Patrick Lenain
OECD Economic Surveys: Philippines 2026
Abstract
The Philippines faces significant climate challenges. As a tropical island nation, the country has long been exposed to recurrent heat waves, typhoons, rain precipitation and flooding. Its economy has for now demonstrated strong resilience, but this could become increasingly difficult. Projections under global warming scenarios indicate output losses, rising inflation, constrained fiscal space, and more hardship for vulnerable communities. The government is therefore actively investing in adaptation measures, acknowledging that this will remain necessary over the long term. At the same time, the Philippines is contributing to the global climate mitigation agenda, aiming for example to increase the share of renewable energy in the electricity generation mix from 21% presently to 35% by 2030 and 50% by 2040. The country’s new Nationally Determined Contribution (NDC) could be the opportunity for an ambitious long-term strategy combining lower GHG emissions, higher investments in mitigation and adaptation, and a focus on bolstering energy security by reducing the dependence on imported fossil fuels.
As a tropical island nation, the Philippines is projected to remain severely impacted by climate change, with more intense and more frequent typhoons, accelerated sea-level rise, and more extreme rainfall events—all posing grave risks to businesses, communities, infrastructure, and ecosystems. The country is therefore preparing to confront a warmer climate and to address its consequences. At the same time, mitigation efforts are being implemented to stop the fast increase and eventually reduce the country’s greenhouse gas emissions. With its climate transition strategy, the government seeks also to establish the foundation of a resilient and inclusive economy that benefits present and future generations. The first section of this chapter delves into adaptation policies, the second section focuses on the country’s pledge to reduce emissions, and the third section discusses how sectoral policies could yield resilient and inclusive growth in spite of climate challenges.
Like many other countries, the Philippines faces adverse weather trends that are projected to worsen in the short and medium term. The prospects of more elevated temperatures, coastal erosion, and more intense and frequent extreme weather events have encouraged the government to design the National Adaptation Plan (NAP) 2023–2050. The NAP identifies eight priority sectors for climate adaptation: (1) agriculture, fisheries, and food security; (2) water resources; (3) health; (4) ecosystems and biodiversity; (5) cultural heritage, population displacement, and migration; (6) land use and human settlements; (7) livelihoods and industries; and (8) energy, transport, and communications. Each sector is addressed with tailored strategies and outcomes grounded in climate science, risk assessments, and socio-economic analysis. Five cross-sectoral strategies underpin the plan: strengthening infrastructure resilience, safeguarding livelihoods through social protection, empowering local governments and communities, mainstreaming integrated adaptation governance, and scaling up nature-based solutions. The NAP emphasises a data-driven and participatory approach, aiming to reduce vulnerability, enhance resilience, and integrate adaptation across development planning to ensure a sustainable, inclusive, and climate-resilient future for the Philippines.
4.1.1. Natural hazards are already inflicting high costs
The ambition of the NAP is welcome in view of the acute climate risks faced by the Philippines. Located in the Typhoon belt and the Pacific ring of fire, the Philippines is highly vulnerable to natural hazards. It has been consistently ranked first among 193 countries in the World Risk Index due to a worrying combination of exceptionally high exposure to hazards—averaging nearly 20 typhoons annually, frequent earthquakes, volcanic activity, flooding, and sea-level rise—and profound societal vulnerability rooted in fragile infrastructure, limited coping capacity, and insufficient adaptive system (Bündnis Entwicklung Hilft, 2024). The World Bank estimates the direct fiscal cost of natural hazards at about 0.5% of GDP per year, with a peak of almost 4.5% of GDP in 2013 due to Super Typhoon Haiyan, locally known as Typhoon Yolanda (Figure 4.1).
Beyond fiscal costs, extreme weather events have negative and persistent effects on economic activity in affected regions. Research suggests that extreme weather events can reduce local economic activity by up to 2.2% on impact, with 1.7 percentage points of that effect remaining after 5 years, even after accounting for the mitigating effects of post-disaster adaptation, relief and reconstruction measures (Costa and Hooley, 2025). Labour markets and outward migration are a key transmission channel, with employment remaining persistently lower following an extreme weather event. By some estimates, the cost of weather-related damages, especially typhoons, may be as high as 3% of GDP annually (Swiss Re, 2025).
Financial cost of natural disasters
Source: EM-DAT The international disaster database, World Bank WDI
Average temperatures are higher, and record-breaking days are more frequent
Global warming is at the origin of both rising temperatures and recurrent heat waves. In the Philippines, mean land temperatures have increased by approximately 1.4°C compared to the average in 1951-1980 (Berkeley Earth, 2025). Although this rise is comparable to the temperature increase globally during the same period (1.3°C), average temperatures are significantly more elevated in the Philippines than in many other locations throughout the year. These high temperatures are associated to El Niño events, which are made more severe by global warming (Batté and Mignot, 2023). This happened in late 1997 to early 1998 and 2015 to 2016 and more recently between July 2023 and May 2024. Record-breaking temperature readings have thus become more frequent. As an illustration, Figure 4.2, Panel A displays the maximum temperatures recorded across the Philippines in 2024, and Figure 4.2, Panel B displays the provinces having registered record-breaking temperatures between 2015 and 2024. These extreme temperatures pose serious health risks, particularly to vulnerable populations such as outdoor workers, children, and the elderly (Glachant and Lévêque, 2025).
The temperatures in the urban agglomeration of Metro Manila (population of 13.5 million) are further increased by the urban heat island (UHI) effect, a phenomenon where high building density, human activity, heat-absorbing building materials, and limited vegetation increase temperatures in urban areas more than in surrounding areas. In Manila, mean surface air temperature averaged 28.6°C in 2023 similar to other tropical cities such as Bangkok (28.9 °C), Jakarta (26.4 °C) and Ho Chi Minh City (27.0 °C), but far warmer than Washington, D.C. (15.5°C), Madrid (16.1°C) or Tokyo (17°C). The capital city experiences high temperatures across all seasons, made worse by occasional heatwaves. High humidity exacerbates the effects of high temperature on human beings. As an archipelago surrounded by warm seas, the Philippines is among the most humid in the word. A temperature of 38.8 °C in Metro Manila can thus feel like 45°C due to high humidity (Garcia, 2024).
Nore: Panel B is based on a compilation of record-breaking days registered across weather stations in the Philippines between 2015 and 2024. Provinces in white didn’t record a temperature record.
Source: Climate and Agrometeorological Data Section (CADS), Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) and national authorities.
Research using remotely sensed data and social-ecological indicators (Estoque et al., 2020) identifies severe health risks in Metro Manila. One of the highest population densities in the world (46,000 persons per km2), a concentration of high-rise buildings and a lack of green spaces exacerbate the situation. Despite difficulties in identifying causes of mortality, there is strong evidence that heat waves are associated with excess mortality. As an illustration, the heat wave that hit Europe in the summer of 2022 led to an estimated 61,675 heat-related deaths. In addition to health, heat waves are shown to have a negative macroeconomic impact, with a 1-degree Celsius increase in the country’s annual mean temperature reducing aggregate output growth by 0.37 percentage point (Armas et al. 2014).
Nature-based approaches such as urban forests, wetlands, green roofs, permeable surfaces, or restored riverbanks can help to manage rising temperatures in cities, while also improving biodiversity, public health, and the overall quality of urban life, with a double dividend of attenuating the urban heat island effect and capturing carbon through tree growth (Hobbie and Grimm, 2020). Expanding green areas also enhances the absorption and retention of water in cities, thus managing excess stormwater during extreme rainfall events and mitigating flood risk. As an illustration in the city of Medellin (Colombia), 36 city-wide green corridors were built between 2016-2019 as part of the city Green Corridors Programme to provide an interconnected 20-km network of shade by transforming 18 roads and waterways into a green space (OECD, 2023a). However, there are also limits to the gains from nature-based solutions, as a study based on 93 European cities finds an only a modest effect on summer deaths (Lungman et al., 2023).
Demand for air conditioning will increase beyond the 10% of households who had access to it in 2019 as temperatures and incomes continue to rise. The adoption of air conditioning is closely related to household income in warm countries, with sharp increases starting at annual household income of about USD 10,000 (Davis et al., 2021). A fast increase in air conditioning (AC) adoption would improve household wellbeing, increase productivity, and reduce health risks in the Philippines. A concern is that consumers may not select energy-efficient AC units, as they appear to be cheaper based purely on purchase price, with consequences on electricity consumption. Reassuringly, consumers in metro Manila are more likely to select energy-efficient appliances when they come with an energy star rating (Nakai et al, 2022), which most likely reflects the high cost of electricity in the Philippines. This predictable increase in AC adoption will raise electricity demand, which should be provided by low-carbon electricity, such as power generated by solar panels. In addition, a recycling chain is needed to avoid the release of greenhouse gases if improperly handled (CFCs, HCFCs, and HFCs). For households exposed to energy poverty, opening public buildings equipped with space cooling in case of extreme heat temperature is essential to avoid exposing vulnerable people to life-threatening periods of heat stress.
In most climate scenarios, temperatures in the Philippines are projected to increase further. Figure 4.3 shows temperatures projected by the World Bank using a suite of models, with different assumptions formulated for the sixth IPCC Assessment Report. In the scenario considered to be the most plausible (SSP2-4.5), land temperature in the Philippines would increase once again by 1.3°C from now to 2100. In the most extreme scenario (SSP8-8.5), characterised by rapid global economic growth and energy demand being met primarily through fossil fuels, land temperature in the Philippines would increase by 3.1°C. These projections come with a high degree of uncertainty, and future temperature could be either higher or lower. Notwithstanding these uncertainties, further rise in temperatures is likely, with accompanying weather disorders such as periodic heat waves, heavy rain precipitations, and more damaging typhoons. Like in many other countries, the Philippines is therefore preparing for increasing weather-related risks.
Average land temperature in Celsius
Note: Climate projection data is modelled data from the global climate model compilations of the Coupled Model Inter-comparison Projects (CMIPs), overseen by the World Climate Research Program. SSP1-2.6 is a scenario within the framework of the Intergovernmental Panel on Climate Change (IPCC) that combines a sustainable socio-economic development pathway (SSP1) with a low radiative forcing level of 2.6 W/m² by 2100 thanks to global efforts made to reduce greenhouse gas emissions. In SSP2-4.5, emissions follow historical trends without significant shifts toward sustainability. SSP3-7.0 envisions regional conflicts, weak international cooperation, and limited progress on climate mitigation. In SSP5-8.5, it is assumed rapid economic growth driven by fossil fuels, minimal climate policy intervention, and energy-intensive lifestyles.
Typhoons, rain precipitation and windstorms have become more powerful
The Philippines’ geographical location makes it particularly exposed to typhoons, which form in the Philippines Sea and, less often, in the China Sea, and typically are the most active during the second half of the year. The eastern and northern regions of the archipelago are typically where they make landfalls (Figure 4.4). Although climate change is not directly at the origin of typhoons, it appears to be amplifying their frequency, intensity, and destructiveness (Fraser-Baster, 2024). Out of the 20 typhoons observed annually in the county’s area of responsibility, 8 to 9 make landfall. The most severe tropical storms typically result in losses of human lives, injuries and damages to infrastructure. Super Typhoon Haiyan (international name: Yolanda) in 2013 resulted in at least 6,300 fatalities, caused damage to 1.1 million homes, and generated economic losses estimated at about 4½ % of GDP (Figure 4.1). Typhoon Rai (Odette) in 2021 caused at least 410 fatalities. The 2024 typhoon season in the Philippines saw six typhoons affecting the country within just 30 days, an unusual frequency, with more than 13 million people being hit.
Average of daily rainfall levels in 2024
Source: Climate and Agrometeorological Data Section (CADS), Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA).
Climate change is also affecting the patterns of rain precipitations. The country’s precipitations vary across regions and seasons (Figure 4.4). Northern and eastern regions, including parts of Luzon and the eastern seaboard of Mindanao, experience significantly higher rainfall, with some areas receiving over 12 mm per day. In contrast, central and western provinces, particularly in the Visayas and southern Mindanao, tend to record lower precipitation levels. This spatial heterogeneity has implications for water resource management. Heavy rainfalls, often triggered by monsoon surges and tropical cyclones, contribute to floods that pose significant risks to infrastructure, communities, and ecosystems. The probability of adverse consequences such as landslides is exacerbated by factors such as land use changes and inadequate infrastructure. Specific geographical features make some regions prone to flooding, with Metro Manila included in the list due to its low-lying coastal areas and insufficient drainage systems. In mountainous areas, the risk of landslide can be exacerbated by intensive logging and mining activities.
Rising sea levels, coastal erosion, and blue economy development
With a national territory spanning more than 7 600 islands and a coastline exceeding 36 000 kilometres, the Philippines is highly exposed to the rise of sea levels. The level of sea does not rise at the same rate in all regions of the world due to differences in weather patterns. The reoccurrence of El-Niño events contributes to faster rates in the Philippines Sea, with estimates of 5.7-7.0 mm/yr, compared to a global average rate of 3.7 mm/year observed globally from 2006 to 2018. The trend is particularly pronounced in Manila due the extraction of groundwater, which results in land subsidence (Figure 4.5). The rise of sea level is also impacting the living conditions of populations in coastal areas, particularly in terms of inundation. Rising sea levels, increasing ocean temperatures, and frequent typhoons disproportionately impact coastal communities where two-thirds of the population reside. Exacerbating the effect of global sea level rising and local land subsistence is the degradation of mangrove and seagrass, which serve as important ecosystems and natural buffers against storm surges. Disorderly development of fishponds in coastal areas has also caused significant losses in natural ecosystems (Box 4.1).
