Steering cities towards net-zero: unravelling the causal impact of green fiscal policy on urban decarbonization in China

Amid the growing urgency of climate change and the global pursuit of net-zero emissions, green fiscal policy (GFP) has become an important instrument for sustainable development. This study examines the effect of GFP on urban carbon emission mitigation (UCEM), with particular attention to its mechanisms and heterogeneous impacts. Using panel data for 274 Chinese prefecture-level cities from 2002 to 2022, it employs the Comprehensive Demonstration of Fiscal Policy for Energy Conservation and Emission Reduction as a quasi-natural experiment and applies a difference-in-differences approach. The results show that GFP significantly promotes UCEM, with stronger effects in cities characterized by higher pollution levels. Mechanism analysis indicates that green innovation and lower total energy consumption serve as positive channels, whereas government environmental attention plays a negative mediating role. In addition, entrepreneurial activity strengthens the effect of GFP, while fiscal pressure weakens it. These findings support phased GFP expansion, stricter enforcement in high-pollution cities, stronger incentives in low-pollution areas, improved transparency and supervision, innovation-led efficiency and clean-energy substitution, plus flexible financing to sustain decarbonization.