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File:20130402 xl wiki 2780.JPG
Wind turbines in Madeira.

Climate finance in Portugal encompasses the public and private capital flows mobilised to mitigate greenhouse gas emissions and reinforce resilience to the impacts of climate change, both in the continental territory and in the autonomous regions and least developed countries. The country faces heightened vulnerabilities—prolonged droughts, wildfires [pt], sea level rise, and extreme weather events—that directly affect vital sectors such as agriculture, water resources, public health, energy, and coastal and insular ecosystems.[1][2][3][4]

Domestically, Portugal has structured a legal and institutional framework over the past decades, which includes the National Climate Change Adaptation Strategy (ENAAC), the Roadmap for Carbon Neutrality 2050 (RNC2050), and the Climate Basis Law, establishing targets and obligations for climate financing.[5][6] Budget-wise, the main instrument is the environmental fund, with reinforced allocations for projects in energy efficiency, renewable energy, sustainable urban mobility, and natural risk prevention.[7]

In the autonomous regions, climate finance takes on particular contours. In the Azores, the Regional Plan for Climate Change (PRAC) and the Regional Strategy for Electric Mobility aim to integrate climate criteria into regional administration.[8][9] In Madeira, the CLIMA-MADEIRA Strategy and the Regional Circular Economy Agenda seek to enhance meteorological and economic adaptation.[10][11]

Internationally, Portugal has adopted innovative mechanisms, such as the debt [pt]-for-climate swap with Cape Verde [pt] and direct contributions to the Green Climate Fund, complementing efforts to mobilize resources for developing countries.[12][13] While these initiatives have already yielded concrete impacts, criticism persists regarding slow disbursement and transparency in fund application.[14][15] In the coming years, Portugal plans to intensify the issuance of green sovereign debt and broaden bilateral partnerships within the Lusophone space.[16]

Climate context and vulnerabilities

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File:Wildfires burn in northern Portugal ESA511524.jpg
Satellite image of a wildfire in Northern Portugal in July 2025.

Mainland Portugal

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Portugal exhibits significant vulnerability to the impacts of climate change due to its geographical location and territorial characteristics. Situated on the northern periphery of the subtropical high-pressure belt, the country is historically susceptible to risks such as prolonged droughts, heat waves, wildfires [pt], water scarcity, and sea level rise, which directly affect sectors like agriculture, water resources, public health, and coastal ecosystems.[1][17][18] The Mediterranean region — where Portugal is situated — is projected to be one of the most affected by extreme weather events, with increasing frequency and intensity of droughts and heatwaves.[19]

Observational and modeling studies document shifts and changes in the arid zones of North Africa (including the advance and alteration of the Sahara) and projections of increased aridity for parts of the Iberian Peninsula.[20][21] Furthermore, episodes of Saharan dust intrusion reaching the Atlantic and southwestern Europe have intensified in recent years, directly affecting Portugal with measurable consequences for air quality and respiratory morbidity.[22][23][24]

Recent studies indicate that Portugal could face a reduction of up to 40% in water availability by the end of the century if effective mitigation measures are not adopted.[25][26] The situation becomes particularly critical in the interior and southern regions of the country, where higher levels of desertification and water scarcity are recorded.[25]

The frequency of large wildfires has been increasing in recent decades, a phenomenon intensified by climate change and poor forest management.[27] The 2017 fires, which resulted in over 40 deaths, tragically exposed the country's vulnerability to these extreme events.[28][29]

Coastal exposure is another factor of vulnerability. Approximately 80% of the Portuguese population lives in areas near the coast, many of which are in low-lying zones subject to coastal erosion and sea level rise.[30][31] The mean sea level is expected to rise up to 1.15 metres (3.8 ft) by 2100, affecting 1,146 square kilometres (442 sq mi) of Lisbon — which threatens infrastructure, coastal communities, and marine ecosystems.[31]

File:2010 Madeira floods and mudslides 21.jpg
Flood caused by the 2010 Madeira floods and mudslides in Madeira Island.

