Assessing the role and driving mechanisms of the green financial reform on urban energy consumption and pollution emissions: a policy evaluation from the generalized synthetic control method

The Green Financial Reform and Innovation Pilot Areas (GFRIPA) policy is a key institutional arrangement that enables China's green finance to advance from theory to practice. Few studies have quantitatively evaluated the policy's environmental performance. This study uses a generalized synthetic control method (GSCM) alongside panel data from Chinese prefecture-level cities since 2007 to assess the effects of the GFRIPA policy on energy consumption and pollution emissions and to pinpoint the underlying mechanisms. Results show that establishing the GFRIPA significantly reduces energy consumption and pollution emissions, and that the effect emerges immediately in the policy's issuance year. Possible mechanisms consist of the increase in urban green innovation, the ease of financing constraints, the optimization of industrial structure, and the enhancement of environmental governance. Heterogeneity analyses reveal that policy effects are more profound in cities with a higher degree of marketization and a higher level of education. The findings provide valuable insights into consistently promoting the GFRIPA policy to meet environmental goals for energy conservation and pollution reduction and ultimately advance green economies in developing nations.