Boris Cournède
OECD Economic Surveys: Slovak Republic 2026
Abstract
The Slovak Republic can become a key manufacturing location for the EU net-zero transition with major expansions ongoing in electric vehicle production and a gigafactory-scale battery plant. Its large export-oriented industrial base is well positioned to supply technologies targeted by the EU net-zero strategy. Rising demand for Slovakia’s low-carbon electricity underscores the importance of continuing to develop new low-carbon production projects while tackling pricing arrangements that may discourage investment and innovation. Only small shares of venture capital and public R&D go to green technologies, highlighting the need to reorient funding. The transition involves labour-market adjustment costs , and reskilling and alignment of vocational training with green skills are critical in this respect. Regulatory bottlenecks for low-carbon power sources need to be addressed. The Slovak Republic will also have to adapt to the impacts of climate change including droughts and higher flood risk. Inadequate property insurance coverage against climate-related losses creates vulnerabilities and reduces incentives to adapt.
The transition towards a low-carbon future implies structural shifts in the economy including labour market reallocation and reskilling: these changes can entail costs (OECD, 2024[1]). The transition also implies a significant investment-intensive economic transformation that creates growth opportunities for Slovakia’s industrial and export-oriented economy. This chapter considers avenues to take full advantage of these opportunities while proactively preparing for the necessary changes to reduce adjustment costs and accelerate the materialisation of the benefits. It then discusses policies to achieve net zero emissions domestically in economically efficient ways. Lastly, the chapter addresses policies to prepare Slovakia to forthcoming changes in its climate.
4.1.1. Manufacturing for net zero
Slovakia is well placed to tap the large market for low-carbon technologies that the EU net zero transition strategy seeks to create. In particular, the EU Net-Zero Industrial Act (NZIA) aims that more than 40% of the technologies deployed towards the net zero goal should be made in the European Union. For example, the goal implies doubling the EU industry’s production capacity for heat pumps and quadrupling it for batteries by 2030 over 2022 levels (European Commission, 2023[2]). The Slovak manufacturing sector, with its long-standing export orientation and specialisation in making machinery and assembling, possesses the qualities needed to participate in the surge in the production of net-zero equipment.
The potential to produce for the net-zero economy is being realised across several sectors, starting with the car industry. Electric vehicles (EVs) have been produced in Trnava since 2019 with an annual output of around 65 thousand in 2023 (Pavlínek, 2022[3]; SARIO, 2025[4]). Another factory, located in Žilina, which until 2024 made internal-combustion-engine and hybrid cars, started producing EVs in 2025 with an objective of 180 thousands in 2027 (Holdenried, 2025[5]). A new plant in Košice should produce around 250 thousand EVs a year from 2027 (European Commission, 2024[6]). Another car making plant, in Nitra, is reportedly planning to convert to EV production by 2030. The scale of Slovak EV production is therefore poised to become considerable by comparison with the EU market, where 1.4 million new EVs were registered in 2024 (Eurostat, 2025[7]). New energy vehicles (NEVs, which include plug-in hybrid cars) exports account for 7% of GDP, the highest share in the OECD and 46% of vehicle exports (see Chapter 2 of this Economic Survey).
Battery production is also rapidly expanding in the Slovak Republic. A very large plant (“gigafactory”) is being built in Šurany for an annual production capacity of 20 GWh with the possibility of doubling it. This is substantial, as EU-wide production was estimated at 100 GWh in 2023 (T&E, 2024[8]).
Slovakia is also becoming a large-scale manufacturing location for heat pumps, which have a critical role to play in the decarbonisation of the building sector (Hoeller et al., 2023[9]). A so-called “mega-factory” started production in 2023 for 300,000 units per year, equivalent to 15% of the number of heat pumps installed across the European Union in 2024 (European Commission, 2025[10]). EU-wide demand for heat pump should from 2026 benefit from the EUR 86.7bn EU Social Climate Fund, which will support EU countries in the deployment of heat pumps for vulnerable households.
