Can Green Finance Policy Reduce Air Pollution? Evidence From China's 2016 Reform and Its Unintended Rebound Effects

ABSTRACT Environmental economics research lacks scientifically rigorous strategies for using government financial policies to improve environmental performance. China's green finance reform, launched in 2016, constitutes a highly valuable quasi‐natural experiment. As the world's first national policy aimed at guiding private financial capital towards environmentally sustainable areas, this reform provides a valuable research opportunity to systematically assess the real‐world benefits of green finance and address the question. This study employs the DID approach to assess the impact of the reform on pollution intensity among Chinese listed companies. The results show that atmospheric pollution emission intensity among high‐pollution enterprises was significantly reduced following the green finance policy. However, the rebound effect of energy subsequently emerged, partially offsetting the energy‐saving benefits brought about by the enhancement of energy effectiveness. Simultaneously, it is found that the quality of environmentally friendly innovation stimulated by green finance policies is poor, and insufficient attention is paid to posttreatment and renewable energy utilization, resulting in these innovations failing to achieve the expected emission reduction targets. Finally, given stricter environmental regulations, private sector firms tend to pursue green transformation more actively than state‐owned firms, making the influence of environmental finance policies on non‐state‐owned firms more substantial.