Transformational Insurance and Green Credit Incentive Policies as Financial Mechanisms for Green Energy Transitions and Low-Carbon Economic Development

China is committed to peaking carbon by 2030 and thereafter becoming carbon neutral. The key to promoting green and low-carbon economic transformation is energy transition by producers through green technology innovation, which must be supported by the necessary green financial policies and services. This study proposes a combined financial support mechanism of transition insurance and green credit to promote green and low-carbon economic development and to incentivize producers to achieve energy transitions to clean energy. It constructs a dynamic stochastic general equilibrium model and includes the banking and insurance sectors. The results show that, first, the implementation of transition insurance mitigates the downward fluctuations of the overall output and employment rates due to unexpected risk shocks. If insurance deductibles are reduced, the insurance coverage is strengthened, the share of green output is increased, and the process of low-carbon economic transition is accelerated. Second, green credit incentives increase the probability of producers’ energy transitions and contribute to the low-carbon transition of the economy. Finally, this study finds that the implementation of both transition insurance policies and green credit incentives is more conducive to promoting producers’ energy transitions and achieving green economic growth than only implementing one policy. Furthermore, the government should only moderately focus on carbon reduction to reasonably guide financial institutions to increase the amount of green credit and enhance the probability of producers’ energy transitions. The government can improve carbon reduction if it intensively focuses on it. However, this can definitely slow down the growth rate of output and consumption, which is detrimental to the sustainability of green and low-carbon economic development