Finance for a Greener Future: Exploring the Impact of Green Finance on Dual Control of Urban Carbon Emissions

Abstract

Green finance can support sustainable urban transition, but its effectiveness depends on local institutions and cross-city interactions. Using balanced panel data for 260 Chinese cities from 2010 to 2022, this study examines the effects of green finance on total carbon emissions and carbon emission intensity using two-way fixed-effects, moderation, and spatial Durbin models. The results show that green finance significantly reduces total emissions and carbon intensity, with coefficients of −0.0954 and −0.1797, respectively. The effects are heterogeneous: green credit and green bonds reduce both outcomes, green funds mainly reduce carbon intensity, and green insurance has no significant effect; eastern cities mainly exhibit total emission reduction, central and western cities mainly exhibit intensity reduction, and northeastern cities benefit in both dimensions. Environmental regulation strengthens both effects, whereas financial governance and public participation mainly strengthen total emission control. The investment environment weakens intensity reduction, while government environmental attention weakens total emission control but strengthens intensity reduction. Spatial analysis finds significant local reductions, but the indirect effect on neighboring cities’ total emissions is positive (0.465), consistent with a cross-city pollution transfer effect. These findings show that green finance can advance sustainable urban development when instrument design, institutional governance, and regional coordination prevent the transfer of carbon burden between cities.