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2-slide thoughts on stress test scenarios
Those of our French working group and more generally
Frédéric Ghersi, CNRS
CENTRE
INTERNATIONAL
DE RECHERCHE
SUR L’ENVIRONNEMENT
ET LE DÉVELOPPEMENT
JARDIN TROPICAL DE PARIS
45 BIS AVENUE DE LA BELLE GABRIELLE
94736 NOGENT-SUR-MARNE CEDEX - FRANCE
U M R C N R S – P O N T S P A R I S T E C H
CIRAD – EHESS - AGROPARISTECH
C I R E D
Why do we (all?) fear more adverse scenarios?
• Because we fear higher, heterogeneous carbon prices
• The ‘Carbon price’ of the IAMs mobilised by the NGFS is the uniform global signal minimizing global
transition costs  cost minimisation through ‘where flexibility’―and indeed ‘when flexibility’
• Implementation of such uniform signal hangs on North-South financial flows way beyond the 100-billion
pledge i.e. out of reach of UNFCCC negotiations
• Fragmented approach of the Paris agreement induces heterogeneous, necessarily higher prices not only
sectorally (Divergent scenario of the NGFS) but also nationally/regionally
• Because we fear more frictions in the multiple transition processes
• NGFS IAMs have very compact, ‘first-best’ macroeconomic modules―or indeed exogenous GDP
• Our Working Group models have more inertia, some imperfect markets, more frictional technology
adoption acknowledging intangible costs, market ‘failures’, etc.
• Some frictions are on our community’s methodological frontier, particularly those on the reallocation of
Labour and on the ‘real economy’ consequences of stranded assets
OECD, Climate Transition Scenarios conference, July 6th, 2022
C I R E D
What next steps as modellers?
• After the invasion of Ukraine, we should start afresh―obviously
• Rise of energy and other commodity prices
• Inflation (a challenge for ‘real’ models)
• Turn of globalisation? Back to trade-tight blocks? What evolution of global supply chains?
• From a methodological point of view, we need
• To clarify the sources of uncertainty/adversity, including those of macroeconomic―typically, crowding-out
or not crowding out―and political nature
• To pick up work on expectations, an important source of adversity when ill-aligned―and on decision-
making robust to uncertainty
• To combine the states-of-the-art of modelling the energy/economy nexus and the macro-finance (SFC
approaches), to capture and quantify their interplays
OECD, Climate Transition Scenarios conference, July 6th, 2022

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OECD Workshop “Climate transition scenarios: integrating models into risk assessment under uncertainty and the cost of delayed action” (6 July 2022) - Session 1, Frédéric Ghersi, CIRED

  • 1. 2-slide thoughts on stress test scenarios Those of our French working group and more generally Frédéric Ghersi, CNRS CENTRE INTERNATIONAL DE RECHERCHE SUR L’ENVIRONNEMENT ET LE DÉVELOPPEMENT JARDIN TROPICAL DE PARIS 45 BIS AVENUE DE LA BELLE GABRIELLE 94736 NOGENT-SUR-MARNE CEDEX - FRANCE U M R C N R S – P O N T S P A R I S T E C H CIRAD – EHESS - AGROPARISTECH
  • 2. C I R E D Why do we (all?) fear more adverse scenarios? • Because we fear higher, heterogeneous carbon prices • The ‘Carbon price’ of the IAMs mobilised by the NGFS is the uniform global signal minimizing global transition costs  cost minimisation through ‘where flexibility’―and indeed ‘when flexibility’ • Implementation of such uniform signal hangs on North-South financial flows way beyond the 100-billion pledge i.e. out of reach of UNFCCC negotiations • Fragmented approach of the Paris agreement induces heterogeneous, necessarily higher prices not only sectorally (Divergent scenario of the NGFS) but also nationally/regionally • Because we fear more frictions in the multiple transition processes • NGFS IAMs have very compact, ‘first-best’ macroeconomic modules―or indeed exogenous GDP • Our Working Group models have more inertia, some imperfect markets, more frictional technology adoption acknowledging intangible costs, market ‘failures’, etc. • Some frictions are on our community’s methodological frontier, particularly those on the reallocation of Labour and on the ‘real economy’ consequences of stranded assets OECD, Climate Transition Scenarios conference, July 6th, 2022
  • 3. C I R E D What next steps as modellers? • After the invasion of Ukraine, we should start afresh―obviously • Rise of energy and other commodity prices • Inflation (a challenge for ‘real’ models) • Turn of globalisation? Back to trade-tight blocks? What evolution of global supply chains? • From a methodological point of view, we need • To clarify the sources of uncertainty/adversity, including those of macroeconomic―typically, crowding-out or not crowding out―and political nature • To pick up work on expectations, an important source of adversity when ill-aligned―and on decision- making robust to uncertainty • To combine the states-of-the-art of modelling the energy/economy nexus and the macro-finance (SFC approaches), to capture and quantify their interplays OECD, Climate Transition Scenarios conference, July 6th, 2022