The Great Reset

AUGUST 20, 2020

The Great Reset

Supporting the transition to a greener, smarter economy


Paul Beaudry




The pandemic, central banks and climate change

  • COVID-19 is a shock and an opportunity

  • Pivot to a greener, smarter economy?

  • Focus here on climate-related issues

  • Our contributions to scenario analysis

  • To start: how we view climate change risk



Two sets of risks from climate change

  • Physical risks: Damage or destruction caused by extreme weather/higher temperatures

  • Transition risks: Costs involved in the move toward a low-carbon economy


Different roles in facilitating a transition

  • Governments: setting environmental policy

  • Corporate sector: investing in technology

  • Households: shifting preferences/behaviour

  • Financial sector: financing transition

  • Central banks: smoothing the transition to

    1. ensure the financial system is up to challenge
    2. maintain economic activity close to capacity
    3. understand the potential economic effects


Scenario analysis: a useful tool given uncertainty

  • Scenario analysis describes plausible future pathways

  • It is not what will occur, but what could occur

  • Useful given the high degree of uncertainty related to:

    • climate change policy
    • technological development
    • evolving consumer and investor preferences


Scenario analysis framework


Scenario analysis framework




Delayed action leads to a disorderly adjustment




How to quantify macroeconomic and sectoral impacts?


  • Global oil production could fall sharply

  • Large structural shifts could occur across sectors



Looking ahead: scenario analysis and lessons of COVID-19


  • Scenario analysis as a journey

    • Multi-year process
    • Time to build in-house expertise and tools and to address data gaps
  • COVID-19 as a disrupter that offers new insights on climate change

    • An example of a structural shock with broad impact worldwide
    • If you knew 30 years ago that COVID-19 was coming, how would you prepare?
    • Preparation can reduce risks
    • Structural changes as we pivot to a greener, smarter economy
    • Opportunity to employ scenario analysis