How do green municipal bonds affect carbon emissions in China? Evidence from the staggered difference-in-differences...

Under the "Dual Carbon Goals", China's municipal government bonds play a vital role in advancing local environmental governance. This paper constructs a quasi-natural experiment based on the issuance of green municipal bonds, and empirically examines its carbon emission reduction effects by using the staggered difference in differences approach. The issuance of green municipal bonds can substantially diminish the level of carbon intensity and pass a series of robustness tests. Green municipal bonds can generate green project financing effect, greening effect and industrial structure allocation effect to promote the reduction of carbon emission level in a region. At the same time, there exists heterogeneity in local governments' emphases on environmental protection, economic development, carbon peaking progress and urban resource endowment. Further research found that green municipal bonds have significant spatial spillover effect, which not only promotes the reduction of local carbon intensity, but also leads to the reduction of carbon intensity in the surrounding cities. The proposed policy implications include: increase the proportion of green municipal bonds in local government bonds; establish standardized issuing criteria of green municipal bonds, accelerate credit rating and improve performance management of green municipal bonds; design green municipal bonds according to local conditions; and strengthen green finance and its supporting services.