OECD Economic Surveys: Portugal 2026

3. Promoting decarbonisation and adapting to a warming climate

Timo Leidecker
OECD

Abstract

Portugal has made important progress in reducing greenhouse gas (GHG) emissions, driven by its successful scale-up of renewable energy sources. Yet, to meet its climate targets its economy will need to decouple faster, while the growing reliance on intermittent energy sources adds challenges for a stable energy supply. Continued expansion of renewable sources will need to be accompanied by substantial investments in the energy grid and storage. Mitigation efforts beyond the energy producing sector need to step up, notably to adapt energy use in consuming sectors, especially transport. Aligning emission prices across sectors, phasing out fossil fuel subsidies and promoting clean transport and energy renovations can make large inroads. With high and growing risks from wildfires, heat waves, droughts and sea level rise, adapting to a hotter climate will likewise be critical. Stronger coordination, stable funding and promoting private insurance will be key to better protect people and the economy from climate impacts.

3.1. Introduction

Portugal has made substantial progress in reducing greenhouse gas (GHG) emissions. Since 2005, emissions declined by over 30%, faster than in the EU and the OECD on average (Figure 3.1). The country adopted legally binding targets to cut emissions by 55% from 2005 levels by 2030, and 90% by 2050 to reach net zero after accounting for carbon sinks, and has recently strengthened its commitment by aiming to reach carbon neutrality by 2045 (Table 3.1). Given its high exposure to climate change impacts – including through wildfires, heatwaves, droughts and coastal erosion – mitigation efforts will need to be accompanied by measures to adapt to a hotter and more volatile climate.

Important challenges remain for 2030 and beyond. Meeting climate targets in 2030 as well as the climate neutrality commitment by 2045 requires sustaining the rapid pace of emissions reductions that in the past has largely been achieved by phasing-out of fossil fuels from electricity generation, while – following Portugal’s economic crisis – growth was subdued (Figure 3.2, Panel A and B). As the economy has returned to stronger growth, it will need to decouple faster. Mitigation efforts will additionally need to broaden to sectors with higher abatement costs (Figure 3.2, Panel C). This notably includes transport, the largest emitting sector (Figure 3.3). While renewable energy capacity is expected to grow substantially, the increasing reliance on intermittent sources, such as solar and wind, raises challenges for grid stability.

The government has outlined an ambitious agenda to meet its climate goals, including the expansion of offshore renewables, the phase out of energy subsidies, and improving public transport. Yet, additional reforms and investments are needed to strengthen emission pricing, accelerate car fleet greening, and boost energy renovations. Strong coordination across levels of government and targeted support for vulnerable households will be key to address implementation risks, ranging from administrative capacity constraints to political resistance. To promote climate change adaptation, Portugal has stepped up its policy tools by defining measures to be implemented, supervising institutions, as well as processes to monitor progress (OECD, 2023[1]). A comprehensive strategy has been carried out to address wildfire risks that has significantly improved prevention and wildfire management practices, including through the completion of a national wildfire hazard map, forbidding development in high-risk areas, and establishing buffer zones (OECD, 2023[2]). However, lack of stable funding and weak coordination at the local level have held back further progress, while low insurance coverage for extreme weather events weakens incentives to take protective measures and implies high contingent fiscal liabilities.

Figure 3.1. Reaching emission targets requires to sustain the fast pace of past reductions

Total emissions excluding land use, land-use change and forestry, in tonnes of CO2-equivalent, 1990 = 100

Note: The OECD aggregate corresponds to the simple average of the OECD countries. The EU aggregate corresponds to the OECD countries members of the European Union. Data for the EU aggregate are up to 2022.

Source: OECD Air emissions - Greenhouse gas emissions Inventories (database).

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Figure 3.2. Faster decoupling and more broad-based emissions reductions are needed

Percentage

Note: Panel A & B: The EU corresponds to the composition of European Union as of 2020. The OECD aggregate corresponds to the simple average of the OECD countries. Panel A & C: GHG emission intensity measured as kilogrammes of CO2-equivalent per 1 000 US dollars; adjusted for purchasing power parity (PPP). Panel C: Contributions are computed on total emissions excluding land use, land-use change and forestry (LULUCF).

Source: OECD Air emissions - Greenhouse gas emissions Inventories (database); Eurostat.

