Timo LEIDECKER
OECD
Caroline KLEIN
OECD
OECD Economic Surveys: Belgium 2024
OECD Economic Surveys: Belgium
Abstract
Belgium needs to accelerate greenhouse gas emission reductions to meet EU targets. Replacing fossil-fuels in electricity production, buildings and transport by zero-emission energy sources would cut nearly two thirds of greenhouse gas emissions but requires rapidly scaling up renewable energy production. Nuclear phase out adds to Belgium’s emission-reduction challenge for energy in the medium term. In addition, energy consumers need to invest in adapting – often electrifying – energy use and using energy more efficiently. Belgium’s car fleet is renewing quickly but predominantly with new fossil-fueled cars. Most buildings need deep renovation and low carbon heating systems if emissions relating to heating are to be substantially reduced. Policies combining long-term regulatory certainty with effective financial support and strong price signals can ensure these investments are made, including by low-income households.
Climate change is increasingly apparent in Belgium. Average temperatures are about 2°C warmer than in pre-industrial times, winters milder, summers hotter, and droughts and heat waves more frequent (IEA, 2023a). By 2100, depending on future global greenhouse gas (GHG) emissions, temperatures in Belgium may increase by up to 4.4°C in winter and 7.2°C in summer. Sea levels could rise by up to 2 meters in the worst case scenario (Groupe de travail fédéral Adaptation, 2023). Belgium can contribute to limiting climate change in line with the Paris Agreement by transitioning to a net zero economy. While entailing costs, especially in the short-term, the transition can bring direct benefits for Belgium, ranging from energy savings, better public transport and cleaner air to productivity gains and more jobs (FPS Environment, 2023). Adapting to a hotter climate will be important to complement these efforts. The 2021 OECD Environmental Performance Review (OECD, 2021) and the 2022 IEA Energy Policy Review (IEA, 2022a) include analyses and policy recommendations to improve climate change adaptation for Belgium.
Belgium needs to speed up emission cuts to decarbonise its economy. Greenhouse gas (GHG) emission reductions started to pick up in the early 2000s (Figure 4.1, Panel A), and since then Belgium has achieved larger percentage reductions than EU and OECD countries on average (Figure 4.1, Panel B). Nevertheless, in 2021 its economy remained more emission intensive than the EU average. This means larger efforts to decouple its economy from GHG emissions will be needed than in most EU countries. Average annual emission reductions must increase from 1.4% between 2010 to 2021 to 2.7% from 2021 onwards to reach net zero in 2050 (Figure 4.1, Panel B).
Note: GHG emissions includes emissions from LULUCF (Land Use, Land Use Change and Forestry) unless it was indicated.
Source: OECD (2024), Environment: Air and Climate (database).
Setting and achieving national climate policy goals is complicated by Belgium’s highly decentralised climate change policy. Most policies for cutting emissions – for example for building renovations, transport, or renewable energies on land – are developed and implemented by regional governments. At the federal level, climate-related policy areas include offshore wind, energy taxation and infrastructure, such as high-voltage electricity networks. Overall emissions and emission intensities differ considerably across regions, and burden sharing agreements coordinating mitigation efforts have been slow to finalise (Table 4.1). For example, a full burden sharing agreement for emission cuts for 2013-2020 was only adopted in 2018.
Greenhouse gas emissions across regions under Belgium’s burden-sharing agreement 2013-2020
Source: OECD calculations based on Commission Nationale Climat (2023)
Belgium has not yet adopted a binding target to achieve net zero emissions by 2050 at the national level. While discussion on a burden sharing agreement for emission targets in 2030 remains ongoing, regions already adopted varying emission targets for 2030 and 2050 (Table 4.2). However, current regional targets fall short of both EU emission goals for 2030, to cut emissions by -47% compared to 2005, or reaching net zero in 2050 for the whole country. In November 2023, the Brussels Court of Appeal ruled current targets of Belgian governments, except Wallonia, to be insufficient and ordered reductions corresponding to -55% from 1990 emissions by 2030. The Flemish government appealed against the ruling. Swiftly adopting a burden-sharing agreement for 2030 and setting targets for 2050 at the national level, in line with EU-level emission goals, would provide greater certainty to investors and consumers. The 2022 OECD Economic Survey for Belgium discusses how establishing an independent expert advisory and monitoring body could address policy fragmentation to help commit to more stringent goals (see Table 4.3, OECD, 2022).
