Introduction to Climate Scenarios
An influential global coalition of central banks and financial supervisors plans to publish a new set of climate scenarios next year. The Network for Greening the Financial System (NGFS) will release updated long-term climate scenarios in November, according to French Central Bank governor Francois Villeroy de Galhau. This move comes as the group works to address a controversy surrounding a key input in an earlier model.
Background on the Controversy
The central bankers’ group, which includes about 150 members such as the People’s Bank of China and the European Central Bank, has been dealing with the aftermath of an academic error. A widely cited study projecting severe economic fallout from climate change was withdrawn following peer criticism. The paper, produced by scientists at the Potsdam Institute for Climate Impact Research, estimated that unchecked climate change could slash global output by roughly 62 percent this century.
Improving the Models
Villeroy de Galhau stated that the NGFS scenarios "are a key resource to inform decision-makers and anchor the debate in science-based evidence rather than political feelings." The models are developed jointly with the scientific community and quantify both transition risk and physical risk, assessing their macroeconomic and financial implications. The NGFS is continuously improving its modeling, and the updated scenarios will not rely on the retracted academic paper.
Preparing for the Sixth Version
The NGFS is assessing how to reflect the changes to the retracted Potsdam paper and reviewing its methodology as it prepares to launch the sixth version of its long-term climate macro-financial scenarios. The spokesperson for the NGFS confirmed that the so-called damage function, which provides an estimate of the economic impacts, will be revised.
Conclusion
The NGFS is taking steps to improve its climate scenarios and address the controversy surrounding the earlier model. By publishing updated long-term climate scenarios and revising the damage function, the group aims to provide more accurate and reliable information to decision-makers. The updated scenarios will be released in November, and the NGFS will continue to work with the scientific community to improve its modeling and quantify the risks associated with climate change.