Autonomous Regions

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The autonomous regions of the Azores and Madeira present specific climate vulnerabilities, partly associated with their insular location and geographical isolation. In the Azores, an increase in the frequency of intense storms and changes in precipitation patterns are anticipated, with potential impacts on agriculture, water resources, and soil stability, frequently affected by landslides.[2][32] Madeira, on the other hand, faces increasing risks associated with torrential rainfall and landslides, exacerbated by the steep topography and urban occupation of slopes.[3] The extreme events of 2010, which caused dozens of deaths and significant damage, remain a warning about the region's climate vulnerability.[33][34]

Both regions also face challenges regarding energy security and the resilience of critical infrastructure, given the high dependence on imported fossil fuels and logistical constraints.[35][36] Insularity also imposes constraints on adaptation, making continuous support from the State and access to specific climate financing mechanisms essential.[37]

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Mainland Portugal

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The legal and institutional framework for climate finance in Portugal has evolved over the past decades, especially after the country's accession to the European Union (EU).[38] National legislation has been progressively harmonised with international commitments under the United Nations Framework Convention on Climate Change (UNFCCC), the Paris Agreement, and EU regulatory frameworks, such as the European Green Deal and the Fit for 55 legislative package.[1][39][40]

Domestically, key instruments include the Estratégia Nacional de Adaptação às Alterações Climáticas (ENAAC – National Climate Change Adaptation Strategy), published in 2010 and revised in 2015 and 2020, and the Roteiro para a Neutralidade Carbónica 2050 (RNC2050 – Roadmap for Carbon Neutrality 2050), approved in 2019.[5][41][42] These documents define the strategic priorities for the decarbonisation of the Portuguese economy and the reinforcement of climate resilience, with medium and long-term sectoral targets.[5][41]

Climate finance is also embedded in the Lei de Bases do Clima (Climate Basis Law), approved in 2021, which establishes binding principles for State climate action, including obligations for transparency and reporting on financial flows intended for mitigation and adaptation.[6][43]

Institutionally, climate policy coordination falls under the Ministry of the Environment (MAAC), through the Portuguese Environment Agency (APA), which acts as a focal point for international financing mechanisms such as the Green Climate Fund and the Clean Development Mechanism (CDM).[44][45]

Autonomous Regions

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File:Sorted waste containers in Horta.jpg
Sorted waste containers in Faial Island.

In the Azores, approved by Regional Legislative Decree No. 30/2019/A, of November 28, 2019, the Plano Regional para as Alterações Climáticas (PRAC – Regional Plan for Climate Change) defines strategic objectives for mitigation and climate change adaptation in the archipelago, including the integration of climate criteria across all sectors of regional administration.[8][46][47] Complementary to the PRAC is the Estratégia Regional para as Alterações Climáticas (Regional Strategy for Climate Change).[9]

The Estratégia para a Implementação da Mobilidade Elétrica nos Açores (EMEA – Strategy for the Implementation of Electric Mobility in the Azores), defined by Regional Legislative Decree No. 21/2019/A, of August 8, establishes targets for renewing public fleets and incentives for electric charging.[47][48] Meanwhile, the Plano Estratégico de Prevenção e Gestão de Resíduos dos Açores (PEPGRA – Azores Strategic Plan for Waste Prevention and Management), approved by Regional Legislative Decree No. 6/2016/A, of March 29, 2016, advocates for source reduction, organic valorization, and recycling, with financial instruments for the installation of ecocentres and selective collection systems.[47][49]

In Madeira, the CLIMA-MADEIRA Strategy (Resolution No. 1062/2015) sets guidelines for climate risk assessment, monitoring of meteorological variables, and integration of adaptation measures across all sectoral policies of the region.[10][47] Launched in 2021, the Regional Circular Economy Agenda plans to position the region as a reference in the circular economy, bringing together civil society, public bodies, and businesses in a system that extends the useful life of materials.[50][47][51] The agenda aims to increase the efficiency and sustainability of the regional economy and encourage businesses to adopt circular practices, especially in the agri-food, construction, tourism, social, and maritime sectors.[50][51]