Annual mean sea level in millimetres
The government is putting in place a “blue economy” framework, which entails measures to combine economic development in low-income coastal communities and a better protection of natural resources. However, coordination between government branches is preventing an effective implementation (Pinhão, 2023). Marine and coastal resource management is fragmented across multiple government agencies, leading to inefficiencies and regulatory gaps. The government should discuss with local government units (LGUs) how to support these development efforts. The legislation pending in Congress on the blue economy provides a comprehensive policy initiative to integrate marine spatial planning, environmental-economic accounting, industry development, and climate action into national and regional development plans. Even though it has been pending in Congress since 2024, the Blue Economic Bill has not yet been adopted. Its approval is crucial to the implementation of a coherent strategy for the sustainable development of coastal areas and its communities.
Climate change will have significant macroeconomic impacts
The long-term effects of climate change can be analysed by linking models with detailed sectoral data suitable for simulating climate shocks with macroeconomic general equilibrium models to assess the joint effect of multiple climate-induced shocks on the economy. An exercise that simulated the impact of a high-end emissions scenario compared to a baseline without global warming suggest that climate mitigation inaction will lead to rising economic costs (Figure 4.6, Campagnolo et al., 2025). For the Philippines, the scenario estimates GDP losses of 5% in 2040 that quickly rise to 18% in 2070 under a high-end emissions scenario compared to a no-climate change scenario. This falls between countries with mild impacts (Central Asia) and those with extreme losses (e.g., Bangladesh and Viet Nam). The Philippines’ losses mainly stem from rising sea levels and land and economic asset losses. Heat stress also impacts labour productivity, and fisheries are significantly affected. These results are similar to simulations by the World Bank (2022), which find a climate change impact of 5.7-7.5% of GDP by 2040 and 7.4-11.0% by 2050.
Change in GDP compared with no climate change scenario
Note: The high-end emissions scenario focuses on the IPCC SSP5-8.5, which leads to a median estimate of 4.7ºC of mean global warming by 2100. The losses from all shocks do not exactly equal the losses of the shocks run one at a time because of substitution and trade in the global CGE model.
Source: Campagnolo et al. (2025).
Healthy ecosystems play a key role in the Philippines’ current and future economic situation. Forests and watersheds supply drinking and irrigation water; mangroves generate high-value coastal protection services, acting as natural storm-breakers and erosion buffers; coral reefs contribute to the performance of fisheries, tourism, and shoreline defence, providing employment to large groups in local communities. Looking ahead, nature-based solutions, such as mangrove restoration and forest conservation, have the potential to provide effective natural protection against climate risks and address the threats posed by climate change.
Source: OECD and Maes et al. (2022).
This makes nature-based policies important in the Philippines, which is one of 18 mega-biodiverse countries of the world, hosting two-thirds of the earth’s biodiversity and between 70% and 80% of the world’s plant and animal species according to the Convention on Biological Diversity. However, climate change is intensifying pressures on the country’s biodiversity, especially in coastal and marine ecosystems. A mere 0.5°C rise above normal summer ocean temperatures can trigger mass coral bleaching, as occurred during the 1998 El Niño when Philippine reefs suffered their first nationwide bleaching event, undermining the vital ecosystem services provided by coral reefs (Climate Change Commission, 2017). Rising temperatures, changing rainfall patterns, sea-level rise, and more frequent extreme weather events are accelerating habitat degradation and increasing extinction risks.
Cost-effective solutions include mangrove rehabilitation, forest protection, and reforestation, with multiple co-benefits for adaptation and mitigation. Incorporating biodiversity protection into the country’s climate change mitigation strategy--such as in the new NDC—would be crucial. The objective should be to curb the degradation of forests and mangroves through stronger enforcement against illegal logging and by addressing drivers like slash-and-burn farming. The high carbon sequestration potential of Philippine forests and mangroves can be monetised via carbon markets or results-based finance (e.g. REDD+ programmes), which can provide funding for conservation. Policies that incentivise private sector and local government participation can enhance the scale of these nature-based climate solutions. As an illustration, market-based payments for ecosystem services, based on Natural Capital Accounting (NCA), can promote the conservation of natural resources and strengthen the resilience of communities to climate change.
4.1.2. Macroeconomic, financial and social policies for adaptation
Faced with these long-term weather trends, the Philippines is adapting its economic policies. Shocks such as extreme temperature levels and periods of drought are found to have a negative impact on GDP that persists over several years, while mild temperature readings have the opposite effect (Akyapi et al. 2025). With large macroeconomic consequences of climate change potentially emerging soon, economic policy needs to integrate warming prospects and their consequences for activity, employment, inflation, fiscal space, and indebtedness. While fiscal policy helps adapt to climate change infrastructure spending, public services, and budgetary planning, monetary authorities seek to ensure price and financial stability in the face of emerging risks. Despite these fiscal and monetary steps, coordination between institutions remains a key challenge. Strengthening inter-agency collaboration—including with the Department of Economy, Planning, and Development (DEPDev) and the BSP—will be critical to advancing a unified strategy for sustainable development. In addition, despite the specifications included in the 1991 Local Government Code, responsibilities of provinces, cities, municipalities and barangays tend to intersect, a situation that is exacerbated by the existence of various other public agencies that provide public services and carry out public works at the local level (OECD/ADB, 2023). Greater integration of climate risk assessments into debt sustainability analysis and long-term economic forecasting could also improve policy coherence and reduce exposure to future shocks.
Early climate adaptation can reduce the cost of climate change
While substantial output losses are projected from climate change, early adaptation actions could reduce them (OECD, 2024a). In agriculture, adopting new farming techniques can reverse productivity declines and restore rice and maize yields. In infrastructure, construction work to increase resilience to typhoons can reduce damage, though not eliminate it. The World Bank estimates an annual cost of about 0.7% of GDP for these two actions, about USD 3.7 billion at current GDP levels. These investments would significantly reduce output losses, making adaptation highly cost effective. However, output losses are higher if typhoon sensitivity is more elevated, in particular if energy and manufacturing, which rely on expensive plants and equipment, are most affected. These simulations represent plausible climate futures, with milder outcomes in low typhoon activity and more losses in high typhoon activity. Despite these uncertainties, these exercises highlight the need for early and well-targeted adaptation measures. In addition to infrastructure and productivity work, measures to conserve, enhance or restore degraded ecosystems and manage natural resources are crucial to protect communities and rural livelihoods. This includes public awareness campaigns, plans to stem declining agricultural and fisheries yields, and steps to protect workers and children from heat stresses.
Fiscal policy is making a growing contribution to climate adaptation
Effective fiscal policy is crucial for enhancing a country’s resilience to climate change (Box 4.2). A regular assessment of government climate actions is essential--in particular those to protect vulnerable groups, strengthen infrastructure resiliency, and to reform agriculture--in the context of medium-term budget planning and debt sustainability analyses. This helps in understanding potential economic impacts and in making informed climate policy decisions. Such analysis can be informed by the use of models that factor in climate variables and help to predict economic outcomes under different climate scenarios. However, the design of models that can simulate the economic impact of changing weather patterns and its consequence for the natural environment is still in its infancy. Weather scenarios still come with a high degree of uncertainty because the impacts of weather events on output, productivity, health, and migration remain to be well understood. The use of models should therefore be reinforced by other approaches, in particular a dialogue with civil society and reaching out to stakeholders. A policy cycle where regular evaluations of fiscal interventions help to reassess policy settings and adjust their design is crucial. Mobilising businesses, private investors, financial institutions and insurers to make their own adaption decisions, without waiting for fiscal support, through information campaign, is also crucial.
Ministries of Finance (MoFs) play a central role in confronting climate change, given their responsibility for managing public finances, shaping economic policy, and allocating resources. As climate impacts intensify and transition risks grow, MoFs must integrate climate considerations into their core functions. The following outlines key actions they can take to enhance resilience, support decarbonisation, and safeguard fiscal sustainability.
Public investment, tax incentives, subsidies, public-private partnerships (PPPs), and earmarked carbon pricing revenue. With these instruments, MoFs can help crowd in private finance for climate-resilient infrastructure, energy systems, and nature-based solutions. MoFs can also support regional and local governments better mobilise funding and financing instruments necessary for achieving climate and environmental objectives, including concessional loans, public-private partnerships, and GSS+ bonds.
Institutional capacity and cross-government coordination on climate action. MoFs can strengthen internal expertise on risk analysis and climate budgeting, and establish coordination mechanisms with line ministries, central banks, and subnational governments. Mainstreaming climate across public financial management systems ensures policy alignment and implementation efficiency.
Integration of climate risks into macro-fiscal planning. MoFs can embed both physical and transition climate risks into their macroeconomic frameworks, fiscal forecasts, debt sustainability analyses, and budget processes. This includes recognising climate shocks as fiscal risks and adjusting fiscal rules or buffers to reflect increased uncertainty and volatility.
MoFs can use tools such as CGE models to estimate the revenue and expenditure impacts of mitigation policies (e.g. carbon pricing) and adaptation investments. These assessments help governments understand trade-offs, costs and benefits, and financing gaps over short- and long-term horizons.
MoFs can assess the distributional impact of climate action and detect the potential losses at the household level resulting from carbon pricing and phasing out of fuel subsidies. They can suggest cost-effective compensation to affected households, using microdata evidence on household burdens.
Source: Coalition of Finance Ministers for Climate Action (2025) and Chatry et al. (2025).
To confront climate change, the government has allocated budget resources of PHP 457 billion (1.7% of GDP) in 2024 mostly for adaptation measures, according to the Philippine Statistics Authority. Out of this amount, spending for “water sufficiency” projects were prioritised (82% of total), mostly for flood management. However, there is only limited scrutiny of the actual implementation of these projects. The Commission on Audit has repeatedly flagged ghost projects, overpricing, and diversion of materials in flood-control and river-dredging contracts, with extensive corruption networks and local patronage. In effect, part of so-called “climate” spending has been mishandled as a conduit for rent-seeking and political favour-trading, rather than a credible investment in adaptation. Fighting corruption in infrastructure spending would be helped by strengthening legal and regulatory frameworks, embedding responsible business conduct in procurement and PPPs, and enforcing risk-based due diligence. This calls for greater transparency, public access to project information, and stronger coordination among oversight agencies to close accountability gaps (Chapter 2; OECD, 2024b).
The fraudulent use of budget allocation reduces the usefulness of the Climate Change Expenditure Tagging (CCET) system, which mandates all national agencies to identify and report climate-related spending in order to ensure transparency and accountability. In addition, green tagging may be subject to challenges in terms of accountability, performance metrics, or even transparency about environmentally harmful expenditures, which undermines its power to shift budget priorities or embed environmental stewardship in decision-making (Petrie, 2021). The current forms of green tagging are often limited: many tagged expenditures are classified as “neutral” or “undetermined” with respect to environmental outcomes; there is weak linkage between tags and emissions impact, poor alignment with regulatory and emissions targets, and scant integration into the full budget cycle, particularly in revenue-side measures or subsidy reform (OECD, 2024c). The future SNA 2025 should improve the classification of climate-related expenditure, enabling the government to build on this process.
In addition, the monitoring of adaptation efforts should move away from self-reported and expenditure-based indicators, which have limited reliability. The focus should instead be on objective, externally verifiable outcomes that can be cross-checked using independent data sources. Key metrics should include trends in disaster mortality, damages per event normalised by hazard intensity, and time required to restore key services after disasters. These can be complemented by satellite-derived indicators—such as changes in mangrove cover, built-up area expansion in flood-prone zones, and night-time light recovery rates after major storms—to assess both exposure and recovery without relying on local government data. National agencies and development partners should prioritise establishing probabilistic risk models and insurance penetration statistics as consistent proxies for resilience, rather than increasing reporting burdens on local governments that lack auditability. Over time, a transparent and independently audited “resilience performance scorecard” could replace the current climate-tagging of public spending, which has proved vulnerable to manipulation and rent-seeking.
The long-term fiscal impact of confronting climate change merits particular attention. While the Philippines’ Medium-Term Fiscal Framework (MTFF) and Debt Sustainability Analyses (DSA) include acknowledgement of climate change adaptation and mitigation projects, government publications to date do not offer projections of the future fiscal cost of those measures and climate change over an extended horizon. Models built into instruments like the Nationally Determined Contributions’ Mitigation Cost-Benefit Analysis provide sectoral cost estimates for mitigation, but they are not integrated into baseline budget forecasts or fiscal sustainability scenarios that extend 10-30 years out. To improve planning and ensure credibility, the government should commission long-term cost projections using rigorous modelling (e.g. energy transition, disaster risk, mitigation/adaptation investment requirements) and combine that with stakeholder engagement (local governments, private sector, affected communities) to validate assumptions, capture implementation constraints, and build ownership. Examples of good practices include Singapore’s coastal protection and infrastructure planning (USD 100 billion over 100 years).
Aligning BSP’s balance sheet with a changing climate
In addition to monetary policy adjustments discussed in Chapter 1, some central banks are shielding their balance sheets from the financial consequences of worsening weather trends by assessing their potential exposure to climate risks and managing their holdings accordingly. Some central banks also reallocate their portfolios to align with climate objectives like the Paris Agreements. BSP has limited scope to make similar adjustments for now because its balance sheet is strongly focused on international reserves (about ¾ of assets) and domestic sovereign bonds. It has invested a small fraction of its foreign assets in green bonds, allocating USD 550 million to the Bank for International Settlements (BIS) Green Bond Fund, thus making an initial step to shield its foreign reserves from climate risks. This is a small share of the central bank’s gross international reserves (USD 106 billion at end-2024). The BSP invests also in green bonds through its internally- and externally-managed portfolios, although amounts remain quite modest. More allocation of foreign exchange reserves and domestic assets to low-carbon securities with a reputable certification process would further shield BSP’s balance sheet from climate risks.
