
While a lower demand from cross-border commuters and fuel tourists would substantially decrease GHG emissions in the transport sector, it would have a negative impact on government revenues. The negative net impact is difficult to gauge as it depends on the dynamics of relative prices, but it is expected to be around EUR 60 million in 2026, above EUR 150 million in 2030, for a cumulated negative impact of around EUR 650 million (around 0.8% of GDP) up to 2030 (STATEC, 2023). However, Luxembourg’s government revenues from fuel sales will in any case be negatively impacted by the gradual shift towards electric vehicles and so will need to be managed in any case.
3.3.2. Further disincentivising the purchase and use of polluting cars
Increases in fuel taxes should be complemented by measures that encourage a shift towards other commuting options or lower emission vehicles. The tax regime with regard to private cars should be made less favorable. Luxembourg’s standard VAT rate of 17% applies to vehicles as well, making Luxembourg the EU country with the lowest VAT rate on the purchase of new vehicles (Figure 3.8). It has no additional tax on luxury vehicles, and registration tax is low and without any linkage to the type of vehicle purchased, making the fiscal burden difference between electric vehicles (EV) and internal combustion engine vehicles one of the lowest in Europe (Danielis, 2023). Moreover, while the formula to calculate the annual road vehicle tax takes into account the CO2 emissions of the vehicles, the overall level of this tax is lower than in other EU countries.
Increasing the annual road vehicle tax and the registration tax, while strengthening the link with emissions, would help to weaken the strong car-oriented mobility culture and reduce emissions. Denmark provides a good example of a tax system that is engineered to discourage the purchase of new vehicles in a country that has a low but increasing car ownership. First, VAT rate in Denmark is 25%. Second, for each vehicle, the registration rate is progressive on its price, with a rate of 25% on the first DKK 70200 (around EUR 10000), then a rate of 85% is applied on the price up from DKK 70200 to 218100 (around EUR 30000), and finally the rate applied on the residual part of the price is 150%. Third, the CO2 annual tax is not only calculated on the basis of the number of grammes of CO2 emitted by the vehicle per kilometre, but it also foresees an additional surcharge for most polluting (diesel) vehicles.
Company cars also play a role, and the government has recently revised the company car benefit scheme. The monthly value of taxable benefit in kind to be recorded on the employer's payroll is determined by multiplying the purchase value of the new vehicle by a percentage rate. With the latest revision, to be applied on newly registered company vehicles from 1 January 2025 onwards, the rate scheme is simplified and depends on the type of engine and CO2 emissions. A 1% rate is set for pure electric cars with an electric energy consumption of up to 18 kWh/100km and for hydrogen fuel cell vehicles, a rate of 1,2% for all other pure electric cars, while a 2% rate is set for ICE vehicles, including all hybrid and plug-in hybrid engines with a combustion engine.
While this is meant to encourage employees to opt for a company car with zero CO2 emissions, the difference in rates is too small to be effective and further and bolder steps are needed. First, rates should be much higher for ICE vehicles to effectively disincentivise the choice of an ICE vehicle as company car. The UK provide a good example, with the rate for more polluting diesel vehicles reaching up to 37%, thus creating a differential in the amount of tax paid in comparison with electric vehicles that is more substantial. Second, the advantage-in-kind system should be shaped to favour alternative mobility options. Belgium’s “Mobility budget” offers a concrete example of good practice: this allows employees to choose how to allocate the budget destined to their company car between different alternatives, with the options containing the reimbursement of the costs of public transport or alternative mobility (such as cycling) being the only one completely exempt from taxes and social security (Belgium, 2024).
Empirical evidence suggests that road pricing provides a further effective way to manage road congestion and disincentivise the use of private cars (ITF OECD, 2018). However, highways in Luxembourg are toll-free for private cars, as only heavy good vehicles and trucks are subject to a Euro vignette system. A positive price should be imposed for private vehicles using motorways in order to reduce congestion, with the revenues contributing to finance the building and maintenance of transport infrastructure. This might be coupled with the application of a congestion charge to enter Luxembourg City, as Stockholm has done since 2006 and the city of London since 2003. The evidence suggests that congestion charging schemes have helped in reducing traffic, air pollution and emissions, and, depending on their design, shifting the composition of the car fleet towards electric vehicles (Isaksen and Johanses, 2021). The effectiveness of such policies is found to be magnified if these are applied together with measures aimed at enhancing public transport, as Luxembourg has been doing (Givoni, 2011). Developing distance-based charging could help and also provide a future revenue stream.
