BOE 2021 Climate Scenarios - Financial-Risks

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Key elements of the 2021

Biennial Exploratory Scenario:
Financial risks from climate
change
The 2021 Biennial Exploratory Scenario will explore the resilience of the
UK financial system to the physical and transition risks associated with
different climate pathways.
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Published on 08 June 2021

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Content
1: Executive summary
2: Background
2.1: Biennial Exploratory Scenario
2.2: The Bank’s response to the financial risks from climate change
2.3: CBES objectives
3: Key features of the CBES exercise
3.1: Participation
3.2: Focus
3.3: Timelines
3.4: Overview of the scenarios
Box A: Distinct features of the 2021 Climate Biennial Exploratory Scenario
4: Detailed description of the CBES scenarios

4.1: Transition risks
4.2: Physical risks
4.3: Macroeconomic impacts
Box B: UK transition policies: energy efficiency of buildings and deployment of
electric vehicles
Energy efficiency of buildings
Electric vehicles
Glossary
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1: Executive summary
The Bank runs regular stress tests to help assess the resilience of the UK financial system and
individual institutions. There are two types of exercise within the Bank’s concurrent stress-testing
framework for banks and building societies (hereafter ‘banks’): annual solvency stress tests; and
biennial exploratory scenarios. The Bank also runs stress tests on a periodic basis for a number
of insurance firms.
Running biennial exploratory scenarios allows policymakers to probe the resilience of the UK
financial system to a wide range of risks, and is a tool to enhance participants’ strategic thinking
on how to manage those risks. The 2021 exercise explores the resilience of the largest UK banks
and insurers to the physical and transition risks associated with climate change.
The desired outcomes of the 2021 Climate Biennial Exploratory Scenario (CBES) are to:
Size the financial exposures of participants and the financial system more broadly to
climate-related risks.
Understand the challenges to participants’ business models from these risks; and
gauge their likely responses and the implications for the provision of financial services.
Assist participants in enhancing their management of climate-related financial risks.
This includes engaging counterparties to understand their vulnerability to climate change.
The Bank intends for the CBES to be a learning exercise. Expertise in modelling climate-
related risks is in its infancy, so this exercise will develop the capabilities of both the
Bank and CBES participants.
The CBES will explore the vulnerability of current business models to future climate policy
pathways and the associated changes in global warming. In doing so, it will help to identify the
potential risks posed to those business models over time. To do this, participants will measure
the impact of the scenarios on their end-2020 balance sheets, which represents a proxy for their
current business models. For banks, the CBES focuses on the credit risk associated with the
banking book, with an emphasis on detailed analysis of risks to large corporate counterparties.
For insurers, the CBES will focus on changes in Invested Assets (and Reinsurance
Recoverables) and Insurance Liabilities (including accepted Reinsurance).
The CBES will also explore how firms intend to adapt their business models over time, in light of
climate changes. The exercise also covers the management actions participants would anticipate
taking in the published scenarios; as well as participants’ present and future planned approaches
to managing climate risk.
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The exercise will not be used by the Bank to set capital requirements, and individual participants’
projected losses will not be tied directly to actions participants are required to take. Instead,
participants’ submissions may inform the Financial Policy Committee’s (FPC’s) approach to
system-wide policy issues; the Prudential Regulation Authority’s (PRA’s) approach to supervisory
policy; and guide further work between participants and supervisors to address any issues
highlighted.
The CBES uses three scenarios to explore the two key risks from climate change: the risks that
arise as the economy moves from a carbon-intensive one to net zero emissions – transition risks;
and risks associated with the higher global temperatures likely to result from taking no further
policy action – physical risks. All three scenarios explore both transition and physical risks, to a
different degree.
The CBES scenarios are not forecasts of the most likely future outcomes. Instead, the scenarios
are plausible representations of what might happen based on different future paths of
governments’ climate policies (policies aimed at limiting the rise in global temperature). Each
scenario is assumed to take place over the period 2021–50.
The exercise considers two routes to net zero greenhouse gas emissions: an Early Action
scenario and a Late Action scenario (Table 1.A). These scenarios primarily explore transition
risks from climate change:
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Early Action: the transition to a net-zero economy starts in 2021 so carbon taxes and other
policies intensify relatively gradually over the scenario horizon. Global carbon dioxide
emissions are reduced to net-zero by around 2050. Global warming is limited to 1.8°C by the
end of the scenario (2050) relative to pre-industrial levels. Some sectors are more adversely
affected by the transition than others, but the overall impact on GDP growth is muted,
particularly in the latter half of the scenario once a significant portion of the required transition
has occurred and the productivity benefits of green technology investments begin to be
realised.
Late Action: The implementation of policy to drive the transition is delayed until 2031 and is
then more sudden and disorderly. Global warming is limited to 1.8°C by the end of the
scenario (2050) relative to pre-industrial levels. The more compressed nature of the reduction
in emissions results in material short-term macroeconomic disruption. This affects the whole
economy but is particularly concentrated in carbon-intensive sectors. Output contracts sharply
in the UK and international economies. The rapid sectoral adjustment associated with the
sharp fall in GDP reduces employment and leads to some businesses and households not
being able to make full use of their assets, with knock-on consequences for demand and
spending. Risk premia rise across multiple financial markets.
The No Additional Action scenario primarily explores physical risks from climate change. Here,
there are no new climate policies introduced beyond those already implemented. The absence of
transition policies leads to a growing concentration of greenhouse gas emissions in the
atmosphere and, as a result, global temperature levels continue to increase, reaching 3.3°C
relative to pre-industrial levels by the end of the scenario.[1] This leads to chronic changes in
precipitation, ecosystems and sea-level. There is also a rise in the frequency and severity of
extreme weather events such as heatwaves, droughts, wildfires, tropical cyclones and flooding.
There are permanent impacts on living and working conditions, buildings and infrastructure. UK
and global GDP growth is permanently lower and macroeconomic uncertainty increases.
Changes in physical hazards are unevenly distributed with tropical and subtropical regions
affected more severely. Many of the impacts from physical risks are expected to become more
severe later in the 21st century and some will become irreversible. So the headwinds facing the
economy would be expected to increase further into the future.
The CBES scenario specification builds upon a subset of the Network for Greening the Financial
System (NGFS) climate scenarios. NGFS climate scenarios aim to provide central banks and
supervisors with a common starting point for analysing climate risks under different future
pathways. They are produced in partnership with leading climate scientists, leveraging climate-
economy models that have been widely used to inform policymakers, and have been used in key
reports.[2]
The Bank expects to publish CBES results in May 2022, following two rounds of participants’
submissions. Results might be published sooner if the Bank decides not to ask for the second
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round of submissions.
Figure 1.A: The 2021 Biennial Exploratory Scenario explores transition and physical
risks from climate change
Summary of impacts in the CBES scenarios
Sources: Met Office, Network for Greening the Financial System and Bank calculations.
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2: Background
2.1: Biennial Exploratory Scenario

The Bank runs regular stress tests to help assess the resilience of the UK financial system and
individual institutions. There are two types of exercise within the Bank’s concurrent stress-testing
framework for banks and building societies: the annual solvency scenario and the biennial
exploratory scenario (BES). The Bank also runs stress tests on a periodic basis for a number of
insurance firms.
The BES allows policymakers to probe the resilience of the financial system to a wider range of
risks than those closely linked to the financial cycle, and is a tool to enhance participants’
strategic thinking on how to manage different risks.
The 2021 exercise aims to test the resilience of the current business models of the largest banks
and insurers, and the financial system to the physical and transition risks from climate change.
The 2021 BES includes both banks and insurers for the first time. By testing both banks and
insurers using the same scenarios, this Climate Biennial Exploratory Scenario (CBES) will allow
the Bank to explore the risks presented by climate change across the financial system more fully.
The CBES explores three different climate policy scenarios, which generate a range of possible
future outcomes for global temperatures and the economy, each spanning 30 years.
Box A sets out differences between the CBES and the Bank’s annual solvency stress tests.
2.2: The Bank’s response to the financial risks from climate change
There are two sources of financial risks from climate change: the risks associated with actions to
reduce greenhouse gas emissions – transition risks; and risks associated with the higher global
temperatures likely to result from taking no further policy action – physical risks.
The financial risks from climate change affect the safety and soundness of firms the Bank
regulates and the stability of the wider financial system that it oversees. Climate-related financial
risks therefore have a direct impact on the delivery of the Bank’s macroprudential and
microprudential policy objectives, as set out in relevant legislation and the respective remit and
recommendation letters (remit letters) from Government to the Financial Policy Committee
and Prudential Regulation Committee (PRC).
In addition, while the primary levers for driving an orderly economy-wide transition to net-zero
emissions rest with governments (eg climate policy) and industry (eg innovation and investments),
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the Bank has a key supporting role to play as the Government develops and sets out its plans.
This role was highlighted in the recent changes to the policy committees’ remit letters. The CBES
contributes to this role by helping to assess the financial impacts of different possible
temperature pathways and climate policy actions.
The CBES is one of the Bank’s workstreams aiming to ensure the financial system is resilient to
climate-related financial risks. More detail on the Bank’s wider approach to managing climate-
related risks can be found on its climate change webpage.
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2.3: CBES objectives