BSP conducts open market operations with government securities and emits its own securities to manage liquidity. These securities have no explicit exposure to climate risks. However, BSP accepts a broader set of instruments as eligible collateral in its standing facilities, including credit instruments such as promissory notes, trust receipts, and export bills. Eligibility rules for these collaterals could be restricted to those used for activities that do not entail risks related to physical climate events (e.g., waterfront properties facing risks of submersion) or transition risks (e.g., coal-fired thermal plants required to phase down their production). Tightening criteria for the eligibility of collateral would further shield BSP’s assets from financial risks entailed by climate change.
Adapting bank prudential supervision to climate risks
The financial sector assessment program (FSAP) conducted by the IMF and the World Bank in 2020 highlights a worrying climate exposure of the country’s financial entities. Stress tests reveal significant vulnerabilities to both physical and transition climate risks. The tests show that typhoons, with their frequency exacerbated by climate change, could materially increase non-performing loans and reduce banks’ capital adequacy, potentially pushing the system below regulatory thresholds in the presence of compound events. Additionally, approximately 8% of banking system’s loans are exposed to coal-based power generation, highlighting risks of asset devaluation in transition scenarios aligned with the country’s decarbonisation objectives (World Bank, 2023a). A follow-up assessment by the World Bank (Owen et al., 2024), focused on transition risks, using balance-sheet data for 60 banks, finds pronounced effects on NPL ratios in disorderly transition scenarios.
These findings underscore the urgency for Philippine banks to integrate climate risk into their financial risk management frameworks, for financial regulators to develop robust supervisory tools to ensure financial system resilience, and for policymakers to define sound adaptation plans and support the economy moving towards an orderly low-carbon transition. As an illustration, BSP has begun using regulatory incentives to push more capital into green activities. Banks can access an additional 15% under the Single Borrower’s Limit for qualifying green loans and enjoy a 0% reserve requirement on sustainable bonds they issue — a material reduction in funding costs. These incentives apply not only to clean energy and mitigation projects but also to biodiversity and nature-based solutions. Mangrove rehabilitation, forest protection, reforestation, and sustainable land-use initiatives can qualify under mitigation, adaptation, or ecosystem-restoration categories, giving banks a clear route to scale financing for high-impact natural-assets projects. The BSP should regularly introduce the topic in supervisory dialogues.
The BSP has issued a series of sustainability-related guidelines to promote effective management of climate, environmental, and social risks. This guidance encourages banks to integrate environmental and social risk management into their governance, risk assessment, and disclosure practices. The BSP requires the banks to identify, assess, and effectively manage E&S risks and their impact on the banks’ operations and financial condition. Regulations were issued providing granular expectations on the integration of E&S risk factors in the lending, investing and operating activities of banks. Banks’ progress is monitored during regular on-site examinations, and offsite assessments. Through these supervisory tools, the BSP assesses whether banks have established sound governance and risk management systems to effectively identify, assess, and monitor climate and environmental risks. Relevant to these assessments are market risks, credit risks, and liquidity risks.
Banks are currently expected to conduct scenario analysis and stress-testing to better understand and manage their E&S risks, which may include climate risk (both physical and transition risks), environmental pollution, hazards to human health, safety and security, and threats to community, biodiversity, and cultural heritage, among others. To better equip banks in this requirement, the BSP will develop climate risk stress testing guidelines in collaboration with the industry. In addition, the Guidelines on the Integration of Sustainability Principles in Investment Activities of Banks issued in August 2022 expects banks to review their investments in debt and equity securities that are lodged in the banking book (BSP Circular No. 1149). The guidelines set expectation that investment activity of banks “does not contribute to sectors considered to have harmful effects to the environment or society”. Financial supervisors’ guidelines and expectations are a crucial first step in incorporating bank climate financial risks into BSPs’ prudential supervision framework.
The Philippine Sustainable Finance Taxonomy, adopted in 2024, provides a classification system for green finance but remains limited to climate-mitigation and climate-adaptation objectives. This scope is narrower than emerging regional standards under the ASEAN Taxonomy, which now incorporates circular-economy and biodiversity objectives. Updating the Philippine framework is necessary to close this gap, improve interoperability for cross-border investors, and ensure consistent classification of activities such as resource efficiency, waste reduction, and resilient infrastructure. Adding a circular-economy objective and issuing clearer technical guidance for adaptation projects would reduce ambiguity for financial institutions, expand the pool of taxonomy-aligned investments, and strengthen credibility by lowering greenwashing risks.
However, stricter supervisory rules are necessary due to the risks associated with higher non-performing loan ratios, particularly in the aftermath of extreme weather events and potential borrower defaults during a disorderly climate transition. As an illustration, BSP should apply the recommendations of the Basel Committee on Banking Supervision that Pillar 1 capital requirements for banks under supervision should be calibrated to take account of climate-related financial risks (BCBS, 2022a and 2022b). While this has not yet been introduced fully by central banks in the Asia-Pacific region, some of them are now considering requiring banks to hold capital to reflect their climate financial risks, with the objective of ensuring capital adequacy even in the event of climate-related losses (UNEP, 2025).
In addition, the Philippines’ Securities and Exchange Commission (SEC) has disclosure requirements on companies’ economic, environmental and social impacts, as well as sustainability action plans and risks. Starting from 2023, the SEC moved from a “comply or explain” approach to mandatory disclosure for all publicly listed companies and provided a template to assist companies in their sustainability reporting efforts (OECD, 2024b). In addition, the planned expansion of regulatory incentives and the rollout of sustainability-themed UITFs are well-targeted tools to pull private capital into climate-aligned investments, particularly in priority sectors flagged in the NAP. But the impact depends on speed. Accelerating these measures would strengthen banks’ ability to manage climate-related balance-sheet risks, deepen the pipeline of credible green assets, and support a broader shift toward resilient, low-carbon growth.
Adapting the macroprudential framework to a warmer country
Like most countries, the Philippines has established a macroprudential framework, with policy tools that can be used to sustain and enhance the health of the financial system, defined in terms of the system’s resilience against systemic risks. The BSP operates in the context of its Systemic Risk Crisis Management (SRCM) framework. As policy instruments, BSP has established Basel III liquidity standards, including the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), supported more recently by repo facilities for liquidity management. On the capital front, the BSP maintains a Countercyclical Capital Buffer (CCyB) and capital conservation buffer, all calibrated to absorb credit cycles. Credit and real-estate exposures are also managed through Loan-to‑Value (LTV) ceilings, general loan‑loss provisioning and Real Estate Stress Tests (REST), while limits on single‑borrower exposures, open foreign‑exchange positions and asset cover for foreign‑currency deposits curb concentration and FX risks. The CCyB remains untriggered, operating primarily as a conditional “buffer”—ready to be activated if warranted.
In scenarios of extreme weather events and disorderly climate transitions, the country could face systemic financial risks. Rapid increases in NPL ratios could spread through the financial system. Widespread defaults of borrowers hit by disorderly transition policies could trigger systemic financial and economic difficulties. The Philippines has not yet adapted its macroprudential framework to prepare for these systemic climate-related risks. In some countries across the Asia‑Pacific (APAC) region, central banks and financial supervisors have increasingly embedded climate‑related risks within their macro‑prudential frameworks, recognising these as critical components of systemic financial stability (UNEP, 2025). Several central banks and financial supervisors in the region have amended their macroprudential framework to explicitly address both physical and transition climate risks, using tools such as climate scenario analysis, stress testing, and disclosures—such as in Australia, China, India, Japan, Korea, New Zealand and Singapore.
In the Philippines, authorities should consider upgrading the macroprudential framework alongside practices in other APAC countries. They could first get a view of the systemic risk posed by climate risks and, if warranted, consider adapting or introducing macroprudential instruments to address it, as done elsewhere (ECB 2023; Hiebert and Monnin 2023). If warranted, they could consider enhancing the macroprudential architecture by introducing a climate-focused systemic risk buffer, akin to the systemic risk buffers used in other countries. Such buffers can be designed to act as both a shock absorber and a preventive tool to deter the excessive buildup of climate-related vulnerabilities, as well as be periodically recalibrated to adjust to the evolution of climate risks (Ikeda and Monnin, 2024). A clear, rule-based trigger—such as the confirmation of worsening climate trends (e.g., sustained increases in frequency or severity of extreme weather events)—should prompt activation, ensuring timely capital augmentation, improving resilience, and reinforcing financial incentives to transition portfolios. This forward-looking, calibrated approach would enable supervisors to mitigate both the materialisation and accumulation of climate-driven financial risks without unduly disrupting the orderly financing of the green transition.
BSP has accumulated experience targeting its macroprudential instruments to specific sectors of the economy. As an illustration, with the objective of supporting credit to the real estate sector in 2021, it increased the maximum of real estate loans in the loan portfolio from 20% to 25% and it excluded residential real estate loans from the methodology to compute compliance with the real estate stress test limits (speech by BSP Governor Benjamin E Diokno, 11 November 2021). The BSP could proceed similarly with macroprudential instruments regarding the exposure of banks to climate risks. It could ease macroprudential rules for loans provided to support investment to make homes more resilient to weather events, as done by the central banks of Slovakia, Latvia and Hungary (Martin and Monnin, 2025). Conversely, it could tighten macroprudential rules such as loan-to-value and single borrower ratios for loans to real estate developments that are subject to climate-related risks, such as homes in areas of likely submersion in the medium to long term. Finally, the BSP could create a targeted refinancing window for bank loans supporting the climate transition, as already done in Japan and Malaysia (Qaisar, 2025).
An inclusive approach to adaptation
Not all citizens are affected equally by climate developments, with families living in poverty and workers in informal employment being more vulnerable to extreme events such as heat stress, rain precipitation, and landslide. These worsening climate trends complicate their access to education, healthcare, and social safety nets during and after these weather events. Heat waves, water stress, storms, landslides and flooding typically hit the poor more than other groups. Protecting the vulnerable population against exposure to natural hazards is a key priority. This requires that adaptation strategies address the underlying social and economic inequalities that heighten their exposure and reduce their capacity to recover. Regulatory policy can foster citizen engagement and strengthen trust in government by embedding meaningful public participation, transparent feedback on consultations, and systematic review of regulatory outcomes (OECD, 2023b and 2025d).
The poorest households engaged in agriculture are the most exposed to climate change. They often reside in disaster-prone areas such as Bicol, Eastern and Western Visayas, and Caraga. They face higher risks of mortality, income loss, and long-term impoverishment, especially as the frequency and severity of climate-related disasters like typhoons, floods, and droughts increase. To shield the most vulnerable populations from worsening climate risks, policy packages should combine measures of targeted adaptation, risk management, and social protection strategies. Additionally, labour market interventions, such as reskilling and upskilling programs, are critical to help workers. Finally, financing mechanisms like crop insurance schemes for small farmers, disaster risk funds, and revenue recycling from carbon pricing can provide essential buffers to help low-income households withstand the financial impacts of climate shocks and adapt to them.
Several climate‑adaptation initiatives in the Philippines seek to build rural resilience. This includes the Enhanced National Greening Programme aimed at rehabilitating the unproductive, denuded, and degraded forestlands in the country. This initiative has helped increase the country’s forest cover from 6.8 million hectares (ha) to 7.3 million ha from 2010 to 2025. The Coastal and Marine Ecosystems Management Programme seeks to address and reduce the threats to coastal and marine ecosystems to enhance the quality of life of coastal communities. Other programmes include adaptation planning through the International Rice Research Institute, mangrove restoration under the World Bank’s Wealth Accounting and the Valuation of Ecosystem Services (WAVES), and the Adaptation Fund–financed water resilience project in Tawi‑Tawi. However, their impact remains constrained by severely limited public financing, under‑capitalised local structures, and weak institutional capacity at LGU and community levels, causing many programmes to stall or fail to scale despite strong design intent. To move beyond piecemeal outcomes, more concrete and ambitious policy action is needed: this includes enhancing LGU and civil society delivery capacity, strengthening direct access to international climate finance (e.g. through locally managed Adaptation Fund mechanisms), and embedding sectoral climate risk integration across agricultural, water, forestry, and coastal planning frameworks.
4.1.3. Insurance solutions for climate risks
Despite increasing climate risks, gaps in insurance protection remain very large in many countries, especially developing countries, leaving billions of people unprepared in case of destructive extreme weather events. Insurance protection gaps can exceed 90 % in these countries according to AON (2024). Low-income communities are typically uninsured in many parts of the world, despite being the most exposed to losses when a large weather disaster occurs. Low demand for insurance coverage stems from financial illiteracy, weak financial inclusion, insufficient income to afford insurance premiums in many segments of the population, and the fact that property insurance is typically not mandatory. In addition, insurance against climate risk may not always be available, or is available at unaffordable prices, because insurers or reinsurers have decided to exit specific risks or regions if they deem that the risks have become uninsurable (Crugnola-Humbert, 2024). As a result, risks like climate events cannot be pooled among the broader population.
