How can green finance alleviate the energy trilemma? Evidence from Chinese urban areas

Abstract

This study analyzes the relationship between green finance (GF) and the energy trilemma (ET) based on panel data from 282 cities in China covering 2006–2021. Employing the instrumental variable generalized method of moments (IV-GMM), it evaluates the impacts of GF on ET, including the direct, indirect, nonlinear, and asymmetric effects. The key findings are as follows: First, regarding the direct effects, the development of GF significantly alleviates ET. GF contributes to a more harmonious balance among the three dimensions of ET. Second, in terms of indirect effects, GF mitigates ET by encouraging technological innovation, enhancing the level of the digital economy, and broadening financing channels. Third, for asymmetric effects, the suppressive impact of GF on ET is significant across all quantiles, with marginal effects increasing as the ET index grows. Fourth, concerning nonlinear effects, the mitigating role of GF on ET is more pronounced in regions with higher levels of economic development, more advanced industrial structures, and greater foreign investment. Finally, the heterogeneity analysis reveals that the suppressive effects of GF on ET are mainly observed in regions with higher levels of marketization, non-resource-based cities, and areas located east of the Hu Line. Based on these findings, this paper offers several recommendations: promoting the robust development of GF, encouraging technological innovation, expanding financing channels, and adopting tailored policies. These measures aim to maximize the role of GF in addressing energy challenges effectively.