
==== Front
Heliyon
Heliyon
Heliyon
2405-8440
Elsevier

S2405-8440(24)12698-9
10.1016/j.heliyon.2024.e36667
e36667
Research Article
Fiscal decentralization and the transformation of regional energy structures in China: Spatial spillover effects and the mediating role of technological innovation
Wang Yueqi 005093@wxu.edu.cn
a⁎
Shen Weikang shenwk@mail.nwpu.edu.cn
b
Xu Junqian jqxu2000@126.com
c
a School of Business, Wuxi Taihu University, Wuxi, 214000, China
b School of Management, Northwestern Polytechnical University, Xi'an, 710129, China
c School of Accountancy, Wuxi Taihu University, Wuxi, 214000, China
⁎ Corresponding author. School of Business, Wuxi Taihu University, Wuxi, 214000, China. 005093@wxu.edu.cn
22 8 2024
15 9 2024
22 8 2024
10 17 e366678 4 2024
2 8 2024
20 8 2024
© 2024 The Authors
2024
https://creativecommons.org/licenses/by-nc-nd/4.0/ This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
The transformation of regional energy structures plays a pivotal role in enhancing ecological quality and advancing national green development efficiency. However, this transformation is characterized by dual externalities, necessitating governmental intervention to rectify market failures. Therefore, this study focuses on the critical influence and mechanisms through which local governments affect regional energy structure transformation, particularly within the context of China's unique fiscal decentralization. This study explores the impact of fiscal decentralization on the transformation of China's regional energy structures and its spatial correlations. Employing a bidirectional fixed-effect model and a spatial Durbin model, we analyze Chinese provincial panel data from 2002 to 2021 to explore the effects of fiscal decentralization on regional energy structure transformation and its spatial spillover. Findings reveal that fiscal decentralization significantly enhances the efficiency of regional energy structure transformation, with an effect coefficient of 0.127. Additionally, the fiscal decentralization mechanism positively influences spatial spillover effects on regional energy transformation, with these effects becoming more pronounced alongside higher degrees of economic agglomeration. Moreover, local governments are found to foster regional scientific and technological innovation, thereby facilitating adjustments in the regional industrial structure and promoting energy structure transformation. The intermediary effect test highlights the role of local governments in promoting scientific and technological advancements that drive industrial restructuring and energy transformation. The study recommends for a long-term strategy to balance central and local financial development, aiming to enhance the efficiency of regional energy structure transformation. These findings offer a theoretical foundation and policy recommendations for optimizing and transforming energy structures in pursuit of China's green and high-quality development goals. These findings offer globally relevant insights into leveraging fiscal decentralization for energy structure transformation, supporting sustainable development and green growth worldwide.

Keywords

Energy structure
Energy structure transformation
Spatial spillover effects
Energy policy
Green development
==== Body
pmc1 Introduction

With the acceleration of industrialization and urbanization worldwide, global energy consumption has been increasing annually. The reliance on traditional fossil fuels, primarily coal and oil, has led to a continuous rise in carbon dioxide emissions, posing significant challenges to the sustainable development of the global economy. Similar challenges are observed in other regions undergoing energy transitions, albeit with varying dynamics [1]. The global context highlights the importance of understanding how fiscal decentralization can be tailored to different governance structures and regional needs to effectively drive energy structure transformation [2,3]. Consequently, transforming the energy structure and reducing carbon dioxide emissions have emerged as critical issues in contemporary times [4].

As the world's largest developing country, China leads in coal consumption and carbon emissions, a byproduct of its rapid economic development [5]. The inefficiency in energy use has resulted in the discharge of a large amount of waste, causing severe pollution to the ecological environment [6]. The Fifth Plenary Session of the 19th CPC Central Committee has explicitly called for an acceleration in the promotion of green and low-carbon development, enhancement of environmental and ecosystem quality, and a comprehensive improvement in resource utilization efficiency. In September 2020, the Chinese government solemnly pledged to the international community its goals to achieve a carbon peak by 2030 and carbon neutrality by 2060, highlighting the urgent need for a transformation in the national energy structure [7]. Ensuring energy supply while actively promoting the transformation of the energy structure and minimizing the environmental impact of energy use is crucial for China to develop a robust green, low-carbon, and circular economic system [8]. Thus, the transformation of the energy structure and the enhancement of regional green development efficiency are pivotal to the modernization of national governance in this new era. Recent case studies, such as those by Gao et al. [9] and Wang et al. [10], demonstrate that fiscal decentralization can significantly improve environmental outcomes, including promoting renewable energy adoption and efficient resource allocation in China, highlighting its potential to drive energy reforms in other developing countries.

China has experienced explosive urbanization and industrialization over recent decades, which has caused unimaginable increases in energy usage - the world leader. According to recent statistics, Chinese consumers consumed an estimated 4.98 billion tons of standard coal by 2020; representing 24 % of all global consumption. Coal accounts for 58 percent of its energy mix in China; contributing significantly to carbon emissions as the world's number one greenhouse gas emitter [11]. Given such impacts on our environment, urgent change must take place towards more sustainable energy structures China's goal of reducing carbon dioxide emissions before 2030 and creating an emission-free environment by 2060 presents an extreme challenge, yet vital plan for changing its energy structure. Not only is this issue about sustainability but it requires technological innovations as well as investments into renewable sources of energy and restructuring of industries heavily dependent upon fossil fuels to reach these lofty objectives.

