{
  "title": "Energy Transition and Geoeconomic Fragmentation: Implications for Climate Scenario Design",
  "publication": "Staff Climate Notes, November 28, 2023",
  "sourceUrl": "https://www.imf.org/en/publications/staff-climate-notes/issues/2023/11/16/energy-transition-and-geoeconomic-fragmentation-implications-for-climate-scenario-design-541097",
  "canonical": "https://www.imf.org/en/publications/staff-climate-notes/issues/2023/11/16/energy-transition-and-geoeconomic-fragmentation-implications-for-climate-scenario-design-541097",
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  "summary": "The transition to a low-carbon economy, which is needed to mitigate climate change and meet the Paris Agreement temperature goals, has been affected by the supply chain and energy supply disruptions that originated during the COVID-19 pandemic, the Russian invasion of Ukraine, and the subsequent ene",
  "sections": [
    {
      "heading": "Key findings on how the “polycrisis” affects the energy transition",
      "content": "- The transition to a low-carbon economy has been affected by supply chain and energy supply disruptions originating during the COVID-19 pandemic, the Russian invasion of Ukraine, and the subsequent energy crisis and exacerbation of geopolitical tensions.\n- Three main factors reflect how these developments can affect future decarbonization scenarios:\n  - (1) Pullbacks in climate mitigation policies and increased carbon lock-in in fossil fuel infrastructure and policymaking.\n  - (2) The decreasing likelihood of continuous cost reduction in renewable energy technologies.\n  - (3) The likely intensification of macroeconomic shocks amid increasing geoeconomic fragmentation, and the associated policy responses."
    },
    {
      "heading": "Implications for climate-related financial risk assessment and scenario design",
      "content": "- The note assesses implications of the polycrisis for hypothetical scenarios used to assess climate-related financial risks.\n- It analyzes channels through which the three main factors are likely to materialize over short- and long-term horizons.\n- It proposes potential adjustments to the design of climate scenarios used by financial institutions, central banks, and financial sector supervisors and regulators within their risk management frameworks."
    },
    {
      "heading": "Analytical focus and scope",
      "content": "- Focus: implications of recent supply chain, energy supply, and geopolitical disruptions for decarbonization scenarios and climate-related financial risk assessment.\n- Emphasis on how policy pullbacks, technology-cost trends, and geoeconomic fragmentation interact with macroeconomic shocks to change the probabilities and characteristics of transition pathways."
    },
    {
      "heading": "Policy implications and recommended adjustments (summary)",
      "content": "- Consider scenario designs that reflect:\n  - Increased probability of delayed or weaker mitigation policy implementation and associated carbon lock-in risks.\n  - Slower-than-expected cost declines in renewable energy technologies.\n  - Greater incidence and intensity of macroeconomic shocks tied to geoeconomic fragmentation, and the consequences for policy responses and financial stability.\n- Adapt risk management frameworks of financial institutions, central banks, and supervisors to incorporate these altered transition dynamics and shock channels.\n\n---\n\n Content in this bundle\n\n- Energy Transition and Geoeconomic Fragmentation: Implications for Climate Scenario Design\n  - Energy Transition and Geoeconomic Fragmentation: Implications for Climate Scenario Design (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Energy Transition and Geoeconomic Fragmentation: Implications for Climate Scenario Design (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/staff-climate-notes/issues/2023/11/16/energy-transition-and-geoeconomic-fragmentation-implications-for-climate-scenario-design-541097"
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    "Authors: Charlotte Gardes-Landolfini, Pierpaolo Grippa, William Oman, Sha Yu",
    "Published: November 28, 2023",
    "Series: Staff Climate Notes",
    "DOI: https://doi.org/10.5089/9798400258220.066",
    "The transition to a low-carbon economy has been affected by supply chain and energy supply disruptions originating during the COVID-19 pandemic, the Russian invasion of Ukraine, and the subsequent energy crisis and exacerbation of geopolitical tensions.",
    "Three main factors reflect how these developments can affect future decarbonization scenarios:",
    "The note assesses implications of the polycrisis for hypothetical scenarios used to assess climate-related financial risks.",
    "It analyzes channels through which the three main factors are likely to materialize over short- and long-term horizons.",
    "It proposes potential adjustments to the design of climate scenarios used by financial institutions, central banks, and financial sector supervisors and regulators within their risk management frameworks.",
    "Focus: implications of recent supply chain, energy supply, and geopolitical disruptions for decarbonization scenarios and climate-related financial risk assessment.",
    "Emphasis on how policy pullbacks, technology-cost trends, and geoeconomic fragmentation interact with macroeconomic shocks to change the probabilities and characteristics of transition pathways.",
    "Consider scenario designs that reflect:",
    "Adapt risk management frameworks of financial institutions, central banks, and supervisors to incorporate these altered transition dynamics and shock channels.",
    "**Energy Transition and Geoeconomic Fragmentation: Implications for Climate Scenario Design**"
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