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Tapping the potential of green finance: Can energy efficiency credit drive traditional industries to green? Evidence from China

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  • Chi, Guodong
  • Liu, Yuanyuan
  • Fang, Hong
  • Xiu, Yuanyuan

Abstract

In the context of accelerated global green transformation, green finance is emerging as a vital instrument for promoting sustainable development. However, traditional green financial instruments characterized by credit constraints often prevent energy-intensive industries from obtaining sufficient green financial support, making it challenging for them to undertake green transformation. How best to facilitate the green transformation of traditional high-energy-consuming industries remains a pressing challenge. To overcome the limitations of traditional green finance tools, China implemented the Energy Efficiency Credit Policy (EECP) in 2015. Distinguished from traditional green financial instruments dominated by credit constraints, EECP is designed to facilitate the green transition of high-energy-consuming industries by providing credit funding support. Taking EECP as a quasi-natural experiment, we systematically investigate how green financial instruments stimulate green innovation vitality in key energy-consuming industries by exploiting a difference-in-differences (DID) model. This effect is particularly evident in enterprises facing higher financing constraints, greater industry financing dependence, superior information disclosure quality, and more efficient information transmission. Further mechanism tests reveal that expanding long-term financing scales, reducing credit financing costs, and enhancing commercial credit financing are crucial channels through which the policy exerts its effects. Moreover, EECP can guide firms in optimizing internal resources allocation and encourage them to prioritize preventive green investments. Ultimately, EECP can improve the total factor productivity of target enterprises, facilitating their transformation and upgrading. Collectively, our findings underscore the indispensable role of green finance in advancing the green and low-carbon transition of traditional sectors.

Suggested Citation

  • Chi, Guodong & Liu, Yuanyuan & Fang, Hong & Xiu, Yuanyuan, 2025. "Tapping the potential of green finance: Can energy efficiency credit drive traditional industries to green? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1834-1853.
    • Handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:1834-1853
    DOI: 10.1016/j.eap.2025.07.033
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