Originally approved in 2012 and currently undergoing reformulation, the Plano de Acção para a Energia Sustentável da Madeira Island (Action Plan for Sustainable Energy) defines targets for increasing the renewable quota, reducing imported energy consumption, and reducing Carbon dioxide (CO2) emissions.[47][52] Also being updated, the Plano de Acção para a Energia Sustentável da Porto Santo Island commits to reducing CO2 emissions by 30% by 2024, promoting energy efficiency actions and the installation of renewables in partnership with the Municipality and the Regional Agency for Energy and Environment.[47][53] In parallel, the Porto Santo – Smart Fossil Free Island initiative has been presented as an effort to reduce the insular energy system's emissions to very low or zero levels, through the combination of renewables, storage, and electric mobility.[54][55][56]

Approved by Resolution No. 378/2019, of June 21, the Plano de Ação para a Mobilidade Urbana Sustentável da RAM (Action Plan for Sustainable Urban Mobility of the RAM) sets objectives for increasing low-carbon public transport and implementing economical transport for tourists.[47][57] Similarly, the Plano Integrado e Estratégico de Transportes (Integrated and Strategic Transport Plan) outlines the modernisation of various transport modalities—road, maritime, and internal air transport—improving intermodality and accessibility within and between islands.[47][58]

Published in 2020, the Documento Estratégico de Resíduos 2020-2030 (Strategic Waste Document) defines measures for prevention, selective collection, and valorization of organic waste, supporting the installation of ecocentres and smart waste management systems.[47][59]

Public funding

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Domestic

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Created in 2015 under the tutelage of the Ministry of the Environment, the Environmental Fund is intended to finance projects for mitigation and climate change adaptation, waste management, water efficiency, and biodiversity preservation. In the 2024 budget, the Fund provided for a global allocation of 1.8 billion euros — in the third budgetary review of the same year, 202.5 million were approved for projects and 35.4 million for new tenders, specially reinforcing climate action and wildfire [pt] prevention measures.[7][60]

Under the Next Generation EU program, Portugal submitted its Recovery and Resilience Plan (PRR), which includes a component dedicated to the green transition.[61] This component foresees an investment program of 620 million euros for energy efficiency in housing (300 million), public buildings (250 million), and services (70 million); as well as 737 million for industrial decarbonization projects and modernization of energy infrastructure.[62][63][64][65]

In the autonomous regions, the guarantee of water supply in Porto Santo is based on a desalination plant operating since 1980; studies indicate reference values such as 500 m³/d capacity in the original units and aggregated capacities reaching thousands of m³/d following interventions over the decades.[66][67]

International

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In 2022-2023, Portugal dedicated US$16.8 million of Official Development Assistance (ODA) to the environment and US$7.7 million to projects with climate markers, demonstrating an increase compared to previous years, with greater emphasis on mitigation (2.9%) than on adaptation (2.8%).[68]

In June 2023, Portugal and Cape Verde agreed on a financial contribution of 12 million for the establishment of the Climate and Environmental Fund (FCA), whose objective is to finance adaptation and mitigation projects in the Cape Verdean archipelago until 2025, based on debt servicing and the eligible needs of the FCA.[69] This form of financing used by Portugal is called debt-for-climate swap, which consists of the voluntary conversion of sovereign debts into direct investment in climate change adaptation and mitigation projects.[12][70] Portugal's plans involve the complete forgiveness of Cape Verde debt through this mechanism, a sum of 140 million euros.[12][70]

As a donor country, Portugal signed a 4 million euro contribution to the Green Climate Fund (GCF), as part of the commitment to mobilize international resources for developing countries.[13]

Private financing

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File:Photovoltaic power station in Vila Nova de Famalicão (3).jpg
Photovoltaic power station in Vila Nova de Famalicão.

