The role of green financing in facilitating renewable energy transition in China: Perspectives from energy governance, environmental regulation, and market reforms

Abstract

Green financing plays an important role in providing adequate support for environmentally sustainable projects aimed at reducing China's reliance on fossil fuels. At the same time, targeted government policies can facilitate green financial development, helping promote renewable energy transition. We add to the debate on the link between green finance and clean energy consumption as well as explore the exact transmission mechanisms underlying this nexus. Our empirical illustration is based on a generalized method of moments (GMM) specification of a panel threshold regression model and a sample of 30 Chinese provinces from 2001 to 2019. We find that green financing initiatives have helped accelerate the transformation of China's energy industry by promoting an increase in the share of renewable energy in its overall fuel mix, especially in regions with relatively well-functioning markets. Several robustness tests confirm the existence of this relationship. Moreover, our results suggest that improved energy efficiency governance and environmental regulation positively moderate the impact of green finance on clean energy transition. Our study provides policymakers with insights on how improved governance, environmental protection initiatives, and market reforms can foster the development of China's green financial market and help reduce its current dependence on dirty energy.