Continued success in satisfying the growing demand for low-emission products hinges on the economy’s capacity to reallocate workers and capital in response to market signals. From this perspective, the recommendations in Chapter 4 of reforms to boost economic dynamism are crucial. Implementing reforms facilitating reallocation will also reduce the labour and social costs of the transition towards net zero (OECD, 2025[11]). Avoiding labour and skills shortages is also essential, pointing to the importance of attracting more people in the workforce and increasing their skills over coming decades along the lines of the policy options outlined in Chapter 1 and 4.
4.1.2. Fostering more innovation in low-emission technologies
Private and public innovation funding for low-carbon technologies is limited. Venture capital (VC) is small in Slovakia (see Chapters 2 and 4), and a comparatively low share of it goes into green investment (Figure 4.1 Panel A).On the EU “eco-innovation” index, which combines indicators of green R&D resources, activities and outputs, of environmental efficiency and of eco-industrial strength, Slovakia scores well below the EU average (European Commission, 2025[12]) By international comparison, Slovak firms are more likely to purchase clean technologies than develop their own innovations (Loučanová and Nosáľová, 2020[13]).
Little government funding goes to green R&D (Figure 4.1 Panel A). Public R&D funding for basic and applied research can fuel an academic and early-stage innovation environment that facilitates private investment in innovation (Figure 4.1 Panel A). While the Slovak fiscal situation leaves only limited scope to increase public funding on R&D, there is a case for increasing the share of government R&D funding that goes to low-carbon technologies.
Source: OECD (2025), Measuring Science and Innovation for Sustainable Growth.
4.1.3. Benefiting from the green job transition
Structural change towards net-zero-emission economies will boost demand for certain jobs to the detriment of other ones, with an overall effect expected to be fairly neutral (OECD, 2024[14]). OECD analysis underlines that the Slovak labour market counts among the largest shares of “green-driven” occupations for which the net-zero transition is likely to increase labour demand (Figure 4.2 Panel A). Many Slovak workers are producing goods and services for which demand will increase thanks to the transition: they work in the so-called “green-increased-demand” occupations (Figure 4.2 Panel B). The Slovak labour market’s comparatively strong concentration in jobs set to benefit from the shift towards net zero largely stems from the large share of manufacturing, a sector that is key to the transition (Figure 4.2 Panel C).
Sources: OECD (2024), OECD Employment Outlook 2024: The Net-Zero Transition and the Labour Market, OECD Publishing, Paris, https://doi.org/10.1787/ac8b3538-en; and secretariat’s estimates based on version 24.1 of the O*NET database and the following country-specific sources: United States: Current Population Survey; All other countries: EU Labour Force Survey.
The net zero transition will boost demand for several occupations, while also requiring a degree of upskilling in these occupations (OECD, 2024[14]). A large share of Slovakia’s green-driven jobs is identified to fall within this category (Figure 4.2 Panel B). For existing workers, the situation underlines the benefits of policies (see Chapter 4) that facilitate reskilling, upskilling and lifelong learning including a proper coverage of green skills (OECD, 2024[15]). A reform of curricula implemented in 2023 incorporated modules on energy efficiency, electromobility, sustainable materials and environmental management into upper-secondary VET programmes for automotive transport, electrical engineering and construction. For future workers, it is key to continuously align VET curricula with emerging green skills (Kuczera, 2025[16]).
4.1.4. Capitalising on low-carbon power generation
The Slovak power sector generates electricity with among the lowest carbon content globally (Figure 4.3 Panel A). This stems from reliance on nuclear energy for a very large share of electricity production, as well as hydroelectricity (Figure 4.3 Panel B). Two thirds of installed renewable capacity, and three quarters of renewable production, come from dams (Slovak Association for Sustainable Energy, 2025[17]). The last two coal-fired power-only plants closed in December 2023 and March 2024, as the Slovak Republic ended domestic subsidies for its largest coal power plant in 2023. Subsidies remain in place for smaller coal-fired combined heat and power plants. Looking ahead, the carbon content of Slovak electricity is set to diminish further following the connection to the grid at the turn of 2026 of the new 440MW nuclear reactor in Mochovce and even more so after the completion by 2040 of a 1200MW nuclear reactor in Jaslovské Bohunice.
