The Lithuanian energy sector is largely fossil fuel based. In 2021, fossil fuels accounted for 63% of the country’s total energy supply (TES), excluding net electricity import. Fossil fuel share in TES increased substantially in 2010, following the closure of the Ignalina nuclear power plant in 2009, in accordance with the requirements for accession to the European Union. In the following decade, Lithuania became increasingly dependent on energy imports, with its energy dependency ratio at 76.4% in 2021, well above the EU average of 55.1%. Drawing from this trend, the reduction in dependence on imported energy sources and on fossil fuels are key energy goals advanced by the National Energy Independence Strategy. One of the goals of the Strategy was achieved in May 2022, when Lithuania declared it had successfully ceased importing Russian oil, gas, and electricity.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
Lithuania
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
Lithuania used to rely on Russia’s Gazprom as its single source of natural gas. Having built the LNG terminal in Klaipėda in 2014 (where LNG is imported, re-gasified and exported as pipeline gas), natural gas supply has diversified ever since, which allowed the country to stop Russian gas imports in response to Russia’s war of aggression against Ukraine. Gas interconnection between Poland and Lithuania (GIPL) was completed in 2021 and started operations in May 2022. The largest single gas consumer in Lithuania is the fertiliser manufacturer Achema, followed by Ignitis Group (formerly Lietuvos energijos tiekimas Ltd. prior to 2019), a Lithuanian natural gas and electricity supplier, which also supplies liquefied natural gas through the LNG terminal in Klaipeda. The next major change is the development of a regional gas market for Baltic countries GET Baltic, which from 1 January 2020, also started operating in Finland.
Prior to 2009, Ignalina’s nuclear power plant met 77 % of the country´s electricity needs, with 58 % of its total output exported to other countries. However, after the plant’s closure, Lithuania turned from a net exporter to a net importer of electricity – with around two-thirds of the country´s electricity imported in 2010. By 2012, the Russian Federation (hereafter “Russia”) was providing 63% of Lithuania’s electricity and Gazprom became the sole supplier to Lithuania’s natural gas market. To diversify its sources and address the risk in security of the country’s gas supply, the LNG terminal in Klaipeda opened in December 2014, allowing the country to import natural gas from multiple sources. To diversify electricity imports, the LitPol Link (Lithuania-Poland) and NordBalt (Lithuania-Sweden) electricity interconnections linked Lithuania’s grid with those of its neighbours. By 2016, Russian imports supplied less than a third of Lithuania’s electricity needs. By April 2022, the country has completely halted natural gas imports from Russia, in direct response to the February 2022 large scale aggression by Russia over Ukraine.
Lithuania's oil sector comprises of a single oil refining and transportation company (ORLEN Lietuva, which owns the Orlen Lietuva Refinery), a single oil handling terminal (Būtingė), an oil product terminal Klaipėdos Nafta, four oil extraction companies and several companies engaged in oil product sales. ORLEN Lietuva is the only crude oil processing refinery in the Baltic States. The import, export, transit, and sale of oil products are not subject to any restrictions or quotas. Since 2013, the consumption of oil products has been incrementally increasing with 2.5 million tonnes of oil products consumed in the most recent years.
Energy prices and taxes
The National Commission for Energy Control and Prices (NCECP) regulates electricity, heat and natural gas prices in Lithuania. Prices of other energy and fuel prices are not regulated in Lithuania. Energy supply is subject to VAT at a standard rate of 21%. Exceptions apply for heating power used for heating residential premises, taxed at a lower rate of 9%. An excise tax is levied on petroleum products, coal, coke, natural gas and electricity at different rates. Recent developments indicate a push towards ecotaxes, especially by raising tax rates on motor and heating fuels, as well as introducing motor vehicle taxes differentiated according to the type of fuel used and amount of carbon dioxide emitted. Motor vehicle registration tax, which includes a CO2 component and depends on the fuel type, came into effect on 1 July 2020.
Figure 2. Total tax rebates and support for fossil fuels in Lithuania
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
Support for fossil fuels in Lithuania takes the form of exemptions to excise duties and reduced rates for specific fuels and usage. There are reductions in excise duty applicable for fuels used for business purposes, heating, air and water navigations and other uses. In 2015, the exemptions of excise duty for fuels used in agriculture and fishing were converted to reductions in excise duty. The government introduced an excise duty exemption for natural gas used as motor fuel in 2018. On December 2019, the Administration approved EUR 275 million worth of state guarantees for a loan for the Klaipėda LNG Terminal to purchase LNG ship-storage facility and the restructuring of the LNG terminal maintenance costs. This measure is seen to continue with state guarantees amounting to a budgeted total of EUR 135.5 million in the period 2019-2024. Support for fossil fuels in Lithuania continues as the country tries to ensure energy independence while at the same time reducing the spending of households on energy consumption. Due to this development, the bulk of support in Lithuania has diversified to both the production and transportation sectors in 2019.