Selected climate-related targets and objectives for 2030 and 2050 by Belgian governments
Note: The targets are for greenhouse gas emissions not covered by the EU- Emissions Trading System. Non-exhaustive list of climate objectives by regional governments and the federal government in Belgium.
Source: UNFCCC, 2020; Governments of Belgium, 2023a
Transforming the energy system will be most important for accelerating emission cuts. About 60% of total GHG emissions are directly emitted in buildings, transport, or for electricity generation (Figure 4.2, Panels A and B). Reflecting Belgium’s strong industrial base, emissions from industrial production contribute about 30% of total GHG emissions – emitted from burning fuels for production or side products from chemical processes – but are mostly covered by the EU-ETS (UNFCCC, 2020; IEA, 2022a).
Effective emission prices outside the EU-ETS vary across uses and are often too low (OECD, 2022). Raising and harmonising them would promote more cost-effective emission cuts. This needs to entail an unwinding of (often implicit) subsidies for fossil fuels. The federal government conducted an inventory of federal fossil fuel subsidies, estimated at around 3% of GDP, and is committed to phase them out (FPS Finance, 2024; Chapter 2). The federal and the regional governments have implemented measures going in that direction (Table 4.3). EU plans to introduce a new emission trading system will extend emission pricing to buildings and transport from 2027 onwards. As discussed in the 2022 OECD Economic Survey, Belgium should gradually increase effective emission prices where they are low, including by implementing EU-ETS II and eliminating fossil fuel subsidies (see Table 4.3). Stronger price signals would also complement R&D support measures in Belgium’s Recovery and Resilience Fund (the measures are worth around 0.1% of GDP) for developing green technologies (European Commission, 2021a; Governments of Belgium, 2023b).
Sectoral shares of total GHG emissions in 2021
Source: OECD (2023), Environment: Air and Climate (database).
Additional policy support – besides pricing emissions and supporting the development of green technologies – will be needed. First, energy production from renewable sources needs to expand rapidly. (Chapter 2). Second, to use more renewable energy and to use it more efficiently, households and businesses need to make large investments notably in buildings and cars, which can be challenging to achieve (Chapter 2).
Nuclear phase-out and increasing demand amplify the need for renewables
Producing more renewable energy is key to cutting emissions while phasing out nuclear energy and accommodating future increases in electricity demand. Belgium’s highly interconnected electricity network with neighbouring economies supports energy security and brings flexibility in supply options (IEA, 2022a). Domestic electricity generation however needs to start playing a greater role. Electricity demand is projected to increase by between 40% and 60% from 2022 until 2035 as households switch to electric cars and replace oil with heat pumps (Elia, 2023a; Federal Planning Bureau, 2024), while Belgium’s nuclear phase out means that sizeable existing carbon-free electricity production capacity needs to be replaced (Box 4.1).
Nuclear energy accounts for a substantial share of electricity production in Belgium; for instance about half electricity generation was nuclear in 2021 (Figure 4.3, Panel A). This helps contain the greenhouse gas (GHG) emissions of the electricity sector (Figure 4.3, Panel B).
In 2003 Belgium decided to gradually phase-out nuclear energy by 2025. In March 2022, following Russia’s war of aggression against Ukraine and to reduce dependency on fossil fuels, the federal government decided to take the necessary steps to extend by ten years the lifespan of the two most recent nuclear plants (totalling 2 gigawatts (GW) capacity). The complete phase out was postponed to 2035, though most plants – about two thirds of the nuclear electricity generation – will close by 2025.
Belgium has established a capacity remuneration mechanism (CRM) to enhance capacity for the period 2025 to 2035 (IEA, 2022a). In the mechanism, providers bid to guarantee future capacity. In its latest auctions, held in 2023 for delivery in 2027-2028, 64% of capacity provision was awarded to natural gas plants. Electricity storage facilities were awarded 21% of the capacity and combined heat and power plants 8%. The auctions added about 0.6 GW of new capacity, with most bids (62%) being won by existing capacities (Elia, 2023a).
