What drives the relationship between digitalization and energy demand? Exploring heterogeneity in German manufacturing firms

The growing use of information and communication technologies (ICT) has the potential to increase productivity and improve energy efficiency. However, digital technologies also consume energy, resulting in a complex relationship between digitalization and energy demand and an uncertain net effect. To steer digital transformation towards sustainability, it is crucial to understand the conditions under which digital technologies increase or decrease firm-level energy consumption. This study examines the drivers of this relationship, focusing on German manufacturing firms and leveraging comprehensive administrative panel data from 2009 to 2017, analyzed using the Generalized Random Forest algorithm. Our results reveal that the relationship between digitalization and energy use at the firm level is heterogeneous. However, we find that digitalization more frequently increases energy use, mainly driven by a rise in electricity consumption. This increase is lower in energy-intensive industries and higher in markets with low competition. Smaller firms in structurally weak regions show higher energy consumption growth than larger firms in economically stronger regions. Our study contributes to the literature by using a non-parametric method to identify specific firm-level and external characteristics that influence the impact of digital technologies on energy demand, highlighting the need for carefully designed digitalization policies to achieve climate goals.