FLANNERY C. DOLAN, SUSAN A. RESETAR, ANUJIN NERGUI, ROBERT J. LEMPERT, JAMES SYME
Socioeconomic
Tipping Points in the
Energy Transition
Expanding Climate Transition Risk
Scenarios for Financial Stress Testing
T
he energy transition, by which the energy system is restructured to rely predominantly on
carbon-free or carbon-limited power generation sources, is gaining momentum in several
regions across the globe while stalling or even reversing in others. Despite uneven and
diverse approaches to managing the energy transition, many countries share similar con-
cerns about the possible social and economic impacts that may accompany an energy transition
(i.e., the transition risk).
1
These widespread concerns have prompted model developers to construct
scenarios that can be used by financial institutions, academics, and private firms around the world
to assess transition risk.
2
For example, in 2020, the Network for Greening the Financial System (NGFS)—a collective of
more than 100 banks and other financial institutions—released a set of six long-term scenarios that
explore various combinations of high and low physical and transition risks caused by climate change
(NGFS, undated). The scenarios provide consistent socioeconomic assumptions through 2100 at the
global scale and have been updated numerous times between 2020 and 2025. On May 7, 2025, the
NGFS released technical documentation and output variables of short-term scenarios that increase
the geographic, sectoral, and temporal resolution of the long-term scenarios over a forecast horizon
of five years.
3
These short-term scenarios were motivated by the need to produce more stressing
climate risk scenarios for financial institutions and better represent the interactions between climate
risks and business cycles. To do this, the NGFS authors used a combination of models: the General
Equilibrium Model for Economy-Energy-Environment (GEM-E3) to translate climate policies and
technological dynamics into economic and technological projections at the sectoral and regional
levels and EIRIN, a stock-flow consistent macrofinancial model, to produce financial variables that
are then input into CLIMACRED, a climate credit risk model (NGFS, 2025).
Quantifying the interactions between climate risk and the financial system allows central banks
to conduct more informed monetary policymaking, such as preemptively adjusting interest rates
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