Capacities secured with the CRM since 2021 together with the prolongation of two nuclear reactors are estimated at around 4 GW, significantly reducing the gap between future energy supply and demand. Additional CRM auctions with a revised legislative framework to ensure more technological neutrality are planned to expand generation capacity and flexibility further after 2028.
Projections from the Belgian Electricity System Operator Elia suggest the nuclear phase-out will significantly increase C02 intensity of electricity generation and consumption until 2030 (Elia, 2023b). Other projections estimate that electricity production from gas-fired power plants will increase by more than 50% between 2020 and 2025. From 2030, wind and solar power deployment is projected to compensate for the loss in nuclear generation capacities. By 2050, gas power plants are projected to contribute a broadly similar share of Belgium’s electricity production mix as in 2020 (Federal Planning Bureau, 2024).
Phasing out nuclear adds to the challenge of reducing emissions over the medium term, by depriving the energy mix from carbon-free electricity production capacity. But the long-run economics of phase out are complicated. Evaluating the impact of phase out would require a transparent and exhaustive assessment of the benefits and costs, notably abatement costs and potential system and investment costs of alternative energy sources over their life cycle. Assessment should take into account alternative scenarios of retaining nuclear capacity for the long term, including issues in waste management, potential costs in decommissioning and needs to build replacement capacity (including construction subsidies), and costs of insurance and investments in safety.
Note: In Panel A, renewables include solar, wind, hydro and biofuels and waste. In Panel B, GHG emissions excludes emissions from LULUCF (Land Use, Land Use Change and Forestry).
Source: OECD (2023), Energy statistics (database); and OECD (2023), Environment statistics: Air and climate (database).
Capacities from renewable sources need to be scaled up faster to meet increasing demand while limiting dependency on fossil fuels and emissions in the energy sector. Despite increases in recent years, the share of total energy supply from renewable sources was lower than the OECD average in 2021 (Figure 4.4). Furthermore, the European Commission has judged Belgium’s 2030 target for renewable energies as too low in relation to EU-wide targets (European Commission, 2024). Belgium’s Recovery and Resilience Fund adds EUR 100 million (0.02% of GDP in 2022) to a EUR 450 million investment plan to build offshore wind capacities. Government plans include expanding capacities in the Princess Elisabeth zone by up to 3.5 GW by 2030, with tender procedures for the first lot starting at the end of 2024 and building an energy island to host transmission infrastructure. Still, the European Commission highlighted the need for more investments in renewable energy (European Commission, 2021a). Belgium’s dense population and geography pose challenges for expanding renewable capacities on land, but, while it varies across regions, potential remains for a range of technologies, including solar PV installations, wind and biomass (OECD, 2021; European Commission, 2023a; Governments of Belgium, 2023b).
Share of renewable energy, 2021 or latest
Source: OECD (2023), Green Growth Indicators (database).
Boosting investment in renewable energy sources
Ensuring that electricity pricing mechanisms supports investments in renewables is key for expanding capacities. While the decline in production costs of solar and wind power has enhanced the cost competitiveness of renewables, fluctuations in electricity prices still deter investors by creating uncertainty on the profitability of renewable projects. A recent analysis by the European Commission expects that solar photovoltaic and onshore wind will become cost-competitive in Europe under a broad range of market conditions by 2030 only (Busch et al., 2023).
Belgium’s financial support for renewable energy consists of green certificate schemes. Renewable energy producers can sell certificates to other producers who need to meet mandated minimum shares of renewable sources in their energy mix. Costs for certificates are paid by consumers through electricity bills. Belgium uses four different schemes (one for each region and one federal). Shifting support for renewable energy towards mechanisms supporting sufficient remuneration while avoiding overcompensation, for example by offering contracts-for-difference as done for offshore wind, could better encourage investments and limit fiscal costs. These contracts encourage investments by offering a guaranteed electricity price to producers, while requiring investors to pay back extra profits resulting from fluctuations in excess of that price (Busch et al., 2023).
