the economic impacts of different emission and policy pathways. they show that both climate change and policies to contain it come at a price. but taking ambitious climate action too late or failing to act altogether would be much more costly in the end. for instance, what happens if we keep delaying action today but still want to reach net zero by mid - century? this scenario shows that a delayed transition would lead to a drastic surge in carbon prices from 2030 onwards. by 2050, carbon prices would have to rise to nearly 400 dollars per ton in this scenario. 1 the scenarios already put a price tag on policy action – or lack thereof. in order to further improve the usability of the scenarios, the ngfs is continuously bringing them up to date. in september 2022, the ngfs published the phase iii update, which introduced several enhancements. for instance, the modelling of physical risks was improved. this iteration considered, for the first time, the impacts of acute physical risks under different scenarios. in addition, the granularity in the transport and industry sectors was improved, giving a clearer picture of transition risks. the ngfs scenarios help central banks and supervisors to beef up macro models and climate stress tests. for example, ecb banking supervision used macro - financial scenarios that are based on the ngfs scenarios for its 2022 climate stress test. the bundesbank is working on a top - down climate stress test that will also build on the ngfs scenarios. in its 2021 financial stability review, the bundesbank explored the impact of transition risks on the german financial system. this assessment was also based on the ngfs scenarios. 3. challenges & way forward these examples all show that climate scenarios are a useful tool for assessing climaterelated risks. having said that, some obstacles and challenges remain. allow me to touch upon three of them. the first challenge concerns time horizons. standard stress tests usually look at time horizons of one to three years. by contrast, climate scenarios have considered much longer time horizons of 1030 years, as it may take longer for climate - related risks to materialise and for climate policies to have an effect. these long time horizons carry the risk of climate scenarios 2 / 4 bis - central bankers'speeches underestimating the near - term impact of climate - related risk. a number of factors compound the problem. which brings me to the second challenge. the non - linearity of climate change means that various tipping points may cause rapid shifts with far -

sabine mauderer : getting the full picture - the road ahead for climate stress testing speech ( virtual event ) by dr sabine mauderer, member of the executive board of the deutsche bundesbank, at the 2023 european banking authority workshop on climate risk stress testing, 8 february 2023. * * * 1. introduction ladies and gentlemen, how does climate change affect the economy? what impact does climate change have on growth and inflation? how does climate change affect the financial system? policymakers need answers to these questions. understanding climate - related risks and their transmission channels is essential for designing targeted policies. central banks and supervisors have outstanding analytical capabilities. dealing with financial risks is our bread and butter business. this ample expertise can help to strengthen the understanding of climate - related financial risks. these risks are not a new risk category per se. climate risk drivers can exacerbate " traditional " financial risks and existing vulnerabilities, such as credit risks and market risks. stress tests have been an integral part of the toolbox of central banks and supervisors for a long time. stress tests provide valuable insights into the risk exposure and resilience of individual banks and the financial system. climate stress tests can complement common stress tests to give a fuller picture. 2. climate scenarios – a glimpse of possible futures stress tests are forward - looking analytical exercises that build on baseline and adverse scenarios. the same goes for climate stress tests. this is where climate scenarios come into play. climate scenarios give us a glimpse of different possible future outcomes. they can help us to understand how climate - related risks could evolve and what the implications might be for the economy and the financial system. the network for greening the financial system ( ngfs ) has developed and repeatedly refined a set of six climate scenarios. the scenarios fall into three categories and explore the impact of climate change ( physical risk ) and climate policy ( transition risk ). in the orderly scenarios, the early and gradual introduction of climate policies leads to subdued physical and transition risks. 1 / 4 bis - central bankers'speeches the disorderly scenarios assume that climate policies are delayed or divergent across countries and sectors. these scenarios are associated with higher transition risk as, for instance, carbon prices might need to rise sharply and abruptly. in the hot house world scenarios, global warming cannot be limited due to insufficient global efforts. as a result, extreme weather events become more severe and more frequent. physical risks increase drastically. all these ngfs scenarios help quantify