The transformation of the energy structure is a crucial component of green development, relying on the symbiosis between the entire social system, including the economy and ecosystem. It aims to reduce traditional energy inputs and pollutant emissions while capturing the benefits of economic growth [12,13]. Economic growth and energy restructuring in China are inextricably linked. Realizing these changes through market forces alone is no simple task, but government coordination mechanisms at all levels play an essential role in supporting this effort. China is characterized by an economic development driven primarily by government intervention, with local officials having significant effects on both its economy and society [14]. Relationships between central and local governments have undergone continual revision, in search of an ideal equilibrium between decentralization and centralization. Fiscal decentralization is an essential component of central-local finances relationships and implementation, serving both power implementation and spending on eco-friendly energy [15]. Recent studies have highlighted the significance of China's distinct system of decentralization for supporting technological innovation. As firms' capacities for technological innovation decline and government becomes a more important facilitator in facilitating innovative practices, government is becoming essential in driving energy transformation [14]. Decentralization of fiscal resources on technological innovation in the region has multiple impacts that include both direct and indirect effects [16]. Change in an energy system is often an extended and uncertain journey that leads to market failures [17]. To mitigate market inadequacies and correct any market shortcomings that emerge during its transformation process, several countries and regions rely heavily on using government as “visible hands".

Many previous research focused on the economic and environmental considerations surrounding electricity consumption [[18], [19], [20]] as well as green energy policies in China [21,22]; however, their role has not been fully investigated. Studies mainly tended to focus on direct impacts from fiscal measures on quality of the environment [23,24] and green tech innovations [25,26], while often neglecting subtle mechanisms through fiscal decentralization which impact regional energy structures or spatial dynamics transformation. This research seeks to fulfill a vital need by exploring how China's unique fiscal decentralization framework affects regional energy structures, with particular attention paid to spatial spillover effects and technological innovations as mediators. As much as fiscal decentralization has become an essential aspect of economic development and local governance, its effects specifically on energy infrastructure transformation remain relatively understudied [27]. By integrating spatial economic models and empirical analysis, this research hopes to shed new light on the dynamic between decentralizing fiscal resources, technological innovation and the transformation of energy structures within an environment of China's sustainable development objectives.

Building on the analysis provided, within the context of fiscal decentralization, China's local governments play a pivotal role in local economic development [28]. This raises several questions: (a) What is the relationship between Chinese-style fiscal decentralization and the transformation of regional energy structures? (b) How does the “competition for the best” phenomenon among local governments influence the transformation of regional energy structures under the fiscal decentralization system? And (C) From a spatial perspective, do these effects induce a spatial spillover effect of fiscal decentralization on the transformation of regional energy structures across adjacent geographical areas and regions? This paper aims to investigate the impact of the Chinese-style fiscal decentralization system on the transformation of regional energy structures and its spatial spillover effects, focusing on fiscal decentralization.

The potential contributions of this paper are twofold: Firstly, it offers a novel perspective on the route to regional energy structure transformation, emphasizing spatial spillover, a departure from the predominantly theoretical analyses existing in current research. Secondly, it seeks to elucidate the mechanisms and pathways through which fiscal decentralization influences the transformation of regional energy structures. The intergovernmental financial system, crucial for delineating the distribution of powers, responsibilities, and benefits between governments, serves as a vital institutional framework to enhance governmental innovation preferences and facilitate energy structure transformation. Optimizing local government financial expenditures to improve the efficiency of regional energy structure transformation is of paramount importance.

The structure of this paper is as follows: The second section reviews relevant literature both domestically and internationally. The third section outlines the theoretical framework guiding this study. The fourth section presents the empirical analysis and robustness tests conducted. Finally, the fifth section concludes the paper with key findings and implications.

2 Literature review and hypothesis development

2.1 Related works

With the development of the market economy, the barriers to factor flow have gradually diminished, and fiscal decentralization has emerged as a method of economic governance in many countries. The theory of fiscal decentralization is primarily divided into two hypotheses. The first is based on the “benevolent government” hypothesis, suggesting that decentralization can enhance the efficiency of public goods provision [15]. The second hypothesis, rooted in the “self-interest” of local governments [28], examines the relationship between fiscal decentralization and economic development [29]. In the context of Chinese-style fiscal decentralization, the central government boosts local management efficiency by establishing a decentralization mechanism, thereby encouraging local governments [23]. Furthermore, to stimulate local economic growth, local governments often engage in economic competition through tax incentives, industrial subsidies, and other means [30].