To reduce these coverage gaps, governments of many countries are taking proactive steps to enhance insurance protection. G7 countries adopted a High-Level Framework for Public-Private Insurance Programmes against Natural Hazards prepared by the OECD under the 2024 Italian Presidency. This includes promoting public-private partnerships that extend insurance coverage for climate-exposed sectors. These partnerships can take various forms, such as sovereign risk pools (like France’s Fonds de prévention des risques naturels majeurs), catastrophe bonds (like Mexico’s issuances), or premium subsidies (like the U.S. FEMA’s National Flood Insurance Program). In Spain, the Consorcio de Compensación de Seguros (CCS) provides a highly regarded disaster insurance system (OECD, 2025a). CCS is a state-owned insurer that covers situations where private insurability is limited, such as extraordinary natural disasters. It is funded through a mandatory surcharge on all property, life, and accident insurance policies, which results in high coverage. This enables fast, automatic payouts and helps limit public liability for disaster recovery. However, the increased frequency and severity of disasters make it difficult to maintain financial sustainability. Hence, for major disasters, Spain also relies heavily on ex-post public disaster financing, including emergency lines and ad hoc budget reallocations. However, outside the OECD area, public-private partnerships to extend insurance coverage are uncommon.
In the Philippines, the insurance sector includes more than 100 insurance companies, including mutual benefit associations (MBAs). Life insurance dominates the market, constituting 75% of the total written premiums. In 2023, the insurance sector penetration (total of insurance premiums paid) was only 1.9% of GDP. This is significantly lower than premiums exceeding 10% of GDP in countries like France, the United Kingdom, the United States, and Asian jurisdictions such as Malaysia (4.5% of GDP) and Singapore (8.3%) (OECD, 2024d). In addition, insurance coverage is mandatory only for motor vehicle third-party liability insurance. Private property insurance is typically not required legally, though it may be required by lenders when the property is financed by a mortgage loan or in specific circumstances such as condos and commercial leases. A very small share of Filipinos holds home insurance, and an even smaller share have insurance specifically covering natural hazards (OECD, 2025b). The combination of high premium costs, low mortgage penetration, and the dominance of microinsurance means that protection gaps remain wide. This leaves most homes uninsured against climate risks for most of the population.
The National Reinsurance Corporation of the Philippines (“Nat Re”) is the country’s only domestic professional reinsurer. It is legislated to receive at least 10% of all outward reinsurance business from domestic insurance companies, which ensures a steady share of domestic premiums. Nat Re provides life and non-life reinsurance capacity and also offers advisory services (product development, pricing, underwriting, etc.) to help direct insurers manage their disaster risk retentions and exposures. In recent years, Nat Re has been engaged in capacity building for catastrophe and climate risk modelling: for example, participating in the development of open-access catastrophe flood models in collaboration with academic and international partners, which can help insurers and reinsurers properly price flood risk and understand exposures. Nat Re also supports the creation of pooling mechanisms for catastrophic risk within the country. The Philippine Catastrophe Insurance Facility (PCIF), for example, is set up to allow non-life insurers to pool disaster risk, thereby retaining more risk domestically and reducing dependence on overseas reinsurance for tail risk events. Nat Re is expected to play a leading role in providing reinsurance capacity to such pooled schemes.
Successful microinsurance developments
Despite limited insurance penetration overall, the Philippines benefits from a vibrant microinsurance sector, with 12 companies operating in the life microinsurance segment, 15 companies in non-life, and 23 MBAs. Microinsurance is an alternative to traditional insurance. It offers low-cost insurance products tailored for low-income individuals covering risks like illness, crop failure, or property damage through simplified premiums and terms, enabling financial protection for underserved populations. Microinsurance has generally been successful in the Philippines, with 27% of the population covered by at least one microinsurance product (mostly healthcare insurance), with policy holders generally low-income, informal sector, or those without access to conventional insurance. This puts the country among the highest microinsurance penetration rates, alongside Colombia (31%), Peru (37%), Zambia (49%), and Zimbabwe (12%), according to the Microinsurance Network. High rates of microinsurance coverage proved their usefulness in the wake of Typhoon Haiyan/Yolanda (Nov. 2013- January 2014), when microinsurance pay-outs provided quick liquidity of PHP532 million (about USD 12 million) to 111,000 insured members of the cooperative and microfinance organisations, in addition to government response and rehabilitation initiatives.
This success stems from initial decisions in 2006, when the Philippines’ insurance regulator introduced streamlined regulations for microinsurance—including simplified policy terms, premium capped at 7.5% of the minimum wage in Metro Manila, and relaxed licensing for specialised agents. The uptake has been supported by diverse delivery channels—ranging from mutual benefit associations and cooperatives to pawnshops, banks, NGOs, and mobile platforms—enabling low-income Filipinos to easily purchase small-scale policies. Marketing campaigns and capacity-building efforts for stakeholders, backed by technical support from development partners, further enhanced awareness and trust. Collectively, these efforts have expanded financial protection, marking the Philippines as a benchmark in microinsurance innovation—and offering tangible lessons for inclusive risk financing.
In addition to microinsurance, the Philippine Crop Insurance Corporation (PCIC) offers subsidised crop insurance primarily to smallholder farmers, many of whom are highly vulnerable to climate-induced disasters. As a government-owned and controlled corporation under the Department of Agriculture, PCIC provides indemnity-based insurance products to farmers covering a range of climate risks, including typhoons, floods, droughts, and pest outbreaks. The insurance coverage is heavily subsidised, with the national government covering a substantial portion of the premium, particularly for subsistence farmers enrolled through accredited cooperatives and rural banks. For instance, in mid-November 2024 it released approximately PHP 451 million (USD 7.9 million) in indemnity to around 49,000 farmers and fishers severely affected by Tropical Storm Kristine/Trami, as part of a broader PHP 667 million (USD 11.6 million) payout estimated for some 86,000 claimants across ten regions. This makes the PCIC an important instrument in the Philippines’ climate and disaster risk financing architecture. Further efforts to reform and enhance the PCIC’s technical, financial, and institutional capabilities would improve its responses to escalating climate risks. In this respect, Index-based and parametric microfinance products are particularly relevant in agriculture to provide relief after typhoons or excessive rainfall. With these insurance policies, payouts to policyholders are automatically made If wind speeds or rainfall levels-as recorded by government meteorological agencies-exceed a preset threshold, thus helping them to recover quickly.
Government’s role in climate risk insurance
Outside microfinance and government-sponsored schemes in agriculture, the private insurance sector in the Philippines has shown limited willingness to provide climate risk insurance, largely due to the frequent and correlated nature of weather-related risks, insufficient data for accurate pricing, and low profitability in serving vulnerable, low-income populations (Butos and Widemaier-Pfister, 2019). This reluctance has resulted in a significant protection gap, particularly for smallholder farmers and communities exposed to recurrent natural disasters. In response, the Philippine government has taken a leading role in addressing this shortfall by developing public insurance schemes such as those operated by the PCIC, and by partnering with international organisations to expand risk financing instruments. This has involved the introduction of sovereign risk transfer mechanisms, technical assistance, and other capacity building mechanisms. Based on this, the government has explored several approaches to strengthen disaster risk insurance. An illustration is the weather Index-based parametric Insurance for small-scale fisherfolk, which seeks to address their income losses due to extreme weather events in five pilot sites.
In November 2019, the World Bank issued two tranches of catastrophe-linked (CAT) bonds to the Philippines, providing financial protection of up to USD 75 million for earthquakes and USD 150 million for tropical cyclones. This was the first sovereign-sponsored CAT bonds by an Asian government. The arrangement strengthened the Philippines’ disaster risk financing by providing rapid liquidity after qualifying earthquakes or storms without adding to sovereign debt. Following Super Typhoon Rai/Odette in December 2021, the wind-speed thresholds triggered a 35% principal reduction, resulting in a USD 52.5 million payout. The bonds have matured, and the reduced principal has been reimbursed to investors. The Philippine government has not issued new CAT bonds since then and has publicly announced no plans for follow-up issuances. Instead, it is focusing on developing indemnity-based insurance for key infrastructure assets like schools and hospitals. The Insurance Commission, NatRe, and PIRA have established the PCIF, a public-private catastrophe risk domestic pooling mechanism that allows non-life insurers to cede a portion of their risk into a national pool and redistribute it among participants. This aims to stabilise catastrophe premium rates, encourage wider insurance uptake, including for homeowners, businesses, and vulnerable MSMEs, and accelerate post-disaster recovery.
The Philippines’ National Disaster Risk Reduction and Management Fund (NDRRMF)— commonly known as the Calamity Fund—is the national government’s main contingency reserve for disaster response and rehabilitation (OECD, 2022). Managed by the Department of Budget and Management (DBM) under the authority of the President, it is released upon recommendation from the National Disaster Risk Reduction and Management Council (NDRRMC) once an area has been formally declared under a state of calamity or when agencies require resources for preparedness and recovery operations. Cities play a key role in disaster preparedness and recovery (OECD, 2017). In the Philippines, local governments, including cities, are legally required to maintain Local DRRM Funds (LDRRMF), equivalent to 5 % of their annual revenues, intended to finance local preparedness and quick-response measures, though many divert these funds to other uses or fail to liquidate them properly. In addition, securing adequate resources for post-disaster recovery actions is often fraught with challenges. Cities often confront delays when seeking access to NDRRMC funding to support early recovery measures. This can increase the negative impact of disasters on local economies as well as on the welfare of those affected. The NDRRMF funding system is heavily centralised and vulnerable to political discretion. To improve effectiveness, the NDRRMF should evolve into a risk-layered resilience fund, combining a standing contingency budget with pre-arranged instruments such as parametric insurance, catastrophe bonds, and conditional transfers to LGUs triggered by objective hazard or loss thresholds rather than political declarations. Linking disbursements to verified risk-reduction measures and audited implementation would enhance transparency, reduce rent-seeking, and align the fund with the country’s broader climate-adaptation and fiscal-risk management frameworks.
In addition, the Government Service Insurance System (GSIS) provides various insurance coverage to government employees. It also manages a General Insurance Fund that offers property insurance coverage for all government-owned assets, including those affected by disasters and climate risks. Legally, all government organisations, at both national and subnational levels, are required to acquire insurance from GSIS. However, there is evidence suggesting that many assets remain uninsured (or underinsured). To improve public asset management, the Bureau of the Treasury has been developing the National Asset Registry System (NARS) since 2017 (Box 4.3). The government plans to transfer some of the disaster-related risk to strategically important public assets through the National Indemnity Insurance Program (NIIP).
The Philippines is among the precursors in the development of data and analytics used to better safeguard government non-financial assets against potential risks. The Bureau of the Treasury (BTr) manages the National Asset Registry System (NARS), which capture geographical, legal, and financial data for assets, information for disaster risk management and financing, including asset insurance, and other relevant information for public assets. The system stores about 360,000 asset records on schools, hospitals, roads and bridges, irrigation facilities, social welfare centres, communications towers, and power plants. These assets are estimated to be worth almost USD 35 billion and are therefore important to safeguard. Unsurprisingly, school buildings are the largest public non-financial assets (76% of total value), followed by transport infrastructure, energy equipment, and related assets. Assets inventoried in the NARS portfolio were geotagged to record their location, making possible to run simulations of damages in the pathway of a tropical cyclone or an earthquake with models built to explore the impact of hazards.
The government has developed analytical capabilities to explore the consequences of extreme weather events (typhoons, floods and drought) and other natural disasters (such as earthquakes). Focusing on schools, model simulations by the Bureau of the Treasury suggest that damages have been historically concentrated along the Eastern Seaboard and the Island of Luzon. This concentration is attributed to the stronger typhoons experienced in these areas and the higher value of asset concentration in these areas. Using a typhoon risk model, the Bureau of the Treasury estimates annual average losses of around PHP 18 - 19 billion across the Philippines, with the largest losses in areas where schools are concentrated, especially Metro Manila.
The NARS is also instrumental when seeking to protect government assets with disaster risk financing instruments, such as the catastrophe bonds issued by the country, parametric insurance offerings with local government units, and national indemnity insurance programme. While NARS is a strong system, with effective applications for data analytics, insurance and financial planning, it is held back by several issues. Some government agencies have only limited capacity to participate, digital adoption is uneven, and data may be incomplete in some locations. Building up local government capacity to contribute data to NARS would ensure its ongoing usefulness.
While these initiatives have improved the country’s protection against climate risks, much remains to be done to broaden insurance coverage for extreme weather events. Further initiatives to expand insurance coverage is urgent to help low-income groups better protect themselves from escalating climate risks. A potentially significant reform would be to make home insurance mandatory in the Philippines, as it is in a few other countries (France, Iceland, New Zealand, Poland, Switzerland, Turkey; Italy for businesses), thus reaching a larger pool of households and firms, dispersing risks and helping to reduce premiums. A home insurance mandate could be comprehensive, or limited to natural hazards, such as weather-related and earthquake risks, as it is in several countries. As low-income households may have no alternative to living in locations prone to natural hazards, where land is cheaper, public support should be associated with a home insurance mandate to make premiums affordable to all (Box 4.4). A public-private partnership, for instance a weather disaster fund financed by dedicated contributions, could help (G7 Italia, 2024). Offering public subsidies would lower barriers to access, together with increasing the distribution networks and operational infrastructure of microinsurance providers. Moreover, even though this would result in foregone revenue, tax credits could be offered on a temporary basis to encourage the uptake of climate-risk insurance, thus better protecting households and businesses. Regulators should also ensure that insurance policies offer the choice of either parametric instruments, indemnity payments, or hybrid approaches, thus improving the chance of tailoring the terms to the specific circumstances of policyholders.
