Do Green Transfer Payments Contribute to Carbon Emission Reduction?

Abstract

Reducing carbon emissions is the top priority for mankind for dealing with climate issues. The Chinese government selected 30 demonstration cities in three batches and provided these cities green special transfer payment funds for three years to build green projects and achieve energy saving and emission reduction (ESER). This policy provides a great opportunity to study whether green transfer payments play an important role in carbon reduction, which has received little attention before. Additionally, the central government set a series of fiscal performance assessment indicators, including the ESER effect, the completion of green projects, and long-term mechanism construction in order to evaluate the effectiveness of the use of funds. This article creatively conducts theoretical analysis from the perspective of performance assessment, takes ESER special transfer payment policy as a quasi-natural experiment, and uses the panel data of 284 cities in China from 2007 to 2017 and 2019 to verify the impact of the green transfer payment on carbon emissions in and after demonstration periods and its mechanisms with the staggered DID method and the new DID Multiplegt (DIDM) model. This article found that green transfer payments could reduce carbon emissions in demonstration cities, and this effect still existed even after policy withdrawal. Mechanism analysis further corroborates that the carbon-reduction effect of green transfer payments could be achieved by increasing the urban green area and improving energy efficiency. Heterogeneity analysis reveals that green transfers have a greater carbon reduction effect on demonstration cities, which receives more green transfer payment funds and has a higher level of financial development. Recommendations related to setting proper performance assessment ESER indicators include improving the management of ESER transfer funds and maximizing the cost–benefit ratio of fiscal funds, which are proposed according to the research conclusions.