OECD highlights for a climate-neutral Lithuania: innovative technology development, tax changes

For Lithuania to reach the 2050 climate neutrality target, the diffusion of innovative technologies is essential, especially in the transport and industrial sectors. The deployment of new and sustainable technologies to reduce greenhouse gas emissions would create additional jobs in the country and could make Lithuania a technology-selling country.

These insights were shared by Environment Minister Simonas Gentvilas at the conference 'Climate-Neutral Lithuania: Mission 2050' in Vilnius on Monday. It presented policy recommendations from the Organisation for Economic Co-operation and Development (OECD) study "Reform Options for Lithuania Climate Neutrality by 2050" on what path and measures Lithuania should take in implementing its decarbonisation goals, how this will affect our country and what opportunities a climate neutral economic model offers for Lithuania.

"Our generation's purpose and our actions will determine whether we reach the 2050 targets. In addition to reducing our emissions, we need to agree on economic development, including how the tax environment will evolve, how industry, agriculture, transport and other sectors will change. We can see that nature is not able to absorb our emissions, and the scientific evidence is clear that we will exceed the warming of the climate in the next decade. Nature and people will not be able to adapt quickly, so action must be taken today," stressed Environment Minister Simonas Gentvilas.

Kumi Kitamori, Deputy Director of the OECD Environment Directorate, and Nathalie Berger, Head of the Commission's Structural Reform Support Directorate, welcomed the participants to the conference. The OECD study was presented by the Policy Analysts Kilian Raiser and Herwig Immerwoll.

Scrapping fossil fuel subsidies were noted

The study assesses Lithuania's climate change policy and implementation. It concludes that Lithuania's economic growth has been successfully decoupled from greenhouse gas (GHG) emissions. However, Lithuania's GHG emissions intensity from energy consumption remains above the EU average. Lithuania's GHG intensity index differed from the EU result by almost 14 % points in 2017, and the gap widens to 23.4 % points in 2020.

OECD experts believe that Lithuania's current climate change policy ambition is sufficient and covers all sectors of the economy, but financial incentives for mitigation actions and technology deployment are largely based on subsidies and grants. More financial solutions are needed in all sectors of the economy to achieve Lithuania's climate goals.

OECD experts have noted that carbon taxation in Lithuania is still below what is needed. They noted that phasing out fossil fuel subsidies and linking excise duties to the emissions of individual fossil fuels would provide a clear direction for industry and consumers, which would compensate for the gap in ambition to reach the 2030 targets. Similarly, extending the EU ETS to buildings, road transport and other sectors from 2027 onwards would have a similar effect and would reinforce climate policy ambition.

Sectors where a breakthrough will be needed

To achieve the country's GHG reduction targets, OECD experts stress the need for ambitious cross-sectoral climate change policies, increasing environmental taxes and phasing out fossil fuel subsidies.

Decarbonising the Lithuanian economy will require long-term measures, they say. Priority must be given to increasing GHG reductions in the transport sector, while the old and inefficient car fleet, increasing road freight transport and urban sprawl require urgent solutions.

Ensuring energy efficiency in buildings is another challenge, as the inadequate stock of energy-efficient buildings is undermining the significant progress made in reducing heating GHG emissions through biomass and waste.

In the industrial sector, historically low fossil fuel prices have hampered an accelerated transition to renewable energy, although the current geopolitical situation and the energy price crisis are changing incentives.

Finally, in agriculture, the increasing use of synthetic fertilisers for crop production should be regulated and crop rotation should be replaced by monocultures.

Revenues from steadily increasing carbon pricing would not only help to achieve mitigation objectives, but also redistribute funds for GHG reduction measures to economic operators and households and help to reduce the social burden of climate change.

Domestic technology development is key to climate neutrality

The study shows that carbon pricing alone is not enough for Lithuania to become climate neutral by 2050. The development of innovative technologies is essential, especially in the transport and industrial sectors. Targeted support is needed to stimulate technology deployment and innovation.

Experts argue that the economic costs of pursuing high climate ambitions would be minimal if environmental taxes were properly regulated. Significant emission reductions would only slightly slow down the annual growth rate, and in a context of continuous technological development, innovation would balance the minimal economic costs.

OECD experts stress that the current focus on subsidies may crowd out private investment. The OECD recommends that the large gap in financing for low-carbon infrastructure should be filled by private sector investment.

Small capital markets should be further expanded regionally to attract investor interest in financing environmentally friendly solutions and technologies, and financial instruments should be tailored to different investor needs. It is recommended that local governments work more closely together to pool knowledge, for example to create joint service centres or projects, to achieve greater scale and lower costs.

The OECD study aims to analyse options for Lithuania to achieve the intermediate GHG reduction targets set in the National Climate Change Management Agenda and the climate neutrality target by 2050 in a cost-effective manner. The study assesses the decarbonisation options for individual economic sectors and makes policy recommendations for Lithuania.

The study 'Reform Options for Lithuanian Climate Neutrality by 2050' is available here.

Conference broadcast can be found on the Ministry of Environment's YouTube channel (in lithuanian):