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Table 3.1. Portugal has adopted ambitious climate targets

Selected climate targets

	2022 or latest year available	2030	2050
Greenhouse gas emissions excluding LULUCF, reduction compared to 2005 level	-35%	-55%	n.a. 1
Share of renewable energy in gross final energy consumption	34.7%	51%	85%
Share of renewable energy sources in electricity	61%	93%	100%
Share of renewable energy in transport	10% (2020)	29%	90%

Notes: 1: The 2021 National Climate Law sets a legally binding target to reduce greenhouse gas emissions relative to 2005 levels by 90% in 2050 with the option to advance the target for climate neutrality to 2045, which was stated as a commitment in the 2024 updated National Energy and Climate Plan.

Source: (República Portuguesa, 2024[3]); (República Portuguesa, 2019[4]).

This chapter reviews Portugal’s recent progress in meeting its climate goals and proposes policies to accelerate and broaden decarbonisation efforts and improve adaptation. Section 3.2 focuses on strengthening price signals to boost broad-based emission cuts across sectors. Sections 3.3 addresses the central role of clean energy production through continued expansion of renewables while ensuring stable energy supply. This will need to be done alongside adapting energy use in key sectors, notably transport and buildings (Figure 3.3). These sectors accounted for over half of final energy consumption in 2023 and will require accelerated electrification of transport (Section 3.4) and energy efficiency upgrades, often through deep building renovations (Chapter 4). Finally, Section 3.5 turns to climate adaptation, underlining the importance of strengthening resilience to rising physical climate risks.

Figure 3.3. Energy use accounts for most emissions and transport is the largest single emitter

Portugal, %, 2023

Note: Panel B: Category "Other" corresponds to fugitive emissions from fuel and energy-other. Data refer to total emissions of CO2 (emissions from energy use and industrial processes, e.g. cement production), CH4(methane emissions from solid waste, livestock, mining of hard coal and lignite, rice paddies, agriculture and leaks from natural gas pipelines), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3). Data exclude indirect CO2. For UNCCCC Annex I countries, data follow the IPCC 2006 guidelines.

Source: OECD Air emissions - Greenhouse gas emissions Inventories (database).

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Table 3.2. Past recommendations on supporting the green transition

Recommendations in past surveys	Actions taken since 2023
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.	The final updated National Energy and Climate Plan provides additional details on existing and planned policies to meet EU Effort Sharing Regulation targets by 2030. Additional measures foreseen in the Climate Law, including the development of sectoral mitigation and adaptation plans, municipal and regional climate action plans, and the design of carbon budgets, are being implemented.
Gradually increase environmental taxes for sectors outside of the EU Emissions Trading System (ETS), including excise taxes on fuels, while protecting low-income households.	By the beginning of 2025, the Carbon tax was adjusted to fully reflect the price of carbon in the EU ETS.
Accelerate the retrofitting and renovation of buildings, using a mix of regulation, grants and loans.	Measures include support for energy efficiency renovations of buildings via the Recovery and Resilience Plan worth EUR 130 million; approval of the National Strategy to Fight Energy Poverty (with a strong focus on housing); new version of Vale Eficiência (targeting low-income families); deployment of local energy one-stop shops.

3.2. Accelerating emission cuts across sectors through stronger price signals

To reach Portugal’s climate targets cost effectively, stronger and more uniform carbon pricing across sectors is essential. Portugal uses a mix of carbon taxes, energy taxes and the EU Emissions Trading Scheme (ETS) to price greenhouse gas emissions. In 2023, these tools covered approximately 69% of GHG emissions, and nearly all CO2 emissions from energy use (Figure 3.4) (OECD, 2023[5]). While average net effective carbon rates, at EUR 77.32 per tonne of CO₂ in 2023, are in line with the OECD and European average, pricing remains uneven across sectors and fuel types. Price signals are additionally weakened by sizeable fossil fuel subsidies amounting to 0.8% of GDP in 2023 (Figure 3.4, Panel B) (EEA, 2025[6]; OECD, 2023[1]).

