The Manila-based Asian Development Bank (ADB) said the Philippine economy, despite being recognized as a “rapidly” expanding economy, could suffer a serious contraction while pursuing a 75-percent reduction in greenhouse gas (GHG) emissions.

“The Association of Southeast Asian Nations’ (ASEAN) rapidly developing economies—Indonesia, the Philippines, Thailand, and Vietnam—face significant GDP [gross domestic product] contractions,” the ADB said in a March 12 report centered on advancing the shift to a green economy in the region.

This could occur as the Philippines moves to transitions under current nationally determined contribution (NDC) implementation scenarios. NDCs are quantified climate commitments that demonstrate a country’s pledge to lower GHG emissions.

The serious threat of output shrinkage emerges because the current NDC scenario involves high climate mitigation costs and price pressures, while no measures are in place to ramp up productivity and cushion the economy from the burden of decarbonization.

Further, the drop will also be accelerated by structural dislocations, leading to the shedding of 1.2 percent of employment as the country’s labor force moves away from traditional, carbon-heavy industries.

The Philippines aims to slash three-fourths of its total GHG emissions by 2030. Of this, 2.7 percent of the reduction is unconditional, or funded using domestic resources, while 72.3 percent is conditional on foreign financing.

Citing Climate Action Tracker, the ADB said most targets of economies in the region were found to be “critically insufficient.”

“While ASEAN countries have made progress through their NDCs, the current ambition levels remain insufficient to meet the scale of the climate and environmental challenges,” the multilateral lender noted.

As such, the ADB said these economies must “balance rapid industrial growth with sustainable development, adopting cleaner infrastructure and protecting ecosystems.”

Output contractions in fast-growing economies can be mitigated by investing in green sector productivity.

“These losses can be mitigated—or even reversed—through investments in technological upgrades and sector efficiency, with advanced and developing economies showing potential for moderate GDP gains,” the report read.

For the Philippines alone, the country is aiming for renewable energy (RE) to account for 35 percent of the total energy portfolio by 2030, and half of it by 2040. Meanwhile, the Green Jobs Act and green finance reforms aim to ensure the transition generates opportunities while managing risks.

Recall that Philippine economic growth slumped to a post-pandemic low of 4.4 percent in 2025, significantly missing its minimum target of 5.5 percent.

To date, the Philippines has yet to formally set a year to achieve net-zero status, but the ADB noted that its host country declared “ambitious conditional reductions.” Net-zero is a quantified climate goal for a country to reach a state where greenhouse gas emissions are balanced by removals from the atmosphere by a specific target year.

“The divergence in target years reflects different levels of institutional readiness, economic dependence on fossil fuels, and access to climate finance,” the lender said.