Green finance and urban carbon unlocking: evidence from China

Abstract

China’s reliance on fossil fuels significantly hinders its transition to a low-carbon deconomy, requiring comprehensive carbon reduction strategies. In response, Green Finance Reform and Innovation Pilot Zones (GFRIPZ) policy was introduced in 2017 to promote green development through supply-side financial reforms and innovations. This study examines the impact of GFRIPZ on urban carbon unlocking (UCU) using a difference-in-differences (DID) model with panel data of 272 Chinese cities. Heterogeneous effects, mechanisms and the moderating effects of fiscal decentralization and digital finance are further explored. The results show that (1) GFRIPZ significantly promotes UCU; (2) The effect is stronger in Guangdong and Zhejiang pilot zones, as well as in eastern, larger, more open, non-resource-based and non-old industrial cities; (3) The policy enhances UCU through green technology innovation, government strategic leading, and social green habit; (4) Fiscal decentralization and digital finance positively moderate the impact of GFRIPZ on UCU independently and jointly. These results highlight the role of GFRIPZ in accelerating UCU and provide insights for sustainable urban development.