Portugal is highly dependent on imported fossil fuels, which has stimulated efforts to diversify and secure its energy supplies, especially by encouraging the use of natural gas and renewable energy sources. Natural gas, first introduced in Portugal in 1997 via imports, has reached 25% of its total energy supply (TES) in 2021. Portugal is one of the few advanced economies for which renewable energy is the only form of energy produced indigenously. Renewable energy averaged about 29% of TES and 64% of electricity generation in 2021.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
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Portugal
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
Portugal has terminated its last ongoing concession for the research of hydrocarbons in 2020, which was assigned to the Australian company Australis in the areas of Batalha and Pombal. Oil’s share in TES has declined gradually since the 1970s: from 76% in 1973 to 64% in 2001 and to 48% in 2021. Portugal closed its last coal mine in 1994 and in November 2021 closed its last coal-fired power plant becoming the fourth EU country to completely abandon coal. Post-coal, natural gas and renewable energy progressively now take an increasing role in electricity generation, with the share of natural gas and renewable resources both rising by 6% between 2011 and 2021.
All of Portugal’s natural gas is imported, mainly from Algeria (via a pipeline that transits through Spain) and from Nigeria (LNG). The electricity sector combined with the heat-generation sector accounted for 90% of total natural gas consumption in 2021, which makes the two sectors closely interlinked in the country.1 Following liberalisation in 2006, EDP (Energias de Portugal) and Galp are now the major players in both the electricity and natural-gas markets. The reforms also resulted in a single transmission system operator for both gas and electricity networks. REN (Redes Energéticas Nacionais) acquired the electricity-transmission assets previously owned by EDP, the gas-transmission operator formerly operated by the Galp-owned Transgás, the LNG terminal at Sines and existing gas-storage facilities.
Over the past decade, Portugal has made significant efforts to deregulate its electricity generation and distribution markets. All electricity consumers are now free to choose their supplier (although regulated tariffs remain an option), and most of the Power Purchase Agreements are no longer in force.
Energy prices and taxes
In 2012 Portugal completed the liberalisation of natural gas and electricity markets with last regulated tariffs remaining being extended to 2025 for households with gas consumptions up to 10 000 m3 per year, connected at low voltage with a contract up to 41.4 kVA and economically vulnerable consumers as established by law. The qualifying conditions of what remains of the regulated tariffs were expanded in November 2020 to include households of "all unemployment situations." Since January 2010, all natural gas consumers are free to choose their natural gas supplier. The Energy Services Regulatory Authority (Entidade Reguladora dos Serviços Energéticos) is responsible for setting or approving natural-gas tariffs charged by companies in the sector.
Since 2004, there has been no ceiling set on retail prices for motor fuels. Transport fuel prices are generally higher in Portugal than in neighbouring Spain, mainly due to current taxation rates. Normally, a VAT rate of 23% is applied to gasoline and automotive diesel. Since 2007, the vehicle tax system (Imposto Único de Circulação and Imposto Sobre Veículos) takes into account a vehicle’s CO2 emission levels, in addition to its cylinder capacity.
Figure 2. Total tax rebates and support for fossil fuels in Portugal
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
In Portugal there is a wide array of measures granting either tax exemptions or tax rate reductions for specific fuels used for specific purposes. A significant part of these benefits is due to reduced tax rates on coloured and marked diesel fuel used by authorised agricultural equipment, whose tax expenditure is estimated at EUR 73.7 million in 2022, representing a 25.4% decrease compared to 2021. VAT rates are reduced for fuels used in agricultural inputs and machinery (13%), and for waste collection and water supplies (6%), from a standard rate of 23%.
The National Energy and Climate Plan (2021-2030) ratified in May 2020 highlights the introduction of a 10% tax on coal used to produce electricity in addition to a 10% carbon levy. This rate reached up to 50% in 2020 and has increased to 75% in 2021 and up to 100% in 2022. This is in line with the Administration’s target to gradually eliminate fossil-fuel subsidies as attributed in the NECP plan. In this setting, support measures such as the Fuel Tax Exemption for Certain Industrial Processes have experienced an increase of EUR 55.6 million (47% in relation to 2019), justified by a significant increase in carbon tax rates of fuel products used in these industrial processes (from EUR 12.74 per tonne in 2019 to EUR 23.619 per tonne of CO2 in 2020). However, the scheduled periodical raise of the carbon tax has been frozen to 2021 levels in light of the recent energy prices and should restart in 2023.2 The alt on the increase of the carbon tax is estimated to have costed EUR 409 million in 2022. In April 2022, in response to the skyrocketing natural gas prices, the Portuguese government has decided in agreement with Spain to cap the price of natural gas used for electricity generation to EUR 40/MWh for a period of 6 months, raising it afterwards by EUR 5 per month until reaching the limit of EUR 70/MWh. The measure comes authorised by the European Commission with an EUR 8.4 billion price tag for both countries. Other support measures have been temporarily introduced to assist Portugal’s businesses and citizens between 2021 and 2022 after the COVID-19 and energy market crisis. Among the most relevant ones, an excise tax reduction on fuels is periodically set according to the higher VAT state revenues generated by the greater fuel prices. The Electricity Network Access Tariff has been reduced by ERSE (averagely by 35%) and freight and public transport companies are partially refunded for their fuel expenses. Natural gas-intensive industries are receiving a compensation on their gas bills, and vulnerable citizens were given a voucher ranging from EUR 5 to 20 for purchasing fuels at gas stations.
