Climate-Related Stress Testing: Transition Risks in Norway

39 Pages Posted: 5 Jan 2021

See all articles by Pierpaolo Grippa

Pierpaolo Grippa

International Monetary Fund (IMF) - Monetary and Capital Markets Department

Samuel Mann

International Monetary Fund (IMF)

Date Written: November 1, 2020

Abstract

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

Grippa, Pierpaolo and Mann, Samuel, Climate-Related Stress Testing: Transition Risks in Norway (November 1, 2020). IMF Working Paper No. 20/232, Available at SSRN: https://ssrn.com/abstract=3758065

Pierpaolo Grippa (Contact Author)

International Monetary Fund (IMF) - Monetary and Capital Markets Department ( email )

700 19th St NW
Washington, DC 20431
United States

Samuel Mann

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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