Safeguarding macro-financial stability under carbon pricing and rapid energy transition

Fierro, L. ORCID: https://orcid.org/0000-0002-4378-1375, Reissl, S., Lamperti, F., Campiglio, E., Drouet, L., Emmerling, J., Kremer, E., & Tavoni, M. (2026). Safeguarding macro-financial stability under carbon pricing and rapid energy transition. Communications Earth & Environment 7 (1) e482. 10.1038/s43247-026-03209-4.

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Abstract

Although the case for a swift climate transition is clear, its macro-financial viability remains uncertain. To shed light on the macroeconomic and financial response to deep mitigation trajectories controlled by carbon pricing, we soft-link a process-based integrated assessment model (the World Induced Technical Change Hybrid, WITCH) to a macro-financial agent-based model (the Dystopian Schumpeter Meeting Keynes, DSK). The hybrid framework allows us to translate energy systems transformations into macro-financial outcomes at business cycle frequency. We find that rapid transitions induced by fast-growing carbon prices significantly impact unemployment, inflation, and income distribution. Stabilization policies reduce these economic fluctuations, though not completely so in Paris-compatible scenarios. Our paper emphasizes the need for coordinated climate and macroeconomic policy during decarbonization. Additionally, it showcases how model integration can lead to a better understanding of the economic implications of low-carbon futures.

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