NGFS Long-term Scenarios for Central Banks and Supervisors – Phase 5

Climate inaction will wreak far greater economic havoc than previously thought, according to sobering new projections from the Network for Greening the Financial System (NGFS).

The group’s latest climate scenarios, released in November 2024, paint a grim picture of potential global GDP losses reaching 30% by 2100 under current policies, with tail risks of up to 50%.

These losses represent more than double previous estimates, with some countries possibly seeing their economies shrink by a quarter as soon as 2050 from chronic climate risks alone. This is before accounting for the role of extreme weather events such as cyclones and wildfires.

The latest scenarios confirm findings from previous vintages that physical impacts far outweigh the cost of ambitious transition efforts across all scenarios.

Timely transition efforts would substantially mitigate GDP impacts. However, even in a net-zero scenario, near-term economic costs are likely to be higher than previously thought.

Increasingly ambitious action required for 1.5°C

The scenarios suggest that limiting warming to 1.5°C is still possible but will require intensified efforts. Due to delayed climate policy implementation, a more ambitious and disruptive path to net-zero emissions with higher carbon prices is now necessary.

The NGFS scenarios indicate a shadow carbon price – which can be used as a proxy for overall climate policy ambition – of US$300 per tonne of CO2 would be needed by 2035 for an orderly net-zero transition by 2050, $50 higher than previous estimates. The low-demand scenario shows reducing global energy demand could lower this to around $200/tCO2 by 2035, easing economic impacts.

The low-demand scenario outlines the most orderly path to a Paris-aligned transition, and features 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.

Consistent with previous results, delayed transition pathways show markedly higher impacts on  inflation stability and GDP compared to orderly ones. However, thanks to delayed climate action, more pronounced effects are now expected compared to previous NGFS projections and even steeper carbon price hikes will be needed.

Updated damage function

At the heart of these dire forecasts is a new damage function developed by researchers Maximilian Kotz, Anders Levermann and Leonie Wenz. It suggests climate shocks could have persistent effects on economic growth, rather than just temporary impacts as previously assumed.

The new model incorporates a wider range of climate variables, including precipitation patterns and temperature variability, and accounts for lagged effects of climate shocks on GDP for up to 10 years.

The updated scenarios, while more comprehensive, still have limitations. They may underestimate acute physical risks from extreme weather and still do not fully capture key risks like climate migration, nature loss or tipping points.

The NGFS plans to release a set of short-term scenarios in 2025 and update its main scenarios again in 2026.