Effects of disorderly transition likely to be uneven, finds BdF study

February 10, 2022|Written by Graham Caswell|Network for Greening the Financial System, Banque de France, Deutsche Bundesbank

A Banque de France (BdF) analysis of the risks associated with a disorderly transition to a low-carbon economy has found uneven macroeconomic effects along with substantial disparities between sectors.

While French GDP, inflation and unemployment are all negatively affected under disorderly transition scenarios, the study finds that these impacts are felt largely at the sector level and are strongly heterogeneous.

Jointly conducted with the French Prudential Supervision and Resolution Authority (ACPR), an independent prudential authority supervising French banks and insurance companies, the exercise builds on a climate pilot exercise conducted by the ACPR last year.

Calibrated on reference scenarios developed by the Network for Greening the Financial System (NGFS), a novel suite of models was used to disaggregate the effects of the low-carbon transition at the national, sectoral and infra-sectoral levels. Using an “orderly transition scenario” as a baseline, the analysis focused on a “delayed disorderly” transition due to policy action and a “sudden disorderly” transition without time to develop and implement new technologies.

Compared to the orderly transition scenario, the delayed and sudden disorderly scenarios lead to additional impacts of ‑2.1% and ‑5.5% on French GDP by 2050, with increases in inflation rate of 0.6% per year on average between 2030 and 2040. However much of this impact occurs within a very small number of sectors, with the petroleum, mining, sewerage and agricultural sectors particularly affected.

The price of carbon is expected to rise to €180 per tonne by 2050 under the baseline orderly scenario, but could rise to over €900 per tonne under the sudden transition scenario.

The analysis also found that the effects of a disorderly transition on consumers are initially positive as carbon tax receipts are redistributed to households. However, by 2035 the rise in inflation caused by the higher carbon tax leads to an erosion of household purchasing power, negating this effect.

The BdF/ACPR study follows a recent and similar Bundesbank analysis which found significant climate-related effects on economic performance and financial stability, including some effects beyond those envisaged in NGFS scenarios.

This page was last updated February 10, 2022

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