GREEN FINANCE AND CARBON EMISSIONS IN EUROPEAN COUNTRIES: EVIDENCE FROM A QUANTILE APPROACH

Abstract

This study examines the impact of green finance on carbon emissions in eleven European countries over the period 2003–2023, using consumption-based CO₂ emissions as the empirical proxy. To capture distributional heterogeneity beyond mean effects, the Method of Moments Quantile Regression (MMQR) is employed, while bootstrap quantile (BSQ) estimation is used as a robustness check. The results indicate that green finance significantly reduces emissions across all quantiles, with stronger mitigation effects observed at higher emission levels, suggesting a nonlinear and heterogeneous impact. This pattern can be explained by efficiency gains, capital reallocation, and innovation-led decarbonization mechanisms, through which green finance facilitates structural transformation toward low-carbon production systems. The study contributes to the literature by providing new evidence on the distributional environmental effects of green finance and highlighting its greater relevance in carbon-intensive contexts. Policy efforts should prioritize green finance development in high-emission economies and promote targeted financial and regulatory frameworks that account for cross-country heterogeneity to enhance decarbonization effectiveness.