Unlocking industrial decarbonization: the catalytic role of artificial intelligence in circular economy practices from EU countries

Two major phenomena, Circular Economy and Artificial Intelligence, have emerged as innovative approaches for countries around the world to mitigate climate change and environmental degradation. During this transformational stage, a few principal driving factors and fundamental measurement indicators are critical toward achieving progress and goals. Therefore, this study focuses on the effects of the Circular Economy on industrial de-carbonization in the wake of the moderating effect of artificial intelligence across 27 EU countries during the 2000-2023 period using a novel Panel-QR-PMG and Panel-QR-CCE approach. The study also applied a novel methodology termed time-specific heterogeneous factor analysis for constructing a novel composite index for the circular economy and artificial intelligence. The finding reveals that the circular economy and artificial intelligence have a strong positive effect, particularly in the upper quantiles, which emphasizes their potential to enhance industrial de-carbonization. Furthermore, the study reveals that artificial intelligence acts as a catalyst to enhance the circular economy practices and revamps the relationship between the circular economy and industrial de-carbonization, steering it towards more sustainable pathways and mitigating carbon emissions. On the other hand, trade openness shows a persistent negative impact, which stresses the need for a sustainable trade policy. Research and development have a neutral effect in most of the quantiles; economic growth shows an insignificant relationship with industrial de-carbonization. Policy makers must work to advance AI and CE practices interventions, such as with financing support for smart waste systems, while also modifying trade policy to account for strict carbon policies to alleviate negative effects. AI-based circular infrastructure should be made in the EU region and trade openness to robust carbon pricing measures to ensure sustainable industrial de-carbonization.