In the Philippines, local governments are legally required to prepare Comprehensive Land Use Plans (CLUPs), zoning ordinances, and building permit systems to regulate land use for housing, agriculture, commercial, and protected forest. However, enforcement of land use rules and building permit requirements is weak in many places. A substantial number of low-income households live in informal settlements without proper land titles or building permits, often on government or private land where dwellings are not formally permitted and with high exposure to natural hazards like flooding, storm surges, or landslides. When extreme events strike, local governments or national agencies often respond with disaster relief or bailouts to displaced or affected informal settlers—even though their homes may have been built contrary to zoning or permit rules. After the disaster, many return or rebuild in the same locations because land there remains cheap or accessible. After Typhoon Haiyan (Yolanda) in 2013, many households in Tacloban and nearby areas that had been located into “no development zones” (NDZs) were found to return over time to their original hazard-prone locations. Research shows that people rebuild or reoccupy land even though those areas had been legally restricted, due to the combination of a lack of affordable alternative land, employment proximity, and weak enforcement of zoning regulations.
However, as in other countries, these reforms come with risk associated to free riding, moral hazard, and asymmetric information. Subsidised insurance premiums should not encourage households to locate in hazard-prone areas in the hope that government subsidies will sharply reduce the cost of building back after a climate event. Thus, subsidies should be calibrated based on regional exposure and specific hazard types—such as typhoons in eastern provinces or drought in central Mindanao—and linked to the adoption of risk-reducing practices like climate-resilient farming or improved building standards. A phased approach to subsidy reduction would promote market discipline, improve cost-effectiveness, and strengthen household resilience.
Another potentially important regulatory reform would be to require that insurers offer discounted premiums to policyholders when they invest to weatherproof their homes--such as strengthening roofs, floodproofing, or agroforestry buffers. This is done in motor vehicle insurance to reward safe driving or healthcare insurance to reward healthy behaviours and could therefore be expanded to home insurance. However, the high cost of home retrofits is likely to remain a barrier, even if premiums are discounted.
4.1.4. Managing water in the context of a warmer future
Water stress poses a significant challenge for the Philippines, with climate change exacerbating existing vulnerabilities. The variability in rainfall distribution—marked by wetter conditions in the north and eastern regions (Luzon and Visayas) and drier trends in Mindanao—has heightened the risk of both flooding and drought (Figure 4.4). Urban areas, such as Metro Manila, already face critical water supply gaps, with projected shortfalls reaching 915 million liters per day. Agricultural regions reliant on rainfed systems are particularly exposed, as changes in rainfall patterns and increasing evapotranspiration due to higher temperatures reduce water availability (Figure 4.8). These impacts are likely to intensify under future climate scenarios, threatening water security for both domestic consumption and productive sectors such as agriculture and industry.
Annual freshwater withdrawals in agriculture, in % of total freshwater withdrawal, 2022
Source: World Bank WDI.
A strategic, integrated approach to water resource management is essential to enhance climate resilience and ensure sustainable water availability. Importantly, the fragmented economic regulation landscape creates issues around role clarity, overlapping mandates and regulatory gaps (OECD, 2021). Establishing a single central and independent economic regulator for the water sector - as foreseen under Senate Bill 2771 - could help to improve the consistency and effectiveness of economic regulation, remove regulatory gaps and improve role clarity - thereby improving the investment climate. In addition, a combination of infrastructure investment and policy reforms needs to be deployed to improve water management (World Bank, 2022). This should include: i) increasing water storage capacity to manage precipitation variability, addressing a critical gap given the Philippines’ low per capita storage (68 m³ per person, compared to 473 m³ in Vietnam and over 700 m³ in Malaysia); (ii) implementing integrated water resource management (IWRM) at the river basin level; (iii) adopting water-saving irrigation technologies and improving water-use efficiency; and (iv) strengthening flood management systems. Nature-based solutions, such as reforestation, can also deliver multiple benefits by enhancing infiltration, reducing runoff, and preserving reservoir capacity, while simultaneously providing carbon sequestration co-benefits.
Ensuring long-term water security requires not only investment but also policy reforms to mobilise private sector participation and improve governance. Current tariff structures and political pressures to maintain low water prices have deterred private investment in the sector, while restrictive regulations, land acquisition challenges, and a cumbersome water permitting process further constrain financing opportunities. Water pricing policies should support cost recovery and incentivise infrastructure upgrades, developing multi-municipal water projects to attract larger-scale private investment, and streamlining permitting processes. Strengthening institutional capacity, particularly at the local government level, as well as by consolidating functions for economic regulation at the national level, such as by establishing an independent economic regulator for the sector, are also vital to enable the effective implementation of water resilience measures.
Land subsidence in Metro Manila, driven predominantly by excessive groundwater extraction, poses escalating risks to infrastructure integrity, flood resilience, and urban sustainability. Industrial zones and densely populated residential areas in Greater Manila, such as Bulacan and Cavite, are experiencing subsidence rates up to 109 mm per year, exacerbated by unregulated groundwater pumping for domestic, commercial, and industrial use. To address this, a transition towards volumetric water pricing, with price-based mechanisms, could effectively curb long-term urban water demand. Implementing tiered tariffs that reflect the true cost of groundwater extraction would incentivise conservation and promote the adoption of alternative water sources. Moreover, strengthening regulatory enforcement is crucial; this includes mandatory metering, strict permitting, and penalties for unauthorised extraction. Investing in digital monitoring systems and enhancing institutional coordination, particularly among local governments and water utilities, would bolster compliance and transparency. Enhanced social transfers may be required to protect vulnerable households’ purchasing power in the face of higher water tariffs (Chapter 3), which would be economically more efficient than subsidising water consumption. These measures, complemented by public awareness campaigns, stakeholder engagement are essential to mitigate subsidence risks and ensure the long-term resilience of Metro Manila’s urban infrastructure.
The rural irrigation water pricing system in the Philippines has undergone significant changes, particularly with the enactment of the Free Irrigation Service Act (FISA) in 2018. Prior to FISA, the National Irrigation Administration (NIA) implemented a cost-recovery policy, charging farmers an Irrigation Service Fee (ISF) based on factors such as the type of irrigation system (e.g., diversion, reservoir, pump), crops planted, and season. These fees were charged per hectare and were intended to cover operation and maintenance (O&M) costs and recover initial investments over a period not exceeding 50 years. However, the collection of ISF often fell short of covering the actual O&M costs, leading to underfunded irrigation infrastructure and services. With the implementation of FISA, most farmers, particularly those cultivating eight hectares or less, were exempted from paying the ISF. This policy shift aimed to alleviate the financial burden on smallholder farmers and promote agricultural productivity. Under FISA, the government assumed responsibility for funding the O&M costs of both National Irrigation Systems (NIS) and Communal Irrigation Systems (CIS), effectively transferring the financial burden from farmers to the public treasury. In CIS, which are typically managed by local Irrigators’ Associations (IAs), farmers were traditionally responsible for amortising the construction costs over a 50-year period, without interest, and for covering O&M expenses. With the implementation of FISA, these amortisation payments were also waived for eligible farmers, and the government provided subsidies to support O&M. Despite these subsidies, some IAs have faced difficulties in maintaining the irrigation systems due to limited funds and have resorted to collecting voluntary contributions from members to cover O&M costs. While the shift to free irrigation services has alleviated financial pressures on smallholder farmers, it has also highlighted the need for sustainable funding mechanisms and effective management structures to ensure the long-term viability and efficiency of the country’s irrigation systems.
At the same time as it adapts to climate change, the Philippines is implementing a mitigation strategy to halt the rapid increase in its emissions and eventually bring them on a declining pathway. The Philippines is a relatively low emitter of GHG, with all Southeast Asian countries emitting more. This reflects its low emissions per capita and its low emissions relative to GDP (Figure 4.9). The higher share of services activity in the Philippines—a sector that emits less greenhouse gases than agriculture and industry—largely explains this lower carbon intensity. Notwithstanding this low emission intensity in the past, there are clear signs of emissions rising faster now. The ambitious objectives of the government to increase income per capita will put significant upward pressure on energy consumption and carbon emissions, unless more comprehensive and coherent packages of actions are introduced, as discussed below.
Note: The emissions shown in the figure are the sum of carbon dioxide emissions from energy, carbon dioxide emissions from flaring, methane emissions associated with the production, transportation and distribution of fossil fuels, and carbon dioxide emissions from industrial processes.
Source: Energy Institute, World Bank WDI.
In the Philippines, greenhouse gas emissions have risen rapidly in recent years, increasing by an estimated 4.7% in 2024 (Figure 4.13). This pace is comparable to other Southeast Asian economies—Indonesia (+5.0%), Malaysia (+4.2%), Thailand (+2.9%), and Viet Nam (+7.6%)—but notably faster than the global average of +1.3% (Source: EDGAR 2025 report). If this fast momentum does not slow like it does elsewhere, the Philippines will no longer be characterised as a low emitter.
The Paris Agreement requires all parties to prepare NDCs (Article 4.2), including updates every five years (Article 4.9). The third round of updates must be communicated in 2025, with the horizon of national contributions extended from 2030 to 2035. The Philippine government has signalled its intentions to make an ambitious contribution to global mitigation efforts in the context of its NDC. As the lead agency, the Department of Energy (DOE) is conducting consultations and preparing updates, which are submitted to the Climate Change Commission (CCC) for consolidation and official submission. In its first Nationally Determined Contribution (NDC) submitted in 2021, the country pledged to reduce or avoid 75% of projected cumulative greenhouse gas emissions during 2020-2030 relative to a business-as-usual scenario, of which 2.71% is unconditional and 72.29% is conditional on the availability of external finance, technology, and capacity support. The authorities estimated the investment cost of their conditional mitigation target to be USD 72 billion, with investment mostly needed in the energy and transport sectors. However, the Biennial Transparency Report published in 2025 identified only USD 637 million in loans and grants received to secure climate mitigation. The NDC emission reduction target for 2020-30 is now out of reach: emissions recorded cumulatively for the period 2020-2024 already exceed the conditional objective for 2020-2030 (Figure 4.10).
Cumulative GHG emissions
1.From the NDC, the Philippines is committed to a conditional reduction and avoidance of 75% referenced against the projected business-as-usual cumulative economy-wide emission, for the period 2020 to 2030, for the sectors of agriculture, wastes, industry, transport, and energy.
Sources: Crippa M., Guizzardi D., Pagani F., Banja M., Muntean M., Schaaf, E., Quadrelli, R., Risquez Martin, A., Taghavi-Moharamli, P., Grassi, G., Rossi, S., Melo, J., Oom, D., Branco, A., Suarez Moreno, M., Sedano, F. San-Miguel, J., Manca, G., Pisoni, E., Pekar, F., GHG emissions of all world countries – JRC/IEA 2025 Report, Luxembourg, 2025, https://data.europa.eu/doi/10.2760/9816914, JRC143227; NDC commitment reported by UNDP (Climate Promise).
In addition to NDCs, about 130-150 countries have adopted voluntary low GHG emission development strategies (Article 4.19), which typically target net zero emissions by the mid-century. The Philippines has not adopted a voluntary net zero carbon objective, while all other Southeast Asian countries have done so by 2050, 2060 (Indonesia) or 2065 (Thailand) (ADB, 2024). The main benefit of net zero commitments is to create the predictability and policy clarity investors need. When governments set clear, legally backed decarbonisation paths, they reduce transition risk and signal that high-carbon assets will lose value over time. This turns climate policy from political aspiration into market guidance, unlocking private investment in clean technologies and infrastructure – it makes the transition “investable” (Carney, 2021). As an illustration, empirical evidence suggests that green foreign direct investments (FDI) are more attracted when key climate policies, such as emission targets, in combination with power-purchase agreements, feed-in tariffs, renewables targets, and complementary investments, are endorsed and implemented by governments. When climate targets are strongly and credibility endorsed, green FDI creates a source of private international funding to finance the large investments required by the energy transition (Jaumotte et al, 2024).
In addition to external finance, mitigating GHG emissions requires a multifaceted approach encompassing policy implementation, private investments, structural reforms, and international cooperation. The Philippines is using a mix of market instruments, non-market instruments and other measures to mitigate climate change, with an average stringency lower than that of OECD countries (Figure 4.11). A more ambitious deployment of market-based and non-market-based instruments will be critical to rein in carbon emissions. This is being analysed, discussed, and agreed with key stakeholders in the context of revising the country’s NDC.
Note: Panels A, B, C are based on the OECD Climate Action and Policy Measurement Framework (CAPMF) which evaluates policy stringency by assigning each climate policy variable—such as carbon tax rates, emissions‐trading system coverage, efficiency standards, or public spending—a numeric score between 0 (no policy) and 10 (very stringent). Panel D is based on the OECD Environmental Policy Stringency Index (EPS) which ranges from zero (least stringent) to six (most stringent). It covers 13 policy instruments, focusing on climate change and air pollution mitigation policies.
Sources: Nachtigall et al. (2022) for A., B. and C. and Kruse et al. (2022) for D.
4.2.1. Fossil fuels dominate the energy mix
The Philippines’ energy mix is dominated by fossil fuels (coal, crude oil, and natural gas), which accounted for two thirds of supply in 2022 according to the IEA. Apart from some domestic coal extraction, most of fossil fuels is imported. The makes the country dependent on foreign suppliers for more than half of its total energy supply, raising questions about the country’s energy security at a time of rising geopolitical tensions and trade disputes. The energy transition toward low-carbon sources offers the chance to build a more independent and more sustainable energy system that reduces the reliance on imports, exposure to fuel price volatility and can reduce energy bills. Nonetheless, there is no guarantee that the journey will be a smooth one (OECD, 2025c), with low-carbon energies also relying on foreign suppliers, imported critical materials, and sensitive technologies.
