IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v334y2025ics0360544225034875.html

Effect of green finance on the green transformation of China's building sector: A system dynamics assessment for targeted financing instruments and policies

Author

Listed:
  • Liu, Pei
  • Lin, Borong
  • Zhou, Hao
  • Li, Xin
  • Papachristos, George

Abstract

The building sector is a major energy end-use sector globally. Promoting the green transformation of the building sector via green finance instruments (GFIs) is crucial for China to achieve its carbon neutrality goal by 2060. This study develops a system dynamics assessment methodology, simulating the dynamics of various building stocks with different energy efficiencies and quantifying the long-term systemic impact of multiple GFIs on both the new development of green buildings and energy retrofitting of existing buildings. The results show that with the implementation of a combination of GFIs, the amount of energy use reduction in the building sector keeps expanding; while the amount of CO2 reduction will reach its highest level from 2040 to 2045 and it subsequently declines. Within the GFI mix, the results demonstrate the indispensable role of fiscal subsidies and the critical bridging role of green insurance for the green transformation of the building sector. The systemic effect of the GFI mix is 22.3 % greater than the sum of the effects of constituent individual GFIs. Drawing on these findings, more targeted GFIs for different building types are proposed, and differentiated policies to both building developers and financial agencies are suggested.

Suggested Citation

  • Liu, Pei & Lin, Borong & Zhou, Hao & Li, Xin & Papachristos, George, 2025. "Effect of green finance on the green transformation of China's building sector: A system dynamics assessment for targeted financing instruments and policies," Energy, Elsevier, vol. 334(C).
    • Handle: RePEc:eee:energy:v:334:y:2025:i:c:s0360544225034875
    DOI: 10.1016/j.energy.2025.137845
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544225034875
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.energy.2025.137845?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Caleb Debrah & Albert Ping Chuen Chan & Amos Darko & Robert J. Ries & Eric Ohene & Mershack Opoku Tetteh, 2024. "Driving factors for the adoption of green finance in green building for sustainable development in developing countries: The case of Ghana," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(6), pages 6286-6307, December.
    2. He, Lihua & Chen, Liyan, 2021. "The incentive effects of different government subsidy policies on green buildings," Renewable and Sustainable Energy Reviews, Elsevier, vol. 135(C).
    3. Cabeza, Luisa F. & Rincón, Lídia & Vilariño, Virginia & Pérez, Gabriel & Castell, Albert, 2014. "Life cycle assessment (LCA) and life cycle energy analysis (LCEA) of buildings and the building sector: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 394-416.
    4. Ji, Qiang & Zhang, Dayong, 2019. "How much does financial development contribute to renewable energy growth and upgrading of energy structure in China?," Energy Policy, Elsevier, vol. 128(C), pages 114-124.
    5. Zhu, Chen & Li, Xiaodong & Zhu, Weina & Gong, Wei, 2022. "Embodied carbon emissions and mitigation potential in China's building sector: An outlook to 2060," Energy Policy, Elsevier, vol. 170(C).
    6. Guo, Siyue & Yan, Da & Hu, Shan & Zhang, Yang, 2021. "Modelling building energy consumption in China under different future scenarios," Energy, Elsevier, vol. 214(C).
    7. Liu, Pei & Lin, Borong & Zhou, Hao & Wu, Xiaoying & Little, John C., 2020. "CO2 emissions from urban buildings at the city scale: System dynamic projections and potential mitigation policies," Applied Energy, Elsevier, vol. 277(C).
    8. Liu, Guo & Li, Xiaohu & Tan, Yongtao & Zhang, Guomin, 2020. "Building green retrofit in China: Policies, barriers and recommendations," Energy Policy, Elsevier, vol. 139(C).
