ABSTRACT Climate change and the low‐carbon transition are increasingly shaping the macroeconomic conditions that underpin sovereign debt sustainability—namely, output growth, primary balances, and real interest rates. Mitigation policies entail short‐term costs that may interact with debt sustainability constraints, while delayed climate action risks undermining long‐term growth and eroding fiscal capacity. These dual pressures underscore the need for flexible and dynamic analytical tools capable of capturing compound risks to public debt. A growing body of literature has begun to integrate environmental risks into debt sustainability analysis, thereby expanding traditional macro‐fiscal frameworks. Advancing climate‐informed debt assessment is both an academic and political necessity that requires bridging the climate and fiscal literatures. This review aims to clarify this emerging field and provide a foundation for contributing to the intersection of climate and debt sustainability in macroeconomic modeling. The ability to design fiscally sustainable climate policies depends on it.
Caterina Seghini (2026) studied this question.