Transition finance, structural transformation, and carbon emission efficiency: Evidence from Chinese provinces

Achieving deep decarbonization requires financial systems capable of supporting both low-carbon industries and carbon-intensive sectors undergoing structural transformation. This study investigates the role of transition finance in promoting carbon emission efficiency (CEE) across 30 Chinese provinces from 2008 to 2022. We construct a composite transition finance index using carbon finance and green finance indicators and evaluate provincial CEE using a Super Slack-Based Measure model with undesirable outputs. The empirical results reveal several key findings. First, China's average CEE improved by approximately 35% between 2008 and 2022, showing a steady upward trend yet notable spatial disparities, with eastern provinces outperforming central and western regions. Second, transition finance exerts a significant positive effect on CEE (coefficient = 0.020, p < 0.01) across multiple model specifications, confirming its role in strengthening low-carbon production capacity. Third, heterogeneity analysis indicates that transition finance is especially effective in energy-intensive provinces and regions experiencing industrial upgrading, while its impact is weaker in high-pollution areas. Fourth, mechanism testing reveals that transition finance enhances CEE primarily through structural transformation rather than direct technological innovation. Fifth, energy structure, measured as energy consumption per unit of GDP, is negatively associated with CEE, confirming that provinces with higher energy intensity exhibit lower carbon emission efficiency. Finally, a post-2019 policy assessment shows that the marginal effect of transition finance modestly strengthened following the introduction of national transition finance guidelines, reflecting initial adjustment costs during policy rollout. Robustness checks using carbon intensity measures confirm the stability of the core findings. Overall, the results underscore the importance of developing a credible and well-functioning transition finance system to support China's dual carbon goals and promote high-quality green growth.