Belgium is providing extra support for energy producers – including for fossil-fuelled technologies – to ensure energy security during the scheduled phase out of nuclear energy. A capacity remuneration scheme (CRM) runs until 2035, which pays for producers to guarantee capacity (see Box 4.1 for details). Still, there are concerns for capacity gaps, especially given the possibility of faster-than-expected electrification. In addition, to date auctions under the CRM bids have been won mainly by natural-gas producers for existing capacities (IEAa, 2022; Elia, 2023b). Auction rules should be further revised to allow a more diverse range of technologies to succeed. For example, bids from demand-side-management – i.e. providing financial incentives to consumers to reduce non-essential demand when electricity is scarce – could be exempted from payback obligations of windfall profits which currently stifle their participation. This is because – contrary to technologies generating electricity – it does not produce electricity and so does not generate windfall profits when prices are very high, but under the current scheme would be obligated to repay imputed profits. This would complement Belgium’s roll-out of smart meters (European Commission, 2020b).
Reducing planning and regulatory obstacles to installing renewable energy facilities and developing the grid infrastructure, taking account of Belgium’s high population density, is also key to increasing capacity and flexibility. In Belgium, as in many countries, spatial planning for infrastructure can be slow and complex, including for renewable energy projects (European Commission, 2023a). Belgium could consider fast-tracking investments by granting them status of overriding public interest, as done in Germany and in Flanders for wind turbines (OECD, 2023b). Also, planning rules could be reviewed, e.g. to reduce minimum distance rules of wind turbines. A PV-obligation for buildings with a significant electricity consumption was introduced in Flanders. Implementing more renewable energy projects may also require addressing low public acceptance at the local level, e.g. through better involving municipalities and citizens in planning (European Commission, 2023a).
Achieving the energy transition requires households to invest in buildings renovations and zero emission cars. Costs, even when spread over the period until 2050, are sizeable. For example, estimated investment costs for renovations until 2050 correspond to around EUR 350 billion in Belgium or EUR 65 000 per home (National Bank of Belgium, 2024). This outlay will only be partially offset by energy-bill reductions (BPIE, 2021). For transport, while the ownership cost of zero-emission cars can be similar to conventional cars for some users (Franckx, 2023), replacing all non-electric cars by 2050 would nevertheless entail significant costs. Assuming the average prices of zero-emission cars and combustion engine cars will converge, the cost is estimated at around EUR 1 200 per household and per year. Many households may lack funds or liquidity to bear those costs or may hesitate to invest because they do not see the return. As detailed below, policies help overcome some of these issues by strengthening price signals, so people have better financial incentives to electrify and save energy; improving policy certainty for households and suppliers; and providing well-targeted financial support.
Strengthening price signals to support electrification and energy savings
High electricity prices relative to other energy sources, notably natural gas, heating oil and gasoline, can act as a deterrent to electrifying energy use in buildings and transport. Since before the energy crisis, using electricity as an energy source has been more expensive for consumers compared to generating energy from directly burning fossil-fuels; for example, in 2019 heating homes with electricity was 50% more expensive compared to gas or oil (IEA, 2022a). Electricity bills in Belgium include comparatively high-cost components that are not related to production costs – such as levies for buying green certificates and excise duties to support offshore wind development (Figure 4.5). Reviewing electricity bill items – for example shifting to tax-financed subsidies for renewable energy as done in Germany (Box 4.1) – would make it more attractive to electrify energy use (IEA, 2022a). At the federal level, the partial shift of the excise duty on electricity to natural gas in buildings is a first step in the right direction. It could be extended and applied to heating oil. Levy components have also been reduced in electricity bills in Flanders to promote electrification.
Levy component of price gap between electricity and natural gas for households, in EUR/MWh, February 2023
Note: Electricity prices for Germany for Amprion.
Source: OECD calculations based on CREG (2023).