The desired outcomes of the CBES are to:
Size the financial exposures of participants and the financial system more broadly to
climate‑related risks.
Understand the challenges to participants’ business models from these risks; and
gauge their likely responses and the implications for the provision of financial services. This
includes investigating the interdependency between insurers and banks (such as the impact of
potential changes in insurance provision on banks’ credit risk exposures and the impact of
potential changes in bank lending on the value of insurers’ asset holdings).
Assist participants in enhancing their management of climate‑related financial risks,
consistent with expectations set out in Supervisory Statement 3/19 and the Dear CEO letter
dated 1 July 2020. This includes embedding these risks in business as usual risk
management, engaging counterparties to understand their vulnerability to climate change, and
encouraging boards to take a strategic, long‑term approach to managing these risks.
The Bank intends for the CBES to be a learning exercise. Expertise in modelling climate-
related risks is in its infancy, so this exercise will develop the capabilities of both the
Bank and CBES participants. The CBES draws upon lessons learnt from the climate
scenarios in the 2019 Insurance Stress Test and will help the Bank develop its approach to
climate scenario analysis, both domestically and through international groups like: the Network for
Greening the Financial System (NGFS); the International Association of Insurance Supervisors;
the Sustainable Insurance Forum; and the Financial Stability Board. The results will enhance the
Bank’s understanding of the financial stability implications of climate change and supplement
supervisors’ knowledge of participants’ governance and climate‑related risk management.
The exercise will not be used by the Bank to set capital requirements. And individual
participants’ projected losses will not be tied directly to actions participants are required to take.
Instead, participants’ submissions may inform the FPC’s approach to system‑wide policy issues,
the PRA’s approach to supervisory policy and guide further work between participants and
supervisors to address any issues highlighted.
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3: Key features of the CBES exercise
The CBES scenarios and guidance for participants have been calibrated and produced by Bank
staff, under the guidance of the FPC and PRC.
3.1: Participation
Table 3.A lists the CBES participants. They are to report on a group consolidated basis unless
otherwise stated.
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Table 3.A: The 2021 Climate Biennial Exploratory Scenario explores the resilience of the
largest UK banks and insurers to risks from climate change
CBES participation and coverage
Large UK Large UK life Large UK general

banking groups insurers insurers
and building
societies
Participation:
Barclays Aviva AIG (UK entities Society of Lloyd’s

HSBC Legal & only) (Ten selected Syndicates)
Lloyds Banking General Allianz Holdings plc
Group M&G (UK entities only)
Nationwide Phoenix Aviva
Building Society Scottish AXA (UK entities
NatWest Group Widows only)
Santander UK Direct Line
Standard RSA (UK entities
Chartered only)
Coverage:
Around 70% of UK Around 65% of the Around 60% of the UK Ten selected Syndicates account for
bank lending to UK UK life insurance general insurance around 40% of the Society of Lloyd’s
households and market by asset market by Gross property and liability insurance market
businesses. size. Written Premium. by premium.
A range of Society of Lloyd’s will estimate the

business models results for the entire market based on
(annuities, with- their results.
profits, unit-
linked).
3.2: Focus
The CBES will explore the vulnerability of participants’ current business models to future climate-
policy pathways and associated degrees of global warming. In doing so, it will help to identify the
potential risks posed to those business models over time. To do this, participants will measure
the impact of the scenarios on their end-2020 balance sheets, which represents a proxy for their
current business models. In general, the nominal size and composition of balance sheets are
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assumed to be fixed, and will be updated to account for mitigation and adaptation plans of
counterparties only if they are already under way, and are highly likely to be completed.
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For banks, the CBES focuses on the credit risk associated with the banking book, with an
emphasis on detailed analysis of risks to large corporate counterparties. A key metric of that risk
will be the cumulative total of provisions against credit-impaired loans at various points in the
scenarios. Traded risk and non-traded market risk will be out of scope.
For insurers, the CBES will focus on changes in Invested Assets (and Reinsurance
Recoverables), and Insurance Liabilities (including accepted Reinsurance) assuming an
instantaneous shock. This means that the stress brings forward the future climatic environment to
today’s balance sheet, with no allowance for changes in future premiums, asset allocation,
expenses, reinsurance programmes and other future changes in participants’ business models.
In addition to sizing the financial risks from climate change, the exercise will explore how
participants might change their business models to mitigate risk in the scenarios – their
‘management actions’. The CBES is also designed to enable the Bank to assess participants’
present and future planned approaches to managing climate risks. It will also explore risks from
climate litigation. Some of this information will be captured via a questionnaire to be completed
by participants. Details on data requirements and methodological approach are set out in
guidance for participants .
The Bank does not intend to disclose the results of individual firms. This reflects the exploratory
nature of the exercise. Instead, the Bank anticipates disclosing system‑level results of the
financial sector’s resilience to climate change, including highlighting the main sources of loss by
sector and geography. It may also publish ranges of results across participants.
3.3: Timelines
The Bank expects to publish aggregated CBES results in May 2022.
Before the final results are published, the Bank expects to run a second round of the exercise,
which would launch around the end of January 2022. A decision on the form and content of this
second round will be based on analysis of participants’ initial submissions. The second round
could focus, for example, on exploring particular potential interactions between participants’
responses. Should the Bank decide not to run a second round of the exercise, CBES results will
be published before May 2022.
3.4: Overview of the scenarios

3.4.1: Conditioning assumptions
All climate scenarios are subject to significant uncertainty, both from estimating the precise extent
of transition and physical risks resulting from the conditioning assumptions, and from estimating
the impact of these risks on macroeconomic and financial variables.[3]
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The CBES scenarios are not forecasts of the most likely future outcomes. Instead, the scenarios
are plausible representations of what might happen based on different future paths of government
climate policy (policy aimed at limiting the rise in global temperature).
All three scenarios explore both transition and physical risks, to a different degree.
The CBES considers two pathways to net zero greenhouse gas emissions: an Early Action
scenario and a Late Action scenario. These scenarios primarily explore transition risks from
climate change:
Early Action: the transition to a net-zero emissions economy starts in 2021 so carbon taxes
and other policies intensify relatively gradually over the scenario horizon. Global carbon
dioxide emissions (and all greenhouse gas emissions in the UK) drop to net-zero around
2050.
Late Action: the transition is delayed until 2031, at which point there is a sudden increase in
the intensity of climate policy. In the UK, greenhouse gas emissions are successfully reduced
to net-zero around 2050, but the transition required to achieve that is more abrupt and
therefore disorderly.
The No Additional Action scenario primarily explores physical risks from climate change. In this
scenario, no new climate policies are introduced beyond those already implemented prior to
2021.
The CBES scenario variable paths are available at the Bank Stress testing website.
The CBES scenarios are based on a subset of NGFS climate scenarios.[4] Building on the
NGFS climate scenarios ensures that the CBES scenarios are grounded in a consistent set of
pathways for physical climate change, the energy system, land-use and the wider economy.
Specifically, the CBES scenarios take the NGFS Net Zero 2050, Delayed Transition and Current
Policies scenarios as a starting point. The Bank has expanded on the NGFS scenarios by
including additional risk transmission channels and adding additional variables (working with
climate scientists, academics and industry experts).[5] As a result, the Climate BES scenarios
are not identical to those produced by the NGFS, but they are consistent across many variables.
An important indicator of the level of transition risks in these scenarios is the carbon price.
Transitioning away from fossil fuels and carbon-intensive modes of production requires significant
investment in low-carbon alternatives in all sectors of the economy. Policymakers can induce this
transition by increasing the implicit cost of emissions. The carbon price can be thought of as a
summary of these policies, and so is closely linked to the extent of transition risk.
Throughout this document, the term carbon price is used to refer to a shadow price of all
greenhouse gas emissions, ie the marginal abatement cost of an incremental tonne of emissions.
The higher shadow price of emissions indicates a more stringent transition policy. This is a
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simplification, intended to capture a range of different transition policies. In reality, governments

can adopt a mix of policies to reduce greenhouse gas emissions, which may include, for
example, carbon taxes, cap-and-trade schemes, green subsidies and environmental regulations.
Differences in carbon prices across countries in the CBES scenarios reflect:
Different opportunities for reducing emissions. For example, the amount of land and resources
available for deployment of carbon dioxide removal technologies such as bioenergy with
carbon capture and storage.
Sectoral make-up of the economies, given some sectors are more reliant on carbon than
others.
The costs of reducing emissions in different regions. For example, the relative price of
emissions-neutral electricity.
In the Early Action scenario, carbon prices increase from roughly US$30 per tonne of carbon
dioxide-equivalent today, to just under US$900 by 2050 in the UK and EU (abstracting from
general inflation over the time period).[6] In the Late Action scenario, carbon prices remain at
US$30 until 2030, and then rise steeply to over US$1,000 in 2050. In the No Additional Action
scenario, carbon prices do not rise (Chart 3.1).[7]
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Chart 3.1: In the Early and Late Action scenarios, stringent climate policies are
associated with a fall in carbon emissions to net zero in the UK and the EU; but in the
No Additional Action scenario emissions fall only moderately (a)(b)
Sources: Network for Greening the Financial System and Bank calculations.
(a) Carbon price depicts a shadow price of greenhouse gas emissions, ie the marginal abatement cost of an incremental
tonne of emissions. This is a simplification, intended to capture a range of different policies to reduce greenhouse gas
emissions, which may include, for example, carbon taxes, cap-and-trade schemes, green subsidies and environmental
regulations.
(b) As the No Additional Action scenario is calibrated based on temperature outcomes that might be observed in the period
2050–80, emissions over that later time period are also relevant. The calibration of No Additional Action scenario is
consistent with combined UK and EU net carbon dioxide emissions of 922 megatonnes per year by 2080.
Changes in emissions, and the atmospheric concentration of greenhouse gases, translate