    9. Li, Wenliang & Zhou, Yuyu & Cetin, Kristen & Eom, Jiyong & Wang, Yu & Chen, Gang & Zhang, Xuesong, 2017. "Modeling urban building energy use: A review of modeling approaches and procedures," Energy, Elsevier, vol. 141(C), pages 2445-2457.
    10. Liu, Hui-hui & Song, Yao-yao & Yang, Guo-liang, 2019. "Cross-efficiency evaluation in data envelopment analysis based on prospect theory," European Journal of Operational Research, Elsevier, vol. 273(1), pages 364-375.
    11. Zhou, Wei & O'Neill, Eoghan & Moncaster, Alice & Reiner, David M. & Guthrie, Peter, 2020. "Forecasting urban residential stock turnover dynamics using system dynamics and Bayesian model averaging," Applied Energy, Elsevier, vol. 275(C).
    12. Zuo, Jian & Zhao, Zhen-Yu, 2014. "Green building research–current status and future agenda: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 30(C), pages 271-281.
    13. McNeil, Michael A. & Feng, Wei & de la Rue du Can, Stephane & Khanna, Nina Zheng & Ke, Jing & Zhou, Nan, 2016. "Energy efficiency outlook in China’s urban buildings sector through 2030," Energy Policy, Elsevier, vol. 97(C), pages 532-539.
    14. Amos Darko & Albert P. C. Chan, 2017. "Review of Barriers to Green Building Adoption," Sustainable Development, John Wiley & Sons, Ltd., vol. 25(3), pages 167-179, May.
    15. Zhou, W. & Moncaster, A. & Reiner, D. & Guthrie, P., 2020. "Developing a generic System Dynamics model for building stock transformation towards energy efficiency and low-carbon development," Cambridge Working Papers in Economics 2057, Faculty of Economics, University of Cambridge.
    16. Bertone, Edoardo & Sahin, Oz & Stewart, Rodney A. & Zou, Patrick X.W. & Alam, Morshed & Hampson, Keith & Blair, Evan, 2018. "Role of financial mechanisms for accelerating the rate of water and energy efficiency retrofits in Australian public buildings: Hybrid Bayesian Network and System Dynamics modelling approach," Applied Energy, Elsevier, vol. 210(C), pages 409-419.
    17. Mi, Zhifu & Zhang, Yunkun & Guan, Dabo & Shan, Yuli & Liu, Zhu & Cong, Ronggang & Yuan, Xiao-Chen & Wei, Yi-Ming, 2016. "Consumption-based emission accounting for Chinese cities," Applied Energy, Elsevier, vol. 184(C), pages 1073-1081.
    18. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    19. He, Wenhua & Liu, Pei & Lin, Borong & Zhou, Hao & Chen, Xuesheng, 2022. "Green finance support for development of green buildings in China: Effect, mechanism, and policy implications," Energy Policy, Elsevier, vol. 165(C).
    20. Knudsen, Brage Rugstad & Rohde, Daniel & Kauko, Hanne, 2021. "Thermal energy storage sizing for industrial waste-heat utilization in district heating: A model predictive control approach," Energy, Elsevier, vol. 234(C).
    21. Nan Zhou & Nina Khanna & Wei Feng & Jing Ke & Mark Levine, 2018. "Scenarios of energy efficiency and CO2 emissions reduction potential in the buildings sector in China to year 2050," Nature Energy, Nature, vol. 3(11), pages 978-984, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. He, Wenhua & Liu, Pei & Lin, Borong & Zhou, Hao & Chen, Xuesheng, 2022. "Green finance support for development of green buildings in China: Effect, mechanism, and policy implications," Energy Policy, Elsevier, vol. 165(C).
    2. Yamaguchi, Yohei & Kim, Bumjoon & Kitamura, Takuya & Akizawa, Kotone & Chen, Hemiao & Shimoda, Yoshiyuki, 2022. "Building stock energy modeling considering building system composition and long-term change for climate change mitigation of commercial building stocks," Applied Energy, Elsevier, vol. 306(PA).
    3. Yang, Jingjing & Deng, Zhang & Guo, Siyue & Chen, Yixing, 2023. "Development of bottom-up model to estimate dynamic carbon emission for city-scale buildings," Applied Energy, Elsevier, vol. 331(C).
    4. Liu, Pei & Lin, Borong & Zhou, Hao & Wu, Xiaoying & Little, John C., 2020. "CO2 emissions from urban buildings at the city scale: System dynamic projections and potential mitigation policies," Applied Energy, Elsevier, vol. 277(C).
