This paper examines the macroeconomic effects of climate policies in the presence of financial frictions. Climate policies analyzed are the carbon tax and green financing, a policy that aims to reallocate capital toward environmentally friendly firms. When firms are financially constrained, the imposition of carbon tax helps reallocate capital from low-productive firms to high-productive firms by increasing the production cost. High-productive firms produce more but also engage in emissions abatement to reduce the carbon tax burden, incentivized by green financing. As a result, emissions decrease, but aggregate productivity and output increase, breaking the positive emissions-output relationship. However, the paper shows that the outlined positive effect of the carbon tax depends on the aggregate response of green financing to firm environmental performance.