Sources: IEA Emissions Factors database; and OECD (2025), Environment at a Glance Indicators, OECD Publishing, Paris, https://doi.org/10.1787/ac4b8b89-en.
The power generation sector is well paced to keep exporting to the EU market (Figure 4.4 Panel A). The EU net zero transition will require widespread electrification of the EU economies, creating strong demand for low carbon electricity. A strategic location in the middle of Europe and good EU-wide interconnections (Figure 4.4 Panel B) put Slovakia in a favourable position to serve this demand. There will also be increased domestic demand for electricity from the green transition in Slovakia as well as new factories and data centres (see Chapter 2).An additional positive factor is that Slovak low-carbon electricity is mostly produced by nuclear and hydro power plants, which have the advantage over other low-carbon sources such as wind turbines and solar PVs that they can provide electricity on demand independently of sunlight or wind conditions. Dam performance is however anticipated to decline under the impact of climate change as it reduces average rainfall. From this perspective, increasing production from other low-carbon sources, such as solar and geothermal energy, would bring welcome diversification. Slovakia’s nuclear power plants, even though they use water for cooling, are relatively robust to droughts, as they operate with cooling towers that substantially reduce water consumption (Slovenské Elektrárne, 2025[18]).
A key requirement to reap the benefits from this low-carbon power production is to ensure the quality and quantitative adequacy of the transmission grid. Even if international interconnection capacity is above the EU requirement of 15% of production capacity, the needed transition away from natural gas in the road to net zero by 2050 (see next section) will place large calls on the transmission grid. Furthermore, expansion is anticipated for solar PV and wind power generation, two sources that require a lot of grid capacity. Meeting these needs will involve maintaining strong investment, as is currently on-going as part of the RRP, to increase the domestic capacity of the power transmission system as well as interconnections (IEA, 2024[19]; European Commission, 2025[20]).
Electricity trading, as % of electricity consumption, 2024
Sources: Fraunhofer Institute for Solar Energy Systems (ISE); Eurostat; and OECD calculations.
A substantial threat looming on Slovakia’s low-carbon generating capacity is the reliance of existing nuclear reactors on uranium fuel assemblies bought from Russia. To mitigate this risk, new supply chains are being developed with other international partners, with commercial delivery from new sources foreseen to start in 2027. Accelerating this supply diversification would reduce a source of risk for low-carbon power generation.
Cumbersome environmental regulatory procedures have been an obstacle to the deployment of low-carbon power generation sources in the Slovak Republic. Firms report that complying with environmental rules is particularly complex in Slovakia (Figure 4.5). Deploying renewables also meets difficulties connecting to the grid with tight regulatory constraints and high fees (Slovak Association for Sustainable Energy, 2025[17]). To accelerate the deployment of decentralised low-carbon sources, it will be key to swiftly implement the simplification rules adopted in 2025 when transposing the EU Renewable Energy Directive EU/2023/2413. The transposition of the directive included the establishment of carbon contracts for differences, as recommended in the previous Survey (Table 4.1).
More business-friendly environmental regulations can facilitate further development of the Slovak low-carbon electricity sector in a number of areas:
There is potential for more solar PV and wind generation with foreseen increases from 1200MW and 20MW respectively in 2025 to 1700MW and 750MW in 2030 (Ministry of the Economy, 2025[21]). Germany’s simplification of permitting procedures for building solar PV and wind power plant is an example showing that faster, more predictable approval processes with lower legal risk can support rapid increases in installed capacity (OECD, 2023[22]).
Streamlined procedures, while complying with EU regulations, could allow new hydraulic power projects. Across the country, 35% of the assessed hydraulic potential remains available, and no project has been put forward since 2021.