Social tariffs (concessionary energy prices for low-income groups) could be reviewed to both better protect households and reward energy savings. About one in ten electricity or gas consumers in Belgium received social tariffs in 2020 (IEA, 2022a), but some vulnerable households may not have received any (Brugel, 2020; Van Lancker, 2020). A reform was envisaged in 2023 but put on hold. To improve targeting, finely grained vulnerability categories could be introduced, as done for example in France, Italy or Moldova (Castle et al., 2023). Moreover, social tariffs act on prices and thus reduce energy bills as well as incentives to save energy. To preserve incentives, social tariffs could be replaced with equivalent income transfers, or be limited up to a threshold. For example, during the recent crisis the Netherlands used information on past energy use to define seasonal consumption limits for which households received support (Castle et al., 2023).
Boosting deep energy-efficient renovations in buildings
Belgium has considerable potential to reduce emissions and save energy by renovating buildings. About 80% of houses were built more than 30 years ago, before energy norms were introduced (European Commission, 2021a). Buildings in Belgium use more energy and produce more greenhouse gas emissions compared to many other OECD countries (Figure 4.6, Panels A and B). With residential buildings accounting for about 85% of total floor area in Belgium – single family houses alone account for about 70% – households are crucial to implement these renovations (European Commission, 2019).
The pace of renovations needs to pick up to reach a net zero building stock by 2050. In 2022, only 7% of Belgium’s building stock met Belgium’s current targets on energy-consumption for 2050. Even fewer buildings will meet the stricter targets that are implied by new EU legislation: while current targets aim to reduce energy consumption to 100KWh/m2 and do not explicitly proscribe the use of fossil fuels for heating or cooling, the EU aims for a zero-emission building stock, with very low energy demand, zero on-site carbon emissions from fossil fuels and zero or a very low amount of operational greenhouse gas emissions. All new buildings should be zero-emission buildings by 2030, and existing buildings should be transformed into zero-emission buildings by 2050 (European Commission, 2024). About 160 000 dwellings would need to be comprehensively renovated per year from now on until 2050 to transform all buildings built before 2011. The current pace of renovations would need to increase substantially: about 30 000 comprehensive renovations – i.e. those needing a building permit, including energy-related and non-energy related renovations – were carried out annually in recent years (STATBEL, 2023).
Besides renovating more homes, more renovations need to be deep to reach climate goals. Renovation for a net zero emission building stock will require comprehensive works – such as covering walls, roofs, floors, windows and heating systems – for most buildings (BPIE, 2021). Putting more emphasis on the decarbonisation of heating systems would increase the cost-effectiveness and speed of the climate transition, notably by reducing capacity pressures in the construction sector (National Bank of Belgium, 2024). Increasing the use of renewable energy for heating and cooling as part of deep renovations also entails producing more energy at home, e.g. with solar heat (IEA, 2022a). A series of disconnected renovations and installations of renewable capacity is overall more difficult to plan and makes lock-ins more likely than with deep renovations - i.e. renovations achieving the highest efficiency standard at once or, if that is not feasible, through a renovation roadmap. Information on past renovations in Belgium suggests that – in the absence of support promoting deep renovations – people mostly opt for relatively shallow renovations: about 90% of energy renovations between 2012 and 2016 reduced primary energy consumption by less than a third, with half of those renovations yielding energy savings by even less than 3% (European Commission, 2019). This means that even more than 160 000 renovations per year would likely be needed to reach targets at previous renovation depths.
Source: Eurostat (2023), Energy Statistics: Disaggregated final energy consumption in households; Emissions of greenhouse gases and air pollutants: Air emissions accounts by NACE Rev. 2 activity (database) and Population: national level (database).
Financial support should be targeted on deep renovations, including installations of renewable energy systems. Deep renovations are expensive: estimates for Flanders suggest average costs range from EUR 30 000 to EUR 75 000 for most buildings, exceeding financial capacities of every other household (Albrecht and Hamels, 2021). Increases in building costs since 2021 have likely raised total renovation costs significantly (NBB, 2023). Regional programmes, including the “Renolution” programme in the Brussels Capital Region, the Long-term Strategy for Building Energy Renovation in Wallonia, and the Long-Term Strategy For The Renovation Of Flemish Buildings, support a range of renovations but may leave most households to still opt for shallower renovations. In Flanders, for example, grants of up to 25 000 EUR and subsidised loans of up to 60 000 at currently 2.25% interest imply households still face substantial costs when choosing deep renovation even with support. Vulnerable households may struggle to repay subsidised loans over conventional periods. Deeper renovations could be promoted by making support conditional on committing to a renovation roadmap, and assuring grants are sufficient for vulnerable households. Coordination with other existing policy measures, investment and direct income support provided to vulnerable households though the Social Climate Fund at the federal and regional levels will also be key to ensure cost efficiency.
