IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/138724.html

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

Author

Listed:
  • Fierro, Luca E.
  • Reissl, Severin
  • Lamperti, Francesco
  • Campiglio, Emanuele
  • Drouet, Laurent
  • Emmerling, Johannes
  • Kremer, Elise
  • Tavoni, Massimo

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.

Suggested Citation

  • Fierro, Luca E. & Reissl, Severin & Lamperti, Francesco & Campiglio, Emanuele & Drouet, Laurent & Emmerling, Johannes & Kremer, Elise & Tavoni, Massimo, 2026. "Safeguarding macro-financial stability under carbon pricing and rapid energy transition," LSE Research Online Documents on Economics 138724, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:138724
    as

    Download full text from publisher

    File URL: https://researchonline.lse.ac.uk/id/eprint/138724/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Thomas Douenne & Adrien Fabre, 2022. "Yellow Vests, Pessimistic Beliefs, and Carbon Tax Aversion," American Economic Journal: Economic Policy, American Economic Association, vol. 14(1), pages 81-110, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Westberg, Nina Bruvik & Skjeflo, Sofie Waage & Kallbekken, Steffen, 2025. "The power of information: A survey experiment on public support for electricity price compensation schemes," Energy Policy, Elsevier, vol. 206(C).
    2. Can Askan Mavi & Nicolas Quérou, 2020. "Common pool resource management and risk perceptions," DEM Discussion Paper Series 20-25, Department of Economics at the University of Luxembourg.
    3. Belaïd, Fateh & Taylor, Madeline, 2026. "From carbon inequality to minimum energy requirements: A global welfare floor for aligning climate policy with energy access," International Economics, Elsevier, vol. 186(C).
    4. Lackner, Teresa & Fierro, Luca E. & Mellacher, Patrick, 2025. "Opinion dynamics meet agent-based climate economics: An integrated analysis of carbon taxation," Journal of Economic Behavior & Organization, Elsevier, vol. 229(C).
    5. Fanghella, Valeria & Schleich, Joachim & Sebi, Carine, 2026. "Populism and support of onshore wind energy: Explaining different perspectives from the left and right," Ecological Economics, Elsevier, vol. 239(C).
    6. Maier Sofia & De Poli Silvia & Klenert David & Amores Antonio F & Dreoni Ilda, 2026. "Green EUROMOD: the environmental extension of the EU’s tax-benefit microsimulation model," JRC Working Papers on Taxation & Structural Reforms 2026-04, Joint Research Centre.
    7. Li, Yao & He, Haonan & Long, Jiancheng & Liu, Haoxiang & Wang, Shuai, 2026. "Impact of personal vehicle emission tax policy and Pareto-improving strategies on travel and urban performance," Transportation Research Part A: Policy and Practice, Elsevier, vol. 209(C).
    8. Hoppe, Janna & Tröndle, Tim & Patt, Anthony, 2025. "“I didn't like them from the beginning, and I hate them now.” Changes in attitudes towards electric vehicles and phase-out policies for conventional cars," Energy Policy, Elsevier, vol. 205(C).
    9. Giorgio Fabbri & Paolo Melindi-Ghidi, 2025. "Culture, Supply Chain and Sustainable Food Consumption," Working Papers hal-05045857, HAL.
    10. Calafate, Vítor & Costa, Francisco J M & Pessoa, João Paulo, 2026. "Climate Barriers to Democratic Participation," SocArXiv ypgsf_v1, Center for Open Science.
    11. repec:osf:socarx:fq4tn_v2 is not listed on IDEAS
    12. Bharadwaj, Preethika & Innocenti, Stefania, 2026. "Securing public support for fuel subsidy reform: Experimental and policymaker insights from Malaysia," Energy Economics, Elsevier, vol. 153(C).
    13. Johannes Gessner & Wolfgang Habla & Benjamin Rübenacker & Ulrich J. Wagner, 2025. "No Place Like Home: Charging Infrastructure and the Environmental Advantage of Plug-in Hybrid Electric Vehicles," CRC TR 224 Discussion Paper Series crctr224_2025_663v2, University of Bonn and University of Mannheim, Germany, revised Apr 2026.
    14. Ravi Vora & Guglielmo Zappala, 2025. "Endogenous Green Preferences," CESifo Working Paper Series 11857, CESifo.
    15. Gessner, Johannes & Habla, Wolfgang & Ruebenacker, Benjamin & Wagner, Ulrich, 2025. "No Place Like Home: Charging Infrastructure and the Environmental Advantage of Plug-in Hybrid Electric Vehicles," CEPR Discussion Papers 20069, Centre for Economic Policy Research.
    16. repec:osf:socarx:3b5d4_v1 is not listed on IDEAS
    17. Lasse S. Stötzer & Florian Zimmermann, 2026. "Morality and Climate Policy Attitudes," ECONtribute Discussion Papers Series 424, University of Bonn and University of Cologne, Germany.
    18. Banerjee, Sanchayan & Ferreira, Alipio, 2024. "Virtual reality is only mildly effective in improving forest conservation behaviors," MPRA Paper 124149, University Library of Munich, Germany.
    19. Beattie, Graham & Meyer, Andrew, 2026. "Does the media respond to political messaging? Evidence from local newspaper coverage of climate change," Journal of Environmental Economics and Management, Elsevier, vol. 138(C).
    20. Antoine Dechezleprêtre & Adrien Fabre & Tobias Kruse & Bluebery Planterose & Ana Sanchez Chico & Stefanie Stantcheva, 2025. "Fighting Climate Change: International Attitudes toward Climate Policies," American Economic Review, American Economic Association, vol. 115(4), pages 1258-1300, April.
    21. Emmanuelle Auriol & Nicolas Bonneton & Mattias Polborn, 2025. "Political Accountability with Outsiders," Working Papers hal-05092318, HAL.
    22. van der Ploeg, Frederick, 2025. "Why green subsidies are preferred to carbon taxes: Climate policy with heightened carbon tax salience," Journal of Environmental Economics and Management, Elsevier, vol. 130(C).

    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:138724. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.