The government is planning to experiment with the possibility to deploy small modular reactors (SMRs) under the Slovak National Energy and Climate Plan 2021-2030 (Ministry of the Economy, 2025[21]). Doing so could put the Slovak Republic among the first countries to use this low-carbon, dispatchable source of electricity. The presence of environmental concerns related to the storage of waste and low-probability high-impact negative risks makes it important to underpin the nuclear projects through comprehensive cost-benefit analysis.
Large-scale investment in wind and solar power generation across the European Union is creating strong demand for storage. The Slovak Republic has long-standing experience with large-scale storage, as more than a third of its total installed hydropower capacity of 2547MW is equipped with pumps to store electricity. A project underway in Čierny Váh is enhancing an existing pumped dam with 70MW of battery capacity to enable fast injection of large amounts of power into the grid. A large-scale project is under preparation in Málinec and Látky including the construction of a new upper reservoir with a pumped hydroelectric power station that will deliver up to 2400MW. The project is anticipated to start operating around 2030.
Risks to future investment in low-carbon generation arise from the framework used to provide households with low-priced electricity (Figure 4.6, Panel A). The Regulatory Office for Network Industries (ÚRSO) set a maximum price for households at EUR 104/MWh in 2026 through a decision made in November 2025. The government in December 2025 entered into an agreement with the main electricity producer, Slovenské Elektrárne, to provide 5.5TWh of electricity (roughly the yearly amount of household use) at EUR 72.7/MWh to eligible households (defined with an income threshold meaning that 90% of the population is eligible). The government and Slovenské Elektrárne entered into similar agreements to sell set amounts of electricity at fixed prices for the years 2023-2025. This framework could potentially create concerns among potential investors in power generation that large producers could be asked in the future by the public authorities to sell some of their output at reduced prices. As such, it could reduce the potential for Slovakia to attract power-generation investment. Furthermore, below-market prices also take away a powerful incentive for users to increase energy efficiency.
Share of firms that identify the complexity of complying with environmental regulation as a major business impediment, %
Notes: Panel A, electricity prices for household consumers in the consumption bands 2.5 MWh-5 MWh (band DC). "Other taxes" is negative when the environmental tax allowances' amount is higher than the amount of the environmental tax itself. Panel B, Regulated fixed prices are fixed prices regulated by law. Market based fixed price, fixed term contracts are private contracts between retailers and consumers that set a fixed price for electricity for a fixed term.
Sources: Eurostat Electricity prices components for household consumers database; and ACER based on data provided by National Regulatory Authorities.
Moving market-based prices coupled with subsidies for low-income households would improve the outlook for investors in power generation while promoting higher efficiency in the use of electricity by households. Letting all electricity producers sell their output at market prices, although it will spur more supply, could be followed by price increases especially if, as is likely, there is strong foreign demand for Slovakia’s low-carbon electricity. Adverse effects on vulnerable households are best tackled by targeted assistance. The assistance mechanism introduced for 2026 may be worth revisiting along two dimensions. First, the high income threshold, which means that 90% of households benefit from the reduced electricity price, could be lowered in the future. Second, the subsidy could be tied to households’ power consumption in the past rather than in the current year, as a way to reward their investment in energy efficiency and efforts to save electricity.
The Slovak Republic, which reduced its emissions by 50.9% over 1990-2023, is currently not on track to reach net zero emissions by 2050 [OECD (2024[24]) and Figure 4.7]. The April 2025 update of the National Energy and Climate Plan (NECP) 2021-2030 reiterates the commitment that Slovakia made in 2019 to reach carbon neutrality by 2050. In accordance with EU legislation, the NECP calls for greenhouse gas emissions (excluding land use, land-use change and forestry LULUCF) to fall below 64.3% of their 2005 levels by 2030. With the phase-out of coal in power generation, emissions from power generation have been contracting. Industrial processes are now the first source, followed by transport (22%), manufacturing and construction (21%), and then buildings (15%). Despite improvements in the fuel efficiency of new cars, road transport emissions have failed to decrease from a peak of 7.6 GtCO2 reached in 2019 and again in 2022-2023 following a dip during COVID-19 years. The main reason is the slow renewal of a fleet old, high-emitting vehicles. As recommended in the previous Survey, the annual vehicle ownership tax could be reformed to be based on emissions and cover all vehicles, thereby encouraging shifts to more emission-efficient vehicles.
