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Conference Agenda

Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).

Please note that all times are shown in the time zone of the conference. The current conference time is: 16th June 2026, 05:43:49pm WEST

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Daily Overview

Session

Thematic Session: Climate policy and international financial markets

Time:

Wednesday, 01/July/2026:

4:30pm - 6:15pm

Session Chair: Armon Rezai, Vienna University of Economics and Business
Session Chair: Rick van der Ploeg, University of Oxford

Location: B009

Session Abstract

In an open world economy, climate policy is inseparable from international capital markets. Capital flows, financial risk sharing, debt positions, and interest rates shape the effectiveness of mitigation policies, how their costs are distributed across countries and generations, and how policies spill over internationally. Yet, climate policy is often analysed as a largely domestic problem of how to set a carbon price, reduce emissions, and manage the local costs. Our session will demonstrate how ignoring international capital markets leads to an incomplete analysis of the economics and the politics of climate policy.

The session brings together four papers that analyse climate policy through the lens of international capital markets. Bénassy-Quéré, Schubert, and Torres show how unilateral carbon pricing generates spillovers that are transmitted not only through trade but also through capital flows, with financial adjustment partly o􀆯setting adverse trade effects. Hillebrand and Epp emphasise how international financial markets enable risk sharing under climate uncertainty and how the degree of capital-market integration shapes optimal climate policy under cooperation and non-cooperation. Sahuc, Smets, and Vermandel show that climate mitigation affects inflation, interest rates, and monetary policy, linking carbon pricing to macro-financial conditions that influence investment and capital flows. Rezai and van der Ploeg analyse unilateral climate policy in small open economies and show how international asset positions, capital flows, and public debt shape macroeconomic adjustment and political support for emissions reductions.

Taken together, the papers presented in this session show that international capital markets are a central transmission channel for climate policy: they mediate international spillovers, enable risk sharing, interact with monetary policy, and shape the distributional and political feasibility of mitigation. Below we list further details the papers of the session.

Presentations

International spillovers of asymmetric climate mitigation policies

Ornella Torres^1,3, Agnès Bénassy-Quéré^1,2, Katheline Schubert¹

¹Paris School of Economics; ²Banque de France; ³Ponts ParisTech

We build a two-region dynamic general equilibrium model to analyze the international spillovers of asymmetric climate mitigation policies. The two regions (which we call Europe and the United States) interact through trade and through capital flows. They are identical except for their fossil energy endowment: Europe is partially dependent on energy imports. We study the impact of a rise in the European carbon tax, depending on whether the revenues from this tax are used to (i) reduce government debt, (ii) make lump-sum transfers to households, or (iii) invest in clean public capital. We find that that trade spillovers are mitigated by financial spillovers. We also show that a carbon border adjustment mechanism can eliminate carbon leakage, with limited macroeconomic cost.

Climate Policy and International Risk Sharing

Markus Epp, Marten Hillebrand

University of Freiburg, Germany

This paper studies the strategic interaction among heterogeneous countries in a stochastic growth model of climate change. Each country is exposed to exogenous fundamental and endogenous climate risk. We analyze alternative market arrangements that determine the extent of trade and international capital flows as well as the scope for risk sharing through financial markets. We provide analytical characterizations of optimal climate policies under full cooperation and non-cooperation, and show how these policies depend on the underlying market structure. Numerical simulations quantify the welfare gains from trade and financial risk sharing, as well as from cooperation in addressing the climate externality.

The Keynesian Climate Model

Jean-Guillaume Sahuc¹, Frank Smets², Gauthier Vermandel³

¹Banque de France; ²Bank of International Settlements; ³Ecole polytechnique, Institut Polytechnique de Paris

Climate change confronts economies with two inflationary forces: climateflation from physical damages and greenflation from mitigation policies. This paper develops and estimates a nonlinear New Keynesian Climate model that integrates long run dynamics from Integrated Assessment Models with business cycle fluctuations typical of DSGE frameworks. The unified setting allows a systematic analysis of how climate change and mitigation affect inflation, output, and interest rates. We show that nominal rigidities are central for optimal carbon pricing. Ignoring them leads to miscalibrated taxes, excess inflation, and lower consumption. Paris aligned mitigation generates higher inflation than laissez faire paths, but appropriate monetary policy can offset pressures by tracking a rising natural rate and tolerating temporary output losses.

How to get current generations to support an emissions cap: Climate policy in creditor and debtor economies

Armon Rezai¹, Frrederick van der Ploeg²

¹Vienna University of Economics and Business; ²University of Oxford

A small open economy model with overlapping generations, endogenous labour supply, government debt, and current account dynamics is used to analyse the effects of unilateral climate policy on welfare and macroeconomic and distributional outcomes. We contrast implementation of the cap on cumulative emissions via a constant carbon price with an efficient Hotelling rule for the carbon price. In both cases, a delayed policy requires higher carbon taxes to meet the target. A creditor country draws down international assets to buffet the cost of climate policy, while a debtor economy, requiring higher carbon taxes, faces negative wealth effects from the policy. By appropriately issuing public debt, the government can ensure that a majority of those alive supports the emissions-reductions policy, albeit at the expense of future generations. In all cases, the effects on employment, capital flight, and the current account are highlighted.