Commercial lending can play a role to boost energy-efficiency improving renovations. The use of commercial finance for renovations is currently hampered across OECD countries by the lack of common methods, standards, as well as data on buildings’ energy performance to accurately price in the benefits of high energy efficiency for real estate (de Mello, 2023; Hoeller et al., 2023). Higher energy efficiency reduces the risk for default by increasing households’ disposable income through lower energy bills and increases the value of collateral. High energy efficiency also lowers risks from policy changes later requiring expensive retrofits. Belgium is among the countries developing green housing finance to reap those benefits to offer more affordable loans to households. For example, Home Invest Belgium issued its first green real estate bond in 2022 and developed a Green Finance Framework (Home Invest Belgium, 2023). The framework seeks to provide clear and transparent criteria for green investments to overcome the fragmentation of methods and standards.
The EU Directive on energy performance of buildings is set to strengthen requirements for energy performance certificates (EPCs) and minimum energy efficiency requirements for buildings. Plans for gradually tightening renovation obligations are in place in all regions but need to be amended to align with the EU targets for 2050. Aligning regulations with renovation needs to reach targets, including on the phase-out of fossil fuels and requirements for on-site renewable energy production for heating and cooling, would give households certainty and time to anticipate investment requirements. Already at current targets almost all households will need to renovate eventually, including those living in homes that will not be rented, sold, or gifted. Setting out regulations in line with the revised EU directive and to eventually require all buildings to have an EPC with a renovation roadmap would inform households about which renovations and investment are needed; setting out a timeline of tightening energy-efficiency and emission standards for all buildings would clarify by when those building works need to be implemented.
Regional plans to complement tightening building regulations with policies providing easy access to information are welcome. These include promoting building passports, as in Flanders and planned in Wallonia and Brussels or expanding one-stop-shops called Energy Houses in Flanders. Similarly, plans for targeted support to multi-owners, as done for example in Brussels where multi-owner buildings account for 55% of all dwellings, can help to remove renovation obstacles. Given that most of Belgium’s about 5 million households may need to renovate, ensuring that contact points have enough trained staff will be crucial to inform and help households plan required investments (IBF International Consulting Consortium, 2023).
Better supporting greening of the car fleet
Replacing fossil-fuelled cars will be key to cutting transport emissions. Road transport accounts for about 97% of Belgium’s emissions from domestic transport. Most passenger transport is by private cars: more than four-fifths of passenger-kilometres travelled in 2019. In Belgium, cars are expected to remain the dominant transport mode for decades (Daubresse, 2022).
Reducing road transport is one route to reducing congestion and achieve a net zero emission transport system. Belgium plans several investments in the coming years – worth at least 3% of 2022 GDP – to make public transport, cycling and walking more attractive, which is welcome (Governments of Belgium, 2023b; European Commission, 2021a). Broadening road pricing– to reflect the true costs of high volumes of traffic – would additionally encourage the shift away from cars per se and reduce congestion (ODYSEE-MURE, 2020). It could also help sustain fiscal revenues, not least given the decline in tax revenues arising from the shift to zero emission cars (ITF, 2019).
Belgium’s households spend relatively large amounts on new cars, but still the greening of the fleet has been slow. New car registrations in 2022 corresponded to about 6% of Belgium’s passenger car fleet, among the fastest fleet renewals in the EU (Figure 4.7, Panel A). However, while the charging infrastructure is becoming denser and despite recent improvements, Belgium’s share of electric cars in 2022 was low compared to many other OECD countries (Figure 4.7, Panel B), and in 2022 Belgium added proportionally fewer new zero emission cars to its fleet compared to OECD countries with similarly fast fleet renewals (Figure 4.7,Panel A).