    5. Zhu, Chen & Li, Xiaodong & Zhu, Weina & Gong, Wei, 2022. "Embodied carbon emissions and mitigation potential in China's building sector: An outlook to 2060," Energy Policy, Elsevier, vol. 170(C).
    6. Chen, Huadun & Du, Qianxi & Huo, Tengfei & Liu, Peiran & Cai, Weiguang & Liu, Bingsheng, 2023. "Spatiotemporal patterns and driving mechanism of carbon emissions in China's urban residential building sector," Energy, Elsevier, vol. 263(PE).
    7. Liu, Hui-hui & Song, Yao-yao & Liu, Xiao-xiao & Yang, Guo-liang, 2020. "Aggregating the DEA prospect cross-efficiency with an application to state key laboratories in China," Socio-Economic Planning Sciences, Elsevier, vol. 71(C).
    8. Yu Cao & Cong Xu & Syahrul Nizam Kamaruzzaman & Nur Mardhiyah Aziz, 2022. "A Systematic Review of Green Building Development in China: Advantages, Challenges and Future Directions," Sustainability, MDPI, vol. 14(19), pages 1-29, September.
    9. Yangxue Ning & Yan Zhang & Guoqiang Wang, 2023. "An Improved DEA Prospect Cross-Efficiency Evaluation Method and Its Application in Fund Performance Analysis," Mathematics, MDPI, vol. 11(3), pages 1-15, January.
    10. Yang, Kaitong & Wu, Jun & Li, Ling & Mi, Zhifu & Yang, Junai & Tang, Ling, 2025. "Impact of household size and structure on carbon emissions in China," Structural Change and Economic Dynamics, Elsevier, vol. 75(C), pages 9-19.
    11. Kong, Minjin & Lee, Minhyun & Kang, Hyuna & Hong, Taehoon, 2021. "Development of a framework for evaluating the contents and usability of the building life cycle assessment tool," Renewable and Sustainable Energy Reviews, Elsevier, vol. 150(C).
    12. Zhou, Xiao & Huang, Zhou & Scheuer, Bronte & Wang, Han & Zhou, Guoqing & Liu, Yu, 2023. "High-resolution estimation of building energy consumption at the city level," Energy, Elsevier, vol. 275(C).
    13. Li, Wuyan & Li, Xianting & Gao, Yijun & Shi, Wenxing, 2022. "Thermo-economic evaluation for energy retrofitting building ventilation system based on run-around heat recovery system," Energy, Elsevier, vol. 260(C).
    14. Huo, Tengfei & Du, Qianxi & Xu, Linbo & Shi, Qingwei & Cong, Xiaobo & Cai, Weiguang, 2023. "Timetable and roadmap for achieving carbon peak and carbon neutrality of China's building sector," Energy, Elsevier, vol. 274(C).
    15. Huo, Tengfei & Ma, Yuling & Xu, Linbo & Feng, Wei & Cai, Weiguang, 2022. "Carbon emissions in China's urban residential building sector through 2060: A dynamic scenario simulation," Energy, Elsevier, vol. 254(PA).
    16. Shi, Hai-Liu & Chen, Sheng-Qun & Chen, Lei & Wang, Ying-Ming, 2021. "A neutral cross-efficiency evaluation method based on interval reference points in consideration of bounded rational behavior," European Journal of Operational Research, Elsevier, vol. 290(3), pages 1098-1110.
    17. Cheng, Xiu & Wu, Fan & Li, Wenbo & Yang, Jiameng & Long, Ruyin, 2024. "What maintains low-carbon consumption behaviors: Evidence from China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 189(PB).
    18. Yao Wen & Hailiu Shi, 2025. "Two-Side Merger and Acquisition Matching: A Perspective Based on Mutual Performance Evaluation Considering the Herd Behavior," Mathematics, MDPI, vol. 13(20), pages 1-26, October.
    19. Mastrucci, Alessio & Marvuglia, Antonino & Benetto, Enrico & Leopold, Ulrich, 2020. "A spatio-temporal life cycle assessment framework for building renovation scenarios at the urban scale," Renewable and Sustainable Energy Reviews, Elsevier, vol. 126(C).
    20. Wang, Tao & Seo, Seongwon & Liao, Pin-Chao & Fang, Dongping, 2016. "GHG emission reduction performance of state-of-the-art green buildings: Review of two case studies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 56(C), pages 484-493.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:334:y:2025:i:c:s0360544225034875. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.