In recent years, as environmental pollution from economic development has become increasingly significant, the challenge of effectively implementing environmental governance [31], which has the nature of quasi-public goods, has risen to prominence. Consequently, the intersection of fiscal decentralization and environmental issues has attracted scholarly attention [16,32]. Given the varying levels of fiscal decentralization across regions, the extent of economic competition and its impact on economic development differ, influencing environmental issues, energy intensity, environmental regulations, and social welfare levels in diverse regions [33,34]. The bulk of existing literature on fiscal decentralization has concentrated on environment-related topics [35]. Some studies posit that fiscal decentralization favors environmental improvement. For example, Pu et al. [36] argue that the structuring of central-local fiscal relations can enhance regional green development efficiency by fostering regional innovation. As a green function, fiscal decentralization allocates financial rights crucial for sustainable economic decision-making between central and local governments, significantly boosting enterprises' green technology innovation capabilities [25]. Moreover, spatial effects indicate that fiscal decentralization exerts a demonstration effect, enhancing technological innovation levels within the region and its neighbors [37]. Fiscal decentralization also positively influences the carbon emission effects of green credit, improves the green utilization efficiency of land resources, and facilitates industrial green transformation [26,38]. Enhancing fiscal decentralization and deepening the reform of the government's target management system can invigorate local governments' energy-saving efforts, significantly promoting energy consumption reduction [19].

However, some studies caution that under Chinese-style decentralization, local governments might prioritize economic growth objectives at the expense of environmental governance, ultimately hindering environmental improvement [15,19,39,40]. Guided by a singular economic indicator, fiscal decentralization may overlook environmental challenges, such as enhancing energy ecological efficiency and exacerbating air pollution [23,24].

Amid economic development, the energy crisis and environmental pollution pose significant challenges to humanity's sustainable development [21]. Energy has emerged as a symbol of comprehensive national strength for many countries, with numerous nations prioritizing energy in their economic, political, and diplomatic endeavors [19,41]. Against the backdrop of escalating energy issues, countries have actively sought paths for energy structure transformation, adopting various methods with distinct characteristics. Internationally, the EU faced a severe energy crisis in 2022, prompting scholars to focus on how to rebuild energy security and transformation after severing energy ties with Russia [42]. As the largest developing country and one of the biggest energy consumers, China, characterized by its “abundant coal, scarce oil, and limited gas,” has extensively researched energy transformation [43].

Existing research on energy transformation primarily concentrates on policy effects and path analysis [8]. Numerous studies discuss the evolution, current state, and future trends of energy structure transformation at a macro level, often through comprehensive evaluation models [6,10,44]. For instance, Ibrahim and Ayomoh [45] developed a renewable energy transformation model using a mixed structure interaction matrix to analyze resource optimization allocation in developing economies during energy transformation. Yan et al. [4] posited that China's energy transformation path is driven by bottom-up institutional change, with institutional transformation laying the foundation and changes at the technical, economic, and behavioral levels providing significant momentum. Further research has comprehensively analyzed the drivers and pathways of China's energy transformation, considering aspects such as energy technology, market, vision, policy, and transformation agents [25,30,46].

Given the negative externalities of environmental issues, economic agents often lack the incentive to actively address environmental pollution, underscoring the government's crucial role in environmental governance [23]. Current research on fiscal decentralization primarily relates to environmental regulation and green development. As a critical component of green development in the new era, the energy structure and its influencing factors exhibit significant spatial correlation effects and are susceptible to policies, economic conditions, and other factors in neighboring areas [47]. However, literature exploring the impact of energy structure transformation and its spatial effects within the context of fiscal decentralization is scarce, with even fewer studies addressing the mechanisms and pathways of this impact.

While existing literature extensively explores the environmental impacts of fiscal decentralization, it often overlooks the spatial spillover effects that can arise from these policies. This gap is likely due to the methodological challenges in capturing spatial interactions and the tendency to focus on direct regional impacts. By emphasizing these spillover effects, this study addresses a critical oversight in previous research, offering new insights into how fiscal decentralization influences regional energy structure transformation across adjacent areas.

2.2 Mechanism of fiscal decentralization on the transformation of regional energy structure, and research hypothesis

Fiscal decentralization, as a key institutional arrangement governing the fiscal relationship between central and local governments, plays a crucial role in enhancing fiscal autonomy, thereby directly influencing the transformation of the energy structure [46]. Primarily, local governments possess more information about local economic development and the ecological environment than the central government. This advantage allows local governments to tailor public goods and services to meet local development needs, ensuring efficient and effective resource allocation and enhancing fiscal expenditure efficiency [28]. In an environment where environmental protection indicators are increasingly emphasized in performance assessment systems, fiscal decentralization enables local governments to leverage their informational advantages. Given that fiscal decentralization impacts environmental regulation differently across various economic development levels [23], local governments often develop industrial policies and energy emission reduction strategies that align with local economic realities. They effectively regulate high-pollution and energy-intensive enterprises within their jurisdictions, positively and directly affecting energy structure transformation [20].

Furthermore, driven by promotion mechanisms, innovation serves as a key driver of regional economic development and a critical metric for official evaluations [48]. Moderate fiscal decentralization not only enhances local governments' responsibility for the efficient allocation of financial resources but also increases their flexibility in managing fiscal revenues and expenditures [14]. As local governments gain greater financial autonomy, they often implement preferential policies for green industries and those focused on energy conservation and emission reduction, such as tax breaks and financial subsidies. These incentives encourage enterprises to increase their use of clean energy, optimize their production structures, and improve the efficiency of resource allocation in production processes. Consequently, the economic output per unit of energy and regional energy ecological efficiency have improved [39,49]. The adjustment of industrial structures and the development of green technological innovations positively impact the optimization of the energy structure. This can ameliorate the challenges posed by traditional energy resources and facilitate the transformation of the energy structure [50]. Based on the analysis above, we propose two hypotheses:Hypothesis 1 Fiscal decentralization is conducive to the transformation of the regional energy structure.

