The Network for Greening the Financial System (NGFS) last week released an update to their climate scenarios which assist financial institutions with analysing climate-related risks to the economy and financial system (the Study). The NGFS is a group of 91 central banks (including the Bank of Canada, US Federal Reserve, and European Central Bank), supervisors, and observers that seek to share best practices and contribute to the development of climate risk management in the financial sector, and to mobilize mainstream finance to support the transition toward a sustainable economy. This bulletin provides a high-level summary of the Study’s key findings:

Transition risks:

  • Emission prices. The Study indicates that a price of $160/tonne CO2e will be required by 2030 to incentivise the transition to net zero by 2050.
  • Energy investment. Greater investments in renewable energy and storage will be necessary to meet net zero goals by 2050, with substantially reduced investments in fossil fuel extraction. The Study suggests that, by 2050, renewables and biomass will account for 68% of global energy needs, with fossil fuels (coal, oil, and gas) providing close to 25%, down from approximately 80% in 2020.
  • CO2 removal. The Study assumed low to medium availability of carbon removal technology and storage such as increasing forest cover, soil sequestration, and growing crops for bioenergy with carbon capture and storage (BECCS). The Study suggests that CO2 removal would help to accelerate decarbonization goals and lower warming outcomes but on a limited scale.
  • Agriculture, forestry and land use. Changes in land use will be important for the pathway to net zero by 2050, including increasing forest cover and bioenergy cropland and reducing cropland for food production and pasture land. The Study notes that CO2 emissions are anticipated to decline more quickly than other greenhouse gases including N2O and CH4.

Physical risks:

  • Temperature rise. The mean temperature will continue to rise under each scenario modelled in the Study, staying within 1.5°C on a net zero by 2050 pathway and exceeding 3°C with current climate policies.
  • Precipitation. The Study indicates that with current policies, precipitation will increase by over 27% in North India and decrease by more than 30% in Southern Europe, with similar but less extreme global changes.
  • Heat and labour productivity. Increased temperatures correlate with a decrease in physical labour — up to 12% in the 3°C scenario — with the highest impact in Asia and Africa.
  • Crop yields and food security. Crop yields are likely to be negatively affected by rising global temperatures, with higher risks associated with temperatures above 2°C.

Economic impacts:

  • GDP. The Study estimates that the economic risks are limited with a net zero by 2050 pathway; a delayed transition could result in global GDP declining by up to 5% by 2050; and maintaining current policies would result in a drop of global GDP of 13% by 2100, with the greatest impacts in tropical regions.
  • Inflation and unemployment. The Study notes that introducing carbon pricing raises energy cost causing short term increases in inflation and unemployment.
  • Financial markets. Long-term interest rates are expected to increase by between 0.5-1.5% by 2050 as a result of carbon pricing and the investments required for the net zero transition. Sectors that can more easily decarbonize are less likely to be affected by pressures on real financial asset valuations.
  • Uncertainty in impact from transition risk. Effective climate policy is highly dependent on the mix of policy options used by governments. The Study notes that carbon pricing affects the economy more than emissions performance standards, renewable portfolio standards, and subsidies.
  • Uncertainty in impacts from physical risks. Estimates with respect to physical risks associated with climate change vary greatly and likely under-estimate or do not fully account for the effects of various physical risks on GDP. Importantly, the Study notes that there is limited literature and studies available on the risks associated with “tipping points” accelerating global warming; with the few studies that have considered this issue recommending carbon prices be eight times higher.

For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at


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