Highlights - OECD Environmental Performance Reviews: Portugal 2023

Environmental Performance Reviews

Portugal

OECD Environmental Performance Reviews

THE OECD

The Organisation for Economic Co-operation and Development (OECD) provides its 38 member countries with a forum to work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to help governments respond to new developments and concerns. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies.

WHAT ARE EPRs?

The OECD Environmental Performance Reviews (EPRs) provide evidence-based analysis and assessment of countries’ progress towards their environmental policy objectives. They promote peer learning, enhance government accountability and provide targeted recommendations to help countries improve their environmental performance. They are supported by a broad range of economic and environmental data. Over the last 30 years, the OECD has conducted over 100 EPRs of OECD members and selected non-member countries.

All reports, and more information, are available on the EPR website: http://oe.cd/epr.

THE FOURTH EPR OF PORTUGAL

This fourth Environmental Performance Review (EPR) of Portugal follows previous reviews in 2011, 2001 and 1993. It reviews the country’s environmental performance in the last decade, a process that involved a constructive and mutually beneficial policy dialogue between Portugal and the countries participating in the OECD Working Party on Environmental Performance (WPEP). The OECD is grateful to the two examining countries: Costa Rica and Luxembourg.

The EPR provides 26 recommendations, approved by the WPEP on 6 December 2022. They aim to help Portugal enhance policy coherence to boost a green economic recovery and progress towards its goals of carbon neutrality and sustainable development. Particular emphasis is placed on carbon neutrality.

KEY ENVIRONMENTAL INDICATORS 2021

Energy intensity

Total energy supply per capita

1.9 toe per capita (OECD average is 3.8)

Renewables (% of total energy supply)

29% (OECD average is 12)

GHG intensity—GHG Emissions per capita

5.6 t CO2 eq. per capita (OECD average is 10.5)

Mean population exposure to PM2.5

8.2 μg/m3 (OECD average is 13.9)

Municipal waste per capita

518 kg per capita (OECD average is 534)

Material recovery of municipal waste

(% of composting and recycling in total treatment)

28% (OECD average is 34)

Material productivity (USD, 2015 PPPs/Domestic material consumption, kg)

1.9 USD/kg (OECD average is 2.5)

Wastewater treatment

(% of population connected to tertiary treatment)

38% (OECD average n.a.)

Intensity of use of forest resources (harvest or fellings over annual productive capacity)

0.71 (2005) (OECD average n.a.)

Environmental protection expenditure (% of GDP)

0.7% (OECD average is 0.5)

Share of CO2 emissions priced above

EUR 60/tCO2 (excluding emissions from biomass)

28% (OECD weighted average 15)

R&D budget for environment and energy

(% of total government R&D budget)

4.3% (OECD average is 6.4)

Road vehicle stock

60 vehicles/100 inhabitants (OECD average 67)

*Note: rounded figures.

Portugal is the westernmost country of mainland Europe. With the Azores and Madeira archipelagos in the Atlantic Ocean, it hosts a high diversity of habitats and unique species. Population and economic activity are concentrated on the coastline. Portugal’s small service-based economy, which is less energy intensive than the OECD Europe average, grew steadily between 2013 and 2019. It was strongly hit by the COVID-19 pandemic but has been recovering fast since mid-2021. Despite low energy imports from these countries, Russia’s war against Ukraine is driving up energy and food prices, reducing Portugal’s economic growth prospects for 2023 and 2024.

Over 2013-19, Portugal managed to decouple energy consumption and major air pollutant emissions from economic growth. The energy mix has shifted from oil and coal to natural gas and renewables, and air quality has generally improved. However, material consumption, municipal waste generation and freshwater abstractions have grown at the same rate or faster than gross domestic product (GDP). Portugal has made progress in wastewater treatment and expanded protected areas. However, efforts are needed to better manage water and waste and reverse the deterioration of habitats and species.

Portugal has a good record in reducing GHG emissions. It has made commendable progress in developing renewables and phasing out coal in 2021. However, it will need to tap the decarbonisation potential of all sectors to achieve carbon neutrality by 2050, as committed in the Climate Law. Portugal faces multiple threats related to climate change, including coastal erosion, heavy precipitation events and heat waves. Droughts undermine agricultural yield and hydropower generation, and forests are particularly exposed to fire danger. The country has stepped up its effort to adapt to climate change, including by strengthening wildfire risk prevention. However, more needs to be done to improve knowledge and track progress of adaptation policies, and enhance the value of rural lands for climate change mitigation and adaptation.

