Transition Risk in Emerging Economies

Stefano Carattini, Giseong Kim, Givi Melkadze and Aude Pommeret

No 22059, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Many emerging economies tend to rely considerably on carbon-intensive sectors, exposing themselves to potential transition risk. This paper quantifies the impact of this risk and the role of various policies and policy designs in mitigating it. It does so with a two-country two-sector environmental dynamic stochastic general equilibrium model, where each “country†represents a bloc of advanced or emerging economies, respectively. The model includes real-world features such as financial frictions and financial and trade linkages across blocs. With it, we simulate climate policy in advanced economies, in the form of carbon taxes and tariffs, and international coordination around a minimum global carbon price. This paper identifies and quantifies important vulnerabilities among emerging economies to the implementation of climate policy in advanced economies.

Keywords: Transition risk; Emerging economies; Financial frictions; Environmental dynamic stochastic general equilibrium model (search for similar items in EconPapers)
JEL-codes: E44 E58 F38 F42 G18 O11 Q58 (search for similar items in EconPapers)
Date: 2026-10
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