Oil is a key source of energy used in the Philippines (Figure 4.12), with 31.6% of the primary energy mix when biofuels and waste are also considered in total energy supply as done by the IEA. The country relies on fast-rising imports of crude oil to meet its energy demands, with about 126 000 barrels per day originating from Middle Eastern countries. Imports of refined petroleum products have increased even more rapidly, most of which is supplied by Asian countries. These imports are essential for the functioning of the sectors of transport, industry and residential building, but they create challenges for a future of affordable, secure and clean energy.
Coal is also a cornerstone of the Philippines' energy mix, accounting for about 30% of the overall primary energy supply, using the same IEA definition, and is the largest source of the nation's electricity generation. Despite possessing domestic coal reserves, the country relies heavily on imports, with about 75% of its coal supply sourced internationally, primarily from Indonesia. The domestic coal industry, dominated by Semirara Mining and Power Corporation, contributes the remaining 25%. The high share of coal reflects its more economical option for power generation compared to oil and natural gas. While coal's affordability has made it a preferred choice, its environmental impact and the global shift towards cleaner energy sources are prompting the Philippines to reconsider its energy mix.
Consumption of energy in the Philippines, in EJ
Source: Energy Institute (does not include biofuels)
The main domestic supply of energy is biofuels and waste (17.1% of energy supply according to the IEA definition), which is used in different ways. The traditional use of biomass for cooking remains prevalent in rural areas, where access to modern fuels can be difficult and more expensive. As of 2020, biomass accounted for approximately 58% of household energy consumption, underscoring its prevalence in domestic cooking practices. Commonly utilised biomass fuels include fuelwood, charcoal, and agricultural residues such as rice husks and coconut shells. These resources are often collected locally, making them accessible and cost-effective for low-income households. However, reliance on traditional biomass fuels poses significant health and environmental challenges. Indoor air pollution from the combustion of solid biomass fuels contributes to respiratory illnesses, with 30% of poor Filipino households engaging in indoor cooking using such fuels. Domestic biomass is also used for the country’s bioethanol production. Similarly, the production of biodiesel takes advantage of local biomass supplies. The Philippines is also exploring waste-to-energy (WtE) technologies to address the dual challenges of waste management and energy generation, with several facilities already in operation helping the transition toward more sustainable energy.
Note: GHG emissions include CO2 (fossil only), CH4, N2O and F-gases.
Source: Crippa M., Guizzardi D., Pagani F., Banja M., Muntean M., Schaaf, E., Quadrelli, R., Risquez Martin, A., Taghavi-Moharamli, P., Grassi, G., Rossi, S., Melo, J., Oom, D., Branco, A., Suarez Moreno, M., Sedano, F. San-Miguel, J., Manca, G., Pisoni, E., Pekar, F., GHG emissions of all world countries – JRC/IEA 2025 Report, Luxembourg, 2025, https://data.europa.eu/doi/10.2760/9816914, JRC143227.
4.2.2. Carbon pricing for cost-effective mitigation
The Philippines at present does not have a carbon tax or a carbon market. Emission pricing is limited to the excise tax applied to fossil fuels. The most recent adjustment of the tax occurred in 2018, under the Train Law, where taxes on gasoline were doubled from PHP 4.35 to PHP 10 per litre. Previously exempt products such as LPG, kerosene, and diesel were made subject to tax under the same law. Notably, the excise tax on coal experienced a significant surge from PHP 10 to PHP 150 per metric ton. Additionally, these products are subject to a 12% VAT.
The excise tax on coal of PHP 150 per metric ton (about EUR 1 per tCO2e) is well below estimates of the social cost of carbon and should be raised to reflect the negative externalities associated with it. The tax’s low level makes coal a cheap source of fuel in the Philippines, with an average price of approximately USD 8.39 per MMBtu since 2021. By contrast, the cost of natural gas is higher (about USD 12–USD 15 per MMBtu) in large part because, in the absence of pipeline, it must be imported as liquefied natural gas (LNG), with additional cost linked to processing. Consequently, despite its deleterious environmental impact, coal continues to be one of the country's primary energy sources due to its affordability. This extensive use of coal is unsustainable, leading to adverse environmental impacts such as local air pollution, health damages, and climate change. Based on IMF estimates (Black et al., 2023), a tax of about EUR 70 per tCO2e would be needed to internalise climate, air and health hazards. Increasing the coal tax to this level raises concerns about electricity affordability in a country where energy poverty remains a challenge. The average residential electricity price in the Philippines was PHP 11.6 per kilowatt-hour (kWh) in September 2024, equivalent to approximately USD 0.208. This rate is among the highest in Southeast Asia and is significantly above both the global and regional averages. However, a fast transition to renewable electricity, with a low levelised cost, together with more competition in the sector (Chapter 2), could make electricity more affordable.
Excise taxes on diesel, and especially on gasoline, are higher than on coal, which brings them closer to pricing negative externalities, though they are nonetheless below estimates of the social cost of carbon (Table 4.1). These excise taxes raise the price of gasoline in the Philippines to the equivalent of USD 1.10 per litre in mid-May 2025, higher than in Malaysia (0.47/lire), Viet Nam (0.76 USD/litre), and Indonesia (USD 0.77/litre) though it remains below prices in Thailand (1.20 USD/litre). The ranking is similar for diesel. A gradual increase in excise taxes on gasoline and diesel to the levels prevailing in, e.g. Thailand, would be a good start to better reflect externalities. The long-term objective should be to harmonise all excise taxes on fossil fuels in terms of their CO2 content.
While the Philippines has made efforts to eliminate explicit fossil fuel subsidies, it introduced several targeted measures during the energy crisis of 2022-23 to protect households and firms against high inflation. The government allocated fuel assistance of PHP 4 billion in 2023 (about USD 70 million) and PHP 3 billion in 2024 (about USD 50 million) to support the income of transport workers, farmers, and fisherfolk. The fuel subsidy programme (PHP 2 billion in 2025; USD 34 million) provides financial assistance and fuel vouchers to qualified public utility vehicle, taxi, tricycle, and full-time ride hailing and delivery services drivers nationwide. A small fuel assistance programme is provided to farmers who own or rent an agricultural machinery. Likewise, fuel assistance is provided to fisherfolk who own and operate a motorised fishing vessel individually, or through a fisherfolk organisation, cooperative or association. By targeting these fiscal supports to specific users, the government avoided the large fiscal cost incurred in countries having provided universal support.
The OECD indicator on Net Effective Carbon Rates (NECR) measures the carbon price a country applies to fossil-fuel CO₂ emissions after accounting for both positive taxes (carbon taxes, fuel excise duties, ETS prices) and negative pre-tax support (fossil-fuel subsidies). Overall, the OECD estimates that the Philippines’ NECR was the equivalent of about EUR 10 per tCO2 in 2021 and 2023. Following Russia’s invasion of Ukraine and the subsequent surge in oil and gas prices, many countries reduced their energy taxation. Nonetheless, energy taxation in the Philippines remained lower than in countries such as Korea (EUR 42 per tCO2 in 2021 and EUR 26 per tCO2 in 2023) (Figure 4.14) and the United Kingdom (EUR 83 per tCO2 in 2021 and EUR 29 per tCO2 in 2023). To gradually close the gap with the carbon rates prevailing in other countries, the Philippines could raise the fuel excise tax on coal and therefore align the energy taxation of the industrial and power sector with the level of taxation faced by other sectors (Figure 4.14).
Note: The Net Effective Carbon Rate (NECR) is the sum of fuel excise taxes, carbon taxes and tradeable permits that effectively put a price on carbon emissions, minus fossil fuel subsidies that decrease pre-tax fossil fuel prices.
Source: OECD Net effective carbon rates database.
Implementing reforms to energy taxation--including higher coal taxes, expanded coverage, and reduced energy-related tax expenditures--would align the Philippines with global progress in pricing the negative externalities associated with using fossil fuels. The evidence is that pricing the use of fossil fuels has beneficial effects on reducing greenhouse gas emissions. As suggested by Figure 4.15, high net carbon effective rates (NECR) are associated with declining fossil CO2 emission intensity (CO2 emission per GDP). Countries with high NECR experience a more rapid decline in carbon emission intensity. For instance, the UK’s high NECR (equivalent of EUR 71/tCO2e on average during 2018, 2021 and 2023) was associated with a 22% decline in fossil carbon emissions per GDP between 2018 and 2023. Similarly, Denmark’s NECR of EUR 97.5/tCO2e during the same period was associated with a 25% decline in emission intensity. While a simple bivariate correlation analysis does not establish a causal relationship, it suggests a significant association.
The insight based on Figure 4.15 is confirmed by the recent systematic literature review covering 187 articles published in scientific journal or as working papers (OECD, 2025d), which suggests that significant effects of carbon prices on emissions are identified by research. It follows from this research that carbon taxes, fuel taxes and ETS are generally effective, with some variation across sectors and instruments. Notwithstanding this evidence, policymakers are often hesitant to raise energy taxes out of concerns for the resulting social impact. In many countries, households in lower income deciles allocate a large proportion of their consumption spending to energy products, especially when they have no other choice than to commute with their personal vehicles and heat their homes in winter. To address these concerns, raising energy taxes can be accompanied by carefully designed social measures to alleviate the adverse distributional effects of carbon taxation, including social transfers and investment in public transport.
Note: This figure shows the association of energy-related carbon pricing and CO2 emissions/GDP. The percentage change of fossil CO2 emissions/real GDP between 2018 and 2023 is shown on the vertical axis. The average net effective carbon rate in constant EUR/tCO2e in 2028, 2021 and 2023 is shown on the horizontal axis. The trend line is the regression line based on all observations.
Sources: Crippa et al. (2024) for CO2 emissions/GDP; OECD for NECR
By contrast, in the Philippines, the share of fuel expenditures in total household spending is relatively low (8-9% according to World Bank CCDR WP8, 2023), with households in higher income deciles allocating a slightly higher share to fuels. This reflects the limited use of private automobiles by most of the population and the prevalence of biomass for cooking. According to micro-simulations with the Carbon Pricing Incidence Calculator (Steckel et al., 2023), a model taking into account the carbon intensity of different goods and services, the impact of a carbon tax of USD 40 per tCO2 would be less adverse for lower income than higher income groups and could be more than fully compensated by redistributing half of the additional tax revenue in the form of social compensation transfers. While the simulation presented in Figure 4.16) shows the benefits from a lump-sum transfer to all households, the policy response could also be more targeted, using the administrative infrastructure of the existing cash transfer programmes.
While this evidence is encouraging, it is limited to direct first-order effects. In addition, the international competitiveness of Filipino companies could be hit by higher energy prices. Simulations with a suite of more elaborate micro and CGE models depict a more complex outlook (World Bank, 2023b). Simulations integrating second-order effects and long-term dynamic response suggest that a carbon tax can have both positive and negative distributional effects on Filipinos living in poverty. In the long term, mitigation measures are projected to reduce poverty and economic insecurity slightly faster than in a business-as-usual scenario due to structural economic shifts and job creation in certain sectors. However, the poor may not immediately benefit from these changes, especially if new employment opportunities require skills or are located in areas not accessible to them. In the short term, higher energy prices could feed into food prices, which are a large share of low-income household budgets. The combination of higher energy and food prices could raise poverty incidence, especially in rural households. This underscores the need for well-designed revenue recycling, such as cash transfers, and complementary policies including targeted social protection, reskilling programs, and geographic targeting to shield the poor from regressive impacts (Chapter 3).
Incidence of USD 40 carbon tax in % of household expenditures by deciles
Note: The graph shows the additional costs for 10 income groups in the Philippines of establishing a carbon tax of USD 40 per tCO2, with half of the revenue used to finance a compensating transfer. Each household receives a (lump sum) transfer, independent of the household size. Relative additional costs express such costs in comparison to total household expenditures, e.g., an increase by 2% of total household spending.
Source: Calculation based on national household expenditure data and input-output data using the Carbon Pricing Incidence Calculator (Steckel et al., 2023).
4.2.3. Developing carbon markets
Emissions trading systems (ETS) represent a cost-effective and market-based approach to reducing greenhouse gas (GHG) emissions. Empirical evidence from established systems, such as the European Union ETS, demonstrates that such mechanisms can achieve emissions reductions at lower overall economic costs compared to regulatory approaches. ETS also generate significant public revenues that can be recycled to support vulnerable groups, fund green investments, or offset the broader fiscal impact of climate policies. Furthermore, ETS provide flexibility by allowing trading among participants, thereby facilitating emissions reductions where they are most cost-effective. Similar carbon markets operate also, or are under development, in other countries including China, India, Indonesia and Viet Nam.
In February 2025, the House of Representatives of the Philippines approved on second reading House Bill No. HB11375 to establish a carbon emission framework and implementation mechanism to achieve low carbon and climate-resilient economic development. The Bill contains several ambitious measures, particularly requiring covered enterprises to achieve net zero emissions by 2050. This pricing system sets emission limits for industries, allowing them to buy or sell credits if they go over or under their cap. The exact details—such as the sectors covered, permit allocation methods, and projected government revenue from permit sales—are still under development. Covering the power generation and heavy industries, as done elsewhere, would be imperative. This initiative represents a significant move toward a market-driven approach to reducing emissions. However, by end-October 2025, the Bill has not been approved by Senate and therefore not been published in the Official Gazette as a Republican Act. Protracted negotiations will be necessary if this Bill is to be deployed.