Upcoming reforms present an opportunity to align and strengthen carbon pricing. Portugal has committed to phasing-out all direct and indirect fossil fuels subsidies by 2030, supported by green budgeting practices, which is commendable. Introducing the EU’s new ETS2 will expand emission pricing to buildings and road transport. While carbon prices in transport are already relatively high, they remain low in the building sector (Figure 3.4). Portugal is currently in the process of transposing ETS2 into national law. Ensuring that in the resulting system all major sources of emissions are subject to at least a minimum emission price that is consistent with climate targets would strengthen incentives for cost-effective emission cuts. Aligning and raising emission prices thereby entails implementation risks, including political resistance to higher energy prices and distributional impacts on low-income households, while fuel suppliers will be required to monitor and report emissions (European Commission, 2025[7]). To prevent overlapping taxes and ensure policy coherence, fuel excise and carbon taxes may need to be revised. Lower income households will be disproportionately affected by price rises and require additional support (Bulman and Blake, 2022[8]). Portugal is currently developing its Social Climate Plan, which will be mostly financed through revenues from auctioning ETS and ETS2 allowances through the EU Social Climate Fund, to address the impact of carbon pricing on vulnerable households and micro firms. Building on these efforts, Portugal could follow Canada that accompanied higher carbon prices with targeted support to vulnerable households as part of a wider reform of social transfers (Section 1.3). This should be complemented with additional support for energy-efficiency improving renovations, especially for low-income owners, to reduce high energy poverty (Chapter 4).

Figure 3.4. Harmonising emission prices across sectors would accelerate broad and cost-effective emission reductions

Average effective carbon rates for CO₂ emissions from energy use by sector in Portugal, 2021

Source: OECD (2023) Effective Carbon Rates.

3.3. Ensuring secure and diversified renewable electricity supply

Portugal progressed well with greening electricity production. It phased-out coal in 2021, nine years ahead of its 2030 target, and renewables supplied 63% of electricity production and 35% of final energy consumption in 2023, above most EU and OECD countries (Figure 3.5). Targets are ambitious and foresee to produce 93% of electricity from renewable sources by 2030, and 100% by 2050 (Table 3.1). Portugal has also committed to closing gas-fired power plants before 2040 provided that security of supply is ensured. The planned electrification of energy use, for example in transport, alongside rising living standards are expected to increase demand for electricity and thus demand for clean electricity production (IEA, 2024[9]).

Portugal plans to accelerate its transition towards renewable by diversifying sources away from hydropower towards solar and wind (AICEP, 2024[10]; European Commission, 2023[11]; República Portuguesa, 2024[3]). Upscaling generation capacity from renewable sources supports decarbonisation goals and reduces dependence on fossil fuels, but increases the challenge of maintaining reliable electricity supply given the intermittent nature of solar and wind power.

Recent assessments by the IEA and the European Commission indicate that, like in many other OECD countries, the status of Portugal’s grid is a critical bottleneck for further renewable integration and system flexibility and will require massive investment (OECD, 2023[1]; IEA, 2021[12]). The same holds for the limited cross border interconnection capacity with Spain and the rest of Europe. Providing stable conditions for investments to improve the electricity grids capacity as well as improving system flexibility is therefore essential. Large scale generation projects currently rely on obtaining network capacity rights, either through direct agreements or competitive auctions, before production licences can be granted. It remains unclear whether planned auction schedules are sufficient to meet ambitious renewable targets. To address this, the government should publish a clear multi-year auction schedule with transparent bidding procedures, ensure timely grid connections for awarded projects and establish auctions for storage capacity to better balance intermittent energy supply (OECD, 2023[1]; IEA, 2021[12]). An additional bottleneck to investing in infrastructure and further scaling up renewable energy sources are complex environmental permitting processes raising uncertainty and leading to delays, as for example authorities disagree about how to interpret legislation or with fragmented impact assessments failing to identify full impacts (European Commission, 2025[13]). Standardising and clarifying assessment criteria, strengthening the role of single points of contacts for applications, and considering simplified procedures for renewable capacity and grid projects in the public interest could help accelerate procedures (Euroepan Commission, 2025[14]).

Coordinated planning is needed to strengthen interconnections and use their full potential to balance supply and demand. Strengthening integration to the European electricity market, notably with France, would help to further improve balancing capacity but will depend on strong and reliable interconnections through Spain. Building on a high degree of market integration, joint measures with Spain to strengthen the electricity grid, align reserve capacities and ensure overall system resilience would help improve balancing capacity from both Spain and the rest of Europe. Complementary measures, such as boosting the still limited deployment of dynamic pricing contracts to shift peak demand would further enhance grid flexibility (ACER, 2025[15]).

