Financial investments in AI-based technologies and carbon footprint in selected advanced industrial economies

Artificial intelligence (AI) has rapidly expanded across multiple industries and technologies, driving economic growth and offering innovative solutions to structural challenges. However, its environmental impact remains contested. While firms investing in AI aim to lower its carbon footprint, its widespread use continues to generate significant emissions. This study examines the environmental effects of AI investments, particularly on carbon emissions, while also accounting for human and economic development indicators. The analysis employs the Panel ARDL-PMG approach using data from 2012-2023 for nine technologically advanced economies characterized by extensive use of robotics (South Korea, Japan, Germany, the United States, China, Singapore, Sweden, Italy, and France). The findings reveal the existence of a stable long-run equilibrium among the variables. The negative and significant ECT indicates that about 32% of short-term imbalances are corrected each year, suggesting that the system steadily moves toward its long-run equilibrium. