PRODUCTION AND CONSUMPTION

TRENDS IN LITHUANIA

Romualdas JuknysVytautas Magnus University,

Lithuania

Vilnius2008, 19-20 March

Do Lithuania, as well as other newly accepted East European EU countries, are full members of European Union???

De jure – yes.De facto – not exactly.

• Incomes of Lithuanian citizens in PPS almost 4 times lower than in EU15 countries.

• Labour productivity approximately 2.5 times lower than in EU15 countries.

• Average man’s life expectancy almost 10 years smaller than in EU15 countries.

• And so on, and so on, and so on….

• Level and trends of consumption and production in newly accepted East-European EU countries is much different from the old EU member states.

• Society of newly accepted EU member states tends to consider Western life style with high material consumption as the main indicator of better quality of life and big efforts will be needed to balance betterment of life quality with sustainability of consumption and production.

Trends of production

• Fast growth of Lituanian economy (7-10% annual GDP increase) is characteristic feature for the period of 2001-2007 years and this trend is expected to continue.

• Decoupling of environmental impact from economy growth is considered as one of the most important tasks to keep sustainability of production.

For more operational analysis of development trends, double decoupling, i.e. decoupling consumtion of natural resources from economy growth, which is named as primary decoupling, and decoupling of environmental pollution from consumption of natural resources (secondary decoupling) are distinguished.

Energy intensity, i.e. the final energy used per unit of created GDP, is treated as an indicator of primary decoupling, and pollution intensity, i.e. amount of pollutants per unit of consumed energy – as the indicator of secondary decoupling.

Trends in GDP, final energy consumption and emissions to air in Lithuania (1991=100%)

0%

20%

40%

60%

80%

100%

120%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GDPconst.prices Final energy Emissions to air

• An essential primary decoupling (decoupling of consumption of natural resources from economy growth) was achieved in Lithuania after reestablishment of independence and energy intensity was reduced approximately 2,5 times.

• Transition to the market economy and it’s restructuring, increased prices of energy resources and modernization of technologies are considered as a main reasons of this positive from the point of sustainability trend.

• Secondary decoupling (decoupling of environmental pollution from consumption of natural resources) is much less pronounced and pollution intensity was reduced only by 35% during the same period.

• Taking into account that along with economic depression during initial stages of transition period air pollution was reduced more than threefold and the main environmental problems got solved by themselves, relatively small attempt to the implementation of special air pollution mitigation measures is made.

Trends in GDP, final energy consumption and emissions to air in EU15 countries (1991=100%)

0%

20%

40%

60%

80%

100%

120%

140%

160%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

GDPconst.prices Final energy Emissions to air

• Course of decoupling in EU15 countries is completely different from that in Lithuania, and secondary decoupling (decoupling of environmental pollution from consumption of natural resources) is much more pronounced than primary one (decoupling of consumtion of natural resources from economy growth).

• pollution intensity was reduced almost two times and energy intensity was reduced only by 15% during the same period in EU15 countries.

• Lithuania inherited not only extremely inefficient use of natural resources but low labour productivity as well and it should be considered as one of the biggest problems necessary to solve.

• Big progress was made to increase efficiency of natural resources, and energy resources firs of all, however labour productivity still is very low in Lithuania.

Comparison of energy, pollution and lasbour intensity in Lithuania and EU15 countries

0

50

100

150

200

250

300

Energy intensity Pollution intensity Labour intensity

Perc

ents EU15

Lithuania

• Final energy intensity exceeds this indicator for EU15 countries approximately by 20%.

• Pollution intensity (amount of pollutants per unit of consumed energy) is almost two times higher in Lithuania.

• Labour intensity – almost 2.5 times higher and fast increase in GDP is achieved by extensive growth mostly.

• Increase in labour productivity from the point of sustainability should be considered not only as important economic indicator but as necessary presumption to solve important environmental and social problems.

• Only implementing high and environmental friendly technologies, fast increase in labour productivity and fast economy growth without increase of environmental impact can be achieved.

• Only fast increase in labour productivity creates preconditions for fast growth of incomes without compromising macroeconomic stability.

Consumption trends

Trends in disposable incomes, consumption expenditure and GDP per capita (in const.prices)

0%

50%

100%

150%

200%

250%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Disposable incomes Consumption expenditure GDP

• Despite of rather fast growth of disposable incomes and consumption expenditure during last several years, household consumption expenditure in Lithuania are still about 2 times lower than in EU15countries on average.

• Process of convergence and fast further growth in household consumption should be expected and this trend creates an essential threat to sustainability of Lithuania’s development.

Trends in household electricity, thermal energy and water consumption

0

50

100

150

200

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Electricity Thermal energy Water

• Fast increase in home appliances, electronic and communication tools could be considered as the main reason of rather fast increase in household electricity consumption.

• More wide propagation of environmental friendly (green) procurement would be promising option to reduce rate of electricity consumption growth.

• Regulations of public green procurement are established from the year 2007 in Lithuania.

• Despite of some progress in reduction of thermal energy consumption, energy intensity in household sector still is very high. About 70% of Lithuanian citizens still live in soviet fashioned block houses and thermal energy consumption on average is about 200 kJ per degree for square meter per day and it exceeds the required energy amount in most EU15 countries about 2-2.5 times.

• A large part of the centralized heating infrastructure is out-dated and energy losses in heat distribution networks are very high.

• Renovation of block–houses and improvement of their thermal behaviour, modernization of thermal units, and renovation of heat supply networks creates an opportunities to reduce household energy consumption essentially.

• To achieve twofold reduction in household thermal energy intensity up to the year 2020 is foreseen in Lithuanian strategy for sustainable development

• High inflation rate is characteristic feature of most newly accepted East European EU member states an creates additional difficulties to achieve higher living standards and more sustainable consumption patterns simultaneously.

• Taking into account big differences in comparative price levels between newly accepted and old EU member states, according to the principle of connected vessels, rather fast growth of prices should be expected until they reach the price level of the EU15 countries.

Model: infliation rate=a+b*exp(-c*(comp.prices-100))y=(1,491)+(0,764)*exp(-(0,0384)*(x-100))

Comparative prices

Inflia

tion

rate

, %

C:1

C:2

C:3

C:4C:5

C:6

C:7C:8 C:9

C:10C:11C:12

C:13

C:14

C:15

C:16

C:17

C:18C:19

C:20 C:21

C:22

C:23

C:24C:25C:26

C:27

0

2

4

6

8

10

12

50 60 70 80 90 100 110 120 130

R2 = 0.4798

Final remarks• Rather high inflation rate in Lithuania as well

as in most other newly accepted East European EU member states is inevitable during nearest several years.

• In order to achieve at least minimal improvement in living standards, incomes must grow faster than prices.

• In order to avoid additional environmental problems, increased consumption should be driven to more environmental friendly way.

• In order to secure macroeconomic stability,labour productivity must grow at similar rate as incomes grow.