From Code to Carbon Cuts: A Province-Level Analysis of Digital Finance’s Impact on Emission Reduction in China

To address the challenges of global warming, China has proposed the dual carbon target, and digital finance, as an emerging phenomenon, will play a pivotal role in promoting energy conservation and emission reduction. Drawing on panel data from 30 provinces in China from 2011 to 2019, this study empirically examines the impact of digital finance on carbon emissions. The findings from a two-way fixed effect model reveal that the influence of digital finance on carbon emissions follows an environmental Kuznets curve pattern, exhibiting an inverted U-shaped relationship, and the digitalization level of inclusive finance exhibits the highest efficacy. Moreover, its impact on technological innovation demonstrates a U-shaped trend. Results obtained through the SDM model indicate that digital finance also effectively decreases coal-related emissions and facilitates the transition towards cleaner energy sources such as natural gas. Heterogeneity analysis further reveals that the effect of digital finance on carbon emissions is most pronounced in western regions while being less significant in areas with lower energy quality. Therefore, it is imperative to expedite the development of digital finance and surpass the turning point at the earliest opportunity while simultaneously paying attention to tailoring strategies based on local conditions. Facilitate green innovation and digital transformation among enterprises while harnessing the enabling power of digital finance to serve real needs. Fully leverage its potential in advancing clean energy adoption for structural change.