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Lithuania – EHS Country Case Study

Reform of environmentally harmful subsidies in Lithuania

The case study looked at actions to phase out environmentally harmful subsidies (EHS) in Lithuania. Two initiatives that address EHS have taken place in Lithuania to date. These include attempts to reform EHS in Lithuania’s National Reform Programme for 2013 and the coverage of specific EHS in the Eighteenth Government Programme. Specific measures were also identified in the environmental strategies that suggested phasing out several EHS, although some proposals introduced new or supported old EHS.

The study commissioned in 2014 to implement the National Reform Programme identified 37 EHS. Fifteen EHS were prioritised for phasing out. Most of them covered energy, transport and national resources. The priority lists didn’t include subsidies that had harmful effects on the environment but provided substantial social and economic benefits. By 2022, the country abolished 6 EHS in the priority list.

Air balloon
© Maksim Shutov / Unsplash

Through the analysis of international reports and expert interviews, 15 additional EHS have been identified in Lithuania, in addition to the remaining 9 on the priority list. Most of them are exemptions from excise duty, reduced excise duty rates, and added value tax reliefs. They refer to the use of energy products and electricity for various purposes, such as transport fuel, industrial processes, agriculture, and domestic uses. Many EHS cover fossil fuels.

The Green Tax Reform was launched to implement the Eighteenth Government Programme to review the whole tax system and make it serve green transformation goals. One example is the abolishment of all tax reliefs for fossil fuels by 2024. This regulatory action will amend the excise duty law.

In January 2021, the finance ministry initiated an inter-institutional Working Group to review tax reliefs in line with the project “Towards a fair and growth-enabling tax system”, another strategic project of the Eighteenth Government Programme. It also launched an open public consultation to collect suggestions on the review of tax reliefs, which resulted in over 200 suggestions.

According to the environment ministry, over EUR 120 million is not paid to the national budget due to tax reliefs for fossil fuels. The work is currently in progress, focusing on reviewing tax reliefs in different sectors, including coal, coke, lignite and peat briquettes, fossil fuels used for heating by domestic users, and petrol and diesel.

Phasing out major EHS would affect three groups of consumers: farmers, businesses that use fossil fuels in various industrial and business processes and citizens. Educational, financial and communication incentives to encourage businesses to use eco-friendly technologies and processes are necessary to ensure smooth EHS reforms.

To learn more about the reform process in Lithuania and other Member States read the country case studies and factsheets compilation.