The Chinese government set a goal in 2009 to cut carbon emissions by 40–45 percent of 2005 GDP per unit by 2020. The role of fiscal decentralization reform in strengthening environmental governance has gained importance. This paper explored the impact of fiscal decentralization reform from 2010 to 2019 on carbon dioxide emissions in China. We utilized the first-order differential dynamic panel econometrics model to examine the correlation between fiscal decentralization and carbon dioxide emission under fiscal imbalance and transfer indirect effects. The findings revealed that 1) fiscal imbalance reduced CO2 emissions due to the decentralization of revenue, and expenditure asymmetry undermined CO2 emissions control. 2) The central government’s transfer payments offset the negative consequences of a fiscal imbalance. The fiscal decentralization of the government caused a difference between regional income and expenditures in the budget. However, it could affect local government expenditure on carbon emission control through central transfer payments, which could restrain carbon emissions and control environmental pollution. 3) The impact of fiscal decentralization on carbon dioxide emissions was influenced by the industrial structure with the U-Shape effect. This was because the adjustment of the industrial structure was cross-term. In the early stage of the industrial structure adjustment, there was a significant decline in coal consumption demand and carbon emissions reduced. However, as the proportion of the secondary industry increased, there was a significant positive correlation between the secondary sector and carbon dioxide emissions in China. Our findings have important policy implications. First, while the promotion of Chinese officials is based on local GDP performance, locals may introduce green GDP as the criterion for rating governments’ performance. Second, local governments should improve environmental governance by increasing technical, environmental protection, and innovation investment. All in all, the findings provide a theoretical basis for relevant research and policy suggestions for China.

Despite the People’s Republic of China government being the most aggressive in pursuing the carbon neutrality goal, it remains the world’s largest carbon emitter and polluting country. This study used 31 provinces’ panel data from 2010 to 2019 to compare fiscal decentralization’s impact on regional carbon emissions. It applied SBM-DEA undesirable models to calculate the Malmquist index and study environmental governance performance. It then used the systematic GMM model to explore fiscal decentralization’s influence on environmental governance performance. It is found that fiscal decentralization in eastern China exhibited a strong positive relationship with environmental governance performance. With high tax autonomy, local governments implemented the best tax policies for clean production, raising enthusiasm for enterprises’ green production. Nevertheless, there was no relationship between fiscal decentralization and environmental governance in poorer central and western regions with less tax collected. Benefits that arose from fiscal decentralization were limited. Moreover, more elite officials working in affluent cities and wealthier citizens have a higher expectation of environmental governance. These lead to better environmental and carbon emission policies. This paper also brings policy implications: 1) the central government should raise local government flexibility to use financial resources for environmental management. 2) Local government performance appraisal should include environmental protection (including carbon emission control). 3) The production taxes retained by local governments should be minimized to reduce governments’ incentives to obtain taxes from polluting/high energy consumption industries. 4) Raise government officials’ income in poorer regions to attract talented officials to work.

This paper uses the SBM-GML model to measure and evaluate green total factor productivity based on the panel data of 30 provinces and cities in China from 2012 to 2018. It examines the impact of different dimensions of financial decentralisation on green total factor productivity. The research results show that: 1) green total factor productivity in China is improved year by year and better in central and western regions; 2) the decentralisation of fiscal revenue and expenditure significantly weakens the increase of green total factor productivity in provincial level; 3) fiscal decentralisation inhibits green total factor productivity in central and western regions with regional heterogeneity; 4) local government competition affects the relationship between fiscal decentralisation and green total factor productivity, weakens the negative effect of fiscal decentralisation on green total factor productivity. Finally, the study aims to promote green total factor productivity and sustainable development from the perspective of financial decentralisation. This paper expands the literature and evidence of financial decentralisation on green total factor productivity and offers suggestions for governments and policymakers working toward sustainable development.