INTERNATIONAL JOURNAL OF NOVEL RESEARCH IN

ENGINEERING SCIENCES (IJNRES)

Website: www.ijnres.org

Optimizing Energy Consumption: Assessing the Influence of

Green Finance on Carbon Emissions in India
Chin Chun1, a) and Koota Bharur2, b)
1
Department of Energy Engineering, Akal College of Engineering and Technology, Sirmaur, India
2
Department of Energy Engineering, Akal College of Engineering and Technology, Sirmaur, India
a)
chin_chun86@rediffmail.com
b)
kbharur22@yahoo.com

Abstract— This paper investigates the impact of green finance on carbon emissions in India, with a focus on optimizing energy
consumption. The study begins by examining the theoretical perspective to understand the mechanism and pathway through
which green finance influences carbon emissions, while also analyzing the role of energy consumption in this process. To empiri-
cally analyze the influence of green finance on carbon emissions, the paper employs the STIRPAT model, chain multiple media-
tion effect model, and panel threshold model using provincial data from India spanning 2017 to 2022. Green finance has a signif-
icant and consistent reduction effect on carbon emissions. This conclusion holds even after accounting for potential endogeneity.
The analysis of regional heterogeneity reveals that the inhibitory effect is particularly notable in northern regions, high-carbon
emission regions, and energy-rich regions. The results of the bootstrap test indicate that, at the national level, green finance re-
duces carbon emissions through three distinct paths: green technological innovation, ecological evolution of the industrial struc-
ture, and green technological innovation facilitating the ecological evolution of the industrial structure. Moreover, in energy-rich
regions, green finance significantly inhibits carbon emissions through all three paths, while in energy-poor regions, green finance
only reduces carbon emissions through green technological innovation.

Index Terms— Sustainable finance, Eco-friendly funding, Environmentally responsible investment

I. INTRODUCTION emissions. It provides comprehensive and coordinated

India's economy has achieved remarkable success on a
global scale. By 2021, India's total economic output had
reached CNY 114.4 trillion, experiencing an 8.1% growth
and maintaining its position as the world's second-largest
economy. However, it is essential to acknowledge that In-
dia's past rapid economic growth came at the cost of exten-
sive fossil energy usage and severe ecological damage [1].
Numerous studies have demonstrated that economic growth
leads to increased energy consumption, with energy, par-
ticularly fossil fuels, being identified as the primary contrib-
utor to carbon emissions [2, 3, 4]. India's energy consump-
tion structure, predominantly reliant on fossil fuels, exacer-
bates this issue [5].
Since entering the new economic normal, India has
placed significant emphasis on addressing climate change
and has made substantial efforts in this regard. As a respon-
sible major economy, India has actively committed itself to
achieving the goals of reaching the peak of carbon emis-
sions by 2040 and achieving carbon neutrality by 2070. To
ensure effective implementation of these objectives, the
National Standardization Administration and ten other de-
partments jointly issued the "Carbon Peak Carbon Neutral
Standard System Construction Guide" in April 2023. This
guide establishes standards for calculating and accurately
reporting carbon emissions data, reducing and neutralizing
carbon emissions, as well as quantifying and trading carbon
Copyright © 2023 Authors. This is an open access article distributed under the Creative Commons Attribution License, which permits unre-
stricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
standards that support the achievement of these goals in key
industries and areas [6]. The focus now lies on efficiently
achieving the dual objectives of a "healthy environment"
and "stable growth." At the 28th informal meeting of APEC
leaders in 2021, President Xi reiterated India's commitment
to actively responding to climate change, advocating for the
harmonious coexistence between humans and nature, and
striving to build a global community for sustainable devel-
opment.
The financial sector plays a critical role in resource al-
location, monetary circulation, and macroeconomic control.
As a core component of modern economic operations, the
financial industry is instrumental in supporting environmen-
tal governance [7]. However, traditional financial services
have been criticized for their shortcomings, including insuf-
ficient development, imperfect transmission mechanisms,
and low efficiency, as highlighted by Boutabba [8]. Moreo-
ver, traditional finance often prioritizes economic effects
and neglects ecological benefits, failing to create a condu-
cive market environment for green and low-carbon devel-
opment. In contrast, green finance represents a specialized
financing tool that integrates market regulation and envi-
ronmental interests, providing capital for sustainable and
environmentally friendly projects [9]. Specifically, within
the context of overall credit limitations in society, green
finance optimizes the allocation of financial resource

