As part of the European Union, Portugal has integrated the EU position within the Climate Convention and is very active in the co-ordination procedures. The Portuguese position is aligned with the most ambitious targets and Portuguese authorities, both political and technical, usually play a role supporting the push for more ambitious targets in mitigation issues, in line with the national decisions (eg, the Climate Framework Law opens the door to anticipating emissions neutrality by 2045). Adaptation is critical for Portugal as a part of the Iberian Peninsula, one of the regions in the globe most exposed to climate change. Accordingly, Portugal is particularly vocal with regard to adaptation issues.
Portugal is also part of the Community of Portuguese Speaking Countries that joins nine countries in five continents, including Angola and Mozambique, and is particularly sensitive to issues relating to technology transfer. With regard to climate finance, not only does Portugal support greater ambition but also uses its public Environmental Fund to finance several climate-related projects at the international level, as part of its development aid strategy, particularly those located in Portuguese-speaking countries. Technology transfer is usually addressed within the nation’s development assistance strategies and projects.
As part of the European Union, Portugal and the Portuguese responsible authorities, both at a political and technical level, are engaged with all the relevant legislative procedures (European Council, European Parliament and engaging with the European Commission). Normally, the Portuguese position is active in supporting the raising of standards relating to mitigation, in line with the national ambition. As discussed in 1.1 Multilateral Climate Change Legal Regime, adaptation is an area of great concern and commitment for the Portuguese authorities. It should be noted that the European Climate Law was approved under the Portuguese Presidency of the European Union and was one of the notable outcomes of that Presidency.
As part of the European Union, Portugal is truly committed to the goals of the United Nations Framework Convention on Climate Change (UNFCCC), was part of the Kyoto Protocol, and particularly active in the preparation of the Paris Agreement, all of which are being implemented into the national climate change and energy efficiency legal framework through various instruments, as follows:
Portugal also approved the Green Growth Commitment (CCV), imposing the following goals to be achieved in 2020 and 2030:
Most recently, the Portuguese Parliament approved the Climate Framework Law establishing the principles of climate policy and governance.
The new Climate Framework Law (Law 98/2021 of 31 December), in force since 1 February 2022, establishes the principles of climate policy, targets and requirements for the design of public policies across economic sectors, and levels of governance. It also states a subjective right to the climate balance, and the law is applicable both to public and private entities and citizens.
This new legal instrument is essential to align Portuguese policies on climate change with the targets, and objectives of the Paris Agreement. Indeed, the Climate Framework Law is the result of the Paris Agreement, the European Green Deal and the European Climate Law.
In this context, the main purpose of the Climate Framework Law is to achieve carbon neutrality by 2050, as already established in the Roadmap for Carbon Neutrality (2050). Nevertheless, the law anticipates a possible raising of ambition to achieve carbon neutrality by 2045, imposing an obligation to conduct studies until 2025 addressing that possibility.
Objectives of the Climate Framework Law
The major objectives on climate policy foreseen in the law are the following:
Climate Framework Law Targets
The Climate Framework Law also establishes climate policies and targets, namely:
Moreover, the law sets up a budget and tax policies, such as the creation of a new tax deduction category – IRS Verde (Green Personal Income Tax) – which will benefit national taxpayers who acquire, use, or consume environmentally sustainable goods and services.
This law also states a clear obligation for sub-national level political actors (the Autonomous Regions of the Azores and Madeira, and municipalities all across the country, autonomous regions included) to develop regional/local climate policies and strategies aligned with the law. This means that the regional and local authorities are expected to develop their own strategies in line with the goals stated in the law. The municipalities, the Regional Spatial Planning Commissions (CCDR), the Inter-municipal Commissions, and the Metropolitan Areas of Lisbon and Oporto, are expected to approve local climate change plans. The municipalities and the CCDRs are to approve the local climate change plans within two years and the law anticipates the approval of an assessment mechanism.
How Effective will the Climate Framework Law Prove to Be?
The effectiveness of the law is not yet easy to foresee. On the one hand, it looks rather programmatic and, for instance, does not provide for any misdemeanour legal regime. On the other hand, it assumes the right to a balanced climate balance and states obligations for the public and private sectors. The application of this right is difficult to anticipate. It depends critically on the awareness of its existence, and the use that citizens individually or collectively organised – as well as associations, foundations, and even private companies – make of it in the future, and the position of the relevant courts that might be asked to apply the law.
Finally, the creation of a new institutional body – the Council for Climate Action (CAC) – should be noted. The CAC will collaborate with the legislative and executive branches to prepare studies, assessments and opinions on climate action.
