The Goldilocks zone: unlocking digital finance’s green pathways to energy efficiency – the threshold role of traditional finance

Digital finance has emerged as a key driver of China’s green transition, yet existing research largely neglects how its effects depend on the development level of traditional finance. Motivated by this gap, this study examines whether and how digital finance improves regional energy efficiency under different financial conditions. Building on theoretical arguments that digital finance directly enhances energy efficiency and indirectly operates through green innovation and green assetization—and that these effects may vary non-linearly with traditional financial development—we articulate a set of corresponding hypotheses and test them using panel data for 282 prefecture-level cities from 2011 to 2023. We measure energy efficiency through the Super-Efficiency Slacks-Based Measure (SE-SBM) and capture digital finance by the Peking University Digital Financial Inclusion Index. Using dual fixed-effects models and a panel threshold framework, we find that digital finance significantly enhances energy efficiency, with stronger effects in cities characterized by higher levels of new urbanization, informatization and market openness. Mechanism analyses indicate that digital finance promotes energy efficiency indirectly through green innovation and the assetization of green resources. Threshold estimations further reveal a dual-threshold pattern in which moderate levels of traditional finance maximize the marginal contribution of digital finance, whereas underdeveloped or excessively developed financial systems weaken it. These findings enrich the understanding of the digital-traditional finance nexus and provide empirical support for coordinating the two financial systems to promote sustainable and energy-efficient development.