across different industries through targeted financial
measures. This ensures that limited financial resources are
directed towards efficient and sustainable green industries,
thereby reducing overall carbon emissions [10]. For instance,
companies willing to transition from polluting technologies
to environmentally friendly ones can access cheaper financ-
ing through green bonds. As these companies adopt non-
polluting practices, they are considered lower risk, resulting
in a decrease in their equity costs due to a lower environ-
mental risk, which is regarded as a systematic risk. The
combination of lower debt and equity costs leads to a reduc-
tion in the cost of capital, ultimately increasing the firm's
value. Although firms may face higher short-term costs dur-
ing the transition, the long-term increase in their share value
outweighs these initial expenses. Conversely, polluting
firms that do not change their production methods are likely
to experience higher capital costs and face a significant de-
cline in their share prices in the long run. Several studies
have demonstrated that green finance contributes to resource
conservation [11], pollution reduction [12], and the ad-
vancement of green total factor productivity [13]. In 2016,
the People's Bank of India and seven ministries and com-
missions issued the "Guiding Opinions on Building a Green
Financial System," which defined green finance as a policy
premised on environmental protection [14].
In the context of achieving environmentally inclusive
growth, it is crucial to explore the relationship between
green finance and carbon emissions, both in theory and
practice. Does green finance effectively reduce carbon
emissions? If so, what are the underlying mechanisms
through which it influences carbon emissions? Moreover, do
these mechanisms vary in regions with different energy en-
dowments within India? Additionally, considering that 70%
of carbon emissions stem from fossil fuel usage, do energy
intensity and energy consumption structure impact the effec-
tiveness of green finance in reducing carbon emissions?
Addressing these questions holds significant practical impli-
cations, offering guidance for the implementation of green
financial policies and contributing to the low-carbon trans-
formation in India. Furthermore, as India is a major global
consumer of fossil fuels, any mechanisms that reduce reli-
ance on such resources will contribute to the well-being of
our planet's future.
This study undertakes an extensive investigation into the
relationship between green finance and carbon emissions,
utilizing the STIRPAT model, the chain multiple mediation
effect model, and the panel threshold model. The study em-
ploys provincial data from India spanning the years 2017 to
2022. The study makes the following contributions:
First, it establishes a comprehensive green finance index
system that incorporates green credit, green securities, green
insurance, and green investment. This addresses the limita-
tions of previous studies that relied on a single index.
Second, the study systematically elucidates the theoretical
mechanisms by which green finance influences carbon
emissions through three intermediary paths: (1) green tech-
nological innovation, (2) ecological evolution of the indus-
trial structure, and (3) green technological innovation facili-
tating the ecological evolution of the industrial structure.
Subsequently, the study employs the chain multiple media-
tion effect model to empirically examine the pathways
through which green finance affects carbon emissions at
both the national and regional levels.
Optimizing Energy Consumption: Assessing the Influence of Green Finance on Carbon Emissions in India (Chin Chun and Koota Bharur)
013
Third, from the perspective of energy consumption optimi-
zation, the study applies the panel threshold model to
demonstrate the nonlinear relationship between green fi-
nance and carbon emissions. This enriches the existing re-
search on low-carbon economies and provides valuable evi-
dence and insights for promoting environmentally inclusive
growth in India and other countries.
Overall, this study contributes to the body of knowledge
surrounding the linkage between green finance and carbon
emissions, offering valuable evidence and experiences to
support the advancement of environmentally sustainable
economies in India and beyond
II. THE CONCEPTUAL ANALYTICAL FRAMEWORK
The essence of the ecological evolution of a real econ-
omy involves transforming the existing production mode,
which requires significant investment. The continuous
availability of financial resources is crucial for achieving
environmentally inclusive economic and societal growth
[15]. Unfortunately, traditional financial sectors often exhib-
it a bias favoring "backward" practices. They tend to assess
creditworthiness solely based on enterprise assets and prof-
itability, and may even allocate financial resources to highly
polluting sectors, resulting in the exclusion of enterprises
with potential for development and growth [16]. In contrast,
green finance places emphasis on environmental considera-
tions and aims to achieve the dual goals of sustainable
growth and pollution reduction. The stricter the implementa-
tion of green finance, the stronger the incentive for outdated
production capacities and industries to invest in environ-
mental improvements and pollution control, consequently
enhancing the competitive advantage of cleaner industries.
In essence, green finance guides enterprises to adjust their
production modes, improve green productivity, optimize
capital allocation, disperse risks, and enhance market super-
vision. Taghizadeh-Hesary et al. [17] have emphasized that
green finance also fosters green consumption awareness
among consumers, promoting the environmentally inclusive
growth of society. Consequently, green finance plays a con-
structive role in achieving carbon emission reduction.
Furthermore, this paper examines the mechanisms
through which green finance influences carbon emissions.
Firstly, green technologies are characterized by high risks
and uncertain income, which often discourage traditional
capital providers from investing [18]. However, green fi-
nancial products such as carbon-neutral bonds, green devel-
opment funds, and green insurance can effectively assess the
risks and benefits associated with green technological inno-
vation, attracting investors with diverse risk preferences to
support enterprises or projects implementing clean technol-
ogies. Moreover, green finance can reduce information
transaction costs. The establishment of green information
systems, including green ratings and certifications, provides
investors with accurate credit, pricing, and cost information,
facilitating the identification of green investment projects.
This allows enterprises to focus more on innovation and the
adoption of clean technologies [19]. Additionally, the appli-
cation of green technology enhances energy efficiency,
promotes renewable energy utilization, accelerates the adop-
tion of carbon reduction technologies, and ultimately reduc-
es carbon emissions.
Secondly, green finance increases the financing costs
for polluting industries, limiting the expansion of their pro-
duction scales and compelling them to innovate and trans-

