## Climate-Related Stress Testing: Transition Risks in Norway

_IMF Working Papers, November 8, 2020_

## Source details

**Canonical URL:** [Climate-Related Stress Testing: Transition Risks in Norway](https://www.imf.org/en/publications/wp/issues/2020/11/08/climate-related-stress-testing-transition-risks-in-norway-49835)

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- [Structured JSON version](/en/publications/wp/issues/2020/11/08/climate-related-stress-testing-transition-risks-in-norway-49835/index.json)
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## Bibliographic details
- Authors: Pierpaolo Grippa, Samuel Mann
- Published: November 8, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513559674.001

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### Summary
- Paper explores three transmission channels for transition risk shocks to Norway’s financial system.
- Key conclusions:
  - A sharp increase in carbon prices would have a significant but manageable impact on banks.
  - The paper discusses ways to advance the still evolving field of transition risk stress testing.

### Transmission channels analyzed
- Direct firm-level impact of a substantial increase in domestic carbon prices under severe assumptions.
- Impact of a drastic increase in global carbon prices on the domestic economy via the Norwegian oil sector.
- Impact of a forced reduction in Norwegian oil firms’ output on shareholder portfolios.

### Methods and analytical focus
- Firm-level estimation of direct impacts from domestic carbon price shocks.
- Mapping of macroeconomic transmission through the oil sector from global carbon price shocks.
- Portfolio-level modeling of forced output reductions in Norwegian oil firms and consequent effects on shareholders.

### Findings and implications for financial stability
- Results show that a sharp increase in carbon prices:
  - Would have a significant impact on banks.
  - The impact is characterized as manageable for the banking sector.
- Emphasis on the evolving nature of transition risk stress testing and the need for methodological advances.

### Policy and research recommendations
- Advance the field of transition risk stress testing (specific pathways and techniques discussed in the paper).
- Incorporate firm-level, sectoral (oil sector), and portfolio channels in stress-testing frameworks to capture transition risks comprehensively.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2020/11/08/climate-related-stress-testing-transition-risks-in-norway-49835_