Key recommendations

Towards sustainable development

ADDRESSING KEY ENVIRONMENTAL CHALLENGES

z Continue efforts to ensure sustainable financing of water services and infrastructure including by improving municipalities’ cost accounting capacity and updating tariffs where they provide the service directly.

z Raise water abstraction charges for agriculture, strengthen capacity to monitor abstractions, enforce water licensing regulations and limit new abstraction permits in over-allocated basins.

z Accelerate the passing on of municipal waste management costs to households through dedicated identifiable charges uncoupled from the water bill, as part of wider awareness-raising campaigns to move up the waste hierarchy; develop separate collection of waste.

z Increase allocations to protected areas management under the new common agricultural policy 2023-27 and assess the environmental impact of measures implemented.

ENHANCING POLICY COHERENCE FOR SUSTAINABLE DEVELOPMENT

z Carry on efforts to ensure the transparent and effective implementation of programmes financed with EU funds, prioritising investments with the highest social return.

z Complete the evaluation of the green tax reform with a view to applying the polluter pays principle more consistently and supporting a green and inclusive recovery; identify potentially environmentally damaging supports and phase out those not justified on economic, environmental or social grounds.

z Gradually close the tax gap between diesel and petrol, remove the preferential circulation tax treatment for older vehicles to rejuvenate the fleet and steer towards cleaner vehicles.

z Vary toll prices with vehicle emissions; further develop low emission zones with strict standards in cities exceeding air quality limits and ensure their effective enforcement.

Carbon neutrality

IMPROVING THE GOVERNANCE OF CLIMATE POLICY

z Swiftly implement the Framework Climate Law. Clarify the measures envisaged to achieve the 2030 goals, quantify their mitigation impact and specify how they will be financed.

ALIGN THE ECONOMY WITH CLIMATE AMBITIONS

z Set clear milestones to phase out all fossil fuel subsidies by 2030. Continue to protect vulnerable groups by shifting from energy price control to targeted income support measures uncorrelated to energy consumption.

z Anticipate labour needs for energy renovation.

z Support private investment for climate through increased visibility and tailored policy tools.

DEVELOP RENEWABLE ENERGY SOURCES

z Increase use of auctions for renewable energy projects, with a technology-neutral approach.

z Encourage small-scale distributed generation.

z Monitor climate impacts on security of energy supply, including the volatility of hydro-generation.

STEP UP ACTION FOR ENERGY EFFICIENCY IN BUILDINGS

z Accelerate and mainstream retrofitting works with measures adapted to all households, including those unable to participate in financing; facilitate access to existing supports.

z Encourage deep retrofits by correlating supports to the energy consumption cut generated.

REDUCE EMISSIONS FROM VEHICLES AND CAR DEPENDENCY

z Continue supporting the purchase of low-carbon vehicles and accelerate the deployment of charging stations across the country.

z Shift investment from new road building to improving the rail network. Integrate the reduction of car dependency in municipal climate plans. Facilitate access to services and activities by active mobility and public transport in cities.

ACCELERATE ACTION FOR REDUCING GHG EMISSIONS FROM AGRICULTURE PRODUCTION

z Increase use of monetary incentives to enhance GHG emission mitigation and sequestration in agriculture. Consider introducing taxes based on the number and type of animals, and on fertiliser use. Mainstream payments for ecosystem services under the new common agricultural policy. Divert public support from emission-intensive activities in the agriculture sector.

z Develop a national food strategy encouraging sustainable diets and fighting against food waste.

SHARPEN THE COUNTRY’S ADAPTATION STRATEGY

z Improve the information system related to climate change adaptation policies to track their implementation and impacts on risks and exposure.

z Enhance the value of rural lands for climate change mitigation and adaptation. Accelerate development of the land cadastre in rural lands. Extend payments for ecosystem services to all rural land and enhance sustainable forest management.

Environmental performance: Key trends Towards sustainable development

The economy is more carbon efficient. Portugal closed its last two coal power plants in 2021. Fossil fuels continue to make up the bulk of energy supply, but the share of renewable sources in the energy mix has grown and is higher than in most European countries (Figure 1). Energy demand in the transport sector increased over

2013-19. However, this increase was offset by lower demand in industry thanks to improved efficiency and a structural shift to less energy-intensive activities. Portugal met its 2020 targets under the EU directives on energy efficiency and renewable energy, progressing towards Sustainable Development Goal (SDG) 7.