Making companies and households pay according to their GHG emissions is the most effective way to encourage immediate action, as well as long-term investment, to reduce emissions. Price-based instruments also reward seeking the lowest-cost ways to cut emissions. A recent large-scale OECD study of policy instruments to reduce greenhouse gas emissions confirmed that carbon taxes and tradeable permits are by far the most efficient ones (OECD, 2025[25]).
Fuel taxes and the EU emission trading scheme (ETS) effectively price Slovak emissions broadly in line with the EU average across sectors, including transport (Figure 4.8). One important exception is buildings where emissions are nearly unpriced (Figure 4.8). Average carbon prices faced by Slovak industry lie moderately below the EU average (Figure 4.8 Panels A and B). This discrepancy stems from the use by Slovak authorities of the option (available until 2030) to allocate some of the ETS permits for free. Nonetheless, the incentive to reduce GHG emissions is in principle maintained among the recipients of permits, since they can resell them. Yet in practice, the expectation of renewed free allocation can blunt the incentive. The free allocation aims to protect the viability of heavy industries given considerably lower carbon prices for competitors located outside the European Union (Figure 4.9). The amount of free allocation could be reduced in industries where the EU Carbon Border Adjustment Mechanism (CBAM) proves adequate in reducing adverse effects on competitiveness from the carbon-pricing differential (OECD, 2025[26]).
Residential and commercial buildings form a sector where Slovak GHG emission pricing differs from the rest of the European Union (Figure 4.8 Panels A and B). Natural gas, fuel oil and coal burnt in homes and commercial buildings are subject to very low levels of carbon pricing. In addition, public subsidies reduce energy costs for nearly 90% of households (see Chapter 1).
EU rules in place as of early 2026 set out that a second phase of the EU emission trading scheme (ETS2) covering buildings and transport will enter into force in 2028. By strengthening the carbon pricing of fossil fuels used in these sectors, it will sharpen incentives to reduce emissions. It is important to implement the EU ETS2 as per EU rules while, to the extent necessary, supporting low-income households that are the most adversely affected by the associated price increases. The most efficient way of providing such support is by adding top-up payments to social assistance that are computed based on income and past energy consumption but untied from future energy use as was done in France and Ireland in 2022 (Hemmerlé et al., 2023[27]). Financial support designed in this way tackles its social objective without encouraging energy overuse.
Greenhouse gases emissions, million tonnes of CO₂ equivalent
Note: LULUCF: land use, land-use change and forestry. 2030 target: under the EU amended Effort Sharing Regulation (EU 2023/857).
Sources: OECD Environment Performance Reviews: Slovak Republic 2024, Department of Emissions and Biofuels (OEaB) of the Slovak Hydrometeorological Institute; and OECD calculations.
Price signals to the buildings sector will have faster, stronger effects if coupled with measures to overcome information asymmetries and liquidity constraints, as underlined in the previous Survey. Energy performance certificates (EPC) provide an effective way to ensure that occupiers are well informed about their building’s efficiency. In accordance with EU rules, EPCs are required for sales and new rentals. As a result, less than half a percent of buildings have been issued an EPC (De Pace, 2024[28]). The requirement could be extended to when rental contracts are renewed, as applicable in France upon tenants’ request. Low-income households who own energy-inefficient homes can be supported through targeted renovation grants, as recommended in the previous Survey.
Effective carbon pricing rates vs. quantity of GHG emissions, 2023
Note: Non-labelled portions refer to "Miscellaneous energy use".
Source: OECD (2024), Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/b44c74e6-en.
Heavy industries emissions carbon price, USD per tonne of CO₂ equivalent
Note: Heavy industries is the emissions-weighted average annual carbon price across plant-level carbon prices for aluminium, cement and steel. Note that the annual average for heavy industries can differ between countries subject to the same carbon pricing schemes (such as the EU ETS) because the distribution of emissions across months is different (and the EU ETS price varies across months).
