Against the backdrop of China’s “dual-carbon” goals, the complex interplay between fiscal decentralization and green taxation presents significant challenges for climate governance. This study examines the impact of green taxation on carbon emissions within the context of fiscal decentralization, with a particular focus on spatial spillover effects and multidimensional indicators of fiscal decentralization. Drawing on panel data from 30 Chinese provinces between 2007 and 2022, we apply spatial Durbin and moderating effect models to examine these relationships. Our findings reveal a counterintuitive positive association between green taxation and carbon emissions, indicating the presence of a “green paradox.” Furthermore, the three dimensions of fiscal decentralization—revenue decentralization, expenditure decentralization, and fiscal autonomy—demonstrate heterogeneous relationships with carbon emissions, including inverted U-shaped, U-shaped, and linear patterns, respectively. The interaction effects between green taxation and fiscal decentralization also exhibit notable spatial spillover effects and emission reduction potential. The contribution of this study lies in its integrated analysis of multidimensional fiscal decentralization, spatial econometric methods, and underlying mechanisms, thereby addressing underexplored dimensions of China’s environmental fiscal policy. These findings not only provide policy insights for China but also offer valuable references for other developing and transitional economies striving to align fiscal and environmental governance.