For Lithuania to transition faster to a circular economy, merely increasing environmental taxes will not be enough. A study commissioned by the Government of the Republic of Lithuania shows that a more effective path is a system where higher pollution taxation is combined with financial incentives, VAT reductions, social safeguards, and clear use of the collected funds.
They want to supplement the one-time registration fee with an annual pollution tax
Among the measures proposed by the researchers to consider is supplementing the existing one-time car registration fee with an annual pollution tax, differentiated according to CO₂ emissions and fuel type. It is also proposed to consider a reduced, for example, 9% VAT rate for certain repair services and additional tax incentives for circular economy investments.
“Lithuania’s transition to a circular economy should not start with the question of what new tax we can introduce. A more precise question is how to create a legal and tax system where polluting is economically less attractive, and choosing a more sustainable alternative is simpler and cheaper,” say the study authors, Vilnius University Faculty of Law Prof. Dr. L. Gasparėnienė, senior researcher R. Remeikienė, and others.
Residents fear a greater financial burden
In 2026, while preparing the model for circular economy taxation and legal framework for Lithuania, Lithuanian and EU legal regulations, practices of other EU countries, and statistical data were analyzed, 14 experts were evaluated, and a survey of 373 Lithuanian residents was conducted.
The study showed that experts and the public generally agree on the goals of the circular economy but differ in their assessment of the measures to achieve them.
As many as 78.3% of respondents believe that new environmental taxes would most affect lower-income residents, and 36.2% identified higher car pollution taxes as financially burdensome.
At the same time, almost half – 48.3% – of residents named more convenient sorting infrastructure as one of the most effective waste reduction measures, and 41.3% chose financial incentives for sorting.
According to the researchers, this indicates an important principle: before increasing the cost of environmentally unfriendly choices, residents must be given a real opportunity to choose a more environmentally friendly alternative.
Collected taxes should create alternatives
The study also revealed quite low public trust in the administration of environmental taxes. Residents rated the transparency of the use of collected funds at only 2.75 out of 5, and the institutions’ ability to effectively implement circular economy policy at 2.97 points.
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Therefore, when considering a possible annual car pollution tax, the study proposes allocating part of the collected revenue purposefully to public transport, bicycle and pedestrian infrastructure, electric vehicle charging networks, and other low-emission mobility options.
“A resident should see not only a new tax obligation but also the alternative it creates,” emphasize the study authors.
More support – incentives, not just taxes
One of the most striking results of the study is greater agreement on incentive measures. Experts rated tax reliefs for circular economy investments at 4.36 out of 5, subsidies for green technology implementation at 4.21, and reduced VAT for repair and reuse activities at 4.14.
The study proposes considering a reduced, for example, 9% VAT rate for those repair services for which a reduced rate is allowed by EU law. This could include clothing and household textile repairs, footwear and leather goods, bicycles including electric ones, and household appliance repairs.
Therefore, an integrated model is proposed for Lithuania: environmentally harmful choices would be taxed more, but at the same time financially attractive and easily accessible alternatives would be created – from sorting and recycling to repair, reuse, and low-emission transport.
About the study
The article is prepared based on the results of the 2026 project “Development of Circular Economy Taxation and Legal Framework in Lithuania” and a report prepared for the Government of the Republic of Lithuania. The project (contract No. S-REP-25-1) is funded by the LMT under the Significant Research Projects program.