Hypothesis 2 Fiscal decentralization fosters technological innovation, thereby promoting the transformation of the regional energy structure.

Under the dual incentives of political promotion and economic interests, the intervention of local governments in the local industrial structure through public power can have significant indirect impacts [17]. Firstly, fiscal decentralization can lead to environmental externalities. Local governments, through investment competition, attract high-tech and environmentally friendly enterprises, thereby facilitating regional energy conservation and emission reduction efforts through competitive spending [37]. Due to geographical or economic similarities, competition among local governments in a decentralized system often leads to a “race to the top,” which benefits the energy structure transformation in neighboring areas [6,51].

Furthermore, fiscal decentralization can also result in a technology spillover effect. Green technology innovation not only reduces energy consumption by advancing energy technology but also fosters technological progress across various industries through the spillover effect [27]. As capital, technology, and talent flow across adjacent geographical spaces and regions, the extent of resource sharing increases. This, in turn, accelerates progress in energy technology and promotes a reduction in regional energy intensity. Consequently, the productivity and energy ecological efficiency of the entire industry are enhanced [22]. Based on this analysis, we propose:

Hypothesis 3 Fiscal decentralization has a positive spatial spillover effect on the transformation of the energy structure.

3 Methodology

3.1 Research methods and basic models

From the theoretical analysis above, it is evident that fiscal decentralization impacts the transformation of the energy structure. To test this direct effect, we construct the following bidirectional fixed-effect model:(1) energyit=α0+α1govratioit+∑αmβitm+μi+φt+σit

In this model, energy is the dependent variable, representing the transformation of the energy structure; gov ratio is the core independent variable, indicating the degree of regional fiscal decentralization; βitm represents the set of other control variables; μi and φt are the time fixed effect and province fixed effect, respectively; σit is a random disturbance term.

Furthermore, to measure the spatial impact, we employ a spatial econometric model. The analysis in this paper reveals that the energy structure transformation, within the context of China's fiscal decentralization policy, exhibits regional characteristics. Therefore, it is crucial to consider the spatial effect when examining the impact of fiscal decentralization on the transformation of the regional energy structure. The spatial Durbin model (SDM) not only accounts for the influence of the spatial lag term of the dependent variable but also considers the impact of the spatial lag term of other independent variables on the dependent variable. The SDM is advantageous for its reduced likelihood of estimation bias and error, prompting us to utilize this model for our research. The spatial Durbin model (SDM) effectively captures spatial spillover effects but comes with challenges, including the need for accurate spatial weight matrices and sensitivity to outliers. Despite these limitations, its ability to incorporate both spatial lag and error terms makes it a robust choice for analyzing the impact of fiscal decentralization on regional energy structure transformation.

Additionally, we propose using the geographical adjacency matrix (w1) and the economic distance weight matrix (w2) to thoroughly investigate the spatial spillover effect of fiscal decentralization on the regional energy structure transformation under different spatial weight matrices. The specific model is as follows:(2) energyit=α0+ρw*energyit+α1govratioit+φ1w*govratioit+∑αjxijj+∑φjw*xijj+μi+σit

Here, ρ represents the spatial autoregressive coefficient, and w is the spatial weight matrix.

3.2 Measurement of variables

3.2.1 The explained variable: transformation of regional energy structure (energy)

The transformation of the energy structure refers to the shift from the existing traditional energy structure to the effective utilization of various clean energies [8]. Following the approach of Zhu et al. [52], this paper measures the energy structure transformation by the proportion of clean energy consumption in total energy consumption.

3.2.2 The core explanatory variable: fiscal decentralization (gov ratio)

Fiscal decentralization is typically assessed using three indicators: fiscal revenue decentralization, fiscal expenditure decentralization, and fiscal autonomy. Drawing on the research methodology of Chen and Gao [53], and considering the panel data structure that accounts for regional differences, this study prioritizes the use of the fiscal autonomy indicator. Therefore, fiscal decentralization is measured by the ratio of local fiscal revenue to local fiscal expenditure, representing fiscal autonomy [25].

3.2.3 The intermediary variable: technological innovation (inno)

To explore how fiscal decentralization influences the transformation of the regional energy structure, we introduce technological innovation as an intermediary variable. Following the method of Ren et al. [54], technological innovation is quantified by the natural logarithm of the total number of patents granted per 10,000 people in each province at the end of the year, reflecting the development of technological innovation activities and the output of scientific research achievements.

