Macroeconomic impacts under an NGFS short-term climate scenario
Economic and sector-level impacts of a disorderly climate transition
NGFS scenarios are run on an outdated baseline calibrated using the International Monetary Fund’s 2023 World Economic Outlook. This looks at the results from running a similar scenario to the NGFS ‘Sudden Wake-Up Call’ disorderly transition scenario on Oxford Economics’ June baseline, using our Global Economic Model.
Our scenario shows that inflation peaks within a year of the initial carbon price shock. Stringent policy boosts green private investment, but subdued consumption and investment due to higher prices dampen the net impact. Loss in confidence and turmoil in financial markets spread through the economy. By 2030, global GDP is 2.3% below baseline. Weaker productivity and a lower capital stock hold back any recovery.
Impacts are heterogeneous and largely determined by a country’s vulnerability to transition risk. Europe is less affected as the shock is relatively small due to the region’s high baseline carbon price. In contrast, North America is more affected due to a larger price shock and a more carbon-intensive energy mix.
Extraction, refining, and sectors with high fossil fuel intensity are the most negatively affected. Key sectors for the energy transition are less impacted despite asset market panic, as investment resources shift toward green infrastructure and electrification.
Download the full report to explore the detailed macroeconomic impacts of a sudden climate transition shock.
