Identifying the role of green financial development played in carbon intensity: Evidence from China

Existing studies have explored the effect of green finance on carbon emissions. However, few studies have distinguished green financial efficiency from scale, which are crucial aspects for financial development. We add these dimensions to construct a synthetic index of green financial development and apply the entropy method to measure it based on China's provincial dataset from 2000 to 2019 through a series of econometric analyses. Green technology innovation, energy mix optimisation, and industrial structure upgrades are selected as the influencing channels to demonstrate the effect of green financial development on carbon intensity. The results show that in general, green financial development significantly decreases carbon intensity. All components of green finance have a positive influence in decreasing carbon intensity, except for green investment tools. Green financial efficiency has been a more important driver of carbon intensity reduction than the green financial scale, specifically for the eastern regions after the 12th Five Year Plan. The two-step analysis of the influencing mechanisms reveals that all three green transition channels are essential for decreasing the carbon intensity. These results imply more green finance policies on enhancing synergetic effect, optimising investment structure and increasing allocation efficiency are called in the future.