NGFS Climate Scenarios for Central Banks and Supervisors: Phase 4

December 12, 2023Published by Network for Greening the Financial System

The Network for Greening the Financial System (NGFS) has developed two new scenarios to capture the more challenging road ahead for net zero: the optimal low demand and the fragmented world scenarios.

Due to delayed climate policy action and persistently high emissions, net zero by 2050 will require even greater ambition than previously thought, according to the NGFS report.

The latest vintage of scenarios have been enriched to reflect this more disorderly path, improving physical risk modelling and incorporating the latest developments in climate policy.

The low demand scenario outlines the most orderly path to a Paris-aligned transition – effective climate policies coupled with a substantial decrease in energy consumption. It would place the world on a trajectory for a 1.1°C  temperature rise by 2100 and would entail the lowest physical and transition risks of any scenario investigated.

In contrast, the fragmented world or “too little too late” scenario illustrates the adverse consequences of delayed and divergent climate action. It has a temperature pathway of 2.3°C, only 0.5°C less than under the updated current policies scenario, emphasising the critical role of international policy coordination.

The established orderly transition scenario has been enriched to include a much steeper increase in shadow carbon prices – a proxy for the stringency of climate policy – than previously modelled. The authors estimate that in this scenario a carbon price of US$200 per tonne of CO2 is now needed by 2030.

A fall in annual energy consumption envisioned in the low demand scenario, from 445 exaJoules (eJ) compared to 510 eJ under the orderly transition trajectory, would facilitate transition with approximately half the increase in shadow carbon pricing.

It would also entail the lowest investment in energy supply systems of any scenario investigated, and could lessen the impact of inadequate finance on climate mitigation.

The fragmented world scenario explores the adverse impacts of failing to implement climate mitigation policies in a timely and globally coordinated manner, and can be used as a baseline for climate stress tests, say the authors.

Another key contribution of the latest scenarios is improved modelling of acute physical hazards, including the addition of droughts and heatwaves, increased geographical granularity, and greater use of global climate models.

Country-level downscaling techniques are used to increase geographical granularity. Downscaling refines the results of macroeconomic and global climate models to provide more detailed information about how climate impacts specific regions or sectors, according to the accompanying technical documentation.

However, in a 2021 report the NGFS recognised that there are “difficulties when attempting to downscale global climate models to a higher resolution”.

In its next phase, the NGFS will develop short term scenarios, improve sectoral disaggregation and enhance chronic physical risk damage functions.

Finally, the report is accompanied by revamped technical documents, including a high-level overview for non-expert users, technical and non-technical guides for each modelling component, and a suite of open-source data engagement tools.

This page was last updated December 13, 2023

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