Air quality has improved, and efforts must be continued. Emissions of major air pollutants have decreased thanks to the shift in the electricity mix, the implementation of desulphurisation systems in large energy plants and stricter vehicle emissions standards. Portugal achieved its 2020 targets set by the EU Directive on the reduction of national emissions of certain atmospheric pollutants. It missed the target

for ammonia, whose emissions have grown with the number of poultry. People are less exposed to air pollution in Portugal than in other OECD countries. However, it remains a heath concern. Since 2011, Lisbon has introduced a low emission zone banning the most polluting vehicles from the city centre during working hours. Despite air quality improvement, this has not reduced NO x and PM2.5 concentrations significantly.

Figure 1. The energy mix has shifted from oil and coal to natural gas and renewables, (Left) total energy supply by source 2010-21, (right) renewable electricity production by source, 2020

Note: Total energy supply excludes electricity trade and non-renewable waste; 2021 provisional data.

Source: IEA (2022), IEA World Energy Statistics and Balances (database).

Portugal is lagging on the circular economy. Since 2013, Portugal’s material productivity (GDP generated per unit of materials used) has remained broadly constant as domestic material consumption has varied in line with GDP. Municipal waste generation has grown at a faster rate than the economy. In 2020, Portugal generated more municipal waste per capita than the European average. It was also among the countries with the highest landfilling rates (Figure 2). Major challenges remain to ensure sustainable consumption and production patterns (SDG 12). The country has missed most of its 2020 waste targets.

The status of habitats and species has deteriorated. Agriculture, infrastructure development, invasive species, erosion, climate change and fires are exerting major pressures on biodiversity. Over half the Rural Development Programme 2014-22 budget has been allocated to farmers for adopting environment-friendly land management practices.

Despite increased areas under contract to preserve biodiversity, improve water and soil management, the impact of the agri-environmental measures could not be assessed due to lack of appropriate indicators. Portugal met the 2020 Aichi target of protecting land area (25% against the target of 17%) but missed the target of protecting coastal and marine areas (8.9% vs. 10%).

In 2010-21, it created Europe’s largest marine protected area, a significant step towards the goal of protecting at least 30% of EU sea area by 2030. However, few protected areas have management plans. Protecting, restoring and promoting sustainable use of marine and terrestrial ecosystems (SDGs 14 and 15) are challenges.

Efforts are needed to use water efficiently and achieve good status of water bodies. Portugal has made progress towards SDG 6, increasing access to clean water and sanitation. In 2018, 92% of the urban wastewater was treated according to the EU Urban Waste Water Treatment Directive, above the EU average of 76%. Drinking water is of excellent quality. However, agricultural abstractions, the main source of freshwater abstractions, have increased by about 25% since the mid-2010s, particularly in water-stressed southern regions. In 2021, less than half of surface water bodies and two-thirds of groundwater bodies achieved good global (ecological and chemical) status. The most significant pressures on these bodies are diffuse agricultural sources. The ease of licensing new water abstractions in water-stressed areas, the limited capacity to monitor and fine illegal abstractions and low water abstraction charges for non-potable uses, notably irrigation, have kept levels of water reuse low (about 1%).

Figure 2. More than half of municipal waste ends up in landfills, municipal waste treatment, 2020

Note: Top ten OECD Europe countries with the highest landfilling rates. Source: OECD (2022), Environment Statistics (database).

Water availability has decreased by about 20% in the last 20 years and is expected to decrease by a further 10% by the end of the century.

Public spending on biodiversity accounted for only 0.1% of GDP in 2020, 25% less than in 2010.

Enhancing policy coherence

a challenge in terms of implementing programmes. Over 2014-20, Portugal had a high absorption rate of structural funds allocated to environmental protection and resource efficiency, climate change adaptation and risk prevention. However, projects on improving energy efficiency, and developing clean urban transport infrastructure and railways, have been delayed partly due to their complexity.

In

Progress in inter-ministerial co-operation. Environmental issues are increasingly integrated into sectoral plans such as energy and tourism. Several inter-ministerial commissions support co-operation. However, the balance between environmental and economic objectives is not always clear in the agriculture, transport and tourism sectors. Strategic environmental assessment should be further used in sectoral plans. They are generally developed in line with good practices and national guidance. However, the lack of alternatives considered often hinders the identification of more sustainable development options. Effective use of EU funds is key to boost green investment. At around 2% of GDP, total public investment was among the lowest in the OECD in 2019 and 2020. The cohesion policy is the main source of financing, accounting for nearly 60% of Portugal’s public investment over 2014-20. With Next Generation EU funds, Portugal needs to manage significantly higher amounts over 2021-27. This is an opportunity to address environmental issues (Figure 3) but also

Figure 3. The Recovery and Resilience Plan promotes the green transition, Portugal's Recovery and Resilience Plan allocations

Assessing the environmental impact of investments. Portugal’s Recovery and Resilience Plan (RRP) aims to boost the economy with Next Generation EU funds over 2021-26 (Figure 3). Its investments and reforms are to be supported by grants and loans representing about 8% of 2020 GDP. Portugal devoted 38% of its RRP budget to the climate objectives. The RRP rightly focuses on improving energy efficiency and promoting sustainable mobility. It also includes investments to decarbonise industrial processes and boost the use and production of hydrogen, prevent and fight rural fires, and improve water-use efficiency. However, concerns have been raised on investment in road network extension, new dams in water-scarce areas and on limited support for biodiversity.

