Central banks of all countries are paying attention to how they can achieve the temperature control goal of the Paris Agreement through climate governance policies while alleviating the climate transition risks arising from such policies. The “dual carbon” goals (carbon peaking by 2030 and carbon neutrality by 2060) proposed by China have set higher requirements for current climate policies and may necessitate more ambitious measures; however, the transition risks associated with these goals cannot be overlooked. This paper constructs an environmental dynamic stochastic general equilibrium (E-DSGE) model incorporating pollution externalities, financial frictions in the banking sector and the differentiated capital adequacy ratio (CAR) requirement policy to evaluate the impact of carbon tax policies on the macroeconomy and financial stability—the so-called “transition risks”. It also discusses the effectiveness of the differentiated CAR requirement policy in mitigating such risks. The findings are as follows: (1) carbon tax policies have a significant effect on emission reduction and promote green transformation, but they cause a significant shock on banks’ net assets, threatening financial stability and generating transition risks; (2) financial frictions, by restricting banks’ loanable funds, affect capital inputs in the production sector, affect capital goods prices and increase losses in banks’ net assets, thereby amplifying transition risks; and (3) carbon tax policies combined with the differentiated CAR requirement policy can not only achieve emission reduction targets but also mitigate the transition risks caused by carbon taxes by reducing banks’ risk exposure.

Ratcheting-up of countries’ Nationally Determined Contributions (NDCs) is urgently needed to keep the Paris Agreement’s 2 °C goal within reach. However, unbalanced climate policies may lead to inequitable impacts on trade and competitiveness, which is becoming a major obstacle for countries to advance ambitious climate actions. To address this problem, we propose an NDC enhancement scheme based on cost-fair differentiated carbon pricing mechanism (DCPM). Using a global computable general equilibrium model, we compare the proposed DCPM-based scheme with another two reference NDC enhancement schemes (i.e., the constant emissions ratio scheme, and the uniform global carbon price scheme) in terms of their impacts on competitiveness and regional welfare. The results show that, with the joint global target being identical, the DCPM-based scheme results in more equitable competitiveness impacts than the other two schemes. It also performs better in balancing regional welfare impacts and promoting progressive burden-sharing. The DCPM-based scheme can provide helpful guidance for countries to reconcile their competitiveness concerns and to coordinate climate policies while achieving enhanced climate goals.