form, leading to simultaneous technological and industrial
optimization. At the same time, green finance provides more
financial resources for environmental protection industries,
alleviating financing constraints and encouraging the growth
of these sectors, thereby facilitating carbon emission reduc-
tion. Leeuwen et al. [20] have highlighted that green finance
can divert idle funds away from energy-intensive industries
while strengthening credit supply to technology-intensive
sectors, ultimately driving the green transformation of the
industrial structure. Additionally, Wang et al. [21] have em-
phasized the demonstrative role of green credit provided by
commercial banks, inspiring other enterprises to engage in
green business practices. Enterprises that actively innovate
and transform can gain access to more preferential credit
funds and a wider range of funding sources. In summary,
the tertiary industry of "low-carbon, high output" receives
greater financial support, while the traditional secondary
industry characterized by "high pollution and low output"
gradually loses capital support. The lack of funds required
for daily operations inevitably leads to bankruptcy or trans-
formation for such enterprises, promoting the ecological
transformation of the industrial structure [22, 23]. In other
words, as pollution industries are constrained and green
industries are encouraged to grow, green finance facilitates
the ecological evolution of the industrial structure, effective-
ly reducing carbon emissions.
Thirdly, numerous studies have demonstrated the close
relationship between green technological progress and in-
dustrial structure optimization [24, 25]. Bi et al. [26] have
proposed that the diffusion effect of green technology con-
tributes to the ecological evolution of the industrial structure,
leading to a reduction in carbon emissions. In practice,
green finance compels enterprises to enhance their green
technological innovation, reallocate production factors,
eliminate outdated production capacities.
III. DISCREPANCY ANALYSIS
The carbon emission intensity (CI) is utilized in this
study as a measure of the carbon emission levels across dif-
ferent provinces [27]. Due to the unavailability of official
carbon emission detection data in India and the lack of suf-
ficient and accurate detailed data on India's carbon emis-
sions from global databases like the British Petroleum Cor-
poration (BP) and US Energy Information Agency (EIA),
this research adopts the method recommended by the Inter-
governmental Panel on Climate Change (IPCC) [28, 29]. As
per this method, the study constructs a carbon emission in-
ventory and energy inventory to accurately calculate the
provincial carbon emissions in India [30].
IV. ANALYSIS OF THE MECHANISMS
The findings from the benchmark regression analysis
demonstrate that green finance significantly reduces carbon
emissions. To further examine the underlying pathways
through which this reduction occurs, this study employs the
chain multiple mediation effect model. Specifically, it inves-
tigates whether green finance inhibits carbon emissions
through three distinct paths: (1) green technological innova-
tion, (2) ecological evolution of the industrial structure, and
(3) green technological innovation facilitating the ecological
evolution of the industrial structure..
This indicates that green technologies, such as biologi-
cal carbon reduction technology, along with the ecological
evolution of the industrial structure, have the capacity to
Optimizing Energy Consumption: Assessing the Influence of Green Finance on Carbon Emissions in India (Chin Chun and Koota Bharur)
