Financial support is essential to reduce carbon emissions (CEs) and achieve the green transformation of China. To detect the nexus of local finance and CEs, we constructed a two-sector (clean and dirty sectors) model to identify the channels from city commercial banks (CCBs) to CEs involving capital scale, structure, and efficiency. Using the setting of CCBs as a quasi-natural experiment, we applied difference-in-differences (DID), instrument variable (IV), and spatial DID methods to test the effects of the construction of CCBs on CEs in China during 2003 to 2018. The construction of CCBs promoted CEs in cities by offsetting the technological effect and stimulating electricity consumption expansion (scale effect) and reindustrialization (structural effect). CCBs’ branches strengthened the promotion effect of CCBs’ construction on CEs, but the mergers of CCBs mitigated the effect. The effects varied across regions with different features (covering location, per capita income, financial development, environmental regulation, industrial and energy structure, carbon source, and so on). The construction of CCBs showed a spatial spillover effect, increasing the CEs of neighbors. Accordingly, suggestions were proposed to reduce CEs by optimizing CCBs management, policy making, and local carbon reduction efforts.JEL Classification: E44, G28, O16

This paper examines the dynamics of carbon quota pricing and emissions under government subsidies in the EU carbon market. The study reveals three core findings. First, carbon emissions, carbon subsidies, and carbon quota prices exhibit strong interconnectedness with pronounced seasonality, and spillover effects intensify during exogenous shocks, particularly at short-term frequencies within one to five days. Second, Germany consistently serves as the primary source of spillover effects, reflecting its energy-intensive industrial structure and dominant position in the EU Emissions Trading System, while carbon subsidies function as information receivers in the short term but maintain stable roles in the medium to long term under the EU's sustained climate commitments. Third, the COVID-19 pandemic fundamentally altered spillover patterns, with the EU industrial sector transitioning from a net transmitter to a net recipient of spillovers and carbon quota prices shifting to net recipients during the shock. These findings are derived from a stochastic differential game model that captures strategic interactions between governments and enterprises under exogenous shocks, combined with TVP-VAR spillover analysis that quantifies dynamic connectedness across time and frequency domains. The results enhance the understanding of carbon market mechanisms under policy interventions and external disturbances, offering insights for the development of more efficient and resilient carbon trading systems.