From Policy Uncertainty to Carbon Neutrality: Digital Pathways to Renewable Energy and Decarbonization for Achieving <scp>SDG</scp> 7 and <scp>SDG</scp> 13

ABSTRACT This paper examines and explores corporate digital innovation as an achiever of low‐carbon technological strategies and decarbonization under conditions of climate policy uncertainty (CPU) to promote the United Nations Sustainable Development Goals (SDG 7: Affordable and Clean Energy, and SDG 13: Climate Action). Based on panel data of firms listed in China (2008–2022), with fixed‐effects as well as two‐stage least squares estimations, the analysis results suggest that CPU is a consistent, positive factor increase of corporate carbon emission, which can be seen as the inertial impact of strategic decisions of firms operating in the situation of uncertainty. Nonetheless, those enterprises that have stronger digital innovation capabilities show a softened emission reaction, because their technological responsiveness allows them to make adjustable investments in low‐carbon innovations. The paper also reveals that there is a nonlinear threshold of municipal‐level digital governance, and moderate levels of the e‐government capacity will be linked with the most successful elimination of the adverse impact of CPU, and both underdeveloped and excessively dense digital systems create decreasing returns to regulation. More importantly, the results also point out that punitive environmental policies like penalties on emissions prove to be considerably effective when compared to the incentives‐oriented policies in guiding firms to low‐carbon operational restructuring under unpredictable policy provisions. The key point about this regulatory asymmetry is that balancing credible enforcement in volatile policy settings is the relevance of such systems. Through these observations, it has been highlighted that corporate digital transformation needs to be in consonance with sound and properly tuned regulatory frameworks. The combination of firm‐level technology initiatives and institutional capacity building found in the study provides some practical directions to policy‐makers and business executives to overcome the unpredictability and speed up the process of carbon neutrality achievement without affecting financial results.