OECD Environmental Performance Reviews: Lithuania 2021

Executive summary

The climate ambition should be supported by sectoral policies

The Lithuanian government declared a goal of carbon neutrality by 2050 in its 2021 National Climate Change Management Agenda (NCCMA). The National Energy and Climate Plan (NECP) laid out medium‑term (2021-30) mitigation and adaptation measures to support implementation, with a focus on transport and agriculture. However, existing policies will be insufficient to meet climate targets for 2030 and beyond. Greenhouse gas (GHG) emissions have been mostly flat since 2009. Emissions from transport have risen by 50% since 2005, mainly due to an increase in the volume of goods transported by road and greater emissions from passenger cars.

Energy consumption has increased since 2005, driven mainly by demand from transport. Apart from domestic biomass and wind energy resources, the country relies on fossil energy and electricity imports to meet its needs. At the same time, energy supply from renewable sources has more than doubled to around 22% over 2005‑18. Lithuania plans to use European Union (EU) funds, notably the recovery funding, to 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. These efforts need to exploit synergies between climate and sectoral policies. Progress towards climate targets should be closely monitored.

Lithuania needs to build on its waste management progress to steer 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. This impressive progress is a result of increased 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. However, per capita municipal waste generation has been increasing since 2009. The country should now focus on reducing waste generation and improving material productivity by adopting and implementing cross-sectoral circular economy policies.

Nutrient water pollution must be addressed

Water pollution is worsening across the country. More than half of monitored rivers in agricultural areas are not achieving “good” status under the EU Water Framework Directive, while all coastal waters are failing to reach good ecological or chemical status. The main pressure on water bodies is nutrient pollution from diffuse sources. Its most significant driver is the increased use of mineral fertilisers, a result of a shift from mixed crop-livestock farming to intensive crop cultivation. Lithuania should set stricter limits for fertiliser application in targeted areas and promote voluntary approaches, awareness-raising initiatives and training for farmers.

A second important cause of nutrient water pollution is insufficiently treated wastewater. The government plans to increase the share of population connected to public wastewater treatment from 77% in 2019 to 85% in 2025 and to 95% in 2030, as well as build or rehabilitate 12 wastewater treatment plants by 2023. In addition, consolidation of small water utilities into larger ones would help secure necessary investments in adequate water supply and treatment infrastructure.

Biodiversity conservation is improving, but not outside protected areas

Lithuania has expanded its network of protected areas: they cover 17% of the land area and 23% of the country’s exclusive economic zone in the sea. The forest area (about 34% of the territory) has been increasing in recent years, promoted through afforestation payments to private landowners and restrictions on converting forest land to other uses. There are fewer threatened species in Lithuania than in other OECD member countries. However, almost four of every five assessed habitats have an unfavourable status.

The country needs to improve planning and implementation of biodiversity protection measures and surveillance of biodiversity status outside protected areas. The government is planning to consolidate numerous regional protected area agencies into a single national agency with more harmonised management. It should also consider introducing payments for ecosystem services and ensure financial sustainability of biodiversity protection programmes. To date, these programmes have relied primarily on project-based financial support from the European Union.

Environmental goals call for a whole-of-government effort

Lithuania has a centralised environmental governance system with a modest role of local authorities. To implement the government’s ambitious environmental agenda, inter-institutional working groups collaborate on legislation and strategic documents, as well as on joint initiatives between relevant government stakeholders. For example, a working group on NECP implementation includes vice ministers and other high-level representatives of key ministries. However, better co‑ordination is necessary to integrate environmental considerations into sectoral policies and achieve a whole-of-government approach to environmental management. Municipalities should be more proactive in advancing the country’s agenda on climate change, circular economy and sustainable mobility.

Regulation suffers from gaps in compliance promotion, monitoring and enforcement

Environmental regulation has been reinforced over the last 20 years through alignment of the country’s environmental legislation with EU directives, more recently through increased reliance on electronic processing of documents. It could be further improved by using activity-specific standard environmental requirements (general binding rules) for low-impact installations. This would reduce the regulatory costs for competent authorities and administrative burden for regulated entities.

The adoption of good practices for implementing environmental law has been slow. The share of planned, risk-targeted inspections – slightly over half of the total – is lower than in most OECD member countries, indicating that compliance monitoring is largely reactive. Information on regulated entities is poorly maintained, which may lead to gaps in inspection planning. Guidance to the regulated community on good environmental practices is largely lacking. High non-compliance is not adequately deterred by administrative fines, whose average level and collection rate are too low.