Note: Panel A shows the share of total new registrations computed as number of total new registrations in 2022 over stock of registered vehicles in 2021. Panel B shows the share of electric vehicles over the stock of registered vehicles in 2022.
Source: OECD calculations based on European Commission(2023b); and Eurostat (2023).
Financial incentives for the take-up of zero emission cars should be revised. Belgium’s generous tax treatment for company cars acts as a subsidy for purchasing new cars (OECD, 2021). Such tax benefits are common across OECD countries but are larger in Belgium than elsewhere: for example, tax savings for a medium-sized fossil-fuelled company car are estimated to be about EUR 6 500 in Belgium versus EUR 1.500 in France and EUR 850 in Germany (Transport & Environment, 2020). While from 2026 only zero emission cars will get tax these deductions, tax benefits are regressive, supporting households who are more likely to opt for zero emission cars without support, and effectively subsidise congestion (May, Ermans and Hooftman, 2023). In addition, the favourable treatment of the benefit in kind in personal income taxation and social security contributions will remain unchanged and unduly support car use. Meanwhile, Belgium phased out purchase subsidies for zero emission cars, though still offers exemptions or reductions for ownership or acquisition taxes (ACEA, 2023). This means low-income households receive limited support to buy zero emission cars and have fewer mobility options, especially in areas where polluting cars are or will be banned or where public transport is less developed. Evidence from the US shows that targeting subsidies to lower income groups can double their impact on accelerating fleet greening (Sheldon, 2022). Flanders has temporarily reintroduced limited subsidies to purchase new and second hand zero-emission cars that cost less than EUR 40 000. Phasing out Belgium’s generous tax treatment and replacing it with financial support capped or targeted directly at low and medium income households – who are more likely to change their purchase decision as result of the support – would support fleet greening more effectively while limiting fiscal costs.
Restrictions on using fossil-fuelled cars could be expanded. Low emission zones exist for Brussels, Antwerp and Ghent, and Brussels committed to becoming a zero-emission zone in 2035. Tightening existing or encouraging new zones could encourage more households to shift to zero emission cars. As many fossil-fuelled cars may remain available and cheaper to use (IEA, 2023b), further restrictions may be needed to phase-out fossil-fuelled cars in line with emission targets (ITF, 2021). The earlier future restrictions can be announced, the more time households have to adapt and avoid investing in cars whose use may soon be restricted.
Climate change has macroeconomic, fiscal, and financial effects. As discussed in the introduction to this Chapter, in Belgium, climate change is materialising through increases in temperatures, precipitation and frequency of extreme weather events. Economic losses caused by weather - and climate - related extreme events between 1980 and 2022 are estimated at more than EUR 16 billion in Belgium (EEA, 2023a). A succession of hot summers, culminating in unprecedented temperature extremes and recurring droughts have already affected mortality and productivity, among others (NCC, 2020). In 2021, heavy precipitations in Wallonia lead to flooding causing large losses, with an estimated cost of repairs of about EUR 5.2 billion (EEA, 2023b).
The effects of climate change in Belgium are expected to accentuate over the coming decades. Extreme precipitations events are projected to become more frequent (OECD, 2021). In absence of adaption policies, this will increase the risk of flooding which will likely be one of the biggest challenges for climate change adaptation in Belgium. The Belgian population exposed to river flooding is higher than in most OECD countries (Figure 4.8). The Flemish region is, after the Netherlands, the most exposed region to coastal flooding in Europe. Furthermore, even now 46% of built-up areas are exposed to violent windstorms, one of the highest shares in the OECD (OECD, 2023a).
Share of the population exposed to river flooding, 2020
Note: A return period is the average or estimated time that a flood event is likely to recur.
Source: OECD International Programme for Action on Climate (IPAC) Dashboard (https://www.oecd.org/climate-action/ipac/); and Maes, M. J. A., et al. (2022), "Monitoring exposure to climate-related hazards: Indicator methodology and key results".
