Green finance and Carbon Reduction: evidence from green finance reform and innovation pilot zone

As a top-level strategic design to encourage green credit and support green innovation, green finance policy acts a significant role in enabling green and low-carbon transformation of cities and sustainable business improvement. Using the Green Finance Reform and Innovation Pilot Policy (GFRIP), we employe a multi-temporal Difference-in-Difference (DID) method to assess the impact of GFRIP on urban Carbon Reduction (CR) from a spatial perspective. We find CR can be significantly reducted after implementing GFRIP, especially in central and western countries, industry-oriented cities, and areas endowing with abundant resources. Our underlying mechanisms show that GFRIP policy contributes to reducing CR by promoting rationalization of the industrial formation, green innovation and public awareness in environment. Overall, this paper reveals how green finance policy efficiently works in alleviating pollution emissions.