through to changes in global mean temperatures. Global mean temperatures have already
increased by around 1.1°C from pre-industrial levels.[8] In the Early and Late Action scenarios,
carbon dioxide emissions globally (and greenhouse gas emissions in the UK) reach net-zero.
Because of the significant lags between emissions and warming levels, temperatures continue to
rise, reaching a global warming level of 1.8°C by this point (Table 3.B). The degree of warming is
then projected to fall slightly from its peak in these scenarios to 1.6°C by the end of the century,
due to actions (eg changes in land-use) that help to remove some greenhouse gases from the
atmosphere.
Taking policy action sooner in the Early Action Scenario would mean that there was more chance
of a lower peak temperature than in the Late Action Scenario.[9] As a prudent and simplifying
assumption, however, the warming level incorporated is the same in the Early and Late Action
scenarios. That means different degrees of transition risks alone will drive differences in the
impact of these two scenarios.
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In the No Additional Action scenario, global warming relative to pre-industrial times reaches
3.3°C by 2050. Climate scientists’ projections conditioned on no further policy action suggest,
however, that temperature increases as significant as these would only be likely to occur later in
the century. The shifting forward in time of these more severe temperature rises – and associated
physical risks – is deliberate, as it will allow the Bank to explore the impact of these more
extreme risks. Specifically, the calibration is based on climate outcomes that could materialise
between 2050 and 2080 in the absence of further policy action, consistent with warming reaching
4.1°C by the end of the century.
The temperature pathway used in this scenario is based on the 90th percentile of the projected
distribution of warming outcomes conditional on further policy inaction. The Bank has made this
calibration choice in recognition of the large degree of uncertainty surrounding temperature
pathways, as well as the modelling uncertainty related to physical risks, including the difficulty of
modelling potential developments such as conflict and mass migration, which do not feature in the
calibration.
Table 3.B: Global warming levels reach 3.3˚C by the end of the No Additional Action
scenario; and 1.8 ˚C in the Early and Late Action scenarios
Change in global warming levels relative to pre-industrial times
(˚C) Year 0 Year 10 Year 30
Early and Late Action scenarios (a) 1.1 1.4 1.8
No Additional Action scenario (b) 1.1 2.5 3.3
(a) Taking policy action sooner in the Early Action Scenario would mean that there was more chance of a lower peak
temperature than in the Late Action Scenario. As a prudent and simplifying assumption, however, the warming level
incorporated is the same in the Early and Late Action scenarios. That means different degrees of transition risks alone will
drive differences in the impact of these two scenarios.
(b) Related to the fact that the physical risks element of the No Additional Action scenario is calibrated based on the
physical risks that might be expected to materialise in the period from 2050 to 2080 if no further policy action were taken, it
is assumed that the shift to 2.3°C warming occurs on Day 1 of the No Additional Action scenario. Warming levels then
increase to 3.3o C over the course of the scenario.
The amount of carbon sequestration (removing carbon from the atmosphere and its long-term
storage) is a key assumption in the CBES scenarios.[10] At present, carbon sequestration
technologies face challenges in terms of investment and deployment. Reflecting that, the Early
Action scenario assumes only a moderate level of sequestration can be achieved by private and
public investment in this area. Both the Late Action and No Additional Action scenarios assume
low levels of carbon sequestration, in the absence of timely and sizable investments in carbon
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sequestration technologies.
3.4.2: Summary of risks and impacts

Transition risks affect the profitability of businesses and wealth of households. They also affect
the broader economy through investment, productivity and relative price channels. This is
particularly the case if the transition forces businesses and households to stop using some of
their assets before the end of their productive lives, leading to an increase in stranded assets.
In the Early Action scenario, the transition starts in 2021 so carbon prices (ie carbon taxes and
other policies incentivising the reduction of emissions) increase relatively gradually over the
scenario horizon, reaching around US$900 (abstracting from general inflation over the time
period[11]) in the UK by the end of the scenario (Figure 3.A). As in the NGFS Net Zero 2050
scenario, the reduction in greenhouse gas emissions occurs gradually across multiple sectors.
This is achieved by decarbonising energy supply, accelerating electrification and switching to
low-carbon fuels in industry, transport and buildings, as well as some carbon sequestration.
In the Late Action scenario, the transition is delayed for ten years. There could be many potential
triggers for such a shift. For example, a cumulative increase in significant climate-related events
could materially strengthen the impetus for government action worldwide. Because the transition
is delayed for ten years, it has to happen faster than in the Early Action scenario to ensure carbon
dioxide emissions drop to net-zero.[12] It is also disorderly, requiring unexpected and urgent
changes in the behaviour of households and businesses. A sharp rise in carbon prices leads
businesses to abandon otherwise productive assets, reduce employment in emissions-intensive
activities, and invest in green alternatives. This leads to a short-term drop in output as businesses
adjust their business models. Because the supply of energy is fixed in the short-to-medium term,
this drives inflationary pressures in raw materials, goods and services.
The No Additional Action has little transition risk, but the level of warming leads to material
changes in physical perils. Physical risks affect the economy via:
Acute risks from the increasing frequency and severity of extreme weather events such as
heatwaves, droughts, tropical cyclones and floods.
Chronic risks[13] (from increased average temperatures, sea level rise and higher
precipitation). For example, sea level rises by 0.4m in the UK by the end of the scenario.
Both sources of risk can impact living and working conditions, buildings, infrastructure and
agriculture. This will affect all households and businesses in the economy, albeit to a varying
degree depending on their exposure, vulnerability and ability to adapt.
The CBES will help the Bank to analyse the potential impact of transition scenario variables (eg
carbon prices) and physical scenario variables (eg sea level rises) on losses faced by
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participants. These direct climate variables are expected to play an important role in determining
the total impact of the scenarios. Macroeconomic scenario variables (eg GDP) will also have
some impact, especially in the Late Action scenario.
The macroeconomic impacts of transition risks is modest at an aggregate level in the Early
Action scenario, as the effects of higher carbon prices and energy costs are mostly offset by
energy efficiency improvements and distributional effects of these policy measures.
GDP growth is more severely affected in the Late Action scenario. This is due to a rapid sectoral
adjustment affecting the labour market and leading to stranded assets, with knock-on
consequences for demand and spending, and a rise in risk premia on many assets.
In the No Additional Action scenario, physical risks lead to a material and permanent reduction in
the GDP growth rate. Many of the impacts from physical risks are expected to crystallise or
become more severe in a non-linear way towards the end of the 21st century, so the negative
impact on GDP associated with the No Additional Action scenario would be expected to
increase with time, well beyond the scenario horizon.[14]
The macroeconomic impacts from physical risks would be even higher if societal changes like
migration and conflict were to rise, although these are out of scope of the NGFS and CBES
scenarios.
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Figure 3.A: The 2021 Biennial Exploratory Scenario explores transition and physical
risks from climate change
Summary of impacts in the CBES scenarios
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Box A: Distinct features of the 2021 Climate Biennial

Exploratory Scenario
There are several features that make the 2021 CBES distinct from the Bank’s annual
solvency stress tests.
Wider scope: In addition to macrofinancial variables, the scenarios include direct

climate variables to explore physical and transition risks from climate change.
Wider participation: CBES tests both banks and insurers using the same scenarios.
Multiple scenarios with long horizon: CBES uses three scenarios, each spanning
30 years – much longer than in typical stress tests.
Exploratory exercise: the Bank intends for the CBES to be an exploratory exercise
as opposed to a stress test. Expertise in modelling climate-related risks is in its
infancy, so this exercise will develop the capabilities of both the Bank and CBES
participants.
Novel modelling approaches: participants will use novel modelling approaches to
estimate the impact of climate change on their current exposures. They will conduct
very granular analysis (by geography, sector and/or counterparty).
Not informing capital requirements: the exercise will not be used by the Bank to
inform capital requirements. Instead, it will inform the FPC’s approach to system‑wide
policy issues, the PRA’s approach to supervisory policy, and guide further work
between participants and supervisors to address any issues highlighted.
A second round of submissions: the Bank expects to run a second round of the
exercise, which could focus, for example, on exploring interactions between
participants’ responses.
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4: Detailed description of the CBES scenarios
4.1: Transition risks

4.1.1: Transition policies and the impact on emissions
In the Early Action scenario, climate policies are enacted in 2021. As a result, carbon taxes and
other policies intensify relatively gradually over the scenario horizon. As in the NGFS Net Zero
2050 scenario, global carbon dioxide emissions drop to net-zero before 2050 (Chart 3.1). The
reduction in emissions occurs gradually across multiple sectors. This is achieved by:
decarbonising the energy supply; accelerating electrification; switching to low-carbon fuels in
industry, transport and buildings; and reducing agricultural emissions. Carbon sequestration also
increases modestly. Some jurisdictions such as the UK, US, EU and Japan reach net-zero for all
greenhouse gases by 2050, whereas some other economies are assumed to take slightly longer
to transition.
The Late Action scenario involves a sudden increase in the intensity of climate policy in 2031,
following an initial period which despite global focus on climate issues, is characterised by
insufficient or ineffective emissions reducing policies. There are many hypothetical triggers for
such a shift. For example, a cumulative increase in significant climate-related events could
materially strengthen the impetus for government action worldwide. Because the transition is
delayed for 10 years, it must be more sudden to ensure that UK carbon dioxide emissions drop
to net-zero before 2050.
4.1.2: Phase-out of fossil fuels