Domestically, large energy sector groups channel substantial investments to reinforce renewable generation capacity and modernize infrastructure. EDP Renováveis announced in March 2023 a total investment program of 25 billion euros until 2026, of which 4 billion are allocated to the expansion and strengthening of electricity distribution networks, prioritizing wind farms and solar parks in the national territory.[71] Furthermore, EDPR has already launched and financed solar farms in emerging markets such as Brazil, Mexico, and Vietnam [pt], totaling its installed capacity to 4.3 GW.[72] Through the Ocean Winds joint-venture (EDP and Engie), EDP also participates in the development and financing of large offshore wind farms in various regions of the world, leveraging local conditions and international incentives.[73]

Galp established a *joint venture* with the Japanese company Mitsui in December 2024 to build a 400 million euro hydrogenated vegetable oil unit for biofuel in Sines, accompanied by an additional investment of 250 million in a 100 MW electrolyzer for green hydrogen production, with operations scheduled to start in 2026.[74]

In the capital market and green bonds, EDP placed 750 million euros in green debt on the market, with an early redemption option exercisable after six and a half years and a 3.5% coupon, allocating the resources to finance or refinance eligible "green" assets in its portfolio.[75]

In addition to the Galp–Mitsui joint venture, several domestic small and medium-sized technology companies have secured funding from European and North American venture capital funds dedicated to "climate tech" and energy transition.[76][77]

In the Azores, through the Proenergia program in 2021, more than 900 small-scale photovoltaic systems were installed, totaling a private investment exceeding 2 million euros in this area alone.[78]

In Porto Santo, commercial agreements and private sector participation (such as Renault) in the technological component led to the introduction of electric vehicle fleets and bidirectional charging points as experimental components.[55][56]

International cooperation and external financing

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Through the Portugal 2030 partnership agreement, co-financed by European funds (ERDF, ESF+, European Territorial Cooperation, Cohesion Fund, and Just Transition Fund), 23.8 billion euros are mobilized for the priorities of the EU's climate strategy, including investment in renewable energy, energy efficiency, and the circular economy.[79][80]

Azores 2030 integrates the ERDF and ESF+ funds and mobilizes a total allocation of 1.4 billion euros for the 2021-2027 period, with interventions targeting climate change resilience, environmental sustainability, and energy transition, benefiting from a higher co-financing rate in the peripheral islands.[81][82] Similarly, *Madeira 2030* includes a global allocation of 760 million euros, also distributed between ERDF and ESF+ for climate action projects in the region.[83]

In 2024, the European Investment Bank (EIB) disbursed 2.1 billion euros in support of Portuguese projects, having channeled a record amount of 1.1 billion for sustainable energy and natural resource management initiatives.[84][85] In July 2025, the EIB and Banco BPI created a credit portfolio of 190 million euros aimed at medium-sized companies, of which 75% of the risk was guaranteed by the EIB, with the objective of financing energy efficiency and renewable energy projects throughout the national territory.[86][87]

Main beneficiary sectors

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File:Atomic mini urb eletrico.jpg
Electric microbus in Idanha-a-Nova

In the *energy sector, the European Investment Bank reached a record disbursement of 1.1 billion euros in 2024 for sustainable energy and natural resources projects, primarily funding the expansion of wind and solar farms and the modernization of electricity distribution networks.[84][85] Additionally, under the Recovery and Resilience Plan (PRR), 737 million euros were allocated for industrial decarbonization and an additional 620 million for energy efficiency, reinforcing the energy transition across the continental territory.[62][64][65]

Transport and urban mobility constitute another privileged axis: the *Sustainable 2030 Program allocated 1.3 billion euros to sustainable urban mobility actions, including investments in electric public transport, rail networks, and port infrastructure, with the goal of reducing sector emissions and promoting low-carbon circulation solutions.[88] In the domain of adaptation and resilience, 276 million euros were reserved to strengthen the prevention of natural risks and the capacity to respond to extreme climate events.[88] The circular economy and waste management were contemplated with 20 million euros, destined for recycling programs, optimization of material use, and promotion of more sustainable production chains.[88]

