Luxembourg plans to cut carbon emissions by 55% within the next decade as well as increasing the share of renewable energies to 25% by 2030. It wants to be climate neutral by mid-century, has adopted a zero-waste strategy and plans a five-fold increase of organic farming.

“Pressures from economic development, urbanisation and road traffic are strong,” said OECD environment director Rodolfo Lacy in the report. “The coming years will be critical.”

The OECD issued no fewer than 40 recommendations to the government on how to speed up the process of becoming more environmentally friendly in a variety of different areas. These range from improving water quality, expanding fines for polluters and better mobility planning to increasing nature protected areas and limiting urban sprawl and habitat fragmentation.

“I am confident that this report will help us make progress on environmental policies,” said environment minister Carole Dieschbourg (Déi Gréng) during a virtual conference on 13 November, saying she was “a fan” of this type of analysis to establish “where you can do better.”

She also pointed out some initiatives that Luxembourg already launched since the assessment took place earlier in the year, including a CO2 tax and the “Naturpakt”, a voluntary commitment by communes to protect biodiversity.

“Luxembourg has made a lot of progress" since its last performance review in 2010, Lacy said during the call, adding that there was "strong political will" for change. He also outlined some of the recommendations going forward. 

Economic model

These include a sustainability check for draft laws and incorporating environmental criteria into sectoral planning.

Environment minister Carole Dieschbourg has already promised for environmental impact assessments to play a bigger role in attracting industry to Luxembourg. This came after hefty opposition to a yoghurt factory in Bettembourg-Dudelange that was slated to use 2.5m litres of water per day to operate. The company Fage eventually pulled out of the project.

“The carbon intensity of the economy remains among the highest in the OECD,” the organisation said in its report, warning: “The Luxembourg economic model is beginning to show its limits.”

CO2 emissions in Luxembourg increased by 2% in 2019, rather than diminishing, according to Eurostat data, with a 6% increase in emissions from industrial combustion. The European Commission at the start of 2020 had warned the grand duchy would miss its emission targets for this year, although the coronavirus lockdown means it could still achieve them.

But it wasn’t all doom and gloom. The OECD praised €1.8bn invested in public transport infrastructure between 2015 and 2019 while at the same time warning that free public transport must be accompanied by better service quality. The transport ministry is in the process of reviewing the country’s bus network.

The organisation also said mobility must play a greater role in how the country grows, recommending more synergy between transport, housing and special planning.

Sustainable finance

Luxembourg’s financial centre meanwhile is “very well placed to develop green and sustainable finance,” the OECD said. The country in September became the first in the EU to adopts a sustainable bonds framework. It is based on the EU sustainable finance taxonomy that aims to define criteria for assets to be considered green.

The OECD said better monitoring instruments were needed to measure the actual environmental impact of green finance investments, warning of the dangers of greenwashing. It also said more attention needed to be paid to criteria other than climate change mitigation, such as biodiversity, water or circular economy.  

In a victory for Greenpeace activists, the OECD called Luxembourg out over its sovereign investments and pension fund. Under the Paris climate accords, countries pledged to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”

Luxembourg’s pension fund has yet to divest from fossil fuels but also nuclear power companies and mining businesses. “Local governments could lead by example,” the OECD report said. “For instance, they could pledge to measure, report and reduce the environmental and social impact of public investments, sovereign wealth funds and public pensions.”

The Luxembourg public pension fund--which manages a portfolio of around €22bn--pledged a climate risk assessment after Greenpeace took social security minister Romain Schneider to court over the ministry’s failure to provide information on the financial risks linked to its carbon assets. Insurer AXA estimates that annual returns of oil and gas companies are expected to fall by 40% over the next decade.