Parking policies have played a role in cities such as Munich, Berlin, Hamburg, Vienna, and Zurich in discouraging the use of private cars (Fonds Kirchberg, 2019). Measures such as rising hourly parking charges and parking fines, limiting the number of parking spaces available and the allowable parking time would further contribute to the effort of shifting preferences of commuters from private cars towards public transport. These more restrictive parking policies should not apply to electric vehicles, meaning they should be able to continue to enjoy low parking fees and long parking time, to further incentivise consumers to opt for low-emission cars. As many workers in Luxembourg rely on their cars to commute to their offices, norms on office car parking have a role to play as well. Following the examples of Amsterdam and London, as the effectiveness of public transport gradually increases, norms setting a minimum parking spots requirement for offices based on their floor area should be scrapped, while norms establishing maximum parking spots should be amended to lower these ceilings (Fonds Kirchberg, 2019).
3.3.3. Fostering the electrification of the car fleet
Electrification of the private and corporate car fleet will contribute to reduce private transport emissions. With a share of electric vehicles in total new registrations that was almost 16% in 2022, Luxembourg is performing better than the EU average (11.7%), a trend confirmed in the first 10 months of 2023. However, despite the generous subsidy, cars fueled by petrol and diesel still represent almost 90% of the overall fleet, making the target of 49% of the total fleet represented by EV in 2030 very challenging to attain.
Luxembourg has active subsidies for the purchase of new pure electric (or fuelled by hydrogen fuel cell) vehicles that are bought before 30 June 2026 and brought into service in Luxembourg at the latest on 30 June 2027 (while the subsidy for plug-in hybrid electric vehicles has ended and has not been renewed). The amount of the subsidy for the purchase of a new pure electric vehicle is negatively linked to the consumption of the car and has been reduced from EUR 8000 to EUR 6000 (without exceeding 50% of the purchase price excluding VAT) for passenger cars with an electrical energy consumption not exceeding 160 Wh/km, while it is set at EUR 3000 for cars whose energy consumption is between 161 Wh/km and 180 Wh/km. Pure electric vehicles whose energy consumption is higher than 180 Wh/km are no longer eligible for a purchase incentive (previously set at EUR 3000). Exceptions are in place only for households with three or more children, allowing them to receive a subsidy for a less energy-efficient pure electric vehicle. The subsidy amounts to EUR 1000 for pure electric motorcycles.
EV subsidies should continue to be gradually phased out as the market matures, and efforts should be focused on areas with higher returns. Untargeted EV subsidies are costly and regressive, as most electric car buyers are richer than the average household. Moreover, EVs are becoming more competitive, although the purchase’s price remains above equivalent internal combustion engine cars. During the phase-out, EV subsidies should be made conditional to the scrappage or the sale of a dated and polluting internal combustion engine vehicle. This would minimise the risk of using the subsidy to just add new EVs to the existing car fleet, changing only marginally the fleet’s composition and failing to reduce the use of ICE vehicles. Scrappage schemes applied in many European countries in the aftermath of the great financial crisis, such as those applied in Germany, France or Italy in 2009, have proved effective at increasing the scrappage rate (with an estimated 82% increase in scrappage due to the scheme) and so at updating the car fleet, reducing environmental pressures from private transportation (Marin et Zoboli, 2020). These schemes provided a subsidy to buy new, less polluting vehicles (EURO 4 or EURO 5 standards, with CO2 emissions lower than 140 g/km), but making them conditional to the scrappage of more polluting and old vehicles (EURO 0, 1 and 2 older than 10 years).
Reliable charging infrastructure is a key enabler for EV adoption. Luxembourg launched in 2017 the campaign to install a network of public charging points for electric cars and plug-in hybrids, called “Chargy”. In 2021, the Grand Duchy started the deployment of the new generation of super-fast charging stations, called “Super Chargy”. Moreover, the government has introduced a subsidy, still active in 2024, that covers 50% of the VAT-exclusive cost of the purchase and installation of private charging stations. In 2022, the government introduced a subsidy scheme, still active in 2024, for companies that install charging infrastructures. This scheme covers 50% of the VAT-exclusive cost for publicly accessible infrastructures, while the share lowers to 30% for private infrastructures that will be used exclusively by the company itself and its employees. The subsidy is provided through a tender based regime on the basis of a competitive process, but for small projects presented by SMEs a simple request is sufficient to be eligible. All these measures have allowed Luxembourg to have today one of the best developed and more capillary charging infrastructure structures in Europe. However, to be able to reach the NECP’s target of 49% of the total fleet represented by EV in 2030, it will be pivotal to continue to develop this infrastructure and the electricity network, as foreseen in the network development plans of the grid operators, to make sure the electricity supply is adequate to cover the increase in demand.
Encouraging the use of alternative and more sustainable forms of private transport is a needed complementary strategy to reduce the level of GHG emissions in the transport sector. Cycling has been actively promoted by the government, in accordance with the 2035 National Mobility Plan, especially as a solution for short distance commuting. Applied and foreseen measures aim at improving infrastructures, from cycling paths network (and its security) to parking spaces and enhancing bike sharing services. Since 2020 the government has also provided financial aid for bicycles and pedal-assist cycles that covered 50% of the cost excluding VAT, up to a maximum of EUR 600. Starting from October 2024, this subsidy will be reserved for people who belong to a household in receipt of the cost-of-living allowance or the energy allowance at the time of purchase of the bicycle, unless the bike is a cargo-bike. For the latter, the subsidy has been extended until 30 June 2026, is available to anyone and has a maximum ceiling of EUR 1000. The uptake of cycling as commuting option has indeed increased since the pandemic, but it started from a very low level and a further acceleration is needed (European Commission, 2020).
