The Study Of Financial Development On Energy Transition In The Context Of Low-carbon Transition

Global climate change has raised some serious environmental and social issues.Fossil energy combustion is the most important source of carbon dioxide（CO₂）emissions,which is the main greenhouse gas.Therefore,the transition from fossil fuel to renewable/clean energy is a major tool to achieve a low-carbon transition and cope with the climate crisis.The Paris Agreement considers that the surface temperature increase should be limited to 2°C at the end of this century compared to the pre-industrial period.China has set a clear“3060”dual carbon target（carbon peak and carbon neutralization）for the purpose.Addressing climate change is a major event that concerns the common destiny of mankind and requires global coordination.Considering the huge differences in the development levels of individual countries,the basic principle of common but differentiated responsibilities should be upheld.At the same time,the low-carbon transition requires large-scale investment,so the financial sector plays an important role.In the context of the low-carbon transition,this paper proposes a new revised environmental Kuznets curve（RKC）hypothesis to describe the general pattern of energy transition in the process of economic development:with the increase in income levels,the rate of renewable energy consumption decreases first and then increases,showing a U-shaped curve.In addition,the RKC hypothesis furtherly points out that energy transition is a necessary condition to achieve the carbon peak,and accelerating energy transition is beneficial to reach the carbon peak as soon as possible.Based on this finding,the paper continues to investigate the impacts of financial development and its mismatches on the energy mix during the economic growth process.First,a cross-country panel analysis based on major countries in the world shows that the increase in the level of financial development reduces the share of renewable/clean energy consumption,i.e.,financial development negatively impacts the low-carbon energy transition.Therefore,financial development would increase carbon emissions,this conclusion is supported by the empirical evidence from long time series data for China.This finding highlights the importance of reforming the financial development model and promoting green finance in the context of the low-carbon transition.Then,the paper continues to analyze the impact of financial mismatches on energy intensity and finds that financial mismatches exacerbate the industrial energy intensity of China.Because the credit discriminatory behavior allows high polluting industries to obtain more credit at lower interest rates.To summarize,the dissertation generally follows the progressive logic of the relationship between energy consumption mix and carbon peak,the relationship between financial development and energy transition,and the impact of financial mismatch on industrial energy intensity.In a word,the paper includes the following points.First,the general rule of energy low carbon transition in the process of economic development and its dynamic relationship with carbon emissions are discussed.Fossil fuels combustion emits a major amount of CO₂,so energy transition from fossil to renewable/clean energy is considered to be the most important way to reduce carbon emissions and reach the goal of controlling climate change.This paper finds that the trend of the energy mix,measured by the rate of renewable energy consumption（RER）,is opposite between developing and developed countries,with the former decreasing and the latter gradually increasing.Based on this phenomenon,the paper proposes a revised environmental Kuznets curve（RKC）hypothesis,which suggests that the share of renewable energy consumption（RER）first decreases and then increases with economic development,showing a U-shaped curve.More importantly,the energy transition often occurs before the carbon peak,which is a necessary condition for achieving the targrt of carbon peak.According to the“U”curve of energy transition,the economic development process can be divided into three stages:the scale effect stage,the structural effect stage and the technological effect stage.Combining with literature analysis,this paper further points out that it is the structural effect stage that the government formulates policies to promote renewable energy consumption and achieve energy transition as soon as possible,which can not only accelerate the carbon peak but also benefit economic development.Second,the relationship between financial development and energy transition is analyzed.While the main theme of financial development theory is to study the impact of financial development on economic growth,its impact on energy mix has been neglected in long term.Based on the revised environmental Kuznets curve（RKC）hypothesis,empirical results employing cross-country panel data indicate that financial development can significantly affect the energy mix,reducing the ratio of renewable energy consumption.Further mechanism tests find that financial development fails to effectively promote technological green innovation,but significantly increases energy intensity,which is the main reason for inhibiting the energy transition.This result implies that the main effect of the current financial development is to allocate financial resources more efficiently,but the environmental benefits are not fully considered.It needs to be emphasized that the conclusion of this paper is not to deny the role of financial development in promoting economic growth,but to highlight that the low-carbon transition requires changes in the current model of financial development,that is financial institutions should incorporate environmental protection into the assessment of the credit granting process for financing projects.Financial development should be transformed into green finance.Third,the relationship between financial development and carbon emissions.China is currently the largest carbon emitter and faces enormous pressure to reduce emissions.As a responsible country,China has actively set and implemented the“3060”carbon reduction target.It is important to assess the turning point of carbon emission and the impact of financial development in China.The impact of financial development on carbon emission levels is further investigated using long interval time series data for China,and find that financial development significantly increases carbon emission levels controlling the energy mix.China’s current energy mix is at the stage of structural effects,and appropriate energy transition policies are critical to accelerating the low-carbon energy transition and carbon peaking.The findings further illustrate that the current financial development model ignores environmental effects and promoting green finance is the future of financial development.Fourth,the impact of financial mismatch on energy consumption intensity.Given the widespread resource mismatch in developing countries,the mismatch of financial resources will have an important impact on energy consumption;the previous section has demonstrated the negative effect of financial development on the energy transition,so we continue to explore its intrinsic reasons for impeding the energy transition from the perspective of financial mismatch.First,a theoretical model of endogenous growth incorporating four sectors is constructed,and it is found that financial mismatch leads to higher energy intensity consumed per unit of industrial value added.This credit discrimination phenomenon allows the energy-intensive heavy industry sector to obtain large amounts of credit at lower interest rates.The lower the level of interest rates,the higher the energy intensity of the sector.Therefore,the energy intensity of the heavy industry sector,which is highly polluting,is higher.Meanwhile,the employment level has a moderating effect on energy intensity.In summary,this paper makes a marginal contribution to the existing literature in the following ways.First,this paper proposes a new revised environmental Kuznets curve（RKC）hypothesis,which is a further extension of the classical EKC hypothesis,by observing and comparing the very different energy transition trends between developing and developed countries.This paper uses the RKC hypothesis for the first time to reveal the general pattern of low-carbon energy transition in economic development,to provide a basis for individual countries to assume common but differentiated responsibilities for energy transition,and to demonstrate the dynamic relationship between energy transition and carbon peaking.Second,the negative effect of financial development on the energy transition is found,and the development of green finance needs to be vigorously promoted.A large amount of energy economics literature studies the relationship between financial development and carbon emissions,but few address the impact of financial development on energy transition.In this paper,the inhibitory effect of financial development on low-carbon energy transition is found for the first time using data from OECD countries,indicating that the current financial development model does not fully consider environmental effects.Therefore,financial institutions should assess more the environmental effects of financing projects in the credit granting process.Promoting the development of green finance is the only way to play a good role in guiding and supporting the financial sector in the process of low-carbon energy transition and combating climate change.Last,it is demonstrated that the mismatch phenomenon in financial development is intrinsic to its negative impact on energy transition.The impact of resource mismatch on economic development has been widely discussed,this paper discusses for the first time the impact of financial resource mismatch on energy consumption intensity.Financial mismatch not only reduces the quality of economic growth but also results in higher energy intensity and exacerbates environmental degradation.This finding has important implications for deepening financial reform,developing green finance,and ensuring the achievement of the“3060”double carbon targets.