Green finance reform under climate policy uncertainty: Implications for energy transition and security

Abstract

The positive role of green finance reform (GFR) in promoting energy transition (ET) and ensuring energy security (ES) has been widely discussed, but no research has yet thoroughly examined the specific effects of GFR under climate policy uncertainty (CPU). To address this gap, this study employs a dynamic system model and panel data from 333 Chinese cities spanning 2006 to 2021, applying a multi-period difference-in-differences (DID) approach to capture the temporal and spatial variations in how GFR influences ET and ES under CPU. The results demonstrate that GFR significantly promotes low-carbon ET, but its effectiveness is hindered by CPU. Regional disparities are evident, with stronger adverse effects in cities characterized by lower ES, traditional industrial structures, and poorer environmental quality. Additionally, credit constraints and frequent green technology updates amplify the adverse effects of CPU on GFR's effectiveness. While ET provides notable short-term improvements in ES, these benefits diminish over time due to diminishing marginal returns and technological saturation. This study provides a novel perspective on GFR under uncertainty and underscores the necessity of stable climate policies and region-specific strategies to fully leverage the potential of GFR in advancing energy sustainability and mitigating policy-induced uncertainties.