From a regulatory standpoint, there are several public entities responsible for enforcing the Portuguese climate change and environmental legal framework, namely:
In Portugal, and as mentioned in 2.1 National Climate Change Policy, there are several policy/regulatory instruments to achieve climate change goals.
In order to achieve the above-mentioned goals, there are also domestic regulations setting important rules on climate change/greenhouse gas emission matters, such as:
The operators subject to Decree Law No 12/2020 must hold a permit allowing them to emit greenhouse gas emissions and they are obliged to monitor their emissions. Other activities are not subject to climate targets as a prerequisite for environmental permits.
Nevertheless, if an entity applies for public funding, namely within the European Funds system, it is an increasingly common requirement that it complies with the “do no significant harm” principle. That is the applicable rule, for example, for the use of funds within the EU-funded Resilience and Recovery Plan.
As regards taxation of polluting activities, new carbon taxes for air and ship travel were approved by Ministerial Order 38/2021.
The new Climate Framework Law establishes climate policy instruments which are specifically designed to dealing with climate change adaptation, as follows:
The PNEC 2030 (listed in 2.1 National Climate Change Policy) contains a strategic long-term vision for a climate-neutral country, setting the following national targets to be achieved by the year 2030, aligned with a trajectory towards carbon neutrality by 2050:
Furthermore, PNEC 2030 sets CO₂ reduction targets for the following specific sectors, to be achieved by 2030:
Both the public and the private sectors, including investors and the general public, are expected to be impacted by the Portuguese national policies on climate change, as well as the new Climate Framework Law, since these instruments impose complex changes on the whole community.
The national carbon trading scheme is foreseen in Decree Law No 12/2020, enacting Directive 2018/410/EU, and establishing a scheme for greenhouse gas emission allowance trading within the European Community (the Amended Emissions Trading Directive).
Operators subject to said legal regime must hold a permit allowing them to emit greenhouse gases, which must be monitored and certified annually, and this information must be sent to the Portuguese Environmental Agency. The permit is annexed to the environmental licence of the operator issued under the Industrial Emissions Regime.
Concerning the voluntary carbon markets – seen as a powerful tool to support the Nationally Determined Contributions under Article 6 of the Paris Agreement – it should be highlighted that a national trend to compensate greenhouse gas emissions through these markets is emerging. Although the law does not deter this trend, the omission of a clear and objective mechanism, either created or recognised by the law, limits, or at least does not promote, the expansion of this trend. The creation of national legislation on voluntary carbon markets as an incentive to promote nature-based carbon sequestration is a topic under discussion in Portugal.
Bearing in mind that the main objective of the European Union Carbon Border Adjustment Mechanism (CBAM) is to avoid carbon leakage and inspire partner countries to establish carbon pricing policies to fight climate change, Portugal, as part of the European Union, will certainly be impacted by the CBAM.
As part of the European Union, all the European Legislation on reporting and information obligations, namely to investors, is totally applicable in Portugal. A growing number of investors are creating specific funds under the most stringent European regulation to address climate issues, combining the Sustainable Finance Disclosure Regulation (SFDR) and the European Taxonomy. The demand for climate response initiatives is a growing trend, produced both by pressure from investors and also the feeling that consumers increasingly value the sustainability commitment of companies and institutions. Investment and industrial operational decisions tend to influence each other, and the shortage of green assets might turn out to be a powerful engine. The financial sector, as a whole, is expected to play a relevant part in these transformations.
Directors or persons who hold a management position in companies are responsible, on a subsidiary level, for the payment of fines and procedural costs related to environmental administrative offences.
The majority of misdemeanours due to environmental damage are regulated by the Environmental Misdemeanour Framework Law. According to said legal regime, environmental misdemeanours can be considered light, serious or very serious, depending on the gravity of the infraction.
For very serious environmental misdemeanours, the applicable fine ranges between EUR10,000 and EUR200,000 for individuals and between EUR24,000 and EUR5 million for companies. Whenever the presence, emission or release of one or more hazardous substances seriously affects the health, safety of persons and goods, and the environment, the minimum and maximum limits of the above-mentioned fines may be elevated to double the amount.
For serious environmental misdemeanours, the applicable fine ranges between EUR2,000 and EUR40,000 for individuals and between EUR12,000 and EUR216,000 for companies.
For light environmental misdemeanours, the applicable fine ranges between EUR200 and EUR4,000 for individuals and between EUR2,000 and EUR36,000 for companies.
Ancillary penalties can also be applied alongside very serious and serious environmental misdemeanours, comprising, among other things, the following:
In addition, the Portuguese Criminal Code also establishes several situations where criminal liability may arise owing to the practice of environmental crimes as a result of damage to the environment or to nature. Companies and not only individuals may be considered subject to criminal liability owing to the practice of an environmental crime under the terms foreseen in the Criminal Code.
