Abstract:

Green finance is a novel concept that combines environmental protection with finance. It aims at ensuring sustainable development by regulating investment and financing. The features of green finance meet the demands of China's economic transformation and environmental protection. Since 2015, green finance has increased rapidly in China and attracted a great deal of research. Previous studies focus on the concept, overseas experience, development models, and policy incentives, while green finance's environmental effect has been largely neglected. Theoretically, we deduce that as an innovation of environmental governance, green finance would potentially promote the impact of the existing environmental regulations. Moreover, both green finance and environmental regulations can alleviate pollution through upgrading the regional industrial structure and stimulating technological innovation. Moving on to regional heterogeneity, we hypothesize that the effects of the two kinds of environmental governance are varying across regions. This paper applies the econometric model to explore green finance's impact on the Chinese urban haze pollution and its interaction with environmental regulations, industrial structure, and technological level. Our dependent variable is the volume of the reduction of the haze pollution index in 289 Chinese prefectural cities. The scale of green finance in each city is denoted by the insuring scale of green bonds. Environmental regulation is denoted by a commonly used indicator system consisting of two kinds of contaminants: sulfur dioxide and liquid waste. Industrial structure is denoted by the percentage of the secondary industry to GDP in each city. Technological level is denoted by the number of selected patents over prefectural industrial output. We confirm the correlations between variables by descriptive analysis and apply the Spatial Durbin Model to test our hypothesis. The results show that green finance has significant spatial spillover, as a high level of regional green finance can benefit the alleviation of haze pollution. Green finance and environmental regulation exert a synergistic impact on improving environmental quality. Compared to the eastern and western regions, the synergistic impact is less significant in the central part of China. Green finance can reduce pollution by optimizing local industrial structure and upgrading technology. In both eastern and western regions, green finance's structural and technique effects are significant and positive, while in the central areas, the structural effects are not noticeable. Compared to environmental regulations, green finance has a stronger technique effect and a weaker structural effect. This article argues that the impact of green finance and environmental regulations on alleviating environmental pollution can complement each other. Thus, we suggest several policy implications. First, the policy system of green finance should be modified by taking existing environmental regulations into consideration. For example, restrictions on investment and financing can be applied to punish polluting firms and institutes. Second, with the significant effect of green finance on technological innovation, green finance should be encouraged to promote regional industrial upgrading. Third, the development and potential of green finance is varying across regions. Thus, mechanisms for promoting regional cooperation should be established to enhance the inclusivity of green finance. Overall, implementing green financial instruments can help different regions balance their environmental and economic goals and achieve sustainable development.

Key words: green finance, environmental regulation, haze pollution, structural effect, technique effect