Transformational insurance and green credit incentive policies as financial mechanisms for green energy transitions and low-carbon economic development

Abstract

This study examines the critical role of green technology innovation in facilitating green and low-carbon economic development. It underscores the necessity of financial backing via green finance policies to address financing and risk challenges associated with such an energy transition. A dynamic stochastic general equilibrium (DSGE) model, inclusive of the banking and insurance sectors, is constructed to proffer transformational insurance and green credit services to energy producers. Key findings include a decrease in deductibles, improved insurance coverage, enhanced green output, and an advancement of green and low-carbon economic growth. Transformational insurance is found to temper the negative impacts of unexpected risk shocks on overall output and employment. Moreover, green credit incentives not only curb carbon emissions but also heighten the likelihood of energy transition among producers, thereby fostering low-carbon economy growth. The combined application of transformational insurance and green credit incentive policy proves more effective in propelling energy transition and green economic growth than the deployment of either policy in isolation. The research concludes with a call for the government to strike a balance in carbon emission reduction efforts to avoid decelerating the overall output and consumption growth rates, thereby ensuring the sustainability of green and low-carbon economic development.