Figure 3.5. Portugal progressed well with expanding energy production from renewable sources

Percentage

Note: The EU-OECD aggregate corresponds to the OECD countries members of the European Union. The EU corresponds to the composition of European Union as of 2020.

Source: Eurostat.

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To further expand renewable energy, Portugal aims to scale up ocean-based renewable energy. Ocean-based renewable energy technologies (e.g. floating offshore wind and solar, wave, tidal) offer large potential. Planned projects are expected to add at least 2 GW of offshore wind by 2030, while additional projects may add up to 9.4 GW (20% of total planned capacity in 2030) (OECD, 2025[16]). Innovation zones for wave energy, with designated areas to test new technologies, support these efforts. Meanwhile, expanding ocean-based renewable energy can lead to spatial conflicts, for example with preserving fish stocks and biodiversity. Addressing these conflicts within a stable regulatory framework will also be key to provide certainty to investors. This could be done as part of a comprehensive strategy for developing ocean-based renewable energy that also clarifies funding sources for investments. Portugal has recognised the challenge and is taking measures, including through the establishment of a task force and stakeholder consultations. However, the Directorate-General for Natural Resources Safety and Maritime Services which leads maritime spatial planning and licensing lacks sufficient staff and resources (OECD, 2025[17]). Strengthening its capacity and coordination role will be crucial to balance energy development with biodiversity protection.

3.4. Supporting the transition to net zero transport

Reliance on passenger cars in Portugal is among the highest in Europe (Figure 3.6), and road transport accounted for 96% of land transport emissions in 2021 (ITF, 2025[18]). Both decarbonising road transport and shifting transport off the road will thus be key to cut transport emissions. As discussed below, this requires stronger incentives to electric vehicles (EV) and making public transport more attractive (ITF, 2021[19]), coupled with policies to limit urban sprawl, discussed in Chapter 4, to reduce distances.

Figure 3.6. Greening the fleet and reducing reliance on cars are key to decarbonising transport

Modal split of passenger transport on land, %, 2022

Source: Eurostat.

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3.4.1. Cutting emissions from road transport

Portugal needs to further boost the greening of its car fleet to achieve substantial emission cuts from transport over the following years. The passenger car fleet is relatively old, with an average vehicle age of 14 years (ACEA, 2024[20]) and heavily powered by diesel (OECD, 2023[1]). The country focuses on electrification of transport to cut emissions until 2030 but lacks specific targets for EV uptake or recharging infrastructure. While the share of new zero emission vehicle registrations is rising and stood just above the EU average in 2023 (Figure 3.7, Panel A and B), the overall pace of fleet renewal and greening remains slow. Clearer policy signals, including defined EV targets and a comprehensive infrastructure strategy, would help accelerate the transition.

Figure 3.7. There is room to accelerate the greening of the car fleet

% of passenger car fleet

Note: The EU corresponds to the composition of European Union as of 2020. Share of new car registrations computed as % of passenger car fleet in previous year. 2023 figures are provisional.

Source: Eurostat, European Alternative Fuel Observatory (EAFO), Association des Constructeurs Européens d'Automobiles (ACEA) for data until 2013.

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Financial incentives to replace fossil fuelled cars could be made more effective. High upfront costs of EVs – still 10 to 50% more expensive than combustion engine equivalents in Europe – remain an obstacle for EV adoption (IEA, 2024[9]). Portugal provides EV purchase subsidies of up to EUR 5000 for vehicles worth up to EUR 38 500 or EUR 55 000 if vehicles have more than four seats as part of a EUR 20 million support programme for zero-emission mobility, which also includes incentives for EV charger and bicycles. The EV purchase subsidy requires scrapping an old passenger vehicle, which is welcome to remove more polluting vehicles from the market. Experience from the United States, Germany and France shows that such scrapping schemes, if well-designed and well targeted, can lower emissions effectively. However, many higher income households who benefit from purchase subsidies may choose to shift to EVs regardless. Experience from the United States suggests that the impact of subsidies on accelerating fleet greening could be doubled by targeting support to lower income households, for whom subsidies are more likely to make a difference (Sheldon, 2022[21]). To be effective with lower income households – who may have less access to private charging points, e.g. if they lack a personal garage – providing a dense charging infrastructure, as discussed below, will be essential. Given high fiscal costs for such purchase subsidies and narrowing price differentials, support should be regularly evaluated for effectiveness and revised as needed.

