Crossing the rivers by feeling the stones: The effect of China's green credit policy on manufacturing firms' carbon emission intensity

To combat environmental exacerbation and energy overuse, the Chinese government issued the Opinions on Implementing Environmental Protection Policies and Regulations to Prevent Credit Risks in 2007, which was the first time it employed a financial market instrument (i.e., the green credit policy) to deal with the environmental problem. By regarding the 2007 green credit policy (GCP) as an exogenous shock, this paper applies the Difference-in-Difference (DID) estimation to examine the impact of the GCP on the carbon dioxide emission intensity of firms in heavily polluting industries and potential impact channels. First, we find that GCP has significantly reduced the carbon emission intensity of heavily polluting firms. Second, the policy can reduce the total energy intensity, especially the coal consumption intensity, thus lowering the carbon emission intensity. Third, the policy improves carbon emission performance through capital renewal instead of technological innovation. Finally, we conclude that the policy can exert a more profound negative effect on small-scale and non-state-owned heavily polluting firms, heavily polluting firms in capital-intensive and higher financial independence industries and heavily polluting firms in provinces with better financial development and marketization.