Unleashing the power of green fiscal policies: Driving energy efficiency in China

This study examines the impact of such policies on energy efficiency by focusing on the “National Comprehensive Demonstration of Energy Saving and Emission Reduction Fiscal Policy” (ESER fiscal policy). Using a difference-in-difference method with multiple time points, the study finds that the ESER fiscal policy has significantly closed the total factor energy efficiency (TFEE) gap. The results are robust, supported by sensitivity analyses such as variable substitutions, dynamic effect tests, exclusion of potential intervening variables, placebo tests, and propensity score matching. Mechanism analysis shows that the pilot program closes the energy efficiency gap by increasing expenditure on environmental protection, improving agglomeration of productive services, and promoting of green technological innovation. Furthermore, the impact of green fiscal policies on TFEE is more pronounced in cities within two-control areas, non-old industrial base cities, large-scale cities, and resource-depleted cities. The analysis of the energy rebound effect found that green fiscal policies can effectively close the energy efficiency gap without generating energy rebound. These findings provide valuable insights and empirical evidence on the effectiveness of China's green fiscal policies in achieving green development, improving quality and efficiency. •The two-way fixed effects difference-in-differences (DID) method is employed to evaluate the policy effect of the ESER policy.•The ESER policy significantly closes TFEE gap while achieving energy savings and emission reductions.•The policy effects strengthen with increased government investment, green innovation, and industry clustering.•The ESER policy has a more pronounced impact in cities located within large-scale urban areas and resource-depleted cities.