Transition policies lead to the phase-out of fossil fuels. This is associated with changes in overall
energy use as well as by changes in the energy mix reducing the carbon intensity of energy.
In the Early and Late Action scenarios, fossil fuels are almost entirely replaced by renewables in
the UK primary energy mix by 2050 (Chart 4.1).[15] By then, renewables account for around 90%
of UK energy needs and around 70% of global energy needs. The main reason for a lower
proportion globally is higher demand for fossil fuels in developing regions. In these regions the
development of infrastructure remains fossil-fuel intensive because there is not enough time
within the scenario horizon to complete the transition to low-carbon production processes for
items such as cement and steel.
The phase-out of fossil fuels occurs alongside significant improvements in energy efficiency, as
well as changing regulation and user preferences. For example, in the Early Action and Late
Action scenarios the UK Government introduces policies to improve energy efficiency of
buildings and to advance a transition towards electric vehicles (see Box B for more details). The
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implications vary by sector (see Section 4.3.4: Sectoral differences).
Significant investment is needed to lower the cost and increase the deployment of low-carbon
technologies. Transitioning to a net-zero economy requires investment flows to be channelled
towards green electricity and storage, transport and industrial processes. It also requires
investment in some carbon capture and storage for hard-to-abate emissions such as from
aviation and animal agriculture. This shift takes place more rapidly in the Late Action scenario
due to the delayed policy response and reduced availability of carbon sequestration
technologies.
Without further policy intervention, in the No Additional Action scenario, fossil fuels continue to be
the dominant source of primary energy, accounting for around 60% of the UK and 75% of the
global primary energy mix in 2050.
Chart 4.1: In the Early and Late Action scenarios fossil fuels are almost entirely replaced
by renewable energy in the UK
UK primary energy mix
4.1.3: Commodity markets

One key uncertainty associated with transition is the future pathway for volumes and producer
prices of fossil fuels.
In the No Additional Action scenario, global wholesale commodity prices (producer prices) rise in
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line with global demand and increasing extraction costs (Chart 4.2). In the Early Action and Late
Action scenarios, producer fossil fuel prices are under downwards pressure from declining fossil
fuel use, although producer ‘sell-off’ behaviour is not explicitly modelled. Lower producer prices of
fossil fuels have a negative impact on businesses that extract fossil fuels, including those that are
state-owned enterprises (see Section 4.3 for an overview of the impact on sovereign bond
spreads). Rising carbon prices in the Early Action and Late Action scenarios create a wedge
between consumer and producer prices.
Chart 4.2: In the Early Action and Late Action scenarios producer prices of fossil fuels
fall, but rising carbon prices create a wedge between producer and user prices
Producer and user fossil fuel prices
Sources: National Institute of Economic and Social Research, Network for Greening the Financial System and Bank
calculations.
4.2: Physical risks

Global mean temperatures have already increased by around 1.1°C from pre-industrial levels. In
the Early and Late Action scenarios where deep reductions in emissions occur, changes in
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physical risks still materialise as the atmospheric concentration of greenhouse gases continues
to increase. However, their impact is much smaller than in the No Additional Action.
In the No Additional Action scenario, governments around the world fail to meet their climate
ambitions, with global temperatures increasing by 3.3°C relative to pre-industrial levels by the end
of the scenario. This leads to severe and irreversible physical impacts. Chronic risks increase
due to: rising temperatures, precipitation and sea level and due to changes in ecosystems. Acute
risks also increase as the frequency and severity of weather events such as heatwaves, wildfires,
tropical cyclones and flooding rise. Chronic and acute physical risks impact living and working
conditions, affecting health, labour productivity and agriculture.[16] Changes in physical hazards
are unevenly distributed, with tropical and subtropical regions facing larger increases than higher
latitudes.[17]
The following sections discuss selected physical risk variables in the CBES scenarios and
describe flood defence assumptions (Section 4.2.5).
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4.2.1: Key physical risks in the UK

In the UK, climate change is expected to increase average temperature, increase precipitation in
the winter months, reduce precipitation in the summer months, and cause sea level to rise.[18]
The combination of climate change effects incorporated in the No Additional Action scenario
leads to an increased risk of flooding in the UK. In addition, the UK also becomes more exposed
to hazards such as subsidence and heatwaves.[19]
By the end of the No Additional Action scenario, average winter precipitation in the UK increases
by 25% compared to the late 20th century (Chart 4.3). Contributing to those average increases,
extreme rainfall events also become more frequent. For example, Met Office research found that
events similar to the record rainfall that occurred in the UK on 3 October 2020 (the UK’s wettest
day on record) could become ten times more frequent for climatic conditions similar to those in
year 10 of the No Additional Action scenario.
Chart 4.3: In the No Additional Action scenario, average winter precipitation in the UK
rises by nearly 25% compared to the late 20th century
Change in the average summer and winter precipitation since the late 20th century in the CBES
scenarios
Sources: Met Office and Bank calculations.
Sea level rise also contributes to the risk of coastal flooding in the UK, with the mean sea level
Page 29
0.4 metres higher by the end of the No Additional Action scenario than in the late 20th century
(Chart 4.4).
Chart 4.4: In the No Additional Action scenario, mean sea level rise in the UK reaches
nearly 0.4m
Mean sea level rise for the UK since 1981–2000 (a)
Sources: Met Office and Bank calculations.
(a) In the No Additional Action scenario, there is a level shift immediately at the beginning of the scenario from sea-level
rise consistent with today’s warming level of 1.1°C to that consistent with a warming level of 2.3°C. 2.3°C is a level of
warming that could plausibly be observed by the middle of the century, assuming no additional climate policy.
4.2.2: Precipitation and flooding across the globe

The rise in temperatures leads to materially increased average precipitation rates in many
regions across the world (eg in North America and East Asia) in the No Additional Action
scenario (Table 4.A). Changes in precipitation lead to changes in river discharge, increasing the
risk of inland floods from heavy precipitation. This risk can be measured using annual maximum
discharge (water flow) in a river or catchment. Regions that experience the largest change in
annual maximum discharge in the No Additional Action scenario are typically located in mid-
latitudes. For example, by the end of the No Additional Action scenario, annual maximum
discharge in China increases by 22%.
By contrast, some countries experience an overall decrease in average precipitation in the No

Additional Action scenario. In France, mean annual precipitation falls by close to 4%, and
summer precipitation falls by 20% by the end of No Additional Action scenario. Lower
precipitation leads to lower river discharge. In Southern Europe, the annual maximum discharge
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decreases by over 30% by the end of No Additional Action scenario. This could adversely impact
water supply and agricultural production.[20]
Table 4.A: There is a material increase in precipitation rates in the No Additional Action
scenario, which increases the risk of flooding
Change in annual average precipitation rates in the CBES scenarios
Early and Late Action No Additional Action
Global Warming 1.1 1.4 1.8 2.5 3.3

Levels (°C)
Year 0 Year 10 Year 30 Year 10 Year 30
Per cent Change in annual average precipitation rates relative to the period 1986–2005,
unless otherwise stated.
UK (a) 1.0 0.9 0.3 10.6 11.0
US 2.4 2.2 3.6 2.5 2.4
Japan 0.9 1.6 3.1 6.0 5.2
China 2.4 3.1 4.9 6.2 10.2
Hong Kong -0.3 0.6 1.7 -1.5 0.8
Canada 2.0 4.0 5.8 9.3 14.7
Germany 2.1 4.3 3.7 3.8 3.5
France 1.1 2.0 2.1 -1.0 -3.7
(a) Change relative to the period 1981–2000, based on Met Office data. This difference in baseline data is expected to have
a negligible impact.
4.2.3: Sea level rise across the globe

Climate change is causing sea levels to rise via thermal expansion of ocean water and melting of
ice sheets and glaciers. Global mean sea level has risen about 0.2 metres since 1880.[21] For
example, in China, France, Japan and Hong Kong, the mean sea level increases by around 0.4–
0.5 metres by the end of the No Additional Action scenario. Sea level rise is a contributing driver
to increased coastal flood risk.
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4.2.4: Tropical cyclones across the globe

Climate change affects the frequency and severity of tropical cyclones which varies across
geographies and climatic scenarios. Tropical cyclones can have significant impacts on physical
infrastructure and the supply chain, for example via damaging wind, storm surge and excess
rainfall.
CBES scenario variable paths do not include detailed variables for the severity of tropical
cyclones in each of the scenarios. However, the rise in temperatures is expected to lead to a
significant increase in the frequency of severe tropical cyclones in certain regions in the world
across the full duration of the No Additional Action scenario; and towards the end of the Early and
Late Action scenarios.
Chart 4.5 illustrates the change in the frequency and severity of tropical cyclones for global
warming conditions that are broadly similar to those at the end of the Early and Late Action
scenarios or at the start of the No Additional Action scenario, when global warming levels relative
to pre-industrial times are around 2°C (based on Knutson et al (2020)).[22] CBES participants
can use this research as a starting point of their analysis when performing scenario expansion
and quantifying impacts from tropical cyclones across the three scenarios. Participants should
note that at approximately this point in the respective scenarios:
Tropical cyclone precipitation rates are projected to increase by 14% globally, and by 16% in
the North Atlantic basin.
Tropical cyclone intensity is projected to increase by 5% globally, and by 3% in the North
Atlantic basin.
Global frequency of very intense tropical cyclones (category 4–5 storms) that tend to drive
property damage is also projected to increase (while the overall expected frequency of tropical
cyclones falls). In the North Atlantic basin, the frequency of very intense cyclones is expected to
increase by 12%.
The frequency and severity of tropical cyclones at the end of the No Additional Action scenario
(with global temperature warming of 3.3°C) is expected to be higher still. Participants may base
their scenario expansions on their own model outputs or could adopt other approaches, such as
scaling key variables according to warming levels.
Page 32
Chart 4.5: Frequency of severe tropical cyclones increases significantly in certain

regions across the full duration of the No Additional Action scenario and towards the
end of the Early and Late Action scenarios
Tropical cyclone projections (2°C global warming) (a)
Source: Knutson, T, Camargo, S J, Chan, J C L, Emanuel, K, Ho, C H, Kossin, J, Mohapatra, M, Satoh, M, Sugi, M, Walsh, K
and Wu, L (2020), ‘Tropical Cyclones and Climate Change Assessment: Part II: Projected Response to Anthropogenic
Warming ’.
(a) The figure shows median and percentile ranges for projected percentage changes in tropical cyclone frequency,
category 4–5 storm frequency, tropical cyclone intensity, and tropical cyclone near-storm rain rate. For tropical cyclone
frequency, the 5th–95th percentile range across published estimates is shown. For category 4–5 storm frequency, tropical
cyclone intensity, and tropical cyclone near-storm rain rates the 10th–90th percentile range is shown.
4.2.5: Heatwave across the globe

