Unlocking the potential of the net-zero energy transition: the enabling role of green finance

Amid severe global climate change and environmental degradation, energy systems worldwide are undergoing a significant transformation from traditional, high-carbon, and inefficient energy structures to more efficient, secure, and sustainable ones. This study develops an indicator system for green finance and an Energy Net Zero Transition Potential (ENTP) index using data from 280 cities between 2004 and 2020 to examine how green finance development affects the net-zero transition of energy systems. The findings indicate that growth in green finance notably boosts the ENTP. Mechanism analysis shows that green finance promotes the ENTP by enhancing resource allocation efficiency and optimizing industrial structure. However, it has not effectively spurred green technological innovation to advance energy toward a net-zero goal. Heterogeneity analysis reveals that the positive impact of green finance development on the energy net-zero transition is stronger in resource-based cities, large cities, and provincial border regions. Additionally, this study verifies the robustness of its results through Difference-in-Differences (DID) analysis of green finance innovation pilot zones, lagged effects, two-stage least squares estimation, and spatial econometric analysis. These conclusions can guide policy recommendations for China’s green finance reforms and address the global energy security challenge.