According to Article 72 of Climate Framework Law, harmful acts and omissions that accelerate or contribute to climate change give rise to liability. Misdemeanour penalties will be laid down in a separate statute, still to be approved
Said provision assumes an important dissuasive function for (i) acts and omissions harmful to the climate, (ii) practices that violate legal provisions on climate, and (iii) the improper or abusive use of natural resources.
In Portugal, the ESG framework is based mainly on EU legislation. The Taxonomy Regulation, the Delegated Act supplementing Article 8 of the Taxonomy Regulation, the SFDR, and the delegated acts related to the finance sector contain the main regulatory regime applicable to ESG in Portugal within the financial sector.
The majority of reporting provisions are targeted at large, public-interest companies and specific sectors.
According to Decree Law No 89/2017, companies of over 500 employees shall prepare a non-financial statement. Other mandatory reporting obligations derive from the Portuguese Commercial Company Act, which requires disclosing financial statements and annual reports; the Accounting Directive No 29, which requests disclosures on environmental risks; and the Corporate Code, which requests disclosures on corporate governance structures and practices.
The majority of the reporting provisions ask for information on environmental issues such as climate change or waste treatment and governance issues such as remuneration and risk management.
Companies that are not subject to specific rules are starting to disclose information on a voluntary basis through the publication of ESG commitments and the adoption of sustainability policies.
For example, various Portuguese companies are member of the UN Global Compact, representing a strong commitment on their part to improve their corporate responsibility and implement their sustainability policies.
As the European Union legislation adopts a “whole value chain” approach, although not directly covered by the legal obligations, many small and medium-sized companies already feel the impact of the new regimes, as they are increasingly asked by their clients to comply with ESG priorities.
Although slight, there is already a visible trend to include climate change due diligence in M&A, finance and property transactions.
Portugal has implemented the National Action Plan for Renewable Energies, establishing concrete objectives regarding the share of Portugal's energy supply from renewable sources, as well as the National Action Plan for Energy Efficiency.
Concerning energy efficiency, Portugal established an energy certification system for buildings with the purpose of improving the energy performance of buildings and making the obtaining of energy certificates mandatory.
The major objective established by the Climate Framework Law regarding the energy sector is to ban the use of coal to produce electricity from 2021, and of natural gas of fossil origin to produce electricity from 2040. The ocean will also play a key role as an important source of electricity production.
For the moment there is no policy/regulatory and/or other support for the uptake of other forms of climate-friendly investment in Portugal.
The Portuguese Climate Framework Law Raises Ambitions
As part of the European Union, Portugal is entirely aligned with and committed to the Paris Agreement and the EU agenda on climate change.
In fact, the new Climate Framework Law (Law No 98/2021, of 31 December), in force since 1 February 2022, was recently approved by the Portuguese Parliament. This is an essential legal instrument to align Portuguese policies on climate change with the targets and objectives of the Paris Agreement, the European Green Deal and the European Climate Law.
This new law settles the right to a balanced climate, establishes ambitious targets and requirements for the design of public policies across several economic sectors and levels of governance, recognises climate as a “Common Heritage of Humanity” and incorporates new concepts into Portuguese law, such as climate refugee, climate justice, climate security and environmental health.
The main goal of the law is to achieve climate neutrality by 2050, as already foreseen in the Portuguese Roadmap for Carbon Neutrality, establishing the main vectors of decarbonisation to be implemented, largely in the electricity and mobility industries, but it also settles the obligation for the Portuguese government to develop studies to anticipate the meeting of this target early – by 2045.
The law establishes climate policies and targets for forestry sector (target for the equivalent net CO₂ sink from the land use and forestry sector of at least 13 megatons on average between 2040 and 2050), as well as a target for marine and coastal ecosystems. There are also sectorial targets for the reduction of greenhouse gas emissions relative to 2005 values and compulsory approval of sectoral plans for mitigation and adaptation to climate change.
The law also creates climate policy instruments which are specifically applied to dealing with climate change adaptation, as follows:
In addition, the law sets up a budget and tax policies, such as the creation of a new tax deduction category – IRS Verde (Green Personal Income Tax) – which will benefit national taxpayers who acquire, use, or consume environmentally sustainable goods and services and a new carbon price policy covering the greenhouse gas emissions involved in the production and consumption of petroleum and energy products.
The energy sector: a concrete example
It can be argued that the commitment of Portugal goes beyond the international agenda and targets, as it has been one of the first countries in the world to accelerate, with concrete measures, the decarbonisation process.
