The impact of Chinese-style fiscal decentralization (FD) on environmental pollution has been studied. Using data from 285 prefecture-level cities across the country from 2003 to 2018. A panel smooth transition regression (PSTR) model of fiscal decentralization’s impact on carbon emissions under energy and environmental-biased technology progress is established. The research shows that biased technological progress determines the direction of the impact of FD on carbon emissions. In areas with low level of energy and environmental-biased technological progress, FD increases carbon emissions. FD reduces carbon emissions in areas with higher environmental technology level but increases carbon emissions in areas with higher energy-biased technology progress. This study has theoretical and practical significance for China’s decentralization system, biased technological progress, and carbon peak target.