The Network for Greening the Financial System (NGFS) published the latest set of long-term macro-financial scenarios (Phase V) for forward-looking climate risks assessments. Along with the updated scenarios, NGFS published three documents that provide supplementary guidance on the use of these scenarios—an overview of updates in Phase V package, an explanatory note on the new damage function used for physical risk assessment, and an updated technical documentation discussing the NGFS modeling framework and assumptions behind the scenarios. Additionally, NGFS released a note that offers insights on the relevance of climate adaptation for central banks and supervisors and a report on the state of climate finance, which also outlines nine recommendations for further action in advancing the greening of the financial system.
Key among these developments is the fifth phase climate assessment scenarios, which contain an updated assessment of physical risk and now incorporate a new damage function to enhance physical risk modeling. The scenarios incorporate the latest GDP and population pathways as well as the most recent country-level commitments as of March 2024. Below are the key highlights and changes associated with these Phase V NGFS scenarios:
The new damage function captures the effects of climate change on the economy much more comprehensively by extending beyond increases in mean temperature. It has been calibrated using the most recent climate and economic data available and covers a broad set of climate variables (temperature variability, annual precipitations, number of wet days, and extreme daily rainfall). Thus, the estimated global losses from (chronic) physical risk are significantly higher compared to the previous version of the NGFS scenarios, by a factor of 2 to 4 across scenarios in 2050. The new damage function also captures lagged effects of climate shocks on economic output.
The scenarios use the latest release—that is, version 3.0—of the Shared-Socioeconomic Pathways (SSPs) and account for the most recent country-level commitments announced by March 2024. The population numbers are higher in Phase V. At the mid of the century, REMIND data based on SSP 3.0 projects a larger world population by almost 200 million, implying population growth from 8.2 billion today to 9.6 billion in 2050.
Incorporating targets and pledged policies published by the United Nations Framework Convention on Climate Change (UNFCCC) until end of March 2024. In Phase V, a total of 36 new submissions were considered from countries including Brazil, Azerbaijan, United Arab Emirates, Kazakhstan and Egypt, and the EU.
The slow implementation of climate policies has led to higher emissions in the near-term. Therefore, in the orderly scenarios (Net Zero 2050, Low Demand and Below 2° C) and in the Delayed Transition, the peak temperatures reached in Phase V are higher compared to Phase IV. The higher emissions in the short-term require an imposition of higher carbon prices compared to Phase IV.
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