Nexus among green finance, technological innovation, green fiscal policy and CO2 emissions: A conditional process analysis

Abstract

Compared to advanced economies, China is facing challenges in reducing CO2 emissions due to its lower income-level and unbalanced energy structure. It is important to build a long-term mechanism for financing sustainable industries and reducing CO2 emissions. Green finance and green fiscal policy are essential instruments for financing the long-term mechanism of a green economy. They are tightly related with technological innovation, which contributes to the reduction of CO2 emissions. Clarifying the nexus among green finance, green fiscal policy, technological innovation, and carbon dioxide emissions (CO2) is paramount for new policy design and climate change mitigation. As a result, we collect panel data from 30 provinces and municipalities in mainland China (excluding Tibet) from 2007 to 2020 to investigate the effects of green finance on CO2 emissions using mediation and conditional process models to determine further the roles of technological innovation and green fiscal policy. The study results indicated that CO2 emissions can be suppressed directly by green finance and indirectly through technological innovation. Moreover, when green fiscal policy rises to a higher level, the indirect effect of green finance increases significantly. The green tax, a crucial element of green fiscal policy, presents the possibility of a “green paradox.” Therefore, we further test the effects of green finance and technological innovation in terms of environmental quality through threshold effect models. Green finance can better facilitate technological innovation and then inhibit CO2 emissions when environmental quality is high. Based on the empirical findings, developing green finance and green fiscal policies could be continued by expanding pilots, adjusting tax rates, and broadening taxation scope.