Energy Transition and Geoeconomic Fragmentation: Implications for ... - International Monetary Fund
Energy Transition and Geoeconomic Fragmentation: Implications for Climate Scenario Design
Author/Editor:
Charlotte Gardes-Landolfini; Pierpaolo Grippa; William Oman; Sha Yu
Publication Date:
November 28, 2023
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
The transition to a low-carbon economy, which is needed to mitigate climate change and meet the Paris Agreement temperature goals, has been affected by the supply chain and energy supply disruptions that originated during the COVID-19 pandemic, the Russian invasion of Ukraine, and the subsequent energy crisis and exacerbation of geopolitical tensions. These developments, and the broader context of the ongoing “polycrisis,” can affect future decarbonization scenarios. This reflects three main factors: (1) pullbacks in climate mitigation policies and increased carbon lock-in in fossil fuel infrastructure and policymaking; (2) the decreasing likelihood of continuous cost reduction in renewable energy technologies; and (3) the likely intensification of macroeconomic shocks amid increasing geoeconomic fragmentation, and the associated policy responses. In this context, the note assesses the implications of the polycrisis for hypothetical scenarios used to assess climate-related financial risks. Following an analysis of the channels through which these effects are likely to materialize over short- and long-term horizons and some policy implications, the note proposes potential adjustments to the design of the climate scenarios used by financial institutions, central banks, and financial sector supervisors and regulators within their risk management frameworks.
Series:
Staff Climate Note No 2023/003
Subject:
Economic sectors Environment Financial crises
Frequency:
occasional
English
Publication Date:
November 28, 2023
ISBN/ISSN:
9798400258220/2789-0600
Stock No:
CLNEA2023003
Format:
Paper
Pages:
44
Please address any questions about this title to publications@imf.org
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”