Note: Countries assess the impact of the measures proposed in the RRP on climate objectives according to the tagging methodology of the Recovery and Resilience Facility Regulation.

0 0 0 5 1 0 1 5 2 0 2 5 3 0 Investment and innovation Housing National Health Service Qualifications and skills Social services Infrastructure Forests Water management Culture Sustainable mobility Decarbonisation of industry Energy efficiency in buildings Hydrogen and renewables Sea Bioeconomy EUR billion Resilience Clim ate change Digital transition Tagged for climate

Pursuing the green tax reform. In 2014, Portugal introduced a green tax reform, including a carbon tax in sectors outside the EU Emissions Trading System (ETS). It also increased the CO2 component of the vehicle registration tax, revised the taxation of water and waste management, granted property tax breaks for forest management and introduced a tax on single-use lightweight plastic bags. Revenue from environmentally related taxes increased, mainly driven by rising consumption and tax rates on diesel, until the COVID-19 crisis reduced the purchase and use of cars (Figure 4). However, green taxes have not provided consistent incentives to curb energy and water use and divert waste from landfills. The Ministry of Finance and Ministry of Environment and Climate Action are evaluating the impact of the green tax reform.

Reviewing fuel and vehicle taxation, and road pricing. Fuel and vehicle taxation have contributed to the increase in diesel vehicles and the ageing of the fleet, with adverse effects on local air pollution. Since the mid-2010s, new car registrations have shifted to petrol and, in recent years, to electric and plug-in hybrid electric vehicles. However, these vehicles only make up 1.7% of the car fleet. While fuel taxes are effective to reduce carbon emissions, distance-based charges depending on vehicle emissions and the place of driving are the best option to address

local air pollution. Portugal has an electronic toll system operating on the motorway network for all vehicle categories. Toll prices vary according to the distance travelled, the height and the number of axles of the vehicles but not their emissions.

Phasing out environmentally harmful support. Like other OECD countries, Portugal supports consumption of fossil fuels through tax expenditure; oil and gas attract the bulk of government support. The largest amounts include reduced tax rates for diesel fuel used by agricultural equipment and, since 2017, partial refund of diesel taxes to freight companies; tax exemptions on energy products used for electricity production or by industrial installations under the ETS or an energy-efficiency agreement. Since 2014, forgone revenue from tax relief has increased with consumption and taxes on diesel and natural gas. In 2018, Portugal started to phase out some exemptions, which helped the exit from coal. However, progress has stalled with recent measures to address rising prices that include a general reduction of the energy tax and the freeze of the carbon tax. Portugal also supports water-intensive crops in water-stressed areas and livestock-intensive farming through coupled support and market measures under the common agricultural policy.

Figure 4. Revenue from environmentally related taxes increased until 2019, Environmentally related tax revenue by tax base, 2010-21

Source: INE (2022), Environmentally related taxes and fees; OECD (2022), OECD Environment Statistics (database).

Energy products Motor vehicles Pollution and resources

Total (right axis) OECD Europe total (right axis)

billion, 2016 prices

In 2020, almost 60% of passenger cars were diesel powered, one of the highest shares in the European Union.

In 2022, to mitigate the effects of inflation, more than EUR 1.5 billion was spent in the form of untargeted fuel tax reliefs.

Carbon neutrality

GHG emissions fell significantly but reaching carbon neutrality calls for sustained and comprehensive action

Portugal is a small GHG emitter, accounting for less than 2% of EU emissions in 2020. Two-thirds of its emissions come from energy use, especially in transport and energy production. Compared to the OECD Europe average, its economy is more carbon efficient, but it is more intense in non-CO2 emissions (notably methane and fluorinated gas). Portugal can be commended for its leading role in climate action under its Presidency of the Council of the European Union in 2021, and for enshrining carbon neutrality in national law (Box 1).

