Green finance support for development of green buildings in China: Effect, mechanism, and policy implications

The building sector accounts for a major portion of China's total energy use and energy-related CO2 emissions. Promoting the development of green buildings (GBs) via the application of green financial instruments (GFIs, including green fiscal investment, green credit, green insurance, and green bonds) is crucial for China to achieve carbon mitigation goals. This study explores the effect and mechanism of GFIs on supporting the development of GBs using time series econometrics. Results show that the overall green finance system exhibits significant supporting effects on the development of GBs. Among four types of GFIs, green fiscal investment plays a critical and an indispensable role. The effects of alternative GFI combinations on GB development are compared. The combination of green fiscal investment, insurance, and credit shows the most satisfactory supporting effect. In this combination, insurance plays a bridging role, as it better ensures that GBs' actual energy performance meets expected performance, thus promoting green credit financing for GBs. However, the results also indicate that the current green finance market is still in a government-driven pattern. To facilitate its transformation to a marketdriven pattern, policies should focus on designing more targeted GFI-combination products, bridging GBs' performance gaps, and updating GBs' rating system.