Civic engagement in environmental matters needs to be promoted and facilitated

Despite environmental authorities’ outreach to non-governmental actors in drafting high-profile laws and policies, there is no active dialogue with civil society on key environmental policy priorities, particularly at the local level. Environmental awareness of the population is below the EU average, partly due to the lack of a consistent approach to environmental education. Most environmental information is accessible to the public but is fragmented across different authorities’ websites, making it more difficult to find and use. Lithuania should consolidate public sources of environmental information and ensure regular reporting on the state of the environment. It should also provide open public access to compliance-related information about individual polluting installations.

The trend of declining public environmental expenditure must be reversed

Public expenditure on environmental protection decreased from 1.3% of gross domestic product (GDP) in 2000 to 0.3% in 2018, well below the EU average of 0.8%. At the same time, investment needs in sustainable energy and climate policies alone are estimated at 3% of GDP annually over the next decade. 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 country needs to improve coherence among different green economy investment programmes and create a concrete plan for mobilising private investment.

Lithuania’s research and development (R&D) budget on the environment decreased in the past decade. In 2019, the public budget on energy-related R&D per unit of GDP was in the bottom third among OECD member countries. The government’s action plan to strengthen the country’s energy innovation lays out more than 50 measures in the areas of infrastructure, human resources, products and services, the regulatory environment, science and technology. Lithuanian businesses and R&D institutions have built up important competences in renewable energy. The government should assess the country’s comparative advantages and increase government spending on R&D related to the environment and low-carbon energy transition in the most promising areas.

Some progress on vehicle taxation, but more is needed to green energy taxes

Lithuania is making positive changes to its vehicle taxation policies. It introduced a new tax on passenger car registrations in 2020. The country is also considering an annual tax on motor vehicle ownership, which would vary depending on environmental performance of the vehicle. In addition, the government plans to replace the time-based road use charge for heavy-duty vehicles with a distance-based road use charge differentiated according to the vehicle’s Euro class.

At the same time, Lithuania’s 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. The country has one of the lowest excise duties on petrol and diesel in the OECD and a much lower tax rate on diesel compared to petrol. The tax rates for both types of fuel should be increased to promote the sales of zero-emission vehicles. The government should also follow through on its plans to link tax rates for all fuels to CO₂ emissions.

Support to fossil fuel consumption rose significantly in the past decade. 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. Lithuania should phase out these fossil fuel subsidies while taking appropriate measures to limit the burden on the most affected firms and households.

Trends in emissions from transport are inconsistent with national climate targets

The transport sector is the largest GHG emitter, accounting for 30% of Lithuania’s total in 2018. Transport emissions have increased by 38% over the last decade and are projected to rise steeply until at least 2024 without additional measures. Transport is also the country’s principal emission source of nitrogen oxides and fine particulate matter. Lithuania’s dispersed settlement pattern and low population density make road transport the dominant transport mode for both passengers and freight. In 2019, an average vehicle was 15 years old and 68% of cars were diesel-powered.

The transport sector is not on a pathway consistent with the gradual decarbonisation envisaged in the NECP and more ambitious new targets of the NCCMA. The country plans to increase the use of alternative fuels and innovative transport technologies, electrify its railways and strengthen relevant tax instruments. The 2021 Law on Alternative Fuels mandates support for biofuels and hydrogen to raise the share of renewable energy sources in the sector’s final energy consumption by 2030. However, achieving a carbon-neutral transport system by 2050 will require more stringent targets and additional measures to address the increasing car ownership and incentivise a shift to sustainable transport modes.

Disconnect between transport and spatial planning hampers sustainable mobility

Cities and towns across the country have developed sustainable urban mobility plans (SUMPs) to encourage a shift towards greener transport modes. However, in the vast majority of municipalities, 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. 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. Implementation of SUMPs should be monitored nationwide.

Better incentives are needed to steer user behaviour towards sustainable modes

Lithuania should strengthen demand management policies, including implementation of low-emission zones and higher prices for parking in urban areas. Eliminating free parking at workplaces and minimum parking requirements for new developments would reduce hidden subsidies for car use. Road space reallocation to give priority to public transport, cycling and walking, while restricting car traffic in urban streets, is another opportunity to address congestion and air quality.

Reducing reliance on private cars will require additional investment in public transport and non-motorised modes. Limiting road investment to necessary construction and upgrades of gravel roads would free up funds for public transport. Rural public transport, especially buses, will need significant investment to reduce car dependence for local journeys and enhance connectivity with inter-regional transport modes. Earmarking revenues from parking fees for improvements in cycling and walking conditions could complement the necessary reorientation of national funding towards low-carbon transport.

The uptake of electric vehicles (EVs) has so far been low despite significant purchase subsidies. Challenges include limited EV charging infrastructure and EVs’ substantial price disadvantage compared to diesel and petrol cars. The absence of a national EV strategy and fragmentation of institutional responsibility for building EV charging infrastructure also hamper EV diffusion. Lithuania plans to continue financial support for the purchase of EVs and installation of charging points. Its long-term cost to the state should be carefully monitored.