The fiscal cost of support measures for fossil fuels in Portugal was estimated at EUR 2948.63 million in 2022 (Table 1). Fifty-one per cent (51%) was directed at end user beneficiaries, as opposed to 49% directed to firms. Support was mainly given out in the form of tax expenditures (EUR 2657.12 million) accounting for 90% of the total fiscal cost of support measures. Direct transfers amounted to EUR 291.51 million.
The fiscal cost of support measures for fossil fuels has increased by 555% since 2017. Since last year, tax expenditures have increased by 342%, from EUR 632.50 million to EUR 2657.12 million and direct transfers increased by 14692%, from EUR 22.81 million to EUR 291.51 million. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in millions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
449.099 |
428.498 |
527.500 |
592.400 |
632.495 |
2657.116 |
|
Direct transfers |
1.160 |
1.069 |
1.044 |
1.829 |
22.807 |
291.514 |
|
Total |
450.259 |
429.567 |
528.544 |
594.229 |
655.302 |
2948.630 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in millions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
|
|||
|
Excise Relief on Fuels |
700.000 |
(Started in 2022) |
700.000 |
|
|
Iberic Electricity Market Mechanism |
440.000 |
(Started in 2022) |
440.000 |
|
|
Suspension of Carbon Tax Increase |
409.000 |
(Started in 2022) |
409.000 |
|
|
Direct transfers |
||||
|
Autovoucher |
115.000 |
(Started in 2021) |
115.000 |
|
|
Support on Fuels Tariffs for Public Transports |
59.900 |
(Started in 2021) |
59.900 |
|
|
Support for Natural Gas-Intensive Industries |
58.000 |
(Started in 2021) |
58.000 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Excise Relief on Fuels |
The excise tax on fuels is remodelled to correspond to a decrease in the VAT rate from 23% to 13%. |
|
Iberic Electricity Market Mechanism |
In June 2022 the European Commission approved this exceptional and temporary measure, allowing Spain and Portugal to fix a cap price on natural gas used to produce electricity. This was possible because of the extremely low electricity interconnection of the Iberian Peninsula with the rest of Europe, whereas Spain and Portugal electricity markets are coupled more than 95%. The gas price was capped at EUR 40/MWh for the first six months, and afterwards it was raised of EUR 5 per month, until reaching the limit of EUR 70/MWh. |
|
Suspension of Carbon Tax Increase |
In order to contain prices of fuels, the Portuguese Government decided in 2021 to suspend the scheduled raise of the carbon tax on fuels from the beginning of 2022. |
|
Autovoucher |
The Autovoucher grants a discount of EUR 5 per month on the purchase of fuels at gas station. Consumers that can benefit from the auto voucher must be eligible for the ''IVAucher programme'', a financial fund that was created after the COVID-19 Pandemic in order to help those citizens and economic sector more vulnerable to the financial effects of the pandemic. The measure started in November 2021 and was renewed in March 2022 raising the value of the voucher to EUR 20 per month for March and April. |
|
Support on Fuels Tariffs for Public Transports |
The Portuguese government provides a tariff relief on fuels for taxis and public transportation buses of M2, M3 or an equivalent category. The measure was introduced for five months starting in November 2021, but it is still ongoing after different extensions. Initially the contribution provided a EUR 0.10/L reduction both for taxis and buses, up to a maximum contribution of respectively EUR 190 and EUR 1 050 per month. Rates of refunds have been changed with every extension. The last one in January 2023 excludes taxi and provides a refund of 0.10 EUR/L for non-natural-gas buses and EUR 0.30/L for natural gas buses, up to a maximum monthly contribution of EUR 1 260 for non-natural gas buses and EUR 3 780 for natural gas buses. |
|
Support for Natural Gas-Intensive Industries |
Due to the spike in natural gas prices, energy-intensive industries were granted a 30% refund of their natural gas bills up to EUR 400 000 according to their consumption and the average difference they faced on costs in comparison to 2021. In October 2022 the refund rate was raised to 40%, the maximum refund to EUR 500 000 for all companies, to EUR 2 000 000 for companies with an exceptional increase in gas expenses and to EUR 5 000 000 for companies that register operational losses because of gas costs. To be eligible, expenses on natural gas must have represented for companies at least 2% of their production value in 2021. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.