This paper proposes an analytical framework to quantify the impacts of climate policy and transition narratives on economic and financial variables necessary for financial risk assessment. Focusing on transition risks, the scenarios considered include unexpected increases in carbon prices and productivity shocks to reflect disorderly transition processes. The modelling framework relies on a suite of models, calibrated on the high-level reference scenarios of the Network for Greening the Financial System (NGFS). Relying on this approach, the ACPR has selected a number of quantitative scenarios to be submitted to a group of voluntary banks and insurance companies to conduct the first bottom-up pilot climate-related risk assessment.

This paper provides a tool to build climate change scenarios to forecast Gross Domestic Product (GDP), modelling both GDP damage due to climate change and the GDP impact of mitigating measures. It adopts a supply-side, long-term view, with 2060 and 2100 horizons. It is a global projection tool (30 countries / regions), with assumptions and results both at the world and the country / regional level. Five different types of energy inputs are taken into account according to their CO2 emission factors. Full calibration is possible at each stage, with estimated or literature-based default parameters. In particular, Total Factor Productivity (TFP), which is a major source of uncertainty on future growth and hence on CO2 emissions, is endogenously determined, with a rich modeling encompassing energy prices, investment prices, education, structural reforms and decreasing return to the employment rate. We present four scenarios: Business As Usual (BAU), with stable energy prices relative to GDP price; Decrease of Renewable Energy relative Price (DREP), with the relative price of non CO2 emitting electricity decreasing by 2% a year; Low Carbon Tax (LCT) scenario with CO2 emitting energy relative prices increasing by 1% per year; High Carbon Tax (HCT) scenario with CO2 emitting energy relative prices increasing by 3% per year. At the 2100 horizon, global GDP incurs a loss of 12% in the BAU, 10% in the DREP, 8% in the Low Carbon Tax scenario and 7% in the High Carbon Tax scenario. This scenario exercise illustrates both the "tragedy of the horizon", as gains from avoided climate change damage net of damage from mitigating policies are negative in the medium-term and positive in the long-term, and the "tragedy of the commons", as climate change damage is widely dispersed and particularly severe in developing economies, while mitigating policies should be implemented in all countries, especially in advanced countries modestly affected by climate change but with large CO2 emission contributions.

In this article, we show that the recent financial crisis has significantly affected the potential total factor productivity (TFP) of the four largest euro area economies, as well as that of the rest of the euro area. We used a reduced-form equation of TFP, based on an approach recently developed by Cahn and Saint-Guilhem (2010). Our empirical findings show that the permanent impact on potential TFP varies across countries from -3.9 points to -1.3 points in Q2 2012. When these losses are incorporated, TFP gaps develop closely in line with capacity utilization rates (CUR). Moreover, in the case of France, including CUR in our TFP model improves the quasi-real-time reliability of TFP gap estimates.

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