3.2.4 The control variables

To account for the economic environment's impact on the regression results, this study adopts the approach of Digdowiseiso [55] and Tan et al. [56], selecting the following control variables:a) The degree of economic openness (pfid) is measured by the ratio of total foreign direct investment in the region to the regional population.

b) The economic growth rate (growth) is calculated as the ratio of the final GNP to the base GNP.

c) The industrial scale (ind) is represented by the proportion of the secondary industry.

d) The per capita total trade (popen) is quantified by the natural logarithm of the ratio of total regional trade to the regional population.

e) The per capita fixed asset investment (pinv) is measured by the natural logarithm of the ratio of total regional fixed asset investment to the regional population.

f) The per capita pollution input level (ppollue) is determined by the natural logarithm of the ratio of the regional pollution input level to the regional population.

3.3 Data sources

In this study, we selected data from 30 provinces in China spanning from 2002 to 2021 as our research sample to ensure the availability and continuity of data. Tibet, Hong Kong, Macao, and Taiwan were excluded due to data unavailability. The data sources include the China Statistical Yearbook, China Energy Statistical Yearbook, China Environmental Statistical Yearbook, and publications from the National Bureau of Statistics over the years. We used the interpolation methods, specifically linear interpolation, to handle missing data. This approach was chosen for its simplicity and effectiveness in maintaining the continuity of the dataset while minimizing potential biases that could arise from missing data. The interpolation process was carefully implemented to ensure that the estimated values aligned closely with the existing data trends, thereby preserving the integrity of the dataset. The descriptive statistical results of the main variables are presented in Table 1.Table 1 The descriptive statistics.

Table 1Variable	N	Max	Min	Mean	SD	
energy	600	1	0.148	0.357	0.131	
fd	600	0.981	0.148	0.508	0.190	
lnptec	600	5.972	−1.272	2.146	1.528	
growth	600	1.196	0.946	1.097	0.0320	
ind	600	0.615	0.158	0.445	0.0860	
lnpinv	600	11.98	7.350	9.877	0.993	
lnpfdi	600	12.51	3.898	7.202	1.425	
lnpopen	600	2.175	−5.512	−1.455	1.594	
lnppolluexp	600	6.022	−0.754	3.517	0.844	

4 Results

4.1 Benchmark estimates

Table 2 presents the estimated effects of fiscal decentralization on the transformation of the regional energy structure. The estimated coefficient for fiscal decentralization in column (1) of Table 2 is 0.127, which is significantly positive at the 1 % level. This indicates that fiscal decentralization positively contributes to the transformation of the regional energy structure. Even after incorporating control variables, the results in column (2) of Table 2 remain stable. These findings support Hypothesis 1, as outlined earlier, suggesting that fiscal decentralization facilitates the transformation of the regional energy structure. This may be attributed to the fact that fiscal decentralization, to an appropriate degree, enhances the accountability of local governments for the efficient allocation of fiscal resources. It also increases the flexibility of local governments in managing fiscal revenues and expenditures, which in turn can enhance the economic output per unit of energy and improve regional energy ecological efficiency.Table 2 The benchmark empirical results.

Table 2Variables	(1)	(2)	
energy	energy	
gov_ratio	0.127**	0.159**	
(0.063)	(0.063)	
growth		0.302	
	(0.199)	
ind		0.003	
	(0.084)	
lnpinv		−0.065***	
	(0.012)	
lnpfdi		0.025***	
	(0.009)	
lnpopen		−0.001	
	(0.008)	
lnppolluexp		−0.005	
	(0.005)	
Individual fixed effect	control	control	
Time fixed effect	control	control	
Constant	0.278***	0.315	
(0.033)	(0.217)	
Observations	600	600	
R2	0.356	0.400	
Note: t-statistics in parentheses, ***p < 0.01, **p < 0.05, *p < 0.1.

Furthermore, to examine whether technological innovation serves as an intermediary in the process by which fiscal decentralization affects the transformation of the regional energy structure, we construct the following regression equation based on model (1), utilizing the stepwise regression method.(3) energyit=α0+α1govrationit+∑αmβitm+μi+φt+σit

(4) Innoit=β0+β1govratioit+∑αmβitm+μi+φt+σit

(5) energyit=α0+α1govratioit+∑αmβitm+μi+φt+σit

Table 3 displays the test results for the intermediary effect of fiscal decentralization, technological innovation, and energy structure transformation. The regression coefficients for technological innovation (inno) in columns (1) and (2) of Table 3 are significantly positive. This suggests that under the fiscal decentralization mechanism, local governments, motivated by economic and political interests, will enhance energy conservation and emission reduction regulations. Additionally, they will increase subsidies and preferential policies for green industries as well as for energy conservation and emission reduction sectors [10,30]. Consequently, fiscal decentralization encourages enterprises to advance in development, adopt green technological innovations, and optimize their production structures. These results indicate that the impact of fiscal decentralization on the transformation of the regional energy structure is partially mediated through the enhancement of regional technological innovation, demonstrating a complete intermediary effect. In summary, the intermediary effect model confirms that fiscal decentralization facilitates the transformation of the regional energy structure by promoting technological innovation, thereby supporting Hypothesis 2.Table 3 The impact mechanism test.

Table 3Variables	(1)	(2)	
inno	energy	
gov ratio	0.860***		
(0.264)		
inno		0.023**	
	(0.010)	
control variables	control	control	
Individual fixed effect	control	control	
Time fixed effect	control	control	
Constant	−1.930**	0.419*	
(0.909)	(0.216)	
Observations	600	600	
R-squared	0.950	0.399	
Number of provinces	30	30	
Note: t-statistics in parentheses, ***p < 0.01, **p < 0.05, *p < 0.1.