4.2.4. Encouraging negative emissions
Achieving net-zero greenhouse gas emissions by mid-century requires, first and foremost, ambitious reductions in gross emissions. Decarbonisation pathways can also be facilitated by the deployment of negative emissions technologies (NETs) or natural carbon sink practices to remove residual carbon dioxide (CO₂) from the atmosphere. These residual emissions will likely stem from sectors that are challenging to decarbonise, such as agriculture, aviation, and heavy industry (IEA, 2020). NETs are essential for offsetting these hard-to-abate emissions and for potentially lowering atmospheric CO₂ concentrations and mitigate climate change impacts. IEA net zero scenarios by 2050 include worldwide negative emissions for about 5% of the total abatement – a small but important contribution.
NETs encompass a range of approaches, including nature-based solutions like afforestation and reforestation, as well as technology-based methods such as bioenergy with carbon capture and storage (BECCS) and direct air capture (DAC). Governments can play a pivotal role in facilitating the development and deployment of negative emissions technologies. Policy measures such as research and development funding, the establishment of regulatory frameworks, and carbon markets allowing credits for negative emissions are part of the policy toolbox. However, current levels of carbon pricing in most countries are too low to provide significant incentives to invest in these solutions.
Despite the existing potential, scaling up negative emissions within sustainable and cost-effective frameworks remains a challenge as of now. Solutions involved forestry and nature-based approaches involve risks associated with the impact of climate change and come with uncertainties regarding the time horizon of their carbon storage. Innovation involving carbon storage in the biomass conflict with the competition to use this resource in decarbonisation solutions, such as electricity and heat generations. Carbon capture, utilisation and storage (CCUS) is making progress, with several milestones reached recently (IEA, 2025), but onshore-based solutions often face low political acceptance. Offshore storage, as in Norway, offer perspectives but require creating new carbon transport infrastructure and are more difficult to reach for landlocked countries.
The Philippines possesses significant natural carbon sink potential through its diverse ecosystems, notably forests, mangroves, and coastal wetlands. The country’s terrestrial forests can sequester annually up to 250 tCO2 per hectare, while planted forests capture an average of 4.3 tCO2 per hectare annually (Lasco et al., 2023). However, historical deforestation has released an estimated 3.7 billion tonnes of carbon into the atmosphere since the 1500s, underscoring the urgency of conservation and reforestation efforts. Mangrove forests, in particular, represent an especially efficient carbon sink: they can store around 1,000 tonnes of carbon per hectare, a rate four times higher than terrestrial forests (Primavera and Esteban, 2008). Despite their importance, the Philippines lost approximately 46% of its mangrove during the 20th century (Primavera et al., 2000). While recent evidence is scant, partial information suggests that the rate of decline has slowed considerably in the past two decades. Community-based initiatives, such as the mangrove rehabilitation projects in Bohol and Batangas, illustrate promising approaches for restoring these critical carbon sinks.
Expanding and protecting these natural carbon sinks is crucial for the Philippines’ climate strategy. The integration of ecosystem-based approaches into national climate policies offers a pathway to achieving substantial emission reductions while simultaneously delivering co-benefits for biodiversity and livelihoods (DENR, 2023). The government plans to meet its mitigation targets by incorporating nature-based solutions into the forthcoming NDC, particularly with action related to forest and other land use. The potential of emerging carbon sinks, such as the Philippine Rise—a project to store carbon below the sea floor—has also been identified as a promising area for further study, although quantification of their sequestration capacity remains at an early stage. Scaling up nature-based solutions will require not only sustained domestic efforts but also international support. The Philippines’ experience demonstrates both the challenges and opportunities of leveraging natural carbon sinks as part of a broader climate mitigation and adaptation strategy. Looking ahead, the government could envisage allocating carbon credits for avoided emissions and allowing these credits to be traded on the upcoming emission trading system. This will require careful regulation and monitoring to avoid the types of fraudulent activity seen in other countries, such as carbon credits sold twice, or for storage of limited duration. The additionality of carbon storage also needs to be verified credibly.
A step in this direction is the general framework for carbon credit in the energy sector issued in September 2025, which marks an important step toward operationalising a domestic carbon credit market. It provides guidance on how Carbon Credit Certificates can be generated, verified, and traded, helping attract private investment in clean energy and align national policy with global carbon-market standards. This will allow Carbon Credit Certificates to undergo verification and authorisation processes to eventually qualify and be transferred to another country under programmes such as the Article 6 of the Paris Agreement and CORSIA. While welcome for its ambition and clarity, the Carbon Credit Certificates framework will require stronger institutional capacity, harmonisation with the forthcoming national carbon registry, and clearer coordination between government departments to avoid overlap in verification and reporting. To deliver real credibility and value, the framework will need transparent governance, independent oversight, and detailed implementing rules that ensure both environmental integrity and investor confidence.
4.3.1. Delivering low-carbon electricity
The Philippines largely depends on fossil fuels to produce electricity (Figure 4.17). Most electricity is generated by the 58 operational coal units (62.5% of electricity) and natural gas (14%). Only 21% of electricity comes from low-carbon sources, below the global average of 41%, with facilities in hydro (8.5%), geothermal (8.3%), solar (3%), and wind (1%). Nuclear energy is not used. This high-carbon mix led to record emissions of 76 Mt of CO₂e in 2024, about half of the country's total carbon dioxide emissions.
(in percent of total generation)
Source: Ember-Climate
To start the transition, recent reforms have successfully boosted renewable capacity by 1.5 GW from 2022 to 2024, surpassing the 0.13 GW increase in fossil fuels. The government plans to continue the development of renewables and aims at achieving shares of 35% by 2030 (Figure 4.18) and 50% by 2040. For this purpose, a large potential of renewables could be put to use. Onshore potential wind power resources in the Philippines are estimated at 76 GW, while the technical potential of offshore wind power is 178 GW. An ambitious scenario with 77 GW solar PV installation would only require about 0.5 percent of the country’s land area—or less, if floating solar and roof-top solar are scaled up (World Bank, 2022). While the potential is significant, this would require broad-based policy reforms.
Source: Ember-Climate.
In 2020, the government announced a ban on new coal-fired power plants to reduce the carbon footprint of the power sector and meet climate commitments. This policy prioritises cleaner energy sources over new coal plant constructions, while still allowing the expansion and upgrading of existing plants. While this moratorium represents a significant policy shift toward decarbonisation, it is insufficient on its own to halt the expansion of coal-based generation capacity. At present, several coal projects totalling over 2.2 GW are still expected to come online by 2028. In addition, the government issued on 14 October 2025 a decision that loosens the moratorium, granting case-by-case discretion for new coal projects — a significant policy softening that risks undermining the original intent to halt further coal expansion. The decision introduces explicit exemptions to the moratorium: projects in off-grid areas, own-use plants, and plants in special economic zones. New on-grid coal capacity may also be permitted under “exceptional circumstances”.
Halting all extensions and new facilities of coal-based generation is essential to meet the country’s renewable energy targets. An ambitious policy would be to encourage the early retirement of existing facilities before their scheduled end of life, although this would create large amounts of stranded assets due to the relatively young age of these investments. A cost-benefit analysis should guide this decision. Preliminary estimates suggest a cost of about USD 10.6 billion representing the buyout of existing Power Supply Agreements (PSAs) based on annual generation. This could be easily matched by the social benefits of avoiding emissions: as an illustration, based on annual coal-related emissions of 67 million tCO2 (source: Ember-data), retiring all coal plants five years before their end of life would avoid 335 million tCO2, with a social value of USD 16.7 billion to USD 23.5 billion assuming a modest value for the social cost of carbon in the range of USD 50-70 per tCO2.
To maximise efficiency in this process, the government could set up a reverse auction mechanism, where coal plants would bid for payments to retire earlier than their scheduled shutdown, as done in Germany (Tiedemann et al., 2023) and China, and considered in India and Indonesia. To minimise the fiscal cost, the government could allocate Carbon Credits Certificates to the lowest bidder in the reverse auctions, instead of monetary payments. Judging from the experience in other countries, such auction is likely to result in discounted issuance, or partial credit, thus cancelling a share of the avoided emissions, even if the Carbon Credits Certificates are tradable. Such a mechanism would require careful consideration of market structures, regulatory frameworks, and verification mechanisms. Making sure that coal plants are retired only when new renewable capacity is sufficient to avoid blackouts, especially during heatwaves, would be crucial. A similar mechanism could auction incentives for the repurposing of coal plants, for instance replacing coal with biomass, or for investing in equipment to capture and store the carbon dioxide produced. A higher excise tax on coal, as suggested earlier in this chapter, would enhance participation in such auctions. The social impact of such coal exit is often a concern, though employment in activities related to coal is small in the Philippines. In addition, policies are in place for retraining workers and fostering new economic activities like renewable energy projects, tourism, and agriculture in coal-dependent communities.
In addition to the moratorium on new coal-based thermal plants, the Philippines has enhanced its regulatory framework to boost the transition. The Renewable Energy Act of 2008 promotes sustainable development, private investment, and energy security, mainly with non-pricing instruments. This regulation includes the Renewable Portfolio Standards (RPS), which requires from producers a minimum of 11% renewable energy by 2025 and higher shares thereafter. The Renewable Energy Market (REM) allows for trading Renewable Energy Certificates (RECs). In June 2024, new guidelines were introduced to simplify renewable energy project applications, cut bureaucracy, and attract investors. Full foreign ownership of renewable capacity is also allowed. Furthermore, the government has launched the Energy Virtual One-Stop Shop (EVOSS), an online platform to streamline permits and approvals from local and national agencies. Easier land access for large projects is also being considered by involving local governments. In addition, developers receive fiscal incentives such as tax holidays and duty-free equipment imports, and renewable electricity enjoys a preferential tax regime under the CREATE MORE Act. This includes 0 % VAT on electricity and inputs, plus significant income tax incentives that lower corporate income tax liabilities for renewable electricity developers.
Reforms are introduced to adapt the electricity market to the growing share of renewables. The Philippines uses an auction system, not feed-in tariffs, to incentivise the production of renewable energy. The Green Energy Auction Program (GEAP) aims to promote renewable energy by conducting rounds of bidding where renewable energy developers bid for contracts to supply renewable energy to the grid. Due to high demand in recent auctions, the government is considering more frequent auctions to increase developers’ participation, especially for solar, wind, and other renewables. The goal is to provide long-term stability and predictability by maintaining and expanding electricity reforms and increasing transparency in the auction process. Renewable energy developers can also enter into Power Purchase Agreements (PPAs) with distribution utilities, electric cooperatives, or qualified end-users. The Green Energy Option Programme (GEOP) allows commercial and industrial users to choose renewable energy sources. Net metering lets consumers sell excess renewable power to the grid, with wind and solar having priority dispatch.
Like in other countries, waiting time to be connected to the grid can constitute an investment disincentive for renewable energy developers. Renewable energy developers must navigate a complex landscape of permits and approvals from various national and local agencies. This includes environmental compliance certificates, local government endorsements, and other regulatory requirements. Bottlenecks also prevail because of the difficult access to the transmission network. The process of getting connected to the network includes obtaining the completion of a System Impact Study (SIS), conducted by the National Grid Corporation of the Philippines (NGCP). The NGCP has acknowledged being overwhelmed by the volume of connection requests. Delays in grid upgrades and expansions necessary to integrate new renewable energy capacities have worsened the situation. As a result, NGCP is facing a substantial backlog, with over 160 projects awaiting SIS completion. It has indicated that clearing this backlog could take an additional year, potentially causing further delays for new applicants.
In response, the government has decided to upgrade existing infrastructure and incorporate cutting-edge technologies to handle the intermittent nature of renewable sources. The Smart Grid and Green Plan, spanning from 2025 to 2035, aims to integrate new renewable energy sources into the transmission system. Moreover, the government advocates for decentralised energy systems in remote regions, allowing off-grid communities to harness solar and wind power locally. This initiative is crucial for boosting renewable energy across the archipelago.
To address the intermittency of power generation associated with renewable energy, the government, in collaboration with the private sector, is promoting investment for large-scale battery storage projects. A landmark initiative, the Terra Solar Project is poised to become the world’s largest integrated solar and battery storage facility. It encompasses 3.5 GW of photovoltaic capacity coupled with 4.5 GWh of battery storage, spanning approximately 3,500 hectares in Bulacan and Nueva Ecija. The government is also now requiring that solar power projects that participate in the green auctions integrate a minimum storage duration of four hours, ensuring grid reliability and flexibility. However, long duration storage must also be integrated in the electricity grid to ensure the system’s reliability. To attract investment in large-scale battery storage and enhance grid stability in the Philippines, the government and market regulators need to ensure that regulatory systems recognise the full value of the services that it offers, enable market access and establish price signals that accurately reflect its various contributions. Regulatory clarity is essential: batteries should be formally recognised as a distinct asset class to allow both utility and private ownership models. In parallel, the Energy Regulatory Commission should revise tariff structures to compensate batteries for grid support services, such as frequency regulation and congestion relief. Finally, targeted investment support—through capital subsidies or results-based financing—and pilot projects in off-grid and congested zones would help de-risk early deployment and demonstrate viability (IEA, 2024).