In the autonomous regions, private and public financing is primarily directed towards energy efficiency projects and small-scale renewable installations. In 2021, private individuals in the Azores invested over 2 million euros in small-scale photovoltaic systems, strengthening local clean electricity generation and reducing dependence on imported fossil fuels.[78]

Impacts and results

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In mainland Portugal, the Edifícios Mais Sustentáveis (More Sustainable Buildings)program showed tangible impacts by 2024, when the Environmental Fund began paying subsidies of up to 85% for energy efficiency improvement interventions in housing, benefiting about 78,000 families and mobilizing 30 million euros in support.[89] According to the 15th progress report of ADENE's Energy Saving Plan, Portugal exceeded its national energy efficiency target for 2023 by 159.6%, with a 21.7% reduction in overall gas consumption compared to the historical average of the last five years.[90]

In the onshore wind sector, the Alto Minho Wind Farm (240 MW) has been operating since November 2008 and generates about 530 GWh per year; at the time of its inauguration, it was considered the largest wind farm in Europe.[91][92][93] In deep waters, the WindFloat Atlantic project (25 MW), a global pioneer of semi-submersible turbines, exceeded production expectations by generating 80 GWh in 2023.[94]

In recent years, a substantial part of public and community funding for fire risk management in Portugal has been channeled into landscape conversion and land-use planning interventions, and into measures that reduce the exposure of settlements.[95][96] There are variations in budgetary execution (years with greater emphasis on combating and years with more investment in prevention).[96]

In parallel, there are significant funding flows and programs directed at water efficiency, rehabilitation of supply networks, loss reduction, reuse, and saving and efficiency measures in the urban and agricultural sectors.[97][98] For example, the leak detection and monitoring program implemented in the Lisbon metropolitan area reduced non-billed water from about 23% in the mid-2000s to approximately 8.5% in 2015, with an accumulated water saving of around 135 million m since 2005 and economic gains estimated in the tens of millions of euros; the initial direct investment in the software and monitoring systems was relatively modest (on the order of 1-2 million euros) and annual operating costs were estimated at about 500 thousand, yielding a clearly favorable cost-benefit ratio.[99] In municipalities such as Porto, substantial reductions in "non-billed water" were also verified: the non-billed water index decreased from 21.4% in 2015 to 12.27% in 2024; the accumulated reduction avoided more than 9 million cubic meters of lost water during that period.[100]

On Porto Santo Island, combined interventions have a direct impact on the tourism sector and associated activities. Desalination practice, for instance, reduces the need for potable water for irrigation and helps enable tourism infrastructure during peak season.[101][102]

Internationally, the debt-for-climate swap mechanism with Cape Verde [pt] has already translated into concrete effects: following the forgiveness of 12 million euros, the tender procedure for the reactivation of the Palmarejo Photovoltaic Power Plant was launched.[103]

Criticisms and controversies

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In Continental Portugal, the Environmental Fund has been heavily criticized for the slowness in disbursing funds, essential for energy transition and climate change combat projects. Journalist Miguel Vargas, in an opinion article published in Observador, denounced a delay of more than a year in payments promised in 2023, which should have been executed at the beginning of 2024, leaving beneficiaries without receiving any amount and compromising the execution of fundamental public policies.[14] For Vargas, this inertia reflects not only administrative failures but a "failure of confidence in the State" that undermines the relationship between government and society.[14]

Some wind projects have been contested due to landscape, heritage, and social impacts, especially in rural and historical areas, where residents and associations point to changes in the landscape and effects on local tourism and heritage.[104] Additionally, critics and some sector analysts point out that the integration of large wind capacity into the electrical system requires flexibility mechanisms (reserves, storage, interconnections, and network management) to ensure security of supply, which may involve response capacity that, for now, is partially ensured by conventional power plants or market mechanisms.[105][106]

