How can green finance effectively promote low-carbon cities? Evidence from 237 cities in China

Urban areas contribute 85% of China's CO₂ emissions. Green finance is an important means to support green energy development and achieve the low-carbon transformation of high-energy-consuming industries. The motivation of this article is to investigate the impact and mechanism of green finance on urban carbon intensity. Most existing literature uses linear models to investigate urban carbon intensity, ignoring the nonlinear relationships between economic variables. The nonparametric models can fill the inherent shortcomings of linear models and effectively simulate the nonlinear nexus between economic variables. Based on the 2011-2021 panel data of 237 cities in China, this paper applies the nonparametric additive model to survey the influence of green finance on urban carbon intensity. Empirical findings exhibit that green finance exerts an inverted U-shaped effect on urban carbon intensity, indicating that the carbon reduction effect of green finance has gradually shifted from inconspicuous in the early stages to prominent in the later stages. Then, from the perspectives of region, city size, and carbon intensity, this article conducts heterogeneity analysis. The results show that the impact of green finance on various carbon intensities all exhibits obvious nonlinear feature. Furthermore, this article employs a mediation effect model to conduct mechanism analysis. The results display that technological progress and industrial structure are two important mediating variables, both of which produce an inverted U-shaped nonlinear impact on urban carbon intensity.