Another important risk is prolonged droughts. These could have negative economic repercussions, affecting agriculture, firms involved the agri-food chain, inland navigation, and other industries that rely on consistent water supply. In a high emission scenario, temperatures in Belgium could increase by up to 7 degrees in the summer (IEA, 2023a). Heatwave frequency, intensity and length will continue to rise especially in urban areas where 87% of the population is concentrated. Local land-use regulation would help to lower the urban heat island effect mitigating heat waves and urban floods such as making green roofs mandatory in local land-use plans as is the case in Germany (OECD, 2023c).
Climate adaptation is mostly a competence of the regional governments. Regional and federal adaptation plans are in place. However, institutional co-operation on climate adaptation between regions and the federal state needs strengthening and the implementation of adaptation measures should accelerate. Updates of the 2010 National Adaptation Strategy and the National Adaptation Plan (NCC, 2017), which should strengthen coherence between federal and regional adaptation plans, have been delayed. Furthermore, evaluations of the 2017 Adaptation Plan point to inadequate implementation and scope for a more comprehensive assessment of risks. The federal government adaptation measures adopted in 2023 include initiatives aimed at improving knowledge on the probability and size of climate change impacts. One initiative is to establish a coordinating body (the “Belgian Climate Centre”) in charge, inter alia, of better transfer of knowledge from researchers to users by facilitating access to data, information and expertise. In addition, the creation of the Climate and Environment Risk Assessment Centre (CERAC) in April 2024 is intended to address the need for a more comprehensive assessment of risks. In Flanders, as part of the Flemish Climate Adaptation Plan, an online “climate portal” provides information on the current and projected impacts of climate change, such as droughts, floods and sea level rise, at the municipal level, and tailored adaptation solutions. Replicating such tools in all regions would further raise awareness of climate-related risks. Consideration should also be given to introducing a system that monitors efficacy of adaptation measures. Developing information and monitoring tools at the national rather than regional level would offer greater efficiency.
Expanding insurance protection against extreme weather events climate can help manage the economic cost of climate change. A well-designed insurance system should encourage stakeholders to adopt risk mitigating measures and reduce the burden on public budget, while keeping insurance protection affordable and preserving competition in the insurance market. Between 1980 and 2022, around 40% of climate related disaster losses were insured in Belgium, higher than in many OECD countries (EEA, 2023a). However, inadequacies in the coverage of climate-related risks and risk-sharing mechanisms between the public and private sectors have been identified (FPS Environment, 2023).
Insurance coverage is high, estimated at around 85% to 95%, but is insufficient in high-risk areas. Introducing mandatory and more comprehensive private insurance for natural disasters should be envisaged. Switzerland, for example, mandates building insurance against natural catastrophes in 22 out of 26 of its cantons, which either private or public insurers provide (OECD, 2017; OECD, 2016). In France, the CATNAT insurance scheme mandates a premium at a flat rate for all property and motor vehicle insurance policies to insure against natural disasters (OECD/The World Bank, 2019). Subsidising insurance for vulnerable households could address potential concerns about housing affordability (OECD, 2021).
A clear framework should be developed to reduce uncertainty on the extent to which extreme-weather risks are covered by the public sector. Regional legislation for the establishment and the functioning of natural disaster funds (a regional responsibility since 2014) is missing in Wallonia and Brussels. Providing a public backstop for losses borne by insurance providers can limit uncertainty, and thus costs, for private insurances (OECD, 2021). The intervention limit for insurers appeared too low during the 2021 floodings and is being revised. The framework should also set out where local and central governments are responsible for the cost of adaptation and establishing mechanisms to support local governments for which adaptation costs would be higher.
Private investment in adaptation measures, such as flood protection, could reduce costs but faces the same impediments as above-mentioned investments in building renovation, including a lack of information and high upfront costs. Climate-related risks could be added to national mandatory certification of buildings, as in Germany for instance with flood passports or in Flanders. Specific support measures could be envisaged. In France the fonds de prévention des risques naturels majeurs finance adaptation measures and is funded by a mandatory contribution from property insurance policies. Insurance programs could be conditioned to the implementation of risk management practices and meeting some standards to incentivise the implementation of adaptation measures.
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