Several tax benefits to zero or low emission cars, including exemptions from acquisition and ownership taxes, are offered in Portugal. Still, the tax system could more strongly support fleet renewal by closing the gap between diesel and petrol taxation and removing preferential circulation tax treatment for older vehicles (OECD, 2023[1]; Tax Foundation Europe, 2023[22]; ACEA, 2022[23]). To enlarge the fiscal space for financial support for EVs, Portugal could consider a feebate system, as in France or New Zealand, whereby higher taxes on polluting cars fund lower taxes on EVs.

Expanding the charging infrastructure for EVs will be key to boost uptake. Despite progress, Portugal’s charging infrastructure remains limited compared to other OECD countries, with only 1.6 charging points per 1 000 registered passenger cars in 2024 (Figure 3.8). While the Recovery and Resilience Plan aims to deploy 15 000 charging points by 2025 (European Commission, 2025[24]), meeting the high density already observed in Belgium or the Netherlands would require from 40 000 up to 140 000 additional charging points. Additional public support, such as targeted subsidies or tax incentives and simplified permitting, could accelerate infrastructure rollout and ensure alignment with the pace of fleet electrification.

Figure 3.8. Electric vehicle charging infrastructure needs to be expanded

Number of charging points per 1000 registered passenger cars, 2024

Note: Data for recharging points refer to 2024Q1; data for registered passenger cars refer to 2023.

Source: OECD calculations based on Eurostat (2024) and EFAO (2024).

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Achieving a timely phase-out of fossil fuel cars may require additional restrictions on their use. Even with increased financial support and a denser charging infrastructure, total fleet renewal may progress too slowly to meet emissions targets. At the current pace, it would take until about 2054 to replace the entire passenger car fleet with new – either fossil-fuelled or EV – cars. In line with EU plans to ban the sale of new fossil-fuelled cars, Portugal’s Climate Law prohibits the sale of new light-duty vehicles powered exclusively by fossil fuels from 2035 onwards, which will help to steer fleet renewal towards EVs. However, many households may continue to use existing fossil-fuelled cars for some time beyond 2035. Setting out a timeline for expanding the use of congestion charges, priority lanes, or low emission zones in cities can strengthen incentives to shift to EVs sooner. This could involve strengthening enforcement of existing low emission zones, such as Lisbon’s low emission zone (LEZ) introduced in 2011, for example through camera controls as used in Amsterdam (Krok, 2023[25]; OECD, 2023[1]). Portugal could also consider gradually introducing zero-emission zones in urban centres, accompanied by investments in public transport (ICCT, 2022[26]).

3.4.2. Moving transport off the road

Strengthening public transport will be key to reducing transport emissions by shifting transport off the road. Portugal is investing around EUR 1.2 billion (0.5% of 2024 GDP) from the Recovery and Resilience Plan to improve public transport by extending the Lisbon and Porto metro networks, constructing a light rail system, creating a bus rapid transit system and purchasing of zero-emission buses. While these projects can significantly cut emissions, their impact so far has been impaired by implementation delays (European Commission, 2024[27]). Complementary measures, such as the Green Rail Pass introduced in 2024 to reduce public transport fares, can stimulate demand, but their long-term effectiveness will depend on strengthening capacities to provide reliable and frequent services.

Sustained investments, especially in rail, are needed to expand the public transport network beyond urban centres. Around 90% Recovery and Resilience funded projects target metro systems, yet most passenger transport occurs outside of urban areas (ITF, 2021[19]). Meanwhile, Portugal’s railway density is low compared to other OECD countries (Figure 3.9, Panel A) and, though increasing in recent years, investment in rail has historically been low (Figure 3.9, Panel B) (OECD, 2023[1]). Train usage relative to network size is close to the EU average, suggesting robust demand. Expanding rail infrastructure is a necessity, while it should be ensured that fare subsidies do not crowd out funds available for investment and maintenance.

Figure 3.9. More investment is needed to expand rail infrastructure

Note: Panel A: OECD unweighted average excludes Colombia, Costa Rica, Germany, Iceland, Japan, New Zealand and Norway. Panel B: OECD unweighted average excludes Colombia, Costa Rica, Chile, Iceland and Israel. The lack of common definitions and practices to measure transport infrastructure spending hinders comparisons between countries. While the ITF survey covers all sources of financing, several countries do not include private spending. Caution is therefore required when comparing investment data between countries.