Large-scale photovoltaic projects have also generated controversy, particularly regarding land use change and the impact on montado (cork oak or holm oak woodlands) and olive groves. The Herdade da Torre Bela [pt] project (one of the largest photovoltaic parks in the country) motivated protests and media coverage about the clearing of montado and cork oaks and concerns about the need and timing of its installation, while the developer and authorities refer to mitigation and compensation measures.[107][108][109]

Some episodes of excess renewable production (especially during periods of high irradiation and low demand) resulted in episodes of negative prices in the Iberian Electricity Market [es], which was interpreted by critics as a sign of temporary imbalances between installed capacity and demand management and storage instruments.[110][111]

Lithium prospecting and exploration in Portugal has been another significant source of controversy. Mining projects and concession areas have sparked local protests, legal action and intervention by public bodies due to concerns about environmental impacts and the way in which some licensing processes have been conducted.[112][113] In 2025, a committee of the Aarhus Convention concluded that Portuguese authorities had not adequately facilitated access to information and public participation in the licensing of the largest lithium project planned in Europe (Barroso), reinforcing criticism regarding transparency and public participation.[112] The discussion also includes the role of the State and public entities in supporting lithium value chains and the position of local authorities, which varied between support, the search for economic benefits and opposition on environmental and land use grounds; these elements also fuelled a broader political and legal debate.[114][115]

In the autonomous regions of the Azores, the World Wide Fund for Nature (WWF) questions the origin and allocation of resources announced by the Environmental Fund for the management of the Azores Marine Protected Areas Network (RAMPA).[15] In a June 2025 statement, the organisation warns of contradictory statements about funding — which would initially be provided by private partners but would ultimately depend on the state — and demands public clarification, transparency and long-term sustainability plans.[15]

At the international level, ZERO – Sustainable Earth System Association criticises the limited ambition and scope of Portugal's climate financing in partner countries.[116] In an assessment carried out on the first anniversary of the debt conversion agreement with Cape Verde, the Non-governmental organization (NGO) emphasises the need to increase the overall amount involved (at least €140 million) and to ensure the continuity and effectiveness of the funds, as well as the active participation of Cape Verdean civil society in the definition and implementation of projects.[117]

Finally, at European level, in October 2024, the European Court of Auditors (TCE) identified risks of double funding in electric vehicle charging projects financed by the Recovery and Resilience Facility (RRF) and cohesion funds, including initiatives mainly in Portugal and France.[118] The special report points out that the control systems set up by the Commission and the Member States are insufficient to prevent double payments, which could compromise the efficiency of resources allocated to the energy transition.

Future perspectives

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File:Carros desviam dos elétricos parados ao redor da estação de Santo Amaro, Lisboa.jpg
Cars diverting around stopped trams during the power outage in Lisbon.

In Continental Portugal, the Recovery and Resilience Plan (PRR), revised in October 2023 under REPowerEU, is expected to continue driving investments of about 22.2 billion euros until 2026, of which 38% are allocated to climate objectives — namely energy efficiency, sustainable mobility, and renewable energy — contributing to the completion of more than 80 energy transition projects in public and private buildings and electric vehicle charging infrastructure.[119][120] Additionally, the Government plans to apply up to 400 million euros in electricity grid management and battery storage, strengthening the resilience of the national system after the April 2025 power outage and aligning with European Commission (EC) recommendations for grid modernization.[121][122]

In the international domain, Portugal aims to expand the debt-for-climate swap model implemented in Cape Verde, converting at least an additional 140 million euros of debt into investments for adaptation and environmental conservation in African countries of the Community of Portuguese Language Countries (CPLP).[16][70]

The issuance of sovereign green bonds, explored since 2022, is expected to be intensified, with targets of up to 3 billion euros in bonds, to finance climate mitigation and adaptation projects, boosting the sustainable finance market and attracting private sector co-financing.[123]

References

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