Portugal has significantly reduced its GHG emissions. Emissions (excluding land use, land-use change and forestry) decreased by one-third between 2005 and 2020 (Figure 5). Portugal met its 2020 climate targets. Following the 2008 crisis, emissions declined due to the reduction in energy demand and increasing renewable electricity generation. With the economic recovery, emissions rebounded in 2014-17, particularly in the transport sector. However, they have since fallen, driven by a strong shift away from coal-fired power generation and reduced energy use during the COVID-19 crisis.

Additional policies will be needed to reach carbon neutrality by 2050. Portugal is on track to meet its 2030 targets as set out in the National Energy and Climate Plan 2021-2030 (NECP 2030). However, projections indicate that additional policies will be needed to meet the more ambitious Climate Law targets for 2030 and 2050 (Figure 5). So far, most emission abatement has taken place in energy production. The NECP provides limited details on the policies to be implemented. The impact of existing and planned measures is not quantified, and their financing remains unclear. Portugal should accelerate development of renewable energy, and building renovation and low-carbon vehicles; reduce car use; tackle growing emissions from agriculture; send consistent carbon prices across the economy; and prioritise targeted income support over energy price control to fight energy poverty.

GHG emissions from agriculture increased by 7% over 2013-20, driven by livestock production.

Figure 5. Portugal seems on track to meet its 2030 climate targets, historic and projected GHG emissions

Target of the 2015 National Programme for Climate Change

Note: Dotted lines: projections of the NECP with existing measures. Dashed lines: projections with additional measures. ESD 2020 target: under the EU Effort Sharing legislation. 2030 target: European Commission's proposal for the revision of the Effort Sharing Regulation. ETS: emissions under the EU Emissions Trading System. LULUCF: land use, land-use change and forestry.

Source: APA (2022), National Inventory Report 2022, April; EEA (2021), Greenhouse Gas Projections Data Viewer; Eurostat (2022), Greenhouse gas emissions in ESD sectors.

Portugal has stepped up its effort to adapt to climate change

The country is particularly exposed to climate-related hazards. It faces multiple threats, including coastal erosion, heavy precipitation events and extreme heat days. Droughts also undermine agricultural yield and hydropower generation. Forests are particularly exposed to fire danger (Figure 6).

Portugal has stepped up action on adaptation. The government adopted a National Adaptation Strategy in 2015 and an Action programme in 2019 to define priorities and measures. Public information on climate change risks has improved considerably (Box 2) and adaptation is increasingly integrated into sectoral strategies, such as in agriculture. Funding for adaptation has been scaled up, notably co-financed by the European Union. Portugal has strengthened wildfire risk prevention but faces the challenge of improving forest management practices in abandoned rural areas where land ownership is private and fragmented. Accelerating registrations to the land cadastre and extending payments for ecosystem services can help reduce the risks of forest fires.

More than half of rural properties do not have a cadastral delimitation and an estimated 20% of forest land has unknown owners

BOX 1. THE 2021 FRAMEWORK CLIMATE LAW INCLUDES MANY PROMISING PROVISIONS

In line with international good practices, the 2021 Climate Framework Law (no 98/2021) requires five-year climate budgets, sectoral mitigation plans, municipal climate action plans and an annual progress report to Parliament. It sets out green budgeting principles requiring the government to specify the resources allocated to climate policy in the state budget. The law also creates an independent Council for Climate Action to assess climate action and provide recommendations. It plans a web portal to inform the public. Although promising, the law remains to be implemented through specific regulations.

BOX 2. LOULÉ HAS PIONEERED MUNICIPAL CLIMATE ACTION

The Loulé municipality in Algarve region has been working on adaptation with a network of municipalities (adapt. local) since 2016. It has been monitoring the impacts of climate change and has created a municipal observatory on the environment. Loulé has built a contingency plan for droughts and engaged for more efficient water use. It encourages the production of renewable energy in public buildings and allowed a school to be nearly self-sufficient for its energy. The municipality also notably suspended a tourist development plan in wetlands and designated the area as a local natural reserve in 2022. In line with the Climate Law, Loulé has adopted a Municipal Climate Action Plan.

Figure 6. Forests are particularly exposed to fire danger, percentage of tree-covered area exposed to fire danger

OECD Environmental Performance Reviews Portugal 2023

MORE INFORMATION

OECD Environmental Performance Reviews: Portugal 2023 The report and all data are available on http://oe.cd/epr-portugal Environmental Performance Review programme http://oe.cd/epr

Find internationally comparable indicators and country profiles OECD Environment at a Glance : http://oe.cd/env-glance

CONTACTS

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Communications: Natasha Cline-Thomas Natasha.Cline-Thomas@oecd.org

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