During the COVID-19 pandemic, the Lithuanian government introduced a few broad measures such as subsidies to enterprises most affected by COVID-19 or deferral of tax payments, however, the support did not particularly target the fossil fuel sector. During the first quarantine from March to June 2020, the government approved deferrals or payment instalments for the consumed electricity and natural gas for the business clients of Ignitis Group. The total support in Lithuania has shown a pronounced decrease due to the wide-ranging mobility and economic restrictions brought on by the pandemic, resulting in revenue foregone reduction for consumer support measures whose amounts are directly proportional to fuel consumption which drastically fell during the pandemic. In 2022, in response to the soaring energy prices following the ongoing large-scale aggression by Russia over Ukraine, the Government revised its budget for the year and introduced compensations for gas and electricity to households as well as businesses, earmarking around EUR 570 million of public funds. The support for gas has been extended until the end of 2023.
The fiscal cost of support measures for fossil fuels in Lithuania was estimated at EUR 986.41 million in 2022 (Table 1). Seventy-four per cent (74%) was directed at end user beneficiaries, as opposed to 25% directed to firms. Support was mainly given out in the form of direct transfers (EUR 585.12 million) accounting for 59% of the total fiscal cost of support measures. Tax expenditures amounted to EUR 401.29 million.
The fiscal cost of support measures for fossil fuels has increased by 286% since 2017. Since last year, tax expenditures have decreased by 2%, from EUR 409.93 million to EUR 401.29 million and direct transfers increased by 776%, from EUR 56.43 million to EUR 585.12 million. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in millions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
167.954 |
165.288 |
162.737 |
376.039 |
409.928 |
401.290 |
|
Direct transfers |
87.624 |
93.969 |
103.898 |
68.117 |
56.433 |
585.123 |
|
Total |
255.579 |
259.257 |
266.634 |
444.156 |
466.361 |
986.413 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in millions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
||||
|
Reduced rate of excise tax for natural gas used as heating for business purposes |
102.500 |
3.511 |
98.989 |
|
|
Reduced rate of excise tax for gas oil used in agriculture and fisheries |
83.000 |
91.480 |
-8.480 |
|
|
Reduced rate of VAT to heating power used for heating residential premises |
63.400 |
33.000 |
30.400 |
|
|
Direct transfers |
||||
|
Partial compensation for gas prices (households) |
293.800 |
(Started 2022) |
293.800 |
|
|
Partial compensation for electricity prices (households) |
181.418 |
(Started 2022) |
181.418 |
|
|
Partial compensation for electricity prices (businesses) |
53.472 |
(Started 2022) |
53.472 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Reduced rate of excise tax for natural gas used as heating for business purposes |
In Lithuania, from 1 January 2016 natural gas used as heating fuel is subject to an excise duty rate of EUR 1.08 per megawatt hour. If natural gas is used as heating fuel for business purposes, then it is subject to a reduced excise duty rate of EUR 0.54 per megawatt hour of the product. The use of natural gas for business purposes shall mean its use by the person engaged in economic activities within the meaning of the Law on Value Added Tax of Lithuania. |
|
Reduced rate of excise tax for gas oil used in agriculture and fisheries |
In Lithuania, gas oil sales are subject to excise tax. Gas oils intended for use by entities producing agricultural products in agriculture, including aquaculture and commercial fishing in inland waters activity, are subject to a reduced excise duty (of EUR 60 per 1,000 litres of the product from 1 January 2020; standard excise tax rate is EUR 372 per 1,000 litres). This measure, in effect from 1 July 2015, succeeds the previous Exemption of excise tax used in agriculture and fisheries (see te_03 [Exemption of excise tax for gas oil used in agriculture and fisheries]). |
|
Reduced rate of VAT to heating power used for heating residential premises |
Standard VAT rate is 21%. Seeking to mitigate the impact of increasing heat energy bills on households, reduced 9% VAT rate is applied to heating power used for heating residential premises (including heating energy transmitted via hot water supply systems), to hot water or to cold water used for preparing hot water and to heating power used for preparing hot water if water is supplied to residential premises. Note that Lithuania officially adopted the Euro with effect from 1 January 2015. Figures prior to this date were originally reported in Lithuanian Litas (LTL) and have been converted using the exchange rate of EUR 1 = LTL 3.4528. |
|
Partial compensation for gas prices (households) |
The government extended the state compensation for domestic consumers for natural gas (but abolished subsidies for electricity). Compensation will amount to 63 cents per cubic meter. For this, they allocated 54,48 million. |
|
Partial compensation for electricity prices (households) |
The Government’s resolution stipulated that in the second half of 2022 residents will receive the compensation if their electricity price exceeds 24 ct/kWh (including VAT), however, the maximum amount of the subsidy could not be higher than 9 ct/kWh (including VAT), in the first half of 2023 – if the electricity price exceeds 28 ct/kWh (including VAT), however, the compensation size shall not exceed 28.5 ct/kWh (including VAT). |
|
Partial compensation for electricity prices (businesses) |
Partial subsidy on the electricity price for businesses: in the fourth quarter of 2022, the price of electricity above which the corresponding subsidy was applied was 24 cents per kWh, in the first quarter of 2023, the state allocated a subsidy to cover half of the price of electricity (excluding the price of infrastructure services and VAT) exceeding 28 cents per kWh. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.