In contrast to the recent statements of other European countries, which are deciding to reactivate their coal-fired power plants, Portugal shut down its last remaining coal-fired power plant – Central do Pego – in November 2021, thus ending the use of the polluting material for electricity generation and showing that an ambitious coal exit is possible through a combination of renewable energy policies and investment and energy transition planning. In fact, Portugal committed to shut down its two coal-fired power plants in Pego and Sines by 2030 at COP23, but the process was accelerated, and the last coal-fired power plant was decommissioned at the end of 2021.
This decision was not affected by the impact of the war in Ukraine. On the contrary, the official call is to intensify and speed the energy transition. In 2021, 59% of the electricity consumed in Portugal was already being generated from renewables, namely hydroelectric and solar, and the share is expected to grow fast.
In this context, it should be highlighted that the target set out in the National Plan for Energy and Climate 2030 (PNEC 2030), approved in July 2020, is of 47% of the energy consumed in the country to have been generated from renewable sources by 2030.
The ocean as the new player
Portugal is a coastal and archipelagic nation; accordingly, there is also a focus on the ocean which will certainly play an important role in the near future as a source of renewable energy production. In fact, it is already visible a national trend to develop projects which derive renewable energy from the sea and the recently approved law on the national electric system underlines this as it determines the preparation of a study that assesses the potential and the best location for ocean-based renewable energy generation and the measures for its subsequent development.
Meanwhile, after a successful floating wind power pilot project, there is clear interest, both from the market and the State, in developing ocean renewable energies, namely floating, wind-based energy generation capacity. Following repeated announcements from the Portuguese government regarding the intention to launch the first offshore wind energy tender for 2023, the Portuguese Prime Minister stated at the 2nd UN Ocean Conference that Portugal is committed to a new target regarding renewable energy projects derived from the sea: 10 GW by 2030.
Floating wind projects are expected to develop as multipurpose schemes, delivering green hydrogen and green ammonia, among others, but also to develop in combination with sustainable aquaculture (namely algae and bivalves) and carbon sequestration schemes. In addition, in the energy field, projects under development that relate to harnessing wave energy are expected to undergo intense development in the coming years.
In parallel, and to assist during the transitional period, Portugal is reinforcing efforts to make the Port of Sines the LNG gate to Europe.
Also concerning the ocean, another area of interest for climate issues is expected to develop: carbon sequestration. Following the scientific evidence that carbon sequestration is at least eight times more effective in the ocean than on land, there is growing interest is investing in blue carbon systems. A concrete public example comes from the Calouste Gulbenkian Foundation, which announced, within the context of the UN Ocean Conference, the launching of studies to assess the carbon sequestration potential of Portuguese coastal ecosystems and committed to invest in improving that sequestration to compensate for the Foundation’s carbon footprint.
The pressure for the government to move into the regulation of the voluntary carbon markets, both ocean-based and forestry/agriculture systems, is expected to grow.
In another plan, Portuguese companies are already becoming more concerned with ESG standards, namely by defining them as essential for investment.
As part of the European Union, there are several regulatory regimes related to ESG matters in Portugal: the Taxonomy Regulation, the Sustainable Finance Disclosures Regulation (SFDR), the Delegated Act supplementing Article 8 of the Taxonomy Regulation and the delegated acts related to the finance sector. These contain the main regulatory regime applicable to ESG in Portugal within the financial sector.
Concerning the environmental component of ESG, there are various domestic regulations setting important rules on environmental matters, such as the above-mentioned Climate Framework Law, the Waste Management Legal Regime, the Environmental Impact Assessment Legal Regime and the Water Law.
As will probably happen in other jurisdictions, the financial sector is expected to play a central role. Not only do the most dynamic sectors reveal strong interest through the creation on new funds aligned with the strictest environmental standards (Article 9 of the SFDR), but also traditional banking actors are moving towards more sustainable positions.
For example, Caixa Geral de Depósitos (CGD), the largest Portuguese bank, announced that, as part of its sustainability strategy, it is classifying its entire portfolio in light of ESG risk criteria.
Although still slight, the disclosure of voluntary information relating to ESG, as an addition to mandatory items within the annual accounting and reporting, is already a visible trend.
The European Taxonomy is also starting to play an interesting role, with more companies aware of its importance as a tool for transformation, including companies not directly covered by its scope of application. The principles of “make a substantial contribution” and “do no significant harm” (DBSH) are reaching greater levels of awareness as applied beyond the Taxonomy: the DNSH was adopted, for example, in the European legislation for the application of European funds within the Recovery and Resilience programme.
The approach to ESG by local regulators has been essentially pedagogical, aiming at creating awareness of the new obligations. Likewise, whenever a new financial product is created, regulators undertake a preliminary assessment of its compatibility with the claims made by the issuers under the ESG to prevent greenwashing.