NGFS Short-Term Climate Scenarios

This episode discusses the methodology and implementation of the Network for Greening the Financial System's (NGFS) short-term climate scenarios. They describe a modelling framework combining three interconnected models (GEM-E3, EIRIN, and CLIMACRED) to assess the impact of climate change and policy on the economy and financial system, covering transition and physical risks. The sources outline several hypothetical future pathways, including a rapid, technology-driven "Highway to Paris" transition and a "Sudden Wake-Up Call" triggered by delayed action, which result in varying economic and financial outcomes such as shifts in investment, inflation, unemployment, and sector-specific production and risk. The analysis considers how climate policies like carbon pricing and physical events like extreme weather are modelled and how these factors transmit through the economy to affect credit risk, asset valuation, and monetary policy.