The macro-financial transition risks that result from disorderly transitions to a carbon-free or low-carbon economy may entail significant costs due to the risk of stranded assets, defaults, collapse in stock market value, both for financial firms and non-financial firms.

It is widely acknowledged that introducing a price on carbon represents a crucial precondition for filling the current gap in low-carbon investment. However, as this paper argues, carbon pricing in itself may not be sufficient. This is due to the