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Green credit and firms’ emission reduction performance: Evidence from China

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  • Hu, Wen-Quan
  • Fang, Jiewei

Abstract

This paper examines whether imposing environmental performance on firms’ credit accessibility can effectively motivate firms’ emission reduction performance. In 2007, the Chinese central government regarded green credit (GC) regulation as an important market means for environmental protection, energy conservation, and emission reduction for the first time. Based on a difference-in-differences framework and firm-level datasets, we find that the GC regulation caused a significant decrease in total emissions and emission intensity of various pollutants (such as sulfur dioxide, industrial soot, and chemical oxygen demand) from firms in high-polluting industries. Mechanism analyses further explore how firms in high-polluting industries take actions to meet the requirements of the GC regulation in the short term. We find the GC regulation motivated firms in high-polluting industries to achieve abatement through equipment upgrades rather than green innovation in the short term. The heterogeneity analysis discusses the varying responses of firms with different ownership properties and capital intensity under GC regulation. We also find the benefits of emission reduction regarding health and mortality obtained from GC regulation are considerable, the annual average benefits from the emission reduction of these pollutants were as high as 1.66–1.99 billion CNY in our sample. Our findings contribute to the understanding of the emission reduction effect of the GC regulation and provide a reference for countries with similar situations.

Suggested Citation

  • Hu, Wen-Quan & Fang, Jiewei, 2025. "Green credit and firms’ emission reduction performance: Evidence from China," World Development, Elsevier, vol. 194(C).
    • Handle: RePEc:eee:wdevel:v:194:y:2025:i:c:s0305750x25001603
    DOI: 10.1016/j.worlddev.2025.107075
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