Climate-Related Stress Testing: Transition Risks in Norway

Author/Editor:

Pierpaolo Grippa ; Samuel Mann

Publication Date:

November 8, 2020

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper explores three possible transmission channels for transition risk shocks to the financial system in Norway. First, we estimate the direct firm-level impact of a substantial increase in domestic carbon prices under severe assumptions. Second, we map the impact of a drastic increase in global carbon prices on the domestic economy via the Norwegian oil sector. Third, we model the impact of a forced reduction in Norwegian oil firms’ output on shareholder portfolios. Results show that such a sharp increase in carbon prices would have a significant but manageable impact on banks. Finally, the paper discusses ways to advance the still evolving field of transition risk stress testing.

Series:

Working Paper No. 2020/232

Subject:

Frequency:

regular

English

Publication Date:

November 8, 2020

ISBN/ISSN:

9781513559674/1018-5941

Stock No:

WPIEA2020232

Pages:

38

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