List
Climate risk analysis
To ensure price and financial stability, the Bank of Korea assesses and studies the impact of climate risks on the economy and financial system.
The Bank of Korea conducts research, including climate change stress test, to identify and address potential threats to the economy and financial system. It evaluates transition risks through stress test models, analyzes impacts from global climate policies and physical risks, and proposes policy solutions to tackle these challenges.
1. Research on transition risks
The Bank of Korea is using stress test to examine how transition risks from domestic and international environmental regulations and the shift to a low-carbon economy affect the economy and financial system. While moving to a low-carbon economy mitigates physical climate damage, it adversely impacts high-carbon industries by decreasing asset values. In Korea, the manufacturing sector's high greenhouse gas emissions and the financial sector's substantial exposure to these industries could pose a risk to the financial system due to falling asset values.
2. Study of Physical Risks
This study examines how physical climate risks affect the real economy, industry output, and financial stability. Using NGFS climate scenarios and Kalkuhl and Wenz (2020) damage functions, we empirically analyzed the extent of climate-related damage. Assessing the probability and impact of climate risks is essential for developing climate solutions and encouraging emission reductions.
3. Impact of Overseas Physical Risks on Korea
This study assesses how overseas climate change risks affect the Korean economy. Global climate impacts, like warming, can harm the global economy and affect Korea through trade. Climate-induced disruptions in energy, agriculture, and marine products may raise import prices, while reduced income of trading partners could lower demand for Korean exports.
4. Domestic and International Trends in Climate Change Responses
This section reviews domestic and international climate change regulations and policies, including GHG emissions comparisons, responses to the EU's Carbon Border Adjustment Mechanism (CBAM) in export industries, and trends in Korea's carbon market.