Research shows strong evidence that climate change is increasing the risk of heatwaves. Across
the globe, hot days are getting hotter and more frequent.[23] The increased risk of heatwaves
increases the risk of widespread drought, crop failures, and wildfires; and it reduces labour
productivity. In the No Additional Action scenario, land area exposed to heatwaves increases by
more than 25%, with significant variation across regions (Table 4.B).[24] For instance, land area
exposed to heatwave in Hong Kong increases by nearly 70% by the end of the No Additional
Action scenario.
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Table 4.B: Land area exposed to heatwaves increases by around 25% in the No
Additional Action scenario, with significant variation across regions
Heatwaves in the CBES scenarios
Early and Late Action No Additional Action
Global Warming 1.1 1.4 1.8 2.5 3.3

Levels (°C)
Year 0 Year 10 Year 30 Year 10 Year 30
Land area exposed to heatwave (percentage change in annual mean

from the period 1986–2005)
US 1.7 2.6 3.8 6.7 10.8
Japan 0.1 0.9 2.0 5.5 9.3
China 0.4 0.7 1.7 5.3 9.9
Hong Kong 2.8 7.0 16.5 19.5 67.6
France 0.0 0.0 0.0 0.1 0.2
4.2.7: Adaptation and mitigation

The effects of climate-related risks can be partly reduced by climate adaptation and mitigation
measures. For example, flood defences and improved national responses to natural disaster can
help reduce the impacts of physical risks; just as pre-emptive reductions in reliance on carbon-
intensive methods of production can limit transition risks. As a general rule, when participants
analyse the impact of the scenarios on specific government or corporate counterparties, only
those adaptation and mitigation plans that are already being implemented and that are highly
likely to be completed will be factored into headline loss estimates.[25]
As an exception to this general rule, the CBES scenarios provide a specific path for UK flood
defences. Existing flood defences are complex systems that provide a certain standard of
protection to parts of the floodplain affected by flood risk. The response of flood risk management
plans is expected to vary in the future across different floodplains. The CBES scenarios make a
simplifying assumption of a single flood defence management strategy across the UK. In
particular, the existing processes and structures are assumed to:
be maintained to defend against increased flood severity (ie probability of failure maintained
to current level); and
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not be upgraded (eg cannot justify that new structures like the Thames flood barrier are to be
constructed nationally).
Given these assumptions, the standard of protection provided by existing flood defences will
deteriorate as the risk of floods increases. The reduction in standard of protection will be a
function of localised flood risk characteristics. Table 4.C provides an indication of the potential
change in standard of protection under the different climatic conditions explored in CBES.
Table 4.C: The standard of protection provided by existing UK flood defences

deteriorates in the scenarios
Benchmark change in the standard of protection by existing UK flood defences over the
course of the scenarios
Global warming relative to pre- Change in Standard of

industrial levels (°C) Protection (per cent)
Early Action/Late 1.8 -33

Action – Year 30
No Additional Action – 2.5 -50

Year 10
No Additional Action – 3.3 -66

Year 30
Sources: Bank calculations based on discussions with the Environment Agency.
4.3: Macroeconomic impacts

4.3.1: Macroeconomic impacts in the Early Action scenario
In the Early Action scenario, there is an orderly transition. As in the corresponding NGFS
scenario, the macroeconomic impact of transition risks is modest at an aggregate level, as the
effects of higher carbon prices and energy costs are mostly offset by energy efficiency
improvements and distributional effects of these policy measures. GDP growth remains positive,
despite the overall headwinds from the transition. But there are material differences in sectoral
impacts (see Section 4.3.4).
UK GDP growth dips temporarily, to an average of 1.4% between 2026–30, and recovers to
around 1.6% by the end of the scenario. By 2050, the level of UK GDP is around 1.4% below a
(purely hypothetical) counterfactual path in which there are no additional headwinds from climate
risks.[26] There is little impact on the unemployment rate in this scenario.
Similarly, the level of global GDP is around 1.6% below the counterfactual by the end of the
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scenario. And there is little variation by country (Table 4.D).
Table 4.D: The impact of climate policies on aggregate GDP in the Early Action scenario
is only moderate
GDP impacts in international scenarios (per cent relative to the counterfactual by the end of
the scenario) (a)
United Kingdom Euro area United States China
Early Action -1.4 -1.2 -1.6 -1.8
Late Action -4.6 -4.9 -3.8 -5.3
No Additional Action -7.8 -10.2 -11.2 -15.3
Sources: Kalkuhl and Wenz (2020) , Network for Greening the Financial System and Bank calculations.
(a) Even though the exact size and nature of risks from climate change is uncertain, some combination of physical and
transition risks will materialise in the future with a high degree of certainty. The counterfactual pathways that might be
expected in the absence of climate risks are therefore purely hypothetical. These counterfactual pathways do not represent
the Bank’s view of the long-run path for the economy.
The main drivers of UK and global GDP profiles in the Early Action scenario are:
Shock to the supply capacity of the economy from rising carbon prices and changes in energy
usage: in the short term, changes in the cost of energy and fossil fuels bear down on corporate
profits in some sectors.
Productivity improvements, including from energy efficiency: increased renewable energy
investment is assumed to result in energy efficiency gains.[27]
Short and long-term interest rates rise gradually in the UK and in other major economies, with
some of that increase reflecting the effect of the higher levels of investment needed to address
risks from climate change. However, throughout the scenario, rates remain below the levels
experienced before the global financial crisis, and there are assumed to be no abrupt changes in
interest rates as the economy transitions. Relative to their end-2020 levels, UK 10-year sovereign
bond yields rise by around 2.2 percentage points by the end of the scenario.
UK house prices grow at a somewhat slower rate than they would have done without the
projected impact of climate risks in the scenario, leaving the level of aggregate UK house prices
7% lower than the counterfactual by the end of the scenario. The prices of certain types of
properties will be more adversely affected than this, reflecting, for example, the impact of specific
transition policies (see Box B for more details on the transition policies in the UK).
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4.3.2: Macroeconomic impacts in the Late Action scenario

A sharp, unanticipated increase in shadow carbon prices in 2031 reduces the supply capacity of
the economy. There are material reductions in the output of some industries, with workers in badly
affected (carbon-intensive) sectors displaced, and unable to transfer to other sectors in the short
term. Some businesses and households have to stop using some of their assets before the end
of their productive lives. There are knock-on consequences for demand, and a rise in risk premia
on many assets.
For the UK, the peak GDP impact relative to the counterfactual is around -8% in 2033 (Chart 4.6).
The annual GDP growth rate troughs at -2.7%.
The unemployment rate peaks at 8.5%. The inflation rate rises to over 4%, but Bank rate is cut
to 0.1%, as monetary policy is loosened in order to stabilise output.
GDP in other countries follow broadly similar paths, with some differences in specific country
profiles reflecting differences in the macroeconomic impact of climate policy (eg relating to
carbon intensity of production, among other things) and exposure to physical risks.
Chart 4.6: There is a sharp fall in GDP in the Late Action scenario
GDP in the Late Action scenario relative to the counterfactual (a)
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The main drivers of UK and global GDP profiles in the Late Action scenario are:
A shock to the supply capacity of the economy from rising carbon prices and changes in
energy usage. This shock is similar to but more severe than in the Early Action scenario.
Capital stranding, as businesses are no longer allowed to use their carbon-intensive assets or
it is otherwise not profitable to use them given the carbon price.[28]
Falling labour force participation. Non-carbon intensive sectors are assumed to have limited
capacity to absorb the reduction in employment from carbon-intensive sectors. In the UK, for
example, this results in a loss of around 1.5 million jobs overall, comparable with the 1980s
recession.
Temporarily lower productivity. Carbon-intensive sectors are assumed to have limited ability to
adapt structures and processes in the short term, while non-carbon intensive sectors operate
below capacity.
Rising risk premia on many assets rising to a peak similar to that in the global financial crisis.
From 2031 until around 2035 GDP growth averages close to zero, structural unemployment
remains very high, and inflationary pressures remain strong, driven by energy and food prices.
Risk premia remain elevated, depressing investment.
UK GDP growth then recovers, reaching around 1.6% annually. By the end of the scenario, the
level of GDP is 4.6% lower than the counterfactual, with other major economies experiencing
similar shortfalls.
UK aggregate house prices in the scenario fall by 19% peak-to-trough in absolute terms. As in
the Early Action scenario, prices of certain types of properties will be more adversely affected
than this, reflecting the impact of specific transition policies (See Box B for more details on the
transition policies in the UK).
Over the course of the whole scenario, short and long-term interest rates rise in the UK and
other major economies, with some of that increase reflecting the effect of higher levels of
investment needed to address risks from climate change. However, when the disorderly transition
begins in 2031, the macroeconomic disruption causes financial market participants’ perceptions
of risk to increase, and their risk appetite to diminish. The resulting rise in risk premia leads to an
upward pressure on interest rates.
This is reflected in higher borrowing rates faced by households, companies and governments
(Table 4.E). The rise in sovereign bond yields in 2031 is most pronounced in those economies
with substantial fossil fuels exports.
Following the onset of the disorderly transition, monetary authorities across the world are
assumed to cut policy rates in this scenario, and to keep them low for several years. Although the
Page 38
inflation rate rises as a result of some of the climate policies that are imposed, the scenario
assumes that a substantial margin of spare capacity opens up in the world economy, which takes
many years to eliminate despite support from monetary policy.
Table 4.E: Long-term interest rates rise across all scenarios and higher risk premia
increase the wedge between emerging market economy and advanced economy rates
Peak 10-year sovereign bond yields
Per cent Actual Early Action Late Action No Additional Action
2020 2050 2031 2050 2050
United Kingdom 0.3 2.5 1.3 2.6 2.9
United States 0.9 2.7 1.3 2.9 3.4
Euro area -0.5 2.7 1.2 2.9 3.5
China 3.1 5.4 6.1 6.5 8.4
India 5.9 8.2 8.9 9.3 11.2
EME average (indicative) 3.9 6.2 6.9 7.3 9.2
Sources: Bloomberg, ND-GAIN and Bank calculations.
Credit spreads rise in a number of markets. For example, in 2031, BBB-rated corporate bond
spreads for non-financial companies rise by around 100 basis points in the UK and by around
110 basis points in the US.
Equity prices also fall in the scenario, with the peak-to-trough correction of close to 20% in the
UK and in the US.
Corporate bond spreads and equity prices of individual businesses will vary around the values for
aggregate indices, depending on the exposure of individual businesses to transition risks. CBES
participants will consider that as part of the counterparty-level analysis, which is an important part
of the exercise.
Measures of market volatility also rise, with the VIX rising from 19 in 2030 to 30 in 2031, an
annual average level only a little below that observed during the global financial crisis.
4.3.3: Macroeconomic impacts in the No Additional Action scenario

