Does green finance reduce environmental degradation? The role of green innovation, environmental tax, and geopolitical risk in China

In the last few decades, China has faced the pressing effects of climate change due to its rapid progress in industrialization and economic expansion. China has taken the lead in developing aggressive plans to reduce environmental degradation. Considering this, several studies conclude that green finance, green innovation, and environmental taxation stand out as the most efficacious strategies for reducing environmental degradation. Also, geopolitical concerns can make it difficult to implement plans, particularly when there is political unrest, hostilities, or hostility between countries. Therefore, this work explores the influence of green finance, green innovation, environmental tax, and geopolitical risk to mitigate environmental degradation in China. This research employed a novel dynamic ARDL simulation model for long-run association, KRLS for robustness check, and frequency domain causality for checking casual relationships from 1990 to 2020. The findings indicated that green finance, green innovation, and environmental tax mitigate the consumption and production-based carbon emissions, while geopolitical risk has adverse implications for environmental sustainability. The frequency domain causality test findings suggested that green finance, green innovation, environmental tax, and geopolitical risk have long-term casual associations in both models. These findings provide specific policy suggestions to assist China in reducing environmental deterioration and achieving the SDGs.