Source: Teusch, J. et al. (2024), “Carbon prices, emissions and international trade in sectors at risk of carbon leakage: Evidence from 140 countries”, OECD Economics Department Working Papers, No. 1813, OECD Publishing, Paris, https://doi.org/10.1787/116248f5-en.
Slovakia is increasingly exposed to the consequences of climate change, with rising temperatures, more frequent droughts, and extreme weather events placing new pressures on the population and across the economy. Since 1881, average annual air temperatures in Slovakia have risen by 1.7°C while precipitation fell by 10% in the South (OECD, 2023[29]). The variability of rainfall is anticipated to increase, resulting in an increase in the risk of localised flooding in various areas (Slovakia, 2023[30]). Droughts are likely to become more frequent in the south of the country (Farkas, 2025[31]). Extreme weather events typically entail large, persistent negative impacts on economic activity (Costa and Hooley, 2025[32]).
Water deficits are occurring more frequently and becoming larger across the Slovak territory (Labudová et al., 2024[33]; OECD, 2025[34]). These greater frequency and intensity of droughts bear on farming, fluvial transport and hydro power production (Tikoudis, Gabriel and Oueslati, 2025[35]). Furthermore, the occurrence of droughts has been shifting from autumn and winter to spring and summer, exacerbating their effects on agriculture. Much of farmland has become significantly drier over the past four decades (Figure 4.10).
These trends are expected to intensify. Hot days will become more frequent (Figure 4.11), raising exposure to very high temperatures, while winter conditions will become milder. The result will be a reduced need for heating in the winter and a rising need for cooling in the summer. This reinforces the case for electrifying homes while deploying heat pumps: in addition to avoiding the use of fossil fuels and being more energy-efficient than other heating devices (Hoeller et al., 2023[9]), heat pumps typically also allow for cooling in the summer. This matters for homes but also for workspaces, as 15% of Slovak workers report being exposed to high temperatures half their working time (OECD, 2024[14]).
Public policies have a role to play to protect populations and ensure that the economy adapts efficiently to the changes. The Slovak Republic’s efforts to adapt to climate change are organised through a National Adaptation Strategy (NAS). The NAS creates a governance framework that gathers all relevant ministries and public institutions while recommending that subnational entities implement the national adaptation strategy. However, it falls short of creating formal obligations for subnational governments to formulate adaptation strategies and plans, even if funding instruments for adaptation, such as under Programme Slovakia 2021-2027, create incentives to do so. Adaptation strategies across levels of government would gain in consistency from moving to a system requiring that subnational governments develop their own strategies in a cascading mechanism down from the national one, as is done for spatial planning (OECD, 2023[36]; Smith et al., 2024[37]). An example is Ireland’s framework, where all 31 local authorities in 2024 adopted climate action plans that implement national strategies and policies (Government of Ireland, 2024[38]). Given the small size of many Slovak municipalities, the lowest level in such a cascading system could be groups of municipalities, rather than single ones, to ensure that sufficient technical capacity is available.
Share of land area that experienced significant change in average soil moisture over the period 1980-2023, %
Note: The direction and statistical significance of changes in soil moisture are determined using a linear regression analysis, where annual average soil moisture (dependent variable) is regressed on the year (independent variable) for each location over the period 1980-2023. Statistical significance is assessed at a 10% level (p < 0.1). The percentage of a country's surface area experiencing significantly drier or wetter conditions is calculated as the ratio of grid cells (0.1° x 0.1° resolution) within the country showing a significant decrease or increase in average annual soil moisture to the total number of grid cells in that country.
Source: OECD (2025), Global Drought Outlook: Trends, Impacts and Policies to Adapt to a Drier World, OECD Publishing, Paris, https://doi.org/10.1787/d492583a-en.
