In June 2020, the Center for Global Sustainability (CGS) at the University of Maryland School of Public Policy joined partners from across the world to create The NGFS Climate Scenarios. The scenarios provide a common starting point for analyzing climate risks to the economy and financial system and demonstrate how early greenhouse gas emissions reductions can minimize both physical and financial risk. The NGFS Climate Scenarios was developed to inform the 66 central banks and supervisors and 13 observers behind The Network for Greening the Financial System (NGFS).
Today, the analytical team behind the NGFS Climate Scenarios—International Institute for Applied Systems Analysis (IIASA), Climate Analytics (CA), the Swiss Federal Institute of Technology in Zurich (ETHZ), and the National Institute of Economic and Social Research (NIESR)—released updated scenarios from June 2020’s initial scenario report. Based on a comprehensive set of data and resources, these scenarios offer a common reference point for understanding how climate change, policy, and technology trends could evolve in different futures, and the risks associated with each scenario. These scenarios have been adapted to help central banks and supervisors explore potential impacts on the economy and financial systems, and to inform decision-making at all levels.
“The impacts of climate change are only increasing and as global leaders from every sector of the economy look to reduce emissions and assess the risks associated with action—or non-action—we aim to provide a glimpse into what is possible through a comprehensive set of transition pathways, economic indicators, and climate impacts,” says Ryna Cui, Assistant Research Professor at CGS and co-contributor to these scenarios.
“We at CGS look forward to continuing this important work of informing decision-making at all levels—from the banks and supervisors composing the NGFS to broader policymakers across the world,” says Jae Edmonds, Senior Fellow at CGS and Principal Investigator (PI) for this research.
The CGS team behind this analysis includes Alicia Zhao, Leon Clarke, Jae Edmonds, Ryna Cui, and Sha Yu.
To learn more, check out the full press release below.
Limiting climate risks for finance: Central banks and science publish scenarios
To improve climate related risk management in the financial sector and facilitate a smooth transition toward a sustainable economy, over 90 central banks and financial market supervisors organized in the Network for Greening the Financial System joined forces with science. Together, researchers and financial experts now published an updated set of scenarios of an orderly transition, delayed transition, and climate policy failure. They show how early greenhouse gas emissions reductions can minimize both physical and financial risk. In contrast, delayed action or no action would inevitably drive up costs in the medium to long term. The analysis provides sectoral and regional detail to help financial institutions adapt their investment strategies.
“Climate scenarios are a crucial tool in assessing the risks of the future,” says Sarah Breeden, Executive Director at the Bank of England and chair of the scenario process within the Network for Greening the Financial System (NGFS). “But they are so much more. Because when we better understand the risks of tomorrow, we take more informed action today, and in doing so support an orderly transition to net zero.”
For an orderly transition towards net zero emissions by mid century, investments into renewable energy would have to double to quadruple in the next ten years compared to continuing current trends, according to the scenarios. This offers remarkable investment opportunities. In turn, investments into fossil energy would substantially decrease. To enable an orderly transition, computer simulations show a carbon price is needed in the range of 100-200 US dollar per tonne CO2 by 2030. The analysis assumes that the revenue is returned to the economy through a mix of government investments, debt paydown and tax cuts.
"Both climate change and finance are all about global risks”, says Elmar Kriegler from the Potsdam Institute for Climate Impact Research (PIK). “Connecting scenarios developed by climate researchers with the financial institutions' expertise is a huge step forward to coordinate thinking about the economic implications of ambitious climate policy or the lack thereof. It is a step that can ultimately lead us to effectively limit the risks and help achieve a safe future for all."
Kriegler is coordinating the academic consortium that developed the scenarios with the NGFS. It includes the International Institute for Applied Systems Analysis (IIASA), University of Maryland (UMD), Climate Analytics (CA), the Swiss Federal Institute of Technology in Zurich (ETHZ), and the National Institute of Economic and Social Research (NIESR). This work was made possible by grants from Bloomberg Philanthropies and ClimateWorks Foundation. The financial institutions involved in the NGFS include the central banks of Great Britain, France, Germany, the EU, U.S., Japan, China, Brazil, India, Russia as well as observers such as the International Monetary Fund and the World Bank.
Weblink to an interactive introduction to the NGFS scenarios: https://www.ngfs.net/ngfs-scenarios-portal/
Weblink to NGFS press release: https://www.ngfs.net/en/communique-de-presse/ngfs-publishes-second-vintage-climate-scenarios-forward-looking-climate-risks-assessment
The presentation of the NGFS scenarios is available here: https://www.ngfs.net/sites/default/files/medias/documents/ngfs_climate_scenarios_phase2_june2021.pdf
Transition risk and macro-economic data can be visualized and downloaded via the NGFS IIASA Scenario Explorer: https://data.ene.iiasa.ac.at/ngfs/
Physical risk data can be visualized and downloaded via the NGFS CA Climate Impact Explorer: http://climate-impact-explorer.climateanalytics.org/impacts/
The technical documentation of the NGFS scenarios is available here: https://www.ngfs.net/sites/default/files/ngfs_climate_scenarios_technical_documentation__phase2_june2021.pdf