Confronting Climate Change in the Philippines:  Building Resilience while Cutting Emissions

Climate change is not a distant threat for the Philippines. Preparing for a warmer and more volatile future will require building on past progress in investing into climate change adaptation, combined with carbon pricing and cleaner power generation.

By Patrick Lenain, Senior Associate, Council on Economic Policies

Climate change is not a distant threat for the Philippines. Mean land temperatures have already increased by roughly 1.4°C compared with the mid-20th century, typhoons are intensifying, sea levels are rising, and the frequency of heatwaves and heavy rainfall are increasing. Long-term modelling suggests that GDP losses could reach 4% by 2040 and 17% by 2070. (Figure 1).  

Preparing for a warmer and more volatile future 

Recognising that further increases in temperatures are inevitable, the government has adopted a National Adaptation Plan for 2023–2050 covering eight priority sectors, including agriculture, water, health, ecosystems and infrastructure. The plan emphasises stronger infrastructure, social protection, empowered local governments and nature-based solutions to reduce vulnerability and integrate adaptation into development planning.  

Over the longer term, adaptation financing needs could reach roughly USD 100 billion between 2025 and 2040. Yet, the economic case for early action is strong. Investments in resilient infrastructure and improved agricultural techniques could significantly reduce projected output losses if  executed efficiently. This will require strengthened governance for procurement, including high levels of transparency and accountability. 

Agriculture illustrates the urgency of adaptation. Rising temperatures have already reduced rice yields. Saltwater intrusion, drought and pest outbreaks are compounding risks. Policy responses include drought-tolerant crops and climate-smart farming practices, but scaling these measures will require stronger research capacity and sustained investment.   

Focusing on nature-based solutions will offer large benefits. Mangroves, forests and coral reefs provide coastal protection, support fisheries and sustain tourism while acting as carbon sinks. Market-based payments for ecosystem services and participation in carbon markets could help finance conservation and strengthen community resilience.   

Adaptation also demands macro-financial readiness. Climate shocks can push non-performing loans higher and erode banks’ capital buffers, underscoring the need for stress testing and supervisory tools that integrate physical and transition risks.  Without such safeguards, climate events could give rise to financial stability risks.

Bending the emissions curve 

Although the Philippines remains a relatively low emitter due to its service-oriented economy, emissions are rising quickly (Figure 2). If this trajectory continues, the country risks locking in a more carbon-intensive growth path than necessary. The government has pledged to reduce greenhouse-gas emissions and is preparing its new Nationally Determined Contribution for 2025-30 with this objective. 

The electricity sector sits at the centre of decarbonisation challenges. The government aims to raise the renewable share of electricity from 21% today to 35% by 2030 and 50% by 2040.  At present, however, coal remains the main source of electricity generation (Figure 3). A moratorium on new coal plants has signalled progress, but exemptions introduced in 2025 risk undermining the policy. Early retirement of coal facilities could avoid hundreds of millions of tonnes of CO₂, with large environmental benefits.   

Carbon pricing remains too modest to provide strong incentives for shifting to renewable energy sources. Coal excise duties correspond to roughly EUR 1 per tonne of CO₂ — far below estimates of the social cost of carbon. Aligning energy excise taxes with carbon contents and moving forward with an emissions trading system would sharpen price signals and steer capital toward low-carbon technologies. 

Renewable energy auctions, fiscal incentives, streamlined permitting and full foreign ownership to attract investment have had more success in supporting the shift to renewable energy sources. A flagship project is Terra Solar, expected to be the world’s largest integrated solar and battery facility, with 5 million solar panels, 3.5 GW of photovoltaic capacity and 4.5 GWh of storage. To accommodate intermittent generation, new solar projects are required to include at least four hours of storage and the government is upgrading the grid under the Smart Grid and Green Plan.  

A positive adaptation-mitigation nexus 

While adaptation and mitigation are often treated as separate agendas, they are very much interconnected. Climate resilience supports growth, protects fiscal sustainability and shields the financial system, while decarbonisation reduces long-term physical risks and strengthens energy security. Mangrove restoration is a textbook example: it can protect coastlines from storm surges while also storing large amounts of carbon. 

The overall policy direction taken by the Philippines is welcome: integrate climate risk into macroeconomic policy, mobilise private capital, expand nature-based solutions and accelerate the energy transition. What matters for the years to come is to continue this course, with an even stronger focus on well-executed and transparent public adaptation investment, sufficient carbon pricing and a continued move away from coal-fired power generation.

References:

OECD (2026), OECD Economic Surveys: Philippines 2026, OECD Publishing, Paris, https://doi.org/10.1787/f0e0c581-en.