Such a system of cascading strategies from national to local government could then be integrated into space planning strategies and land-use regulations at the regional and local levels. The climate bill tabled in 2023 included provisions requiring subnational governments to include adaptation in their land-use frameworks, but this bill has yet to be adopted. As a result, subnational authorities still have no formal obligation to develop adaptation strategies and plans (OECD, 2023[29]). Nevertheless, subnational authorities can draw on methodological guidelines that have been developed by the Ministry of the Environment and the Slovak Environment Agency to design and implement adaptation plans (Hudeková et al., 2023[39]).
Price signals from the insurance industry can guide building and renovation decisions to reduce exposure to climate-related risks. A well-functioning insurance market with broad coverage will reward construction in low-risk areas while penalising it in high-risk areas. A detailed mapping of risks facing Slovakia was completed in 2024, which provides an important building block for risk pricing (Ministry of the Environment, 2024[40]). However, lack of property insurance is common in Slovakia (Ondruška, Brokešová and Pastoráková, 2018[41]). For example, since the 1980s, most of the losses from floods were uninsured (Figure 4.12). Such losses are set to increase with climate change. Lack of property insurance leaves affected households without protection from rising future damages outside ad hoc government compensation as well as without insurance price signals that would guide them towards adaptation decisions.
Public authorities can encourage broader coverage of climate-related risks in different ways. A first step is to map climate-related risks before actively disseminating the information to the public. The Slovak Ministry of the Environment has systematically mapped the risks of extreme heat, extreme precipitation and drought at the municipal level across the country (Institute for Environmental Policy, 2023[42]). The agricultural sector, which is directly vulnerable to these changes, can benefit from regularly updated information on the availability of drought-resilient crop varieties and technologies that monitor soil humidity and enable precision agriculture.
A common de facto government intervention is to deploy ad hoc support programmes after extreme events occur. As they become embedded into expectation, interventions of this nature discourage adaptation efforts. By contrast, OECD countries including France, New Zealand, Norway, Switzerland (some cantons) and Spain have introduced insurance-fee pooling schemes to ensure better coverage of catastrophe risk (OECD, 2023[43]). However, if these systems recuperate costs without regard for climate-related risks, such as by levying a fixed proportion of insurance fees, they fail to foster adaptation
Median additional hot day (𝑻𝒎𝒂𝒙 > 35°C) exposure, days per year, compared to the period 1995-2014, intermediate emissions scenario
Source: Maes, M. et al. (2025), “Monitoring exposure to future climate-related hazards: Forward-looking indicator results and methods using climate scenarios”, OECD Environment Working Papers, No. 264, OECD Publishing, Paris, https://doi.org/10.1787/b9ba6ee0-en.
Another course of action is to mandate insurance against climate risk. One example is Italy, where, since March 2025, every business must purchase insurance against natural catastrophe. The Italian framework also requires insurers to provide such coverage while being able to seek re-insurance from a publicly owned entity (Iannitti and Bonato, 2025[44]). This model encourages broad coverage while maintaining market-based pricing that rewards efforts to reduce expected damages from climate-related risk. As for homes, an example of mandatory insurance against natural disasters, though not climate-related, is Turkey, where residential buildings need to be insured for earthquake damages with a pool managed by the National Disaster Insurance Institution. France also mandates that every property insurance contract cover natural disasters; however, there is no insurance mandate for owner-occupiers of detached homes.
Expanding property insurance is essential. Public–private risk-sharing schemes that maintain risk-based pricing and a dedicated fund to subsidise premiums for low-income households would encourage climate adaptation and make insurance financially viable for vulnerable households. Further advances towards a single EU market for insurance services would facilitate coverage of climate-related damages by pooling risks across a wide variety of geographies with different exposures to climate-related events, enhancing diversification.
Besides specific interventions, framework and other policies also support adaptation. Changes in labour-market and housing-policy settings that facilitate mobility attenuate the long-term adverse economic consequences of extreme weather events (Costa and Hooley, 2025[32]). Furthermore, improving the energy efficiency of buildings makes them better adapted to heatwaves in addition to reducing energy use during cold periods.
Source: EIOPA, Dashboard on insurance protection gap for natural catastrophes (2024); and SwissRe Six Sigma database.
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