OECD Workshop “Climate transition scenarios: integrating models into risk assessment under uncertainty and the cost of delayed action” (6 July 2022) - Session 1, Stéphane Dees, and Annabelle De Gaye, Banque de France

1. NGFS’ WORK ON CLIMATE SCENARIOS STÉPHANE DEES ET ANNABELLE DE GAYE BANQUE DE FRANCE OECD Workshop on Climate Science, Policy, Regulationand Practice July 6, 2022 Paris, France

2. KEY FEATURES • Paris Dec. 2017 One Planet Summit: 8 Central banks and Supervisors established the NGFS. • As of end 2021: 114 members and 18 observers. Covering 5 continents. • Coalition of the willing. Not a Standard Setting Body. • NGFS members’ jurisdictions cover: • Supervision of 100% of the global systemically important banks and 80% of the internationally active insurance groups; • Over 85% of global greenhouse gas emissions. 2

3. CLIMATE SCENARIO ANALYSIS IS CRUCIAL • There is a high degree of certainty that some combination of physical and transition risks will materialise in the future • However, the exact outcomes,time horizon and future pathway are uncertain, and dependent on short-term actions • Scenario analysis offers a flexible ‘what-if’ methodological framework to explore the risks that could crystallise in different possible future states 3

4. CLIMATE SCENARIO ANALYSIS IS CHALLENGING • Climate scenarios are: • Complex – they project a consistentset of pathways of climate policy, greenhouse gas emissions and mean global temperature trajectories • Interdisciplinary – relying on climate science as well as economics, with central banks acting as translators to the financial community • Difficult to compare – Many future scenarios are possible but ideally a common set of scenarios is used across institutions and firms to enhance comparability of results and disclosures 4

5. NGFS SCENARIOS PROVIDE A COMMON STARTING POINT Broader industry Academia Central banks Financial firms Supervisors Assess macroeconomic impacts Portfolio alignment Economic analysis and research Assess risk to own balancesheet Company strategy Assess risksto individual firms Assess financial stability risks Assess risk to own balancesheet Company strategy NGFS scenarios Aligningmodels Key users of scenarios Key uses of scenarios Assess financial stability risks 5

6. NEW SCENARIO NARRATIVES Accessible at https://www.ngfs.net/ngfs-scenarios-portal/ 6

7. MODELING APPROACH AND SCENARIO POLICY ASSUMPTIONS NiGEM incorporated to Phase 2 models NiGEM-IAM integration for transition risk Transition pathways IntegratedAssessment Models Macro-financial impacts Macroeconomic Model Carbon prices and energy use Policyshock NGFSScenario Transition shock Fiscal Policy and other assumptions NetZero2050 - Global carbontax 50% of Carbon tax proceeds usedtofinance government investmentand50% to repayback debt - Energymix changes - Energy efficiencies DivergentNet Zero - Global carbontax -Fiscal rule:Carbontax proceedsare redistributed to householdsthrough income tax cut - Energymix changes - Energyefficiencies -Additional negative shock to businessconfidence Delayed Transition - Global carbontax -Fiscal rule:Carbontax proceedsare redistributed to householdsthrough income tax cut - Energymix changes - Energyefficiencies -Additional negative shock to businessconfidence Examples of Modeling/Policy assumptions for 3 scenarios 7

8. SENSITIVITY OF MACROECONOMIC RESULTS TO POLICY ASSUMPTIONS -6 -5 -4 -3 -2 -1 0 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 Sensitivity of French GDP impact to monetary policy assumptions (% dev. from baseline) Price-level targeting 100% HH transfers ; 2-pillar rule (default) 0 0.2 0.4 0.6 0.8 1 1.2 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 Sensitivity of French Inflation impact to monetary policy assumptions (abs. dev. from baseline in pp) -6 -5 -4 -3 -2 -1 0 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Sensitivity of French GDP impact to fiscal assumptions (% dev. from baseline)* 50% Household transfers, 50% Corporate tax credit 100% transfers to households 50% Government investment, 50% decrease in public debt (Phase 2 assumption) -0.2 0 0.2 0.4 0.6 0.8 1 1.2 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Sensitivity of French Inflation impact to fiscal assumptions (abs. dev. from baseline in pp)* *corrected since conferencedraft;previous resultswereexcluding monetary policy intervention in fiscalshock 8

9. BDF APPROACH TO COMPARE EXERCISE FOR FRANCE (1) BDF Suite of models IAM models NiGEM Sectoral model BdF rating model Financial modules Carbon prices, Energy mix/efficiency Carbon prices • NGFS Phase 2 scenarios • Output: Carbon prices,GHG emissions • NGFS Scenarios with different policy mix • Output: GDP, Macrofinancial variables (inflation, employment…) • Sector-level disaggregation • Output: VA and turnover for 55 sectors • Firm-level disaggregation • Output: PDs • Output: Market valuation,etc GDP, Inflation… Consistency checks Sectoral VA 9

10. BDF APPROACH TO COMPARE EXERCISE FOR FRANCE (2) • Common policy assumptions to compare models for France • NGFS Carbon price trajectory coming from REMIND • Same redistribution of tax proceeds : 50% to households and 50% to firms • Align international scenario environment (export market size and competitor prices) • BDF further adaptation of NGFS scenarios • Replicate REMIND Investment path (for energy sector) using corporate subsidies • Adapt monetary policy rule (use a less responsive rule) 10

OECD Workshop “Climate transition scenarios: integrating models into risk assessment under uncertainty and the cost of delayed action” (6 July 2022) - Session 1, Stéphane Dees, and Annabelle De Gaye, Banque de France

OECD Workshop “Climate transition scenarios: integrating models into risk assessment under uncertainty and the cost of delayed action” (6 July 2022) - Session 1, Stéphane Dees, and Annabelle De Gaye, Banque de France

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OECD Workshop “Climate transition scenarios: integrating models into risk assessment under uncertainty and the cost of delayed action” (6 July 2022) - Session 1, Stéphane Dees, and Annabelle De Gaye, Banque de France