How does green finance policy in China help reduce pollution emissions? Energy efficiency improvement or green innovation

China's 2016 Guidance on Building a Green Financial System aims to reallocate private financial resources to eco-friendly enterprises. This study treats the 2016 green finance policy (GFP) as an external shock and employs the difference-in-differences (DID) approach to analyze the effect of GFP on the air pollutant emissions intensity of listed enterprises. The findings show that heavy-polluting enterprises have significantly reduced their air pollutant emissions intensity due to GFP. This reduction is achieved through improving energy efficiency rather than green innovation. Consequently, an energy rebound effect is triggered that partially offsets the energy savings achieved through improved energy efficiency. Furthermore, we have observed that the green innovations driven by GFP are of poor quality, and they neglect end-of-pipe treatment and clean energy use. As a result, these innovations are unable to achieve the intended emissions reduction. Finally, thanks to strict environmental regulations, non-state-owned firms have a more profound inclination towards embracing green transformation than state-owned firms, resulting in a greater impact of GFP on the former.