Source: OECD Transport database; OECD calculations.

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While improving public transport should be the main priority, strengthening distance-based charges could be used to further reduce car reliance and traffic (ITF, 2023[28]). Portugal’s motorway tolls already vary by distance and vehicle type (OECD, 2023[1]). Extending distance-based pricing to more roads and vehicles, and varying toll prices based on location and time of day, could reduce traffic and environmental externalities, such as noise and congestion, especially as EV uptake erodes fuel tax revenues. This would complement existing carbon pricing and provide more efficient and sustainable transport funding.

3.5. Strengthening measures to adapt to climate change

3.5.1. Portugal is highly exposed to climate risks

Portugal’s geographical position and characteristics – alongside the Atlantic Ocean, close to the Mediterranean Sea, with a warm climate and large forest areas – imply the country is particularly exposed to climate risks (OECD, 2023[2]; OECD, 2023[1]). As global emissions continue to rise, businesses and people will be impacted by hotter average temperatures, growing water scarcity, salinisation and erosion of coastal areas, and more frequent and intense extreme weather events, notably wildfires, heat waves and floods (Figure 3.10). Impacts will be spatially concentrated. Wildfires, for example, are most likely to affect mainland northeastern regions and inland areas (República Portuguesa, 2023[29]), while Autonomous Regions Madeira and the Azores are particularly vulnerable to coastal erosion (OECD, 2023[1]).

Climate change is expected to entail significant costs for people and businesses as well as risks to people’s lives. On the one side, costs arise as businesses are forced to adjust to slow-moving changes. For example, businesses in tourism may have to relocate to adjust to rising sea levels and coastline erosion; businesses in agriculture may have to switch to crops less dependent on irrigation as they face greater losses from plagues (OECD, 2023[1]). Increased extreme weather events are also costly. From 1980 to 2023, weather- and climate-related extreme events in Portugal led to 20 339 fatalities and EUR 17.6 billion in economic losses (EEA, 2024[30]). Just the wildfires in June and October 2017 caused more than 100 casualties and cost nearly EUR 1.5 billion (OECD, 2023[2]). While assessing future costs is inherently difficult, existing estimates suggest large prospective damages. For example, in a business-as-usual scenario, the duration of the wildfire season in Portugal is projected to grow by one month by 2040 (OECD, 2023[2]), and the impact of heat stress alone could reduce Portuguese GDP per capita by 0.8% in 2050, and by 4.5% in 2100 (Unsal and Baptista, 2025[31]).

Figure 3.10. Portugal is particularly exposed to risks from wildfires and heat waves

Note: Panel A: Forest exposure to burning is the annual percentage of forest exposed to very high or extreme wildfire danger for more than three consecutive days. Panel B: Share of population exposed to extreme temperatures for up to two weeks per year. Extreme temperatures are defined by the mean number of days when the daily maximum/ minimum temperature is above/ below the 95^th percentile of the reference period. Panel C: Coastal flooding exposure data correspond to period of return of 10 years; OECD average only for countries with coastal zone.

Source: OECD Environment and climate change (database).

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Proactively adapting to climate change – for example by reducing exposure, improving emergency preparedness, and adjusting business models – can reduce damages. While adaptation measures incur costs, these are expected to be compensated for by fewer losses. For example, for the worst case scenario the 2024 National Adaptation Roadmap estimates that optimal adaptation measures could reduce economic damages by up to 1.4% of GDP in 2100 against adaptation costs of 0.7% of GDP, and by up to 0.6% against costs of 0.4% in a more benign scenario (República Portuguesa, 2023[32]). Improving the governance of adaptation policies and insuring against extreme weather events are main challenges (OECD, 2023[1]).