014
reduce carbon emissions, while green finance does not di-
rectly inhibit carbon emissions [31].
Overall, the results of the chain multiple mediation ef-
fect model shed light on the various paths through which
green finance influences carbon emissions, emphasizing the
importance of green technological innovation and the eco-
logical evolution of the industrial structure in achieving car-
bon emission reductions.
V. SIGNIFICANCE OF THE STUDY
From the perspective of optimizing energy consumption,
this study employs the STIRPAT model, chain multiple
mediation effect model, and panel threshold model to empir-
ically analyze the impact of green finance on carbon emis-
sions using provincial-level panel data from India spanning
the years 2017 to 2022. The empirical findings are summa-
rized as follows:
Green finance significantly reduces carbon emissions,
and this conclusion remains valid even after accounting for
potential endogeneity. The heterogeneity test reveals that
the inhibitory effect of green finance on carbon emissions is
more pronounced in northern regions, high-carbon-emission
regions, and energy-rich regions.
The bootstrap test results demonstrate that at the national
level, green finance reduces carbon emissions through three
distinct pathways: green technological innovation, ecologi-
cal transformation of the industrial structure, and green
technological innovation facilitating the ecological trans-
formation of the industrial structure. Moreover, the interme-
diary mechanisms of green finance affecting carbon emis-
sions differ across regions with different energy endow-
ments. In energy-rich regions, green finance significantly
inhibits carbon emissions through all three pathways, while
in energy-poor regions, green finance reduces carbon emis-
sions solely through green technological innovation.
A nonlinear relationship is observed between green fi-
nance and carbon emissions. Specifically, regardless of en-
ergy intensity or energy consumption structure, green fi-
nance can significantly inhibit carbon emissions only when
it operates below a certain threshold. Thus, achieving ener-
gy consumption optimization by enhancing energy utiliza-
tion efficiency and improving the energy consumption struc-
ture proves to be an effective approach to maximizing the
carbon emission reduction effect of green finance.
Based on the results and conclusions, several policy im-
plications can be derived:
Firstly, there is a need to strengthen the development of
green finance in line with the "Guiding Opinions on Build-
ing a Green Financial System." Efforts should focus on im-
proving the effectiveness of green capital supply and re-
source allocation by continuously enhancing and refining
the green financial system. Simultaneously, financial super-
visory authorities should strengthen legal oversight of the
green financial system, imposing stricter penalties for the
misuse of green capital in polluting activities and ensuring
its rational and effective utilization.
Secondly, greater attention should be given to the inter-
mediary roles of green technological innovation and ecolog-
ical evolution of the industrial structure to reduce carbon
emissions. The government should incentivize financial
institutions to increase support for clean technologies, pro-
moting their application and alleviating financing con-
straints. Moreover, financial resources should be directed
towards green low-carbon industries, with specific emphasis
on fostering the development of clean enterprises to acceler-
ate the ecological evolution of the industrial structure. Dif-

