Green finance transmission mechanisms and renewable energy deployment: Threshold effects in EU carbon markets

This study examines how green finance instruments transmit investment signals to renewable energy deployment in the European Union, emphasizing the role of carbon price regimes in shaping financial effectiveness. Using EU-27 aggregate time-series data for 2000–2023, we implement a sequential empirical strategy combining specification testing, threshold analysis, and regime-specific temporal precedence assessment. Formal tests confirm the presence of nonlinear dynamics, supporting the use of threshold models over linear alternatives. We identify a carbon price threshold in the €30–35/tonne range, above which the responsiveness of renewable deployment to green finance instruments increases substantially. Below this range, carbon pricing exerts limited influence, while above it, financial transmission strengthens and directional relationships emerge. Carbon pricing and green bonds are found to be complementary rather than substitutive: carbon price shocks generate immediate investment signals, whereas green bonds exert more gradual but persistent effects consistent with long-horizon project financing. Scenario analysis indicates that maintaining carbon prices above the threshold range could accelerate renewable deployment toward 2030 targets. The findings offer new insights for international investors and policymakers by identifying a regime-dependent mechanism through which supranational climate policy credibility shapes cross-border green capital allocation and the pricing of transition risk.