Climate-Related Stress Testing: Transition Risks in Norway
39 Pages Posted: 5 Jan 2021
Date Written: November 1, 2020
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.
JEL Classification: G21, G32, H23, Q30, Q54, Q58, H25, Q41
Suggested Citation: Suggested Citation