3.5.2. Ensuring effective implementation of adaptation measures

The governance framework for adaptation policies is overall strong (OECD, 2023[1]). Political coordination of Portugal’s adaptation policy and monitoring is established by the Commission for Climate Action (CAC), headed by the Ministry of Environment and Climate Action and including representatives of other ministries. Technical coordination is established by a dedicated coordination group chaired by the Climate Agency and including representatives of sectoral entities, autonomous regions and municipalities. Policy measures, based on assessments of main impacts and vulnerabilities, are defined by the National Climate Change Adaptation Strategy (ENAAC 2020), which is updated every five years. An ongoing update aims to further foster policy alignment across sectoral, regional and EU-level plans and articulate goals for developing financing instruments, spatial planning and monitoring (República Portuguesa, 2025[33]). Municipal and sectoral strategies for tourism and agriculture as ones of the most affected sectors complement the national strategy. Measures are implemented through the Action Programme for Adaptation to Climate Change (P-3AC). Progress is foreseen to be monitored annually based on indicators on both the coverage of measures and climate impacts. For years for which results are already available, monitoring has shown good implementation (OECD, 2023[1]). Following devastating fires in 2017, Portugal established a new cross-governmental agency AGIF to coordinate and foster implementation of its wildfire strategy at the national level and across levels of government (OECD, 2023[2]).

Portugal should ensure sufficient and predictable funding for adaptation measures. For many measures, funding is provided through EU Cohesion Funds and the Recovery and Resilience Plan as well as the Environmental Fund (Fundo Ambiental) (European Commission, 2023[34]). However, for some measures, notably the updating of P- 3AC indicators, implementation has been held back by lack of stable funding (OECD, 2023[1]). For wildfire risk management, fragmented funding poses a challenge notably for municipalities at risk in depopulated rural areas, particularly in the North and the East. Ensuring long-term funding for planned measures, including from the EU as well as national and private sources, and beyond the Recovery and Resilience Fund ending in 2026, will be key to addressing all priorities in the adaptation strategies.

The successful implementation of adaptation measures will hinge on empowering municipalities. Municipal and intermunicipal Climate Action plans have been made mandatory under the 2021 Climate Law to assess risks and implement adaptation measures at the local level. However, several factors are hindering municipalities from taking effective action (OECD, 2023[1]). A mechanism to coordinate policy action among municipalities and with other sectors is lacking. There is no statutory requirement for policy alignment between these actors, although action in one area can impact vulnerability to climate change risk in others. Besides issuing plans, responsibilities are not always well defined. In some policy areas, notably coastal management, responsibilities are shared among dozens of entities, including local governments, which has led to inconsistent measures or prevented measures from being taken (Oliveira, Moura and Boski, 2020[35]). Municipalities are also not required to monitor progress of their Climate Action plans or report on implemented actions in a centralised way. Some municipalities also lack funds for adaptation measures. Improving coordination and promoting monitoring among local actors – while ensuring that capacities match responsibilities – would support effective implementation (OECD, 2023[36]).

3.5.3. Leveraging private insurance to address extreme weather events

Insurance coverage against climate risks is low, with about 3% of losses incurred between 1980 and 2024 having been insured. This is despite high historical risks set to increase with more frequent and intense extreme weather events (Figure 3.11). For past damages, the government and the European Union provided public funds to compensate victims of disasters, notably through the EU Solidarity Fund. Providing ad hoc support to affected firms and households can discourage the take-up of private insurance and implies high contingent liabilities. Limited coverage makes private insurance less effective by reducing risk pooling. For example, most insurance schemes that cover wildfire risk in Portugal are available in less risk-prone areas, while insurance premiums are high (OECD, 2023[2]).

Figure 3.11. Insurance coverage is low while damages from extreme weather events are high

1980-2024

Source: EEA (2024).

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Expanding insurance coverage against climate risks could lessen the macroeconomic impact of disasters. To increase climate-related risks insurance coverage, Portugal could follow other OECD countries in making property insurance mandatory (OECD, 2023[37]; OECD, 2024[38]). For example, Greece mandates property insurance against climate-related risks for businesses with an annual turnover above EUR 2 million, and encourages insurance take up among smaller businesses and households through property tax discounts (OECD, 2024[39]). Switzerland mandates building insurance against natural catastrophes in most of its cantons, while in France the CATNAT scheme provides insurance for all individuals and businesses against certain extreme events, including flooding, financed by a 12% tax on property and motor vehicle insurance contracts. Alternatively, Australia aims to promote insurance coverage by ensuring that insurance remains affordable, while New Zealand considers focusing on strengthening data collection and communication to empower people and businesses to make informed decisions about risk taking (Box 3.1). Requirements should be carefully designed to assure affordability also for low-income households, considering public support for example through re-insurance, and monitoring insurance markets to assure competitive pricing (OECD, 2023[37]). Besides limiting contingent liabilities, promoting insurance can encourage investments and behaviours to reduce exposure, e.g. by offering lower premia contingent on investments in fire-resistant decking and clearing and pruning vegetation close to buildings (ECB/EIOPA, 2024[40]).