The more severe physical risks in the No Additional Action scenario result in a material
Page 39
cumulative impact on GDP. This impact on output manifests in slightly lower trend growth rather
than a period of sharp contraction.
UK GDP only grows at an average rate of around 1.4% in years 6–10 of the scenario, with the
growth rate falling further to around 1.2% towards the end of the scenario. After 30 years, the level
of UK GDP is around 8% below the level it hypothetically might have been in the absence of
climate risks (Chart 4.7).
The impacts of physical risks on GDP are even more severe globally. The impact on individual
countries depends on their exposures to physical risks. For example, Chinese GDP is around
15% lower relative to the counterfactual after 30 years; and global GDP is around 13% lower
relative to the counterfactual.
Chart 4.7: Severe physical risks in the No Additional Action scenario result in a material
cumulative impact on GDP
GDP in the No Additional Action scenario relative to the counterfactual (a)
Sources: Kalkuhl and Wenz (2020) , Network for Greening the Financial System and Bank calculations.
The main drivers of UK and global GDP profiles in the No Additional Action scenario are:
Falling productivity. Changes in temperature and humidity weigh on labour and agricultural
productivity, especially in developing countries. Weaker productivity results in lower potential
Page 40
output growth in the long run.[29]

Damage to capital. A higher frequency and severity of extreme weather events increases
damages to the physical capital stock, including the housing stock, and further lowers
productivity.
Supply chain disruption.
Falling trade volumes. This reduces diffusion of ideas and expertise, resulting in a knock-on
impact on UK productivity.
The UK inflation and unemployment rates are little changed from the counterfactual by the
end of the scenario, because of the gradual nature of the macroeconomic impact over the
scenario horizon.
Aggregate UK house prices fall gradually relative to the counterfactual, with the cumulative
impact of -22% by the end of the scenario. But some property prices are much more adversely
affected, for example those properties that become heavily flooded on a regular basis.
Short and long-term interest rates rise gradually in the UK and in other major economies.
However, throughout the scenario, rates remain below the levels experienced before the global
financial crisis. Risk premia are assumed to rise over the course of the scenario, adding upward
pressure on longer-term interest rates. That reflects a rise in macroeconomic and monetary policy
uncertainty. Thus, borrowing rates faced by households, companies and governments rise over
the course of the scenario (Table 4.E).
Government bond yields rise more in countries with larger exposures to physical risks. For
example, in the emerging market economies 10-year sovereign bond yields rise by an average of
over 5 percentage points over the course of the scenario, reaching around 9.2%. This estimate is
indicative, and CBES participants will perform scenario expansion to consider the impact of
physical risks on sovereign credit risks in different countries.
Corporate credit spreads rise in a number of markets. For example, by the end of the scenario
BBB-rated corporate bond spreads for non-financial businesses rise by around 110 basis points
in the UK and by around 160 basis points in the US.
Corporate bond spreads and equity prices of individual businesses will vary around the values for
aggregate indices, depending on the exposure of individual businesses to physical risks. CBES
participants will consider that as part of the counterparty-level analysis.
Macroeconomic uncertainty faced by households and companies increases as the physical

environment becomes more hazardous and unpredictable. Measures of market volatility also
trend upward in the scenario, with the VIX rising by around 50% from its 2021 level.
Assuming trends at the end of the scenario are maintained, in another 30 years, UK GDP in the
Page 41
No Additional Action scenario would be 16% below the counterfactual level. But many of the
impacts from physical risks are expected to crystallise or become more severe in a non-linear
way over time. So headwinds facing the economy would be expected to increase further into the
future, beyond the horizon of this exercise. This is in sharp contrast to the Early and Late Action
scenarios, where most of the economic impacts from the transition are felt by the end of the
scenario.
The macroeconomic impacts from physical risks could be even higher if adverse societal
changes like increased mass migration and conflict were to materialise, although these are out of
scope of the NGFS and CBES scenarios.
4.3.4: Sectoral differences

The degree of exposure to climate risks varies across different sectors of the economy. This is
reflected in the calibration of Gross Value Added (GVA) paths for individual sectors within the
CBES scenarios. For instance, sectors relying on carbon-intensive production processes are
more vulnerable to transition risks than the economy as a whole. And sectors that are highly
dependent on physical infrastructure in certain areas could be more vulnerable to physical risks.
The magnitude of a sector’s exposure also depends on factors such as its core activity, supply
chain structure, and the extent of emissions associated with the final consumption of its goods
and services. To aid participants with their sectoral analysis, CBES scenario variable paths
provide sectoral GVA paths for 59 UK sectors, spanning the entire economy, in each scenario.[30]
These paths reflect the value of goods and services produced by each sector, and are expected
to have a material impact on the results of the exercise. [31]
There is a wide dispersion of sectoral shocks (Chart 4.8). While some sectors gain market share
relative to others, all sectors are assumed to reduce their output relative to their counterfactual
paths in which there are no headwinds from climate risks. This is because overall economic
output is smaller in each scenario than in the counterfactual. But that does not rule out the
possibility that there could be individual companies within sectors which might observe stronger
than trend output under the scenarios.
Page 42
Chart 4.8: The impact of climate risks varies markedly across different sectors
Range of UK sectoral Gross Value Added pathways: deviation from the counterfactual (a)
Sources: Burke et al (2015) , Exiobase, Met Office, Moody’s ESG Database , Office for National Statistics,
Organisation for Economic Co-operation and Development and Bank calculations.
transition risks will materialise in the future with a high degree of certainty. The counterfactual GVA pathways take into
account both the GDP growth that might be expected in the absence of climate risks, and the average historical sector-
specific GVA growth rates (for the period 2000–19). The counterfactual pathways are purely hypothetical and do not
represent the Bank’s view of the long-run path for the economy.
Some sectors experience very sharp shocks in the Early Action and Late Action scenarios.
These include, for example, Mining and Manufacturing of cement (Table 4.F). These sectors’
supply chains produce over ten times more emissions than the economy average to produce an
additional pound amount of value added. In the Late Action scenario, these sectors lose a
majority of their UK GVA relative to the counterfactual path in which there are no additional
headwinds from climate risks. However, some of the most affected sectors, like Electricity supply,
recover most of their losses by the end of the scenario horizon. This is because after the initial
shock, they quickly transition to low-carbon production. Other sectors, like UK Manufacturing of
coke and refined petroleum products, are assumed to fail to transition and remain well below their
counterfactual levels by the end of the scenario.
Page 43
Table 4.F: Most affected sectors include Mining in the Early and Late Action scenarios;
and Crop and animal production in the No Additional Action scenario
Sectors most significantly affected in each scenario (deviation of Gross Value Added from the
counterfactual) (a)
Per cent Early Action Late Action No