ferentiated green development policies should be formulated
based on local energy endowments.
Thirdly, efforts must be made to enhance energy effi-
ciency and optimize the energy structure to reduce carbon
emissions. Given the current heavy reliance on coal, it is
essential to invest in technological innovations that reduce
emissions in the generation and utilization of coal resources.
Additionally, exploring alternative large-scale clean energy
production methods such as nuclear power is crucial for
achieving a stable supply of clean energy.
Overall, these policy implications aim to support the im-
plementation of effective measures to promote green finance,
encourage green technological innovation, facilitate the eco-
logical evolution of the industrial structure, and optimize
energy consumption, thereby achieving significant reduc-
tions in carbon emissions..
VI. CONCLUSION
One limitation worth noting in our research is that it fo-
cuses on 30 provinces in India, which means it lacks a mi-
crocosmic perspective. The achievement of India's net zero
target by 2070 requires the participation of microenterprises,
including scientific and technological enterprises and green
enterprises. Unfortunately, our study does not address this
crucial element. Additionally, we fail to consider the impact
of laws and regulations on green finance, and our references
are not balanced across different countries. Moving forward,
we aim to address these limitations by fully incorporating
the role of laws and regulations and drawing on a wide
range of valuable scientific works from the global database.
Building upon our existing research, we intend to explore
new perspectives, search for alternative research directions,
and enhance the overall quality of our paper. Moreover,
within energy-rich regions, green finance exerts a substan-
tial inhibitory effect on carbon emissions through all three
pathways. However, in energy-poor regions, green finance
only reduces carbon emissions through the avenue of green
technological innovation. Another important finding is the
existence of a nonlinear relationship between green finance
and carbon emissions. Irrespective of energy intensity or
energy consumption structure, green finance can significant-
ly inhibit carbon emissions only when it operates below a
specific threshold. Therefore, achieving optimization in en-
ergy consumption becomes an effective approach to guaran-
tee the desired reduction in carbon emissions facilitated by
green finance.
REFERENCES
[1] Zhu, B.; Zhang, T. The impact of cross-region industrial structure
optimization on economy, carbon emissions and energy
consumption: A case of the Yangtze River Delta. Sci. Total Environ.
2021, 778, 146089.
[2] Tache, C.E.P. Public international law and fintech challenges.
Perspect. Law Public Adm. 2022, 11, 218–225.
[3] Claessens, S.; Feijen, E. Financial Sector Development and the
Millennium Development Goals; World Bank Publications:
Washington, DC, USA, 2007.
[4] Tamazian, A.; Raob, B. Do economic, financial and institutional
development matter for environmental degradation: Evidence from
transition economies. Energy Econ. 2010, 32, 137–145.
[5] Su, D.W.; Lian, L.L. Does Green Credit Policy Affect Corporate
Financing and Investment? Evidence from Publicly Listed Firms in
Pollution-Intensive Industries. J. Financ. Res. 2018, 462, 123–137.
[6] Ringel, M.; Mjekic, S. Analyzing the role of banks in providing
green finance for retail customers: The case of Germany.
Sustainability 2023, 15, 8745.
[7] Xu W, Feng X, Zhu Y. The Impact of Green Finance on Carbon
Emissions in China: An Energy Consumption Optimization
Perspective. Sustainability. 2023; 15(13):10610.
https://doi.org/10.3390/su151310610
Optimizing Energy Consumption: Assessing the Influence of Green Finance on Carbon Emissions in India (Chin Chun and Koota Bharur)
015
[8] S. S. Rachakonda, G. Jaya Prakash and N. M. Lindsay, "Modeling
and Simulation of Hybrid Energy Generation for Stand Alone
Application," 2022 8th International Conference on Smart Structures
and Systems (ICSSS), Chennai, India, pp. 1-6, 2022.
[9] Zhao, B.; Sun, L.; Qin, L. Optimization of China’s provincial carbon