Carpooling, by reducing the number of automobiles needed by travellers, contributes to reduce energy consumption, GHG emissions and road congestion (Shaheen et at., 2018), especially in a country like Luxembourg where, at peak times, no fewer than 250,000 car seats travelling towards the city centre are empty. In 2019, Luxembourg adopted a package of measures to encourage carpooling, starting at the frontier and developed in collaboration with neighbouring countries. The creation of a free carpooling platform called “CoPilote”, aimed at facilitated carpooling in Luxembourg and the Greater Region, is contributing to this. The platform allows the government to automatically reimburse the travel costs for the platform’s users during periods of train infrastructure maintenance works or when air pollution is peaking, and provides the possibility for companies to connect their employees in private "communities" and further incentivise them to use carpooling by reserving office parking spaces for CoPilote users.
The effectiveness of these measures would be magnified if these were coupled with infrastructure developments aimed at incentivising carpooling use. Dedicating one lane of the highways only to public buses and carpooling might prove very effective in encouraging their uptake, above all on roads heavily affected by congestion as the main motorways in Luxembourg are. The impact might even be broader, increasing carpooling uptake not only on these highways. If tolls or a congestion charge were to be applied, carpooling vehicles should be exempted.
In 2022, Luxembourg launched a national strategy to promote car sharing. Car sharing can contribute to emissions reductions in the Grand Duchy in different ways. First, considering the high number of private cars per inhabitant, it might be used to replace a second or a third car, and empirical evidence suggests this change in ownership pattern is usually coupled with less kilometres driven (Nijland et Van Meerkek, 2017). Second, car sharing fleets are usually composed by vehicles that are smaller, newer, and less polluting than those of private fleets (Namazu and Dowlatabadi, 2015). Third, making the rental price of the vehicle conditional on its size, as some operators already do, might further help to select the appropriate vehicle for the task at hand, reducing inefficiency.
While striving to limit the increase of global temperatures, climate adaptation is important to protect people and infrastructure and reduce their vulnerability to the current or expected impacts of climate change. Luxembourg is not particularly prone to natural catastrophes, nonetheless it has been facing a considerable economic impact of weather and climate-related extreme events (European Environment Agency, 2023).
Luxembourg’s main climate hazard are storms and floods. While average annual precipitation has decreased from the 1960s, seasonal precipitation patterns have changed, rising in winter, with more rain and less snow. The average annual air temperature has increased from 8.3 degrees Celsius (between 1961-1991) to 9.8 (between 1991-2020). The cumulated effect of these changes has, first, increased the risk of floods and flash floods, which in turn might affect infrastructures, like the electricity infrastructures, as the flood in July 2021 demonstrated. While flood insurance is an optional extension of general home insurance policies and it is not mandatory, penetration is anyway around 50% of households. Beyond further reducing the insurance gap, risk mitigation should be pursued as well, including by avoiding new constructions in flood-prone areas and continuing to pursue improvements in river management.
Heat waves are the second main climate hazard for Luxembourg, as they risk becoming more frequent, with the number of days with heat waves expected to increase from 7.6 to more than 30 per year in the near future. These changes are affecting agriculture and forestry, with forests covering almost 1/3 of Luxembourg territory.
Luxembourg in 2018 updated its National Strategy for Adapting to Climate Change, which was adopted in 2011. This Strategy builds on a comprehensive assessment of potential climate impacts across various sectors. It encompasses 13 sectors, ranging from ecosystems to infrastructure, from crisis management to the economy, and entails a detailed action plan to achieve sectoral objectives derived from the climate risk analysis. This plan includes both the review of existing measures and the implementation of new ones where necessary. Moreover, the strategy suggests output or monitoring indicators to track progress effectively, in the attempt to ensure a systematic and accountable approach to climate adaptation efforts in Luxembourg.
While this approach is in line with that of other OECD countries, risk assessment could be further strengthened by better taking into account inter-dependencies among sectors and better considering supply chain and trade aspects, as well as the impacts on tourism which remain marginally addressed. In view of this, the next adaptation strategy, currently under discussion, could be further anchored in a thorough climate risk assessment.
The forthcoming adaptation strategy could also benefit from a more structured assessment of progress made thus far, ensuring that Luxembourg's adaptation efforts remain effective and adapted to evolving climate challenges. While the previous strategy included monitoring indicators, it did not outline precise and robust mechanisms for tracking and evaluating progress. France provides an example of good practices on this, establishing a mid-term evaluation.
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