Climate-related risks for Italy: an analysis based on the latest NGFS scenarios

The paper presents an overview of the pathways of the main Italian climate and macroeconomic variables according to the updated NGFS Phase IV long-term scenarios. Our analysis shows that: 1) climate risks translate into GDP losses and higher inflation; the macroeconomic impacts due to transition risks are broadly in line with those of the EU, while those relating to physical risks are slightly greater; 2) significant government investment is needed to achieve the more ambitious climate targets, a result that is shared with the rest of the EU and, more generally, at the global level; and 3) keeping inflation under control would require higher policy rates over fairly long horizons, although deviations from the baseline level of policy rates generally tend to be fairly contained across all scenarios, except in the most ambitious climate scenarios. Such climate scenarios are one of the key policy tools for assessing the overall resilience of the economy and the financial sector for forward-looking climate scenario analysis and stress testing purposes.