How does green credit reduce carbon emissions? Dynamic spatial interactions and regional disparities

Abstract

Green credit is an important green financial policy tool to promote green development. However, research is needed to explore how green credit reduces carbon emissions, especially with respect to its dynamic spatial interactions and regional disparities. Based on a theoretical analysis, this paper empirically tests the carbon emission reduction effect of green credit and its three mechanisms by combining a Stochastic Impacts by Regression on Population, Affluence, and Technology (STIRPAT) model, dynamic spatial Durbin model (SDM), and the mediation model, including their dynamic spatial interactions and regional disparities. The study concludes that green credit can reduce carbon emission intensity based on strong spatio-temporal interactions in China. Green credit mainly reduces carbon emission intensity through scale and technology mechanisms with different spatio-temporal interactions. The tertiary industry in China does not currently have completely clean production; as such, the upgrading of the industrial structure as stimulated by green credit in the long term cannot yet effectively reduce carbon emissions. In addition, the carbon emission reduction effect of green credit and its three mechanisms have different levels of performance and dynamic spatial interactions in different regions of China. Finally, targeted policy recommendations are proposed to apply green credit to effectively reduce the carbon emission intensity.