Disentangling the effects of green finance in reducing CO2 emission from energy systems: Evidence from a novel factor decomposition mechanism

Yaxian Wang, Xiaoyu Wang, Tomas Baležentis, Yuanying Chi and Dalia Streimikiene

Economic Analysis and Policy, 2025, vol. 85, issue C, 1721-1738

Abstract: Green finance is a potentially important factor for upgrading energy structures and thereby controlling CO2 emissions. However, previous research ignored it in the decomposition mechanism of CO2 emissions from energy systems. Accordingly, a novel decomposition model integrating green finance and energy is developed under the Generalized Divisia Index (GDI) framework. Furthermore, the integration of GDI, coupled scenarios, and Monte Carlo techniques facilitates the introduction of a novel approach for dynamically simulating prospective CO2 emission trajectories. The decomposition results imply that carbon factor and energy consumption stand out as the positive driving forces of CO2 emission, with relative contributions of 0.95 % and 8.29 %. The green finance scale exhibits insignificant impetus in mitigating CO2 emission, with a contribution of only -0.04 % in the last decade. However, the energy efficiency of green finance demonstrates substantial potential in all regions, contributing by -1.38 %. The forecasting results indicate that green finance will propel China's eastern region to achieve a steady decline in CO2 emissions by 2026 in the sustainability-driven scenario, whereas the central and western areas fail to achieve carbon peaking. Both top-level design and region-specific policies are required to curb energy-related CO2 emissions.

Keywords: Green finance; Energy systems; CO2 emissions; Monte Carlo simulation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:85:y:2025:i:c:p:1721-1738

DOI: 10.1016/j.eap.2025.02.022

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