Climate Policy Coordination and Macroeconomic Risks: Cross-Border Carbon Spillovers, Global Value Chains, and Climate Scenario Analysis

This paper develops a dynamic stochastic general equilibrium (DSGE) model to analyze the macroeconomic impacts of climate change and policy responses under seven scenarios developed by the Network for Greening the Financial System (NGFS). A novel feature of the model is the incorporation of cross-border carbon spillovers through global value chain linkages, allowing foreign emissions to affect domestic output. This mechanism captures the international transmission of environmental risks — often overlooked in prior DSGE studies focused on closed economies or domestic channels. The model also endogenizes the effects of policy (mis)alignment across countries by introducing carbon tax complementarity, enabling the evaluation of transition risks under varying degrees of global coordination. Simulation results show that fragmented policies lead to larger output losses and greater volatility, while coordinated efforts significantly mitigate both economic and environmental damage. By integrating forward-looking NGFS scenarios with international externalities, the paper contributes a tractable and policy-relevant tool for assessing climate transition risks in a globally interconnected macroeconomic environment.