Box 3.1. Approaches to risk-sharing in Australia and New Zealand

Achieving high insurance coverage is key to Australia’s approach to risk-sharing, and rising insurance costs from growing climate risks have been identified as a challenge. Several recent measures aim at making insurance more affordable by reducing underlying risks. In 2023 the Hazard Insurance Partnership was established to bring together the government and insurance industry to lower risks and improve data collection and sharing, including through a newly developed National Insurance Database. In 2024, a complementary taskforce on Insurance Affordability and Natural Hazards Risk Reduction was formed to develop an integrated, cross-government approach to minimising the impacts of disaster on the community. These initiatives are in line with findings from the 2024 Independent Review of Commonwealth Disaster Funding, which emphasised the need for improved data collection, develop a nation-wide National Disaster Risk Profile, and leverage land use planning and building codes to contain risks.

New Zealand is building on the report of the Independent Reference Group on Climate Adaptation, released in July 2025, to develop its adaptation framework. The report recommends emphasising personal responsibility based on clear communication and a comprehensive information base and sufficient time to adjust. It suggests a transition phase, tentatively set to last until 2045, to collect and make readily available quality and timely information about exposure to natural hazards, and to set out and communicate whether, when and how much financial assistance and investment support will be provided. After the transition period, support for those affected by major events would be decoupled from their property value. Investments reducing risks should be financed following the principle `who benefits most contributes more’, limiting contributions from the central government to protect public assets, realise broad national benefits and support those with less ability to pay.

Source: (Independent Reference Group on Climate Adaptation, 2025[41]; Australian Government, 2025[42]; Colvin, 2024[43])

Table 3.3.  Policy recommendations

MAIN FINDINGS	RECOMMENDATIONS (key ones in bold)
Despite important progress, decoupling needs to accelerate to meet 2030 targets in a growing economy. Emission prices remain uneven across fuels and sectors and fossil fuel subsidies undermine incentives to cut emissions cost-effectively.	Gradually align and increase effective carbon prices across sectors by fully implementing the expanded EU Emission Trading System and completing the planned phase out fossil fuel subsidies, while addressing potential impacts on vulnerable households.
Energy production from renewable energy sources is set to expand further, while increased reliance on intermittent energy sources poses risks for reliable energy supply.	Continue expanding and diversifying renewable energy production by improving investor certainty through clear auction timelines. Enhance balancing capacity through coordinated planning with Spain to strengthen the electricity grid and storage, align reserve capacities, and ensure overall system resilience.
Plans to expand ocean-based renewable energy may lead to spatial conflicts. The Directorate-General for Natural Resources, Safety and Maritime Services (DGRM) in charge of coordinating maritime spatial planning has limited capacity.	Strengthen the coordination between institutions with competences over the management of maritime spatial planning, enhancing human and financial capacity of DGRM, to get a more balanced approach over renewable offshore energies.
Emissions in transport remain high and the car fleet is relatively old and dominated by fossil fuel vehicles, making a faster transition to zero emission vehicles critical for meeting climate targets. Improving but still limited charging infrastructure hinders adoption of electric vehicles.	Increase support for fleet greening, including through more public investment and financial support for charging infrastructure and more targeted EV subsidies for low-income households, while regularly reviewing their cost effectiveness.
Transport is now the largest source of emissions. Passenger transport is highly reliant on cars, while low railway density and limited investment constrain the expansion of public transport.	Increase investment in expanding and maintaining public transport infrastructure based on cost-benefit analysis, prioritising rail investments in high demand corridors.
Risks from climate change are high. While the government has stepped up policy tools to promote adaptation, some planned measures have been held back by lack of reliable funding and inadequate coordination at the local level.	Ensure stable funding to track the progress of the adaptation strategy on a yearly basis and improve coordination among local actors.
Insurance coverage for climate-related risks, such as floods and wildfires, is low, while public-private risk sharing mechanisms are fragmented and lack a formal framework.	Establish a formal public-private risk-sharing mechanism, for example by making property insurance for natural catastrophes compulsory for all buildings and aligning premiums with risk exposure.

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