How does green finance reduce China's carbon emissions by fostering green technology innovation?

Abstract

Understanding the decarbonisation effect of green finance is essential for combating climate change. However, improper measurement of green financial development and an in-depth discussion of its influencing channels may underestimate this effect. Therefore, this study employed an indicator system for green finance with various dimensions and instruments. It utilized the generalised method of moments approach and conducted multiple two-step analysis to investigate data from China on green technology innovation channels, employing the Green Solow model. The empirical results confirm the significant effect of green financial development on decreasing CO2 emissions, mainly in Eastern and Central China. Among the components of green finance, green financial efficiency reduces CO2 emissions more effectively than green financial scale. The influencing channel analysis suggests that the decarbonisation effect of green finance occurs mainly by concurrently promoting energy conservation and energy substitution technologies. The study results have important policy implications for governments in formulating targeted technology policies to control CO2 emissions.