Digital finance and household carbon emissions in China

Sustained economic growth and environmental degradation are two of the key goals in the SDGs (Sustainable Development Goals). Digital finance provides an opportunity to simultaneously address the trade-off between the two goals. Based on data from CEADs, CNBS, CFPS, IDFPU, VIIRS and NPCGIS, this article examines the causal impact and transmission mechanisms of digital finance on consumption-based HCEs. To address the potential endogeneity, IV and IV-MA as well as HDFE models are applied in empirical estimates. Results show that digital finance has a positive impact on consumption-based HCEs. Mechanism analysis indicates that digital finance can increase HCEs through stimulating consumption scale, which is scale effect. Besides, digital finance can decrease HCEs through promoting greener consumption patterns, which is composition effect. On the whole, scale effect prevails composition effect. Our findings contribute to the literature on digital finance and green finance and have policy implications on common prosperity, not only for China, but also for other economies. •Estimate how digital finance influences household CO2 emissions (HCE) in China.•Digital finance decreases HCEs through composition effect.•Digital finance increases HCEs through scale effect.•Scale effect prevails composition effect.