The Network for Greening the Financial System (NGFS) published a report that explores the feasibility of integrating the G-Cubed general equilibrium model into the NGFS suite of models.
The G-Cubed pilot project was commissioned in 2021 to understand how the G-Cubed general equilibrium model could be utilized to increase the sectoral granularity of the NGFS scenarios. G-Cubed is a multi-country, multi-sectoral model with detailed representation of the macroeconomy. The project objective was to understand whether the G-Cubed general equilibrium model could be used to expand the sectoral coverage of the existing NGFS scenario pathways. Such sectoral pathways would enrich the analytical depth of the NGFS scenarios, enabling users to explore how the physical and transition risk narratives could unfold within particular areas of the real economy and within an increased number of world regions. The project builds on two previous iterations of NGFS scenarios: In 2020, NGFS released its first set of iterations in Phase I and included six scenario narratives covering a broad range of physical and transition related risks. Then, in 2021, the six scenario narratives were expanded in Phase II, when a set of macroeconomic variables were added (via the global macroeconomic model NiGEM). To assess the feasibility, three of the Phase II transition risk scenarios were run within G-Cubed—Net Zero 2050, Delayed Transition and Current Policies. The results from the G-Cubed model runs were compared with those of the three integrated-assessment models from Phase II to understand the potential alignment between the two modeling frameworks, and whether the G-Cubed model could be integrated into a further phase of the NGFS scenarios.
The report intends to make the lessons learned from the G-Cubed pilot project freely available to those seeking practical insights on the expansion of climate scenarios and for those with a general interest in different approaches to the modeling of climate-related risks. The report findings suggest that the benefits of integrating the G-Cubed model into the NGFS scenarios package are material and present a valuable means to understand how the scenarios will play out within specific sectors of the economy or at the regional level. Following the completion of this project, potential next steps may include:
- exploring the potential inclusion of G-Cubed within the scenarios package that could take a number of forms, focusing on the sectoral outputs or alignment more broadly.
- exploring challenges in full integration of the G-Cubed model, or lower the potential for coherence among these models in a future package.
Related Link: Report on Integration of G-Cubed Model
Keywords: International, Banking, ESG, Climate Change Risk, Physical Risk, Transition Risk, Scenario Analysis, G-Cubed Pilot Project, NGFS Models, G-Cubed Model, Stress Testing, NGFS
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