Climate change and high sovereign debt levels are among the most pressing global challenges today. The increasing severity of temperatures, rising sea levels, and frequent extreme weather events have led to significant economic and fiscal repercussions. Concurrently, high debt levels in advanced economies might exacerbate fiscal challenges, making the integration of climate change mitigation into economic and fiscal planning even more urgent. This thesis addresses the previously overlooked impact of climate change on sovereign debt sustainability by examining the dynamic interactions between climate change impacts, transition policies, public finances, and the fiscal limits of developed economies through advanced modeling techniques. The first chapter provides a thorough literature review, identifying a research gap at the intersection of climate change and sovereign debt, particularly in macroeconomic and financial modeling. It emphasizes the need to integrate climate considerations into models of public debt sustainability. The second chapter addresses this issue by evaluating the impact of climate-related damages and transition costs on the fiscal limits of advanced economies. Using a dynamic fiscal limits model, it demonstrates how ignoring carbon budgets and lacking international coordination in the green transition can severely constrain fiscal spaces in the medium-long term. The third chapter develops a dynamic general equilibrium model to investigate how various transition policies affect macroeconomic and fiscal variables in developed countries with different ratios of public indebtedness. It evaluates three policy strategies: carbon taxing, direct public mitigation efforts, and a combination of carbon tax with subsidies to private sector abatement efforts. A welfare maximization analysis shows that sharing the abatement burden between the public and private sectors optimizes societal welfare while preserving public debt sustainability. This thesis highlights the critical need to integrate climate change considerations into macroeconomic and fiscal policy frameworks. The insights from these models provide the groundwork for policymakers to develop evaluation methods and strategies that ensure sovereign debt sustainability while addressing environmental challenges, thereby fostering an environmentally sustainable and resilient future.