Exploiting China’s 300 billion RMB Special Central Bank Lending Facility for the Clean and Efficient Use of Coal as a quasi-natural experiment across 12,816 firm-year observations from 2018 to 2023, we show that subsidized transition credit increased targeted coal and thermal power firms’ aggregate carbon emissions by 14.18 log points. We establish this backfire as a Financial Jevons Paradox, whereby credit-induced scale expansion overwhelms unit efficiency gains. Although the facility raised total factor productivity and stabilized emission in-tensity, it lowered debt costs, expanded bank loans, and induced production-biased patenting, proving that transition finance requires binding aggregate emission caps.