As the urgency of climate change intensifies, global efforts to mitigate pollution have become a key priority, with CO2 emissions from human activities identified as a primary driver (Bamisile et al., 2020). China, as the world’s largest energy consumer and carbon emitter (Ritchie and Roser, 2024), has focused its carbon emission reduction strategies on high-energy-consuming and high-polluting industrial sectors. Between 1953 and 2006, the industrial sector, contributing 40.1% to China’s GDP, accounted for 67.9% of the nation’s energy consumption and 83.1% of its CO2 emissions (Chen, 2009). As China nears the target date for its ‘dual carbon’ goals, the traditional development model based on high input, high consumption, and high pollution is becoming unsustainable. Striking a balance between economic growth and industrial carbon reduction has emerged as a critical challenge for the country (Tu et al., 2022).
While extensive research exists on industrial carbon emissions reduction (Zhang et al., 2022), several important issues remain unaddressed. First, regional disparities in emissions have grown from 2005 to 2019 (Chen et al., 2023), and there is a growing mismatch between carbon emissions and economic returns (Sun and Liu, 2016), with health burdens disproportionately affecting certain populations (Wang et al., 2022b). Second, in response to rising energy demand and carbon emissions (Zhou et al., 2014), China has launched various pilot projects to promote a market-oriented low-carbon economy. These efforts focus on regional carbon emission rights and responsibility sharing (Chen et al., 2023). A carbon quota allocation system that balances equity and efficiency can help reduce regional abatement costs, encouraging more sustainable carbon reductions (Wang and Kong, 2022). Lastly, achieving China’s ‘dual carbon’ goals is complicated by uneven resource distribution and economic development (Shi and Xu, 2023). Less developed regions often face difficulties in reducing carbon emissions, which can hinder national progress (Liu and Xu, 2023). In this context, the concept of “inclusive growth,” which emphasizes equal economic and social opportunities, has gained traction. By aligning authority with responsibility, identifying non-governmental entities that can simultaneously enhance the efficiency and equity of carbon emissions reduction can support inclusive growth, helping China meet its ‘dual carbon’ objectives on time while providing insights for global environmental policy development.
The transition to a low-carbon society requires both governmental regulations and financial support (Razzaq and Yang, 2023). Traditional financial systems, however, face limitations related to regulatory burdens and credit accessibility (Buchak et al., 2018). Digital finance (DF), a vital component of transitional finance, can drive the low-carbon transformation by enabling more efficient and sustainable financial models (Li et al., 2023). Over the past decade, China has emerged as a leader in digital finance (Wu and Huang, 2022), with the country’s “14th Five-Year Digital Economy Development Plan” highlighting the urgent need to accelerate the digital transformation of financial sectors (Zhang, 2023).
This study explores whether digital finance exacerbates or alleviates regional disparities in industrial carbon emissions (EICE), and how these impacts differ across various sectors. It also examines the mechanisms through which digital finance influences EICE and the role different social actors, such as the government and the public, play in this relationship. While existing research has explored the link between digital finance and carbon emissions, empirical studies on its impact on EICE remain scarce.
This research makes three key contributions. First, it offers a fresh perspective on the relationship between digital transformation in finance and the low-carbon transformation in the industrial sector, adding to the literature on environmental benefits brought by digital finance. Second, it diverges from previous studies that focus primarily on technological innovation or industrial transformation. This study uses energy consumption and marketization levels as mediating variables to deepen understanding of how digital finance influences carbon reduction. Third, the study incorporates social participants into the analytical framework, considering governmental and public environmental concerns, thus offering a more comprehensive analysis of how these factors affect the relationship between digital finance and EICE.
The structure of the paper is as follows: Section 2 presents the theoretical analysis and hypotheses, Section 3 outlines the methods and data used, Section 4 provides the baseline results and robustness tests, and Section 5 examines heterogeneity, mediating, and moderating effects. The conclusion and policy recommendations are presented in Section 6.
Theoretical Analysis and Hypothesis Development
Digital finance, with its digital and financial characteristics, facilitates the efficient flow and allocation of capital, information, and resources, addressing market inefficiencies and overcoming information asymmetry (Zhang, 2023). As a driver of economic growth, DF helps increase gross fixed capital formation (Qin et al., 2021) and supports the adoption of green technologies (Ren et al., 2023), thus contributing to improvements in industrial carbon emissions reduction. From the consumer side, DF improves payment convenience and generates wage premiums (Wang et al., 2022a), enhancing cross-regional consumption and further promoting EICE.
Hypothesis 1: Digital finance positively impacts industrial carbon emissions reduction (EICE).
The industrial structural changes brought about by DF—through technological innovation, energy consumption, and the marketization of resources—are essential mechanisms in promoting EICE. Industrial structures play a significant role in determining carbon emission levels, with heavy industries typically leading to higher emissions (Liu and Xu, 2023). DF, by enabling better risk management and directing capital towards high-tech industries, supports industrial optimization and the transition to greener practices (Nie et al., 2021).
Hypothesis 2: Industrial upgrading mediates the relationship between digital finance and EICE.
Technological innovation, essential for achieving a green transition (Ouyang et al., 2020), is promoted by DF. Through its reliance on advanced technologies such as big data and artificial intelligence, DF fosters a more digitalized workforce and alleviates financing constraints, encouraging green innovation (Liu and Xu, 2023). Moreover, DF facilitates knowledge exchange and technology spillover, further advancing technological progress (Zhu et al., 2024).
Hypothesis 3: Technological innovation mediates the relationship between digital finance and EICE.
DF also plays a pivotal role in energy consumption reduction, guiding the real economy toward low-carbon energy patterns. By improving information efficiency and enabling online platforms, DF helps reduce the energy costs associated with information flow (Zhao et al., 2021), contributing to the overall energy transition.
Hypothesis 4: Energy consumption mediates the relationship between digital finance and EICE.
Digital finance enhances financial services by overcoming temporal and spatial limitations and increasing competition within the financial sector. It supports the flow of funds toward green credit and bonds, addressing market segmentation and improving EICE by lowering financing costs for low-polluting enterprises (Han et al., 2024).
Hypothesis 5: Marketization level mediates the relationship between digital finance and EICE.
Governmental environmental concern, which focuses on low-carbon transition policies, enhances the impact of DF on EICE. By aligning corporate efforts with green objectives and using regulatory mechanisms, governments encourage firms to invest in sustainable practices, reinforcing the green transition (Zhang et al., 2016).
Hypothesis 6: The positive impact of digital finance on EICE is stronger when governmental environmental concern is high.
Public environmental concern also plays a critical role. By demanding more sustainable products and holding businesses accountable through monitoring and reporting, the public contributes to carbon emissions reduction. The growing preference for green products signals financial markets to favor green investments, further enhancing the EICE.
In conclusion, this study underscores the importance of digital finance in fostering industrial carbon emission reductions, while highlighting the critical roles of government and public participation in ensuring equitable outcomes.
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