Additional
Action
Sector name (share of economy by GVA Peak End- Peak End- End point
at end of 2020) point point
Mining crude petroleum, natural gas and -20 -18 -74 -62
metal ores (0.9%)
Mining other (0.2%) -20 -17 -73 -62
Manufacturing: cement (0.2%) -23 -13 -82 -57
Manufacturing: coke and refined petroleum -25 -18 -82 -73

products (0.2%)
Electricity supply (0.5%) -44 -3 -82 -27
Crop and animal production (0.6%) -44
Forestry and fishing (0.1%) -42
Manufacturing: pharmaceuticals (0.7%) -30
Manufacturing: food (1.2%) -22
Mining crude petroleum, natural gas and -21

metal ores (0.9%)
Sources: Exiobase, Met Office, Office for National Statistics, Organisation for Economic Co-operation and Development
and Bank calculations.
In the No Additional Action scenario, the range of sectoral impacts is much smaller than is the
case in the other two scenarios. For example, the most affected sectors, Crop and animal
production and Forestry and fishing, lose just over 40% of GVA by the end of the scenario,
relative to the counterfactual pathways. This is largely due to greater direct and indirect crop
Page 44
damage due to increased erratic weather conditions and diseases, as well as reduced land and
labour productivity. GVA in the Manufacturing of pharmaceuticals sector, which depends to some
extent on agriculture and biodiversity, is around 30% below the counterfactual.
The sectors most impacted in the No Additional Action scenario are, however, much larger on
average (in terms of their GVA share in the overall economy) than sectors most impacted in the
other two scenarios. For example, by the end of the No Additional Action scenario, the Real
estate sector, whose GVA share of the total economy is 14%, loses around 11% of its GVA
relative to the counterfactual.
The sectoral variation in the No Additional Action scenario therefore represents a significant
stress to the corporate sector. Moreover, sectoral deviations in the No Additional Action scenario
continue to get worse even beyond the scenario horizon, as more and more physical risks
manifest.
The relative impacts on different sectors outside the UK might differ. They will depend, in part, on
the relative strength of transition and physical risks that apply in different regions. For example,
the UK and the US may face similar transition risks but the US economy is more susceptible to
extreme weather events, because of its geography. At the sectoral level, this would translate to
larger shocks to sectors dependent on, for example, agriculture and biodiversity.
Page 45
Box B: UK transition policies: energy efficiency of buildings and

deployment of electric vehicles
The goal of reaching net-zero greenhouse gas emissions by 2050 is consistent with the
UK Government’s announced targets. To the extent that specific material policies to reach
those targets have been announced, the assumptions underpinning the calibration of the
CBES scenarios are consistent with these. This box sets out two examples of where the
Government has already introduced or started to set out such policies, with respect to the
energy efficiency standards for buildings; and use of internal combustion engine and
hybrid vehicles.
A number of additional policies are yet to be specified by the Government. As set out in
Section 3.4.1, the carbon price in the CBES scenarios can be thought of as a summary
incorporating a range of different policies aimed at reducing greenhouse gas emissions.
Energy efficiency of buildings

As part of its Clean Growth Strategy, the UK Government has set out an objective for
reducing emissions from homes.[32] This objective is formulated around Energy
Performance Certificates (EPCs), which give properties an energy efficiency rating from A
(most efficient) to G (least efficient). Specifically, the Government aims to ensure that as
many homes as possible are improved to EPC band C by 2035, where practical, cost-
effective and affordable. The Clean Growth Strategy also highlights the need for low-
carbon heating. Some technological solutions to do this are well established or are being
actively explored, for example the Government aims to increase annual heat pump
installation to 600,000 by 2028 .
The CBES scenarios build on these Government objectives by stipulating pathways for
improvements in the energy efficiency of homes. These pathways apply only to the Early
and Late Action scenarios. In the No Additional Action scenario, government objectives
are assumed not to be met.
In the Early and Late Action scenarios, as many homes as possible improve to EPC band
A by 2050. As homes in EPC band A have the lowest emissions, this assumption is
consistent with the broader Government objective of net-zero greenhouse gas emissions
by 2050. However, not all homes can feasibly improve to EPC band A. More broadly,
therefore, the Early and Late Action scenarios assume that homes improve to the highest
EPC band feasible.
Consistent with the broader scenario narratives, the rate at which energy efficiency
Page 46
improvements take place differs between the Early Action and Late Action scenarios. In
the Early Action scenario, energy efficiency improvements are gradually carried out over
the 30 years of the scenario. In the Late Action scenario, energy efficiency improvements
are carried out from 2030 onwards, providing less opportunity for costs to be spread out
over time.
Two additional assumptions affect the ultimate cost of improvements to homes in the Early
and Late Action scenario:
There is a rollout of heat pumps, consistent with consistent with the assumption made
by the Climate Change Committee. This assumption effectively drives up the cost of
decarbonising homes.
The government offers a subsidy scheme to support the implementation of energy
efficiency improvements. This assumption reduces the cost of decarbonising homes
for households. The assumed subsidy scheme is based broadly on previous
Government schemes.[33]
Some properties are assumed to become unmarketable. Specifically, in the Early Action
and Late Action scenarios, from 2035, all domestic properties in the UK must have an
EPC band E or higher. Properties that cannot be improved to an EPC band E or higher
then become unmarketable. This assumption is a hypothetical extrapolation of the existing
Domestic Minimum Energy Efficiency Standards Regulations, which requires all rental
properties to have an EPC band E or higher.[34]
Similar assumptions apply to commercial real estate. As many buildings as possible need
to improve to EPC band A. Properties that cannot be improved to an EPC band E or
higher are assumed to become unmarketable from 2035 onwards. As with residential real
estate, these assumptions build on existing government regulations and objectives.[35] As
a simplification, there are no heat pump costs or subsidies applicable for commercial
properties.
Electric vehicles
The UK Government has announced a ban on the sale of new internal combustion engine
vehicles from 2030, and hybrid vehicles from 2035. As this is an existing policy, scenario
pathways are consistent with these policies in all three scenarios. This means that the vast
majority of car finance lending will be required to transition to electric vehicles in a way
consistent with this timeframe.
These policies are reflected in the following scenario variable paths, which will allow
relevant participants to estimate the impact of policies on residual value losses on their
car finance lending:
Page 47
The composition of new vehicle sales.

The composition of vehicles on the road, calibrated to reflect the composition of new
vehicle sales.
Distinct used car price paths for: internal combustion engine vehicles; hybrid vehicles;
and electric vehicles.
In the Early Action scenario, it is assumed that the government acts promptly to encourage
a smooth transition to electric vehicles. The proportion of new vehicles accounted for by
internal combustion engine vehicles gradually falls and policies are introduced to remove
used internal combustion engine vehicles from the road. Consistent with this, there is a
steady decline in used prices of such vehicles, starting in 2021 as they are phased out of
the market. Consistent with existing government policy, falls in prices of used hybrid
vehicles begin in 2026 and follow the same path.
The Late Action scenario assumes substantial government policies to manage the
transition to electric vehicles begin in 2026 rather than 2021. This results in a more rapid
adjustment in used vehicle prices and the composition of the flow and stock of vehicles.
There are also stricter government policies to limit the use of internal combustion engine
vehicles and hybrid vehicles after 2030.
In the No Additional Action scenario, the paths for vehicle prices, the composition of
vehicle sales and the composition on vehicles on the road are similar to the Late Action
scenario. However, in the No Additional Action scenario, the transition stops after 2030,
as it is assumed that the announced policies are not subsequently introduced.
Page 48
Glossary
BES – Biennial Exploratory Scenario.
CBES – Climate Biennial Exploratory Scenario (2021 Biennial Exploratory Scenario: Financial
risks from climate change).
EME – emerging market economy.
EPC – Energy Performance Certificate
FPC – Financial Policy Committee.
GDP – Gross domestic product.
GVA – Gross Value Added.
IPCC – Intergovernmental Panel on Climate Change.
NGFS – Network for Greening the Financial System.
PRA – Prudential Regulation Authority.
PRC – Prudential Regulation Committee.
VIX – CBOE Volatility Index.
See our main Glossary for more key terms and abbreviations.
1. Climate scientists’ projections suggest that absent a rapid transition, some physical risks will crystallise in the period
to 2050, but the most material shocks would occur later in the century. To ensure the No Additional Action scenario
captures these more severe risks, it has been calibrated based on the level of physical risks that could be prevalent
between 2050 and 2080 in the absence of further policy action. The end-of-century warming in this scenario is 4.1°C.
2. For example, the IPCC Special Report on Global Warming of 1.5°C – IPCC (2018). ‘Global Warming of 1.5°C. An IPCC
Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse
gas emission pathways, in the context of strengthening the global response to the threat of climate change,
sustainable development, and efforts to eradicate poverty’.
3. The sources of uncertainty have been set out in more detail at the NGFS Scenario Portal .
4. The NGFS climate scenarios have been developed by the NGFS Macrofinancial workstream chaired by the Bank. They
aim to provide users, including central banks and supervisors, with a common starting point for analysing climate
risks under different future pathways. They are produced in partnership with leading climate scientists, leveraging
climate-economy models that have been widely used to inform policymakers, and have been used in key reports such
as the IPCC Special Report on Global Warming of 1.5 ˚C. The NGFS climate scenarios can be found in the NGFS
Page 49
Climate Scenarios for central banks and supervisors .