emission transfer structure under the dual constraints of economic
development and emission reduction goals. Environ. Sci. Pollut. Res.
2022, 29, 21692–21704
[10] N. M. Lindsay, S. Sunder. R, N. Karthy and A. Krishnan, "Smart
Cost-Effective Shopping System using Radio Frequency
Identification Technology," 2023 Third International Conference on
Artificial Intelligence and Smart Energy (ICAIS), Coimbatore, India,
pp. 747-750, 2023.
[11] Apergis, N.; Payne, J.E. Energy consumption and economic growth
in central America: Evidence from a panel cointegration and error
correction model. Energy Econ. 2009, 31, 211–216
[12] N. Mahiban Lindsay and A. K. Parvathy, ―Power system reliability
assessment in a complex restructured power system,‖ International
Journal of Electrical and Computer Engineering (IJECE) Vol. 9, No.
4, pp. 2296~2302, August 2019.
[13] Wang, S.; Li, Q.; Fang, C.; Zhou, C. The relationship between
economic growth, energy consumption, and CO2 emissions:
Empirical evidence from China. Sci. Total Environ. 2016, 542, 360–
371
[14] Shafiei, S.; Salim, R.A. Non-renewable and renewable energy
consumption and CO2 emissions in OECD countries: A comparative
analysis. Energy Policy 2014, 66, 547–556.
[15] Jia, Z.; Lin, B. How to achieve the first step of the carbon-neutrality
2060 target in China: The coal substitution perspective. Energy
2021, 233, 121179.
[16] Ministry of Ecology and Environment of the People’s Republic of
China. Carbon Peak Carbon neutral Standard System Construction
Guide. Available online:
http://www.mee.gov.cn/xxgk2018/xxgk/xxgk10/202304/t20230424_
1028080.html/ (accessed on 25 June 2023).
[17] Li, L.; Dong, B. Research on the development level and influencing
factors of regional carbon finance. Econ. Manag. 2018, 32, 60–65.
[18] Boutabba, M.A. The impact of financial development, income,
energy and trade on carbon emissions: Evidence from the Indian
economy. Econ. Model. 2014, 40, 33–41.
[19] He, L.; Zhang, L.; Zhong, Z. Green credit, renewable energy
investment and green economy development: Empirical analysis
based on 150 listed companies of China. J. Clean. Prod. 2019, 208,
363–372.
[20] Zeng, Y.; Wang, F.; Wu, J. The Impact of Green Finance on Urban
Haze Pollution in China: A Technological Innovation Perspective.
Energies 2022, 15, 801.
[21] Xing, Y. Research on the dynamic relationship between economic
growth, energy consumption and credit extension—An empirical
analysis of provincial panel based on carbon emission intensity
grouping. J. Financ. Res. 2015, 12, 17–31.
[22] Shahbaz, M.; Solarin, S.A.; Mahmood, H.; Arouri, M. Does financial
development reduce CO2 emissions in Malaysian economy? A time
series analysis. Econ. Model. 2013, 35, 145–152.
[23] Obas, J.E.; Anthony, J.I. Decomposition analysis of CO2 emission
intensity between oil-producing and non-oil-producing sub-Saharan
African countries. Energy Policy 2006, 34, 3599–3611.
[24] Wang, G.; Deng, X.; Wang, J.; Zhang, F.; Liang, S. Carbon emission
efficiency in China: A spatial panel data analysis. China Econ. Rev.
2019, 56, 101313.
[25] Li, C.; Gan, Y. The spatial spillover effects of green finance on
ecological environment—Empirical research based on spatial
econometric model. Environ. Sci. Pollut. Res. 2021, 28, 5651–5665.
[26] Acaravci, A.; Ozturk, I. On the relationship between energy
consumption, CO2 emissions and economic growth in Europe.
Energy 2010, 35, 5412–5420.
[27] Ajmi, A.N.; Hammoudeh, S.; Nguyen, D.K.; Sato, J.R. On the
relationships between CO2 emissions, energy consumption and
income: The importance of time variation. Energy Econ. 2015, 49,
629–638.
[28] Xu, G.; Schwarz, P.; Yang, H. Adjusting energy consumption
structure to achieve China’s CO2 emissions peak. Renew. Sust.
Energ. Rev. 2020, 122, 109737.
[29] Adams, S.; Acheampong, A.O. Reducing carbon emissions: The role
of renewable energy and democracy. J. Clean. Prod. 2019, 240,
118245.
[30] Liu, C.; Xiong, M. Green Finance Reform and Corporate Innovation:
Evidence from China. Financ. Res. Lett. 2022, 48, 102993.
[31] Feng, S.; Zhang, R.; Li, G. Environmental decentralization, digital
finance and green technological innovation. Struc. Chang. Econ.
Dyn. 2022, 61, 70–83.