Green finance market and carbon neutralization capacity in China

This study employs quarterly data and the ARDL approach to explore how the growth of the green finance market influences China’s carbon neutralization capacity from 1995Q1 to 2021Q4. Findings indicate that a 1% rise in green finance market value is associated with a 0.25% increase in short-term and a 0.31% increase in long-term carbon sequestration capacity. Similarly, a 1% improvement in Environmental, Social, and Governance (ESG) investment boosts carbon neutralization capacity by 0.19% in the short term and 0.26% in the long term, demonstrating the role of ESG practices in reducing emissions. Additionally, a 1% increase in green energy production enhances carbon neutralization capacity by 0.24% in the short term and 0.17% in the long term, emphasizing the importance of renewable energy sources. However, the analysis also reveals that GDP per capita and trade liberalization negatively impact carbon sequestration, highlighting the need for sustainable development approaches. Policy recommendations include fostering carbon-neutral bonds, standardizing green bonds, supporting ESG investments, prioritizing green growth strategies, and advancing green trade policies.