Another option is pumped hydro storage, which involves using surplus generated power to pump water to an elevated reservoir and then releasing it to generate power when power generation is low. The Philippines has a few pumped-storage plants, like Tiwi and Magat hydro plants, but further investments are needed to enhance their storage capabilities to increase the grid reliability. The government is also considering investment in fast ramping power plants, which can quickly adjust their output to compensate for the fluctuations of renewable energy sources. Instead of using natural gas in these plants, the government is exploring fueling these plants with hydrogen. The government is also organising information campaigns to promote a greater flexibility of demand, with consumers encouraged to adjust their power consumption based on grid conditions, through smart appliances and investing in their own renewable energy facilities like solar PV home systems.
Reforms of the electricity sector have led to the entry of new players in the generation market. Private entities are allowed to build and operate generation facilities, and there is no longer a cap on foreign ownership. However, in practice, the degree of competition remains limited due to several factors. A few large players control a significant share of total installed generation capacity, and some degree of vertical integration remains between generation and distribution, as well as between distribution and retail (Chapter 2). In addition, the archipelagic nature of the country leads to fragmented grids, especially outside Luzon. The lack of full interconnection limits the scope of competition in some regions, with the Wholesale Electricity Spot Market only operational in parts of the country. Finally, delays in regulatory approvals and limited enforcement capacity of the Energy Regulatory Commission (ERC) hinder the full realisation of a competitive environment. Further reform of the electricity market is therefore necessary to enhance competition and encourage lower prices.
Because of the lack of competition in the electricity sector, the low cost of coal used in the thermal plants is presently not transferred to electricity consumers. An estimate of the levelised cost of electricity produced with coal suggests that this cost (USD 0.077/kWh) is well below the retail prices of USD 0.20/kWh (residential) and USD 0.15/kWh (business), leaving a significant profit margin. This is due to market dominance of electricity generators and results in energy poverty among households and reduced competitiveness for energy-intensive businesses (World Bank, 2022). While renewables are estimated to operate with low levelised costs (USD 0.052/kWh), this may not benefit consumers either in the absence of competitive pressures. Given this context, increasing excise taxes on coal, or introducing a carbon tax reflecting its CO2 content, needs to be coordinated with a reform of the electricity market aimed at increasing consumer-friendly competition pressures. The recent regulatory reforms discussed in this section, including the GEAP, GEOP, and lower bureaucratic hurdles all go in the right direction, as well as allowing communities to set up their own micro grid and become prosumers. In addition, implementing the Retail Competition and Open Access (RCOA) regulation, which has been delayed for years, would allow consumers at the household level to switch service providers or retailers at any time, while at present this right is limited to large consumers in what is considered to be the contestable market. The regulator should require the establishment of seamless platforms enabling detailed price comparisons between distributors, as well as the possibility of switching rapidly with all administrative procedures handled by the power distributors, as done in other countries (CPRB, 2022).
The Philippines’ net-metering programme enables electricity consumers to become “prosumers” by installing renewable energy systems—typically rooftop solar—of up to 100 kW. Excess electricity exported to the grid earns credits at the distribution utility’s blended generation cost, offsetting part of the consumer’s bill. However, only around 8–10 % of the estimated rooftop-solar potential is currently utilised, much less than in Viet Nam (about 20%). Implementation has been slowed by bureaucratic bottlenecks: applicants must submit many documents, obtain multiple clearances from local governments and utilities, and face long waits for inspections and permits. Credits for excess electricity below the retail electricity prices also limit financial appeal. Streamlining requirements and digitalising applications would help to scale up prosumer participation as part of the country’s broader decarbonisation and energy-resilience agenda.
In addition, the Philippine Microgrid Systems Act (Republic Act No. 11646, 2022) was enacted to accelerate electrification in off-grid and unserved areas by allowing private providers to build and operate independent microgrids using renewable or hybrid generation. Under the law, the Department of Energy (DOE) identifies eligible areas and conducts a competitive selection process, after which the Energy Regulatory Commission (ERC) approves tariffs designed to balance cost recovery with affordability. In practice, implementation has been slow: few projects have reached operation due to delays in DOE accreditation, unclear coordination with the National Power Corporation’s Small Power Utilities Group (NPC-SPUG), and difficulties securing financing and permits from local governments. Where microgrids have been established—mostly solar-battery-diesel hybrids on small islands such as Cagayancillo, Romblon, and Palawan—they have markedly improved supply reliability and reduced reliance on expensive diesel generation, though replication remains constrained by weak regulatory enforcement and limited capital access.
The government is also pursuing the development of nuclear energy as part of its long-term strategy to enhance energy security and reduce carbon emissions. In 2024, it released a Nuclear Energy Roadmap, targeting the commissioning of the country’s first nuclear power plants by 2032. The government is also considering rehabilitating the Bataan Nuclear Power Plant (BNPP), a 621-MW facility completed in 1984, but never brought into operation. In addition, the government is exploring the deployment of Small Modular Reactors (SMRs) to provide flexible and scalable nuclear energy solutions, particularly suited for the country’s archipelagic geography. Nuclear power can contribute to improving energy security and nuclear electricity production is more stable over time compared to intermittent renewables while also being low-carbon, although concerns involve high-impact negative risks in case of severe nuclear accidents. It is important for nuclear projects, as well as any other energy project, to be underpinned by transparent and comprehensive life-cycle cost-benefit analyses that inter alia account for the cost of constructing power plants, storing nuclear waste and decommissioning disused power plants. Such analysis must also consider the (direct and indirect) subsidies granted through the entire production cycle.
4.3.2. Toward cleaner transport
The transport sector in the Philippines is a significant contributor to greenhouse gas emissions, accounting for 14% of the country’s total. Despite the improved fuel efficiency of cars, transport emissions per person have not declined in the Philippines, a trend observed also in other SE Asian countries (Figure 4.19). To reduce this environmental impact, the government is putting in place specific policies and incentives to accelerate the adoption of electric vehicles (EVs), which will only help to reduce the country’s carbon emissions if electricity generation becomes cleaner, including through a rapid exit from coal-based generation. To reach the target of getting 6.6 million EVs on the road by 2030, import tariffs on battery electric vehicles (BEVs) were suspended in 2023 for 5 years, covering four-wheeled battery EVs, e-scooters, and e-bikes. This tariff exemption has been subsequently extended to include battery e-tricycles and quadricycles, hybrid EVs (HEVs), and plug-in hybrid EVs (PHEVs) (including cars, jeepneys, buses, and trucks), as well as completely knocked-down EVs, until 2028. The excise tax was set at 0% for BEVs and reduced by 50% for hybrid EVs (HEVs) under the Tax Reform for Acceleration and Inclusion (TRAIN) Act. The motor vehicle user’s charge was reduced by 30% for BEVs and 15% for HEVs for 8 years.
In tCO2 per capita
Source: Climate Watch.
At present, the number of charging stations is insufficient to facilitate a broad adoption of EVs: only 912 public charging points are operating nationwide in mid-2025, of which about half are battery swapping stations. The government has issued guidelines that require all providers of electric vehicle charging stations to improve transparency on the fees that they are collecting from users. As of March 2025, the average national fees at unbundled charging stations range from PHP 21.58 /kWh for alternating current chargers, PHP 32.96/kWh for direct current chargers and PHP 53.46/kWh for battery swapping stations (source: Department of Energy). The government is also issuing technical and operational standards to facilitate the development and safe operation of a nationwide EV charging network and mitigate the currently insufficient number of charging stations operating in the country. It is working with local government units in Northern Luzon to establish a reliable charging network and address EV range anxiety. Furthermore, it is conducting a comprehensive study to gather data and strategically determine the optimal locations for EV charging installations nationwide.
A specific challenge in the Philippines is to replace aging jeepneys with more efficient models, but this involves financial challenges for the drivers and operators during this transition. The government is addressing these challenges with the public utility vehicle modernisation programme through increased subsidies, loan programmes, and financial assistance. The subsidy for modern public transport vehicles has been raised to PHP 280,000 (about USD 5000) per unit for larger vehicles and PHP 210,000 for smaller ones (about USD 3700), reducing monthly amortisation costs. Public banks like DBP and Land Bank provide specialised loans, while assistance and skills training are granted to affected drivers. Additionally, drivers and operators are encouraged to form cooperatives, allowing them to share ownership and earn stable incomes.
4.3.3. Agriculture reform for food security
Although the agriculture, forestry and fishing sector represented only 8% of GDP in 2024, it plays a crucial socioeconomic role in the Philippines. The sector employs 11.2 million persons nationwide (23% of total employment) and is a key provider of jobs in several regions such as Western Visayas, Soccsksargen, and BARMM. The sector is essential to the country’s food security, in particular the provision of rice, the population’s basic dietary staple. The sector is both a contributor and a victim of climate change (Galang and Briones, 2024). Agriculture is responsible for 23% of the country’s greenhouse gas (GHG) emissions, mainly methane from rice cultivation, enteric fermentation, manure management, and direct nitrous oxide emissions from managed soils (Figure 4.20). At the same time, it is directly threatened by climate trends, in particular by rising temperatures, drought, water stress, typhoons and rising sea levels (OECD, 2024e). Difficulties to expand rice production in line with population growth have already reduced the country’s self-sufficiency ratio to 77% in 2022 and the Philippines has become one of the world’s largest rice importers. Tensions on the rice market lead periodically to spikes in the prices of this politically sensitive commodity.
Temperature warming is already affecting negatively farm production. Available evidence suggests that rising temperatures have hurt rice yields in the Philippines, even for modern varieties of rice that were specifically bred to withstand warmer temperatures (Ruixue Wang et al., 2021). Changing weather patterns affect agriculture through various channels. The country’s farming activities are highly dependent on the availability of water, especially irrigated rice and sugarcane, and rainfed production of coconut, corn and cassava. The intrusion of saltwater into the groundwater sources has affected the water supply for agricultural production, and farmers reported an increased incidence of plant infestation during dry spells (World Bank, 2022). Activities in agriculture suffer also from extreme meteorological events like typhoons and El Niño. Overall, climate hazards like typhoons, floods, and droughts negatively affect the production of staple crops, livestock, and fisheries.
In tCO2e per capita, 2021
Source: Climate Watch and World Bank WDI.
To help farmers adapt to changing climate patterns, several measures are being implemented. These include providing climate and weather forecasting tools for informed decision-making, developing and promoting drought-tolerant crop varieties, promoting energy-resilient systems for agricultural facilities, and ensuring a sufficient and reliable supply of oil and gas products. Additionally, a Task Force on Energy Resiliency (TFER) ensures the rapid restoration of energy supply after disasters, supporting agricultural recovery and resilience. While these measures enhance agricultural resilience, addressing the social impact of post-disaster recoveries and protecting farmers from future climate risks requires a holistic approach that includes financial support, capacity building, community-based adaptation, and targeted policy interventions. In particular, policy support should prioritise the expansion of capacity-building programmes in climate-smart agriculture (for example water management and soil fertility), increased investment in research and development to accelerate the deployment of climate-resilient technologies, and the scaling up of innovation to improve productivity growth, currently below global averages, while simultaneously reducing emissions.
The adaptation and mitigation strategies described in previous sections will require large amounts of financing. Using the World Bank estimate of adaptation cost amounting to 0.7% of GDP per year, the total financing need for the period 2025-2040 would be about USD 100 billion. Regarding mitigation, it has been estimated that achieving the goal of 35% renewable energy in the power generation mix by 2030 and 50% by 2040, up from 21% currently, and reducing the economy-wide energy intensity by 3% over the same period will require unlocking USD 337 billion in cumulative investments to 2040 (OECD, 2024f).
International financial support would therefore be essential for the Philippines to strengthen its resilience while concurrently implementing mitigation measures. As a lower middle-income country, the Philippines is no longer eligible to concessional loans from multilateral organisations, though it has received significant flows of official development aid (ODA) from France, Japan, Korea, the United States and other donors. The Global Fund continues to support the Philippines under concessional terms, because it faces significant public health challenges in controlling HIV/AIDS, TB, and malaria.
Including non-concessional flows, the country obtained USD 5 billion in climate finance in 2022 from a variety of multilateral organisations and USD 3.1 billion in 2023, making it one of the largest recipients together with Bangladesh, India, Indonesia and Pakistan (EIB, 2024). This is part of funding that the government has attracted to support its climate transition, such as the ADB commitment to lend USD 10 billion during 2024-29 under its Climate Action Programme. This includes investments in railways, energy efficiency, coal phase-out and blue economy. The country receives financial support also from other donors, such as the Green Climate Fund. Separately, the Philippines has been officially selected to host the Board of the Fund for Responding to Loss and Damage (FRLD), established under the UNFCCC.
In addition to external official finance, the Treasury of the Philippines accesses international capital markets directly with its own sustainability bonds issued under its Sustainable Finance Framework. From March 2022 to January 2023, the Republic of the Philippines (ROP) issued bonds totalling USD 3 billion and Yen 70.1 billion (approximately USD 550 million), with proceeds allocated to projects in renewable energy, clean transportation, and climate-resilient infrastructure. More sustainability bonds were issued by the ROP since then, such as the first euro-denominated sustainability bond in January 2025, a 7-year EUR 1 billion offering, alongside a 25-year USD 2.25 billion US dollar-denominated sustainability bond. This dual-currency issuance expanded the country’s investor base and marked its seventh G3 ESG bond offering (EUR, USD and Yen). Outside the government, other entities are also active in attracting and mobilising funding for climate-related projects. For instance, the Bank of the Philippine Islands (BPI) issued a green bond in partnership with the International Finance Corporation (IFC), raising USD 250 million to finance renewable energy, energy efficiency, and other climate-related projects.
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