4.2 Analysis of spatial measurement results

To investigate the spatial correlation, this study initially employs Moran's I to assess the global spatial autocorrelation of fiscal decentralization and energy structure transformation across provinces. The calculation formula is as follows:(6) I=n∑i=1n∑j=1nwij(xi−x‾)(xi−x‾)∑i=1n∑j=1nwij∑i−1n(xi−x‾)2

Here, n represents the number of the country, wij is the standardized spatial weight matrix, x denotes the observed value for each province. The Moran's I index ranges between −1 and 1. A value greater than 0 indicates a positive spatial correlation, less than 0 indicates a negative spatial correlation, and a value close to 0 suggests no spatial correlation. The test results of the Moran's I index using the adjacency matrix, presented in Table 4, reveal that the Moran's I index for fiscal decentralization and energy structure transformation, under the spatial adjacency weight matrix, is highly significant across all regions of China from 2006 to 2021. The global spatial autocorrelation test indicates a pronounced spatial correlation between the fiscal decentralization of different provinces and the transformation of their energy structures, showing a clustered distribution. This suggests that the fiscal behavior between regions and the development of their energy structures may be interrelated.Table 4 The global spatial autocorrelation test.

Table 4Year	gov ratio	energy	
Moran's I	z	p	Moran's I	z	p	
2006	0.519	4.47	0.000	0.319	2.944	0.002	
2011	0.454	3.952	0.000	0.294	2.691	0.004	
2016	0.548	4.749	0.000	0.336	3.113	0.001	
2021	0.52	4.517	0.000	0.441	4.853	0.000	
Note: The autocorrelation test results are obtained by using the spatial adjacency weight matrix.

Table 5 presents the estimated results of the spatial spillover effect of fiscal decentralization on regional energy structure transformation. According to Tables 5 and in the Spatial Durbin Model (SDM) set by two different weight matrices—the adjacency matrix and the economic distance matrix—the total and spatial effects of fiscal decentralization on regional energy structure transformation are significantly positive. This indicates that fiscal decentralization not only supports the transformation of the regional energy structure but also has a positive spatial spillover effect on it. Furthermore, regions with higher fiscal decentralization exert a more pronounced radiative driving effect on neighboring regions, suggesting that the transformation of China's energy structure is characterized by a spatiotemporal evolution of endogenous benign interaction [4].Table 5 The estimated results of spatial spillover effect.

Table 5
VARIABLES	(1)		(2)		
SDM		SDM		
Adjacency matrix		Economic distance matrix		
Main	Wx	Main	Wx	
gov_ratio	0.156***	0.009	0.113*	0.827***	
(0.059)	(0.134)	(0.061)	(0.154)	
growth	0.235	1.231***	0.424***	0.806*	
(0.184)	(0.357)	(0.182)	(0.450)	
ind	−0.044	−0.257	0.070	0.337*	
(0.081)	(0.185)	(0.080)	(0.184)	
lnpinv	−0.054***	−0.008	−0.031**	−0.139***	
(0.012)	(0.024)	(0.012)	(0.026)	
lnpfdi	0.023***	−0.040**	0.018**	0.008	
(0.008)	(0.019)	(0.008)	(0.020)	
lnpopen	−0.002	0.036**	0.003	−0.038**	
(0.008)	(0.015)	(0.008)	(0.015)	
lnppolluexp	−0.006	−0.007	−0.003	0.009	
(0.005)	(0.009)	(0.004)	(0.010)	
p	0.257***	0.032			
(0.059)	(0.065)			
σ	0.003***	0.003***			
(0.000)	(0.000)			
Observations	600	600	600	600	
Note: t-statistics in parentheses, ***p < 0.01, **p < 0.05, *p < 0.1.

This outcome implies that, driven by mechanisms such as environmental protection assessments, fiscal decentralization encourages local governments to increase the scale of financial investment and improve expenditure efficiency. This leads to a “preferential competition” among local governments. The significant effects observed under the economic adjacency distance matrix in Table 5 further indicate that a higher degree of economic agglomeration enhances the spatial positive spillover effect. This suggests that improved economic development levels facilitate breaking regional barriers among provinces, transmitting positive signals of energy structure transformation to neighboring provinces [39]. This promotes the improvement of energy consumption structures in neighboring provinces, reduces emissions from high-energy consumption and high-pollution industries, and supports the energy structure transformation of neighboring regions [7].

Regarding control variables, foreign direct investment (FDI) has a significant positive effect on the transformation of the regional energy structure. Under the decentralization system, provinces have intensified efforts to attract foreign investment, influencing neighboring provinces through a radiative effect to optimize resource allocation [57]. This leads to the elimination of outdated production capacities and compels traditional industries with high pollution and emissions to reduce energy emissions, fostering green industries and realizing the overall transformation of the region's energy structure [7].

From a broader regional perspective, per capita fixed asset investment significantly negatively impacts the transformation of the regional energy structure. This indicates that increased fixed asset investment leads to higher consumption of traditional fossil energies, which is detrimental to the optimization and transformation of the regional energy structure [6].

In summary, the fiscal decentralization system exerts a positive spatial spillover effect on the transformation of the regional energy structure, validating Hypothesis 3.

This finding highlights the interconnected nature of regional economies and suggests that fiscal policies implemented in one area can have a cascading effect on surrounding regions. These spatial dynamics highlight the importance of coordinated policy efforts at both local and regional levels to maximize the benefits of fiscal decentralization.

4.3 Robustness test

To verify the reliability of the regression results mentioned above, we conducted a robustness test by substituting the model. Specifically, we replaced the Spatial Durbin Model (SDM) with the Spatial Lag Model (SAR) and the Spatial Error Model (SEM) and performed the regression analysis again. The results are displayed in Table 6. Observations from Table 6 reveal that the direction and significance of the regression coefficients for both the core explanatory variables and control variables remain largely unchanged under both alternative models. This consistency indicates that the empirical findings of this study are robust.Table 6 The result of robustness test.

Table 6
VARIABLES	(1)	(2)	(3)	(4)	
SAR	SAR	SEM	SEM	
Adjacency matrix	Economic matrix	Adjacency matrix	Economic matrix	
gov_ratio	0.142**	0.140**	0.144**	0.146**	
(2.43)	(2.31)	(2.44)	(2.31)	
growth	0.255	0.297	0.154	0.295	
(1.39)	(1.58)	(0.83)	(1.56)	
ind	0.006	0.004	0.012	0.001	
(0.07)	(0.05)	(0.16)	(0.01)	
lnpinv	−0.061***	−0.060***	−0.060***	−0.062***	
(-5.38)	(-5.12)	(-5.18)	(-5.02)	
lnpfdi	0.025***	0.025***	0.026***	0.025***	
(3.08)	(2.94)	(3.25)	(2.96)	
lnpopen	−0.002	−0.000	−0.004	−0.001	
(-0.29)	(-0.04)	(-0.56)	(-0.10)	
lnppolluexp	−0.004	−0.005	−0.003	−0.005	
(-0.84)	(-1.05)	(-0.69)	(-1.03)	
Spatial:	
ρ	0.284***	0.117*			
(4.96)	(1.86)			
λ			0.275***	0.053	
		(4.73)	(0.75)	
Variance	
σ2	0.003***	0.004***	0.003***	0.004***	
(17.11)	(17.29)	(17.14)	(17.31)	
N	600	600	600	600	
Within R2	0.11	0.10	0.08	0.09	
Note: t-statistics in parentheses, ***p < 0.01, **p < 0.05, *p < 0.1.

5 Discussion

5.1 Fiscal decentralization and regional energy structure transformation

This study presents convincing evidence in support of Hypothesis 1., that fiscal centralization plays a vital role in changing regional energy structures in China (Hypothesis 1). According to theory, fiscal centralization enhances regional energy transformation efforts by increasing control and flexibility at local scale. Our models for fiscal decentralization demonstrate its pivotal role in supporting the transition towards renewable energy sources. This result is consistent with prior research that has demonstrated how decentralized fiscal systems can facilitate eco-friendly developments and environmental improvements [36,51]. Furthermore, this study expands upon previous work by quantifying the direct effect of fiscal decentralization on energy structure transformation [10,50] as well as highlighting its significance in green development [39].

Spatial econometric analyses demonstrate a substantial spatial spillover, suggesting fiscal decentralization could have an immense effect on energy structures in nearby regions. This is particularly applicable in China's diverse economy where regional policies are linked to economic activities; spatial spillover effects demonstrate this impact of fiscal policies across regions; this suggests coordinated decentralization could increase value creation from energy reform on a national scale [58].

The findings demonstrate that fiscal decentralization significantly influences regional energy structure transformation, offering valuable insights for future research and policy-making. Policymakers can use these insights to design decentralized fiscal policies that promote sustainable development. Additionally, it is important to consider regional economic factors and technological capacity, as well as the potential for reverse causality, where energy transformation may drive demands for greater fiscal autonomy.

5.2 The mediating role of technological innovation

In line with Hypothesis 2, we confirm that technological innovation is a mediator in the relationship between decentralization fiscal and transformation of regional energy structure. The intermediary model shows that fiscal decentralization promotes technological innovation which, in turn, promotes transformation of regional energy structures. The results are in line with those of Ren et al. [54] found that technological innovations are a key driver for energy efficiency and green growth. Local governments can promote technological innovation through fiscal decentralization. This will increase the adoption of clean-energy technologies and optimize energy consumption patterns. This mechanism is crucial for China to achieve its carbon neutrality goal and transition to a sustainable, energy system [21].

These findings indicate that fiscal decentralization allows local governments to implement incentives and policies that encourage R&D activities, patent production and green technologies. This has a direct impact on the regional energy structure, but also contributes towards a national strategy of technological advancement and sustainable growth [12].

5.3 Spatial dynamics and policy coordination

The spatial spillover effect evidence highlights the interconnectedness between regional economies, and the importance of space dynamics in the transformation energy structures [59]. Positive spatial autocorrelations indicate that regions do not follow isolated development paths. Instead, they are affected and influenced by fiscal and environmental policies in neighboring areas. This finding is important for policy, as it suggests that a coordinated strategy of fiscal decentralization with environmental policy can enhance the effectiveness in energy structure transformation across regions [60].

The spatial analysis also reveals that the effects of fiscal decentralization are enhanced by economic agglomeration. It is therefore likely that regions with a higher economic density, and stronger economic ties, will benefit more from the radiative effect of fiscal decentralization implemented in nearby areas. When designing and implementing fiscal policies, policymakers should take into account the spatial distribution and interdependencies of regional economies [56].

This study contributes to understanding how fiscal decentralization impacts the transformation of regional energy structures in China. It places a special emphasis on the role of technology innovation as a mediator and the importance of spatial spillovers [61]. The findings highlight the importance of a coordinated and balanced approach to fiscal policies and environmental governance in order to achieve green development and sustainable energy transformation goals.

5.4 Policy implications

This research contributes to the theoretical understanding of the economic consequences of fiscal decentralization and offers practical insights for enhancing the transformation of regional energy structures and leveraging the fiscal efficiency of the central government.a) Enhance the fiscal decentralization system: Refine the division of powers and responsibilities between the central and local governments. By establishing a central-local financial system that promotes financial coordination and regional balance, clarify local government responsibilities to maximize their positive impact on the transformation of the regional energy structure.

b) Elevate the importance of energy transformation in performance assessments: Improve the local government assessment mechanism to motivate local governments to enhance environmental quality, reduce reliance on high-emission industries, and boost their commitment to environmental optimization.

c) Strengthen regional and local government cooperation: Enhance the positive spatial radiation effect of energy structure transformation. Utilize the coordinating role of regional governments to break down administrative barriers, prevent harmful competition among local governments, and improve the ecological compensation mechanism.

d) Boost financial support for scientific and technological innovation: Encourage local governments to foster a regional and interregional green technology innovation synergy mechanism, establish a regional energy transformation platform, and leverage the guiding role of scientific and technological.

This study highlights the need for policymakers to create frameworks that incentivize local governments to invest in green technologies and sustainable energy projects. Promoting inter-regional collaboration can amplify the positive spatial spillover effects of fiscal decentralization, ensuring that advancements in one region benefit neighboring areas. Additionally, integrating environmental goals into local government performance assessments can further motivate sustainable practices, contributing to national and global sustainability objectives.

6 Conclusions

This study, using panel data from 30 provinces in China from 2002 to 2022, empirically examines the impact of China's fiscal decentralization system on the transformation of the regional energy structure and its spatial spillover effects from the perspective of fiscal decentralization. The findings indicate that, overall, China's fiscal decentralization significantly fosters the transformation of the regional energy structure and exhibits a notable positive spatial spillover effect, enhancing the optimization level of energy structures in neighboring areas. Furthermore, we focus on the transmission mechanism of fiscal decentralization on the transformation of the regional energy structure, discovering that the decentralization system aids in elevating regional technological innovation levels through increased scientific and technological innovation, thereby facilitating the transformation of the regional energy structure.

The limitations of this study are as follows. Firstly, due to the lack of comprehensive statistical data, we have not delved into the regional heterogeneity of fiscal decentralization in the transformation of the energy structure. Secondly, regarding measurement indicators, we employ the number of patent authorizations to gauge the development of technological innovation activities and the output of scientific research achievements. However, the number of patents primarily measures innovation output and does not adequately capture the transformation of technological innovation achievements. Finally, to improve the generalizability of the conclusions, future research should expand the sample data and extend the research duration.

Future research should concentrate on comparative analyses of international data to better comprehend the global effects of fiscal decentralization, while sector-specific analyses provide more granular details into potential policy impacts within key economic sectors. Thirdly, long-term impact assessments are essential to accurately assessing the long-term and sustainable effects of fiscal decentralization. Fourthly, looking deeper into technology innovation dynamics could reveal how fiscal policies impact green technology adoption and innovations. Fifthly, advanced spatial econometric models will help to increase our understanding of the spatial spillover effects that fiscal decentralization creates. Finally, policy simulation and experimentation could shed light on various fiscal and environmental policies scenarios; further illuminating their consequences regarding social equity and environmental injustice issues that would ensure energy transformation benefits are distributed equitably while meeting key sustainability considerations.

Funding

This study is funded by The 10.13039/501100002703 Jiangsu University Philosophy and Social Science Research Project (Grant No. 2023SJYB0941 ), and The Wuxi Soft Science Project (Grant No. KX-23-C083 ).

Data availability statement

Data will be available on request.

CRediT authorship contribution statement

Yueqi Wang: Writing – review & editing, Writing – original draft, Visualization, Software, Resources, Project administration, Methodology, Investigation, Funding acquisition, Formal analysis, Data curation, Conceptualization. Weikang Shen: Writing – review & editing, Writing – original draft, Validation, Supervision, Software, Resources, Project administration, Methodology, Investigation, Formal analysis, Data curation. Junqian Xu: Writing – review & editing, Writing – original draft, Validation, Supervision, Software, Resources, Project administration, Methodology, Investigation, Formal analysis, Data curation.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
==== Refs
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