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Climate-Related Stress Testing: Transition Risks in Norway

Author

Listed:
  • Pierpaolo Grippa
  • Samuel Mann

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.

Suggested Citation

  • Pierpaolo Grippa & Samuel Mann, 2020. "Climate-Related Stress Testing: Transition Risks in Norway," IMF Working Papers 2020/232, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/232
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    Citations

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    Cited by:

    1. Kwaku Addai & Sema Yılmaz Genç & Rui Alexandre Castanho & Gualter Couto & Ayhan Orhan & Muhammad Umar & Dervis Kirikkaleli, 2023. "Financial Risk and Environmental Sustainability in Poland: Evidence from Novel Fourier-Based Estimators," Sustainability, MDPI, vol. 15(7), pages 1-19, March.
    2. Calice,Pietro & Miguel Liriano,Faruk, 2021. "Climate-Related and Environmental Risks for the Banking Sector in Latin America and the Caribbean : A Preliminary Assessment," Policy Research Working Paper Series 9694, The World Bank.
    3. Louis Daumas, 2021. "Should we fear transition risks - A review of the applied literature," Working Papers 2021.05, FAERE - French Association of Environmental and Resource Economists.
    4. Victor Cardenas, 2024. "Managing Financial Climate Risk in Banking Services: A Review of Current Practices and the Challenges Ahead," Papers 2405.17682, arXiv.org.
    5. repec:fip:fedpwp:96170 is not listed on IDEAS
    6. Siddhartha Biswas & Mallick Hossain & David Zink, 2023. "California Wildfires, Property Damage, and Mortgage Repayment," Working Papers 23-05, Federal Reserve Bank of Philadelphia.
    7. Birindelli, Giuliana & Dell’Atti, Stefano & Di Tommaso, Caterina & Iannuzzi, Antonia Patrizia & Pacelli, Vincenzo, 2024. "The impact of banks’ climate engagement on systemic risk. Does committing a little or a lot make a difference?," Research in International Business and Finance, Elsevier, vol. 70(PB).

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