Transforming Trade and Environment: Digital Trade's Impact on Carbon Emissions in the European Union

ABSTRACT The rapid expansion of digital trade is reshaping global economies, offering promising opportunities to mitigate carbon emissions. This study investigates the impact of digital trade on carbon emissions across 27 European Union countries from 2009 to 2023, presenting new insights into the environmental benefits of digital trade. The empirical findings reveal that digital trade significantly reduces emissions by optimizing industrial structure, promoting technological innovation and enhancing human capital. The heterogeneity analysis shows that this reduction effect is more pronounced in Northern, Western and Central Europe, where digital infrastructure and regulatory support may be more robust, and it is also stronger in highly innovative countries compared to less innovative ones. These results underscore the potential of digital trade as a driver of sustainable economic growth, providing valuable insights for policymakers aiming to leverage digitalization to enhance environmental sustainability, align with climate targets and foster a more efficient, low‐carbon economy.