Climate change poses significant challenges to Italy, as the country is exposed and vulnerable to natural disasters (such as floods, droughts, and heatwaves), has high public debt, and is still lacking targeted adaptation measures.
By developing an online tool and employing the EIRIN stock-flow consistency model tailored to Italy’s economic context, the study "Scenario Analysis under Uncertainty and Controllability: An Online Tool" explores the effects of climate transition and physical risk scenarios on the Italian economy and financial system, both in terms of their intrinsic uncertainty and potential possibility to be controlled.
The online tool consists of a complete set of detailed economic and financial trajectories conditioned to climate scenarios and parameters. It allows users to obtain aggregate and sector-level outcomes that can be visualized and exported, supporting a comprehensive analysis of the evolution of the Italian economy.
Key findings reveal that:
- An orderly transition can lead to co-benefits in Italy (in terms of GDP and GHG emissions) in the mid-term. In contrast, a disorderly transition worsens the economic performance and financial stability.
- Severe impact on capital stock potentially caused by climate tail risks can lead to sustained economic setbacks in the absence of adequate adaptation and financial strategies.
The results contribute to the understanding on how climate transition policies can shape the trajectory of the low-carbon transition, also providing insight into the key role of public green subsidies in counteracting the economic impacts of carbon taxation. Furthermore, the outcomes highlight that the role of financial and prudential policies in times of crisis is crucial to provide support to economies reeling from natural disasters.
This underscores the importance of developing adaptation strategies and forward-looking financial policies that not only address immediate recovery needs, but also build resilience against future risks.