5. The CBES scenarios have been generated with the help of NiGEM. The NiGEM economic model is the property of the
National Institute of Economic and Social Research and NiGEM is a trade mark of the Institute.
6. Real carbon prices based on 2010 US dollar.
7. Because the carbon price is defined as an implicit price on emissions, not all of carbon price results in tax revenue
available to use by governments. The CBES scenarios assume only 50% of the carbon price leads to tax revenues.
This assumption is not intended to reflect or predict current or future climate policies in the UK or abroad. Different
combinations of tax and non-tax policies could be used to achieve a given reduction in emissions.
8. This is an estimate of the current warming levels incorporated as a starting point in the NGFS scenarios . There is,
however, a natural variability in warming levels observed each year. For example, according to a study by the World
Meteorological Organization there is about a 40% chance of the annual average global temperature temporarily
reaching 1.5°C above the pre-industrial level in at least one of the next five years.
9. Based on current projections, the path of emissions in the Early Action scenario would be consistent with around a
50% chance of limiting global warming to below 1.5°C by the end of the century.
10. This includes both changes in agriculture and forestry, supporting carbon dioxide removal (CDR), as well as carbon
capture and storage technologies (CCS).
11. Real carbon prices based on 2010 US dollar.
12. Due to the delay, it is no longer feasible to attain net zero emissions by 2050 globally under plausible assumptions. As
a result, the net-zero target is achieved later in the Late Action scenario. That means global temperatures would be
likely to rise by slightly more than if material policy action had been taken earlier. As a simplifying assumption for this
exercise, however, temperature pathways are the same in both the Early Action and Late Action scenarios.
13. For more information, see PRA ‘A framework for assessing financial impacts of physical climate change: A
practitioner’s aide for the general insurance sector’, May 2019.
14. Field, C B, Barros, V, Stocker, T F, Qin, D, Dokken, D J, Ebi, K L, Mastrandrea, M D, Mach, K J, Plattner, G K, Allen, S K,
Tignor, M and Midgley, P M (2012), ‘Managing the Risks of Extreme Events and Disasters to Advance Climate
Change Adaptation ’, IPCC.
15. The CBES scenarios assume that the share of nuclear energy remains broadly constant over time. This stands in
contrast to the NGFS scenarios, which assume nuclear energy is phased out on competitive grounds. The NGFS
assumption does not take into account contracting arrangements for nuclear energy, which tend to be long term; nor
does it account for political preferences, which may also be skewed towards keeping some nuclear facilities.
16. Intergovernmental Panel on Climate Change (2014).
17. Intergovernmental Panel on Climate Change (2013).
18. For more information, see ‘Climate change in the UK ’ by the Met Office; ‘GeoClimate : UKCP09 and UKCP18 ’
by the British Geological Survey; and ‘UK Climate Change Risk Assessment 2017 Evidence Report. Technical
chapter: Natural environment and assets ’ by the Climate Change Committee.
19. See Christidis, N, McCarthy, M, Cotterill, D and Stott, P A (2021), ‘Record-breaking daily rainfall in the United Kingdom
and the role of anthropogenic forcings ’, Met Office Hadley Centre. This is based on the assumption that the
climactic conditions as used in the paper in year 2100 (SSP 2-4.5) are equivalent to the No Additional Action scenario
Year 10.
20. See NGFS Climate Scenarios Presentation available at the NGFS Scenario Portal .
21. See NOAA Climate.gov (2021), ‘Climate change: global sea level ’.
22. Knutson, T, Camargo, S J, Chan, J C L, Emanuel, K, Ho, C H, Kossin, J, Mohapatra, M, Satoh, M, Sugi, M, Walsh, K and
Wu, L (2020), ‘Tropical Cyclones and Climate Change Assessment: Part II: Projected Response to Anthropogenic
Warming ’.
23. Center for climate and energy solutions, ‘Heatwave and climate change ’.
24. Lenge et al (2020), ‘Projecting Exposure to Extreme Climate Impact Events Across Six Event Categories and Three
Spatial Scales ’, Earth’s Future.
Page 50
25. Guidance for participants of the 2021 Biennial Exploratory Scenario provides more details on the criteria to judge
whether specific business adaptation and mitigation plans should be included in participants’ projections of losses.
26. Even though the exact size and nature of risks from climate change is uncertain, some combination of physical and
transition risks will materialise in the future with a high degree of certainty. Throughout this document, any references
to counterfactual pathways that might be expected in the absence of physical or transition risks are purely hypothetical.
These counterfactual pathways do not represent the Bank’s view of the long-run path for the economy. The
counterfactual pathways for some key variables have been published in the scenario variable paths. Should
participants require estimates of counterfactual pathways for other variables for their analysis, they might estimate the
counterfactual pathways by extending the trends in years 6–10 of the Late Action scenario, a period when there is little
transition or physical risks.
27. The amount of investment needed to achieve this is highly uncertain. For example, according to the Intergovernmental
Panel on Climate Change, in order to limit global warming to 1.5°C by 2050, investment in energy efficiency would
need to increase by 4–10 times compared to 2015, reaching US$0.8–2.9 trillion (in 2010 US dollar terms). For more
details, see IPCC (2018), ‘Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of
1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of
strengthening the global response to the threat of climate change, sustainable development, and efforts to
eradicate poverty ’.
28. This is calibrated based on Cahen-Fourot, L, Campiglio, E, Godin, A and Kamp-Benedict, E (2019), ‘Capital stranding
cascades: The impact of decarbonisation on productive asset utilisation ’, Ecological Economic Papers 18, WU
Vienna University of Economics and Business.
29. The calibration of this channel follows the NGFS Current Policies scenario, and is based on Kalkuhl, M and Wenz, L
(2020), ‘The impact of climate conditions on economic production. Evidence from a global panel of regions ’,
Journal of Environmental Economics and Management, Vol. 103, Issue C.
30. These pathways have been informed by Brizhatyuk et al (2020) ; Burke et al (2015) ; Four Twenty Seven (2021)
; Lazo et al (2011) ; Kahn et al (2019) ; and Shrader (2020) .
31. GDP can be decomposed as the sum of all sectoral GVAs plus taxes on products minus subsidies on products. For
simplicity, taxes and subsidies on products are held constant over the stressed projections.
32. HM Government (2017), ‘The Clean Growth Strategy: Leading the way to a low carbon future ’.
33. Specifically, the CBES scenarios assume two thirds of the costs of energy efficiency improvements and the installation
of a heat pump is subsidised, up to a maximum subsidy of £5,000. The Green Home Grant was discontinued as of 31
March 2021. For the purposes of the Early Action and Late Action scenarios this is assumed to be replaced by another
scheme (or schemes).
34. Research indicates that minimum energy efficiency standards ‘have already had an adverse impact on the value of
properties below EPC band E. See Ferentinos, K, Gibberd, A and Guin, B (2021). ‘Climate policy and transition risk in
the housing market’, Bank of England Staff Working Paper No.918.
35. Specifically, the Non-domestic Private Rented Sector minimum energy efficiency standards stipulate that commercial
properties must improve to EPC band B by 2030 where cost-effective, and stipulates that only commercial properties
with an EPC band E or higher can be let.
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Page 1

Key elements of the 2021

Published on 08 June 2021

Box A: Distinct features of the 2021 Climate Biennial Exploratory Scenario

4: Detailed description of the CBES scenarios

2.1: Biennial Exploratory Scenario

2.3: CBES objectives

3: Key features of the CBES exercise

Large UK Large UK life Large UK general

Barclays Aviva AIG (UK entities Society of Lloyd’s

A range of Society of Lloyd’s will estimate the

3.4: Overview of the scenarios

simplification, intended to capture a range of different transition policies. In reality, governments

Differences in carbon prices across countries in the CBES scenarios reflect:

Changes in emissions, and the atmospheric concentration of greenhouse gases, translate

(˚C) Year 0 Year 10 Year 30

Early and Late Action scenarios (a) 1.1 1.4 1.8

No Additional Action scenario (b) 1.1 2.5 3.3

3.4.2: Summary of risks and impacts

Box A: Distinct features of the 2021 Climate Biennial

Wider scope: In addition to macrofinancial variables, the scenarios include direct

4: Detailed description of the CBES scenarios

4.1: Transition risks

4.1.2: Phase-out of fossil fuels

implications vary by sector (see Section 4.3.4: Sectoral differences).

4.1.3: Commodity markets

4.2: Physical risks

4.2.1: Key physical risks in the UK

Sources: Met Office and Bank calculations.

Sources: Met Office and Bank calculations.

4.2.2: Precipitation and flooding across the globe

By contrast, some countries experience an overall decrease in average precipitation in the No

Early and Late Action No Additional Action

Global Warming 1.1 1.4 1.8 2.5 3.3

Year 0 Year 10 Year 30 Year 10 Year 30

UK (a) 1.0 0.9 0.3 10.6 11.0

US 2.4 2.2 3.6 2.5 2.4

Japan 0.9 1.6 3.1 6.0 5.2

China 2.4 3.1 4.9 6.2 10.2

Hong Kong -0.3 0.6 1.7 -1.5 0.8

Canada 2.0 4.0 5.8 9.3 14.7

Germany 2.1 4.3 3.7 3.8 3.5

France 1.1 2.0 2.1 -1.0 -3.7

4.2.3: Sea level rise across the globe

4.2.4: Tropical cyclones across the globe

Chart 4.5: Frequency of severe tropical cyclones increases significantly in certain

4.2.5: Heatwave across the globe

Early and Late Action No Additional Action

Global Warming 1.1 1.4 1.8 2.5 3.3

Year 0 Year 10 Year 30 Year 10 Year 30

Land area exposed to heatwave (percentage change in annual mean

US 1.7 2.6 3.8 6.7 10.8

Japan 0.1 0.9 2.0 5.5 9.3

China 0.4 0.7 1.7 5.3 9.9

Hong Kong 2.8 7.0 16.5 19.5 67.6

France 0.0 0.0 0.0 0.1 0.2

4.2.7: Adaptation and mitigation

Table 4.C: The standard of protection provided by existing UK flood defences

Global warming relative to pre- Change in Standard of

Early Action/Late 1.8 -33

No Additional Action – 2.5 -50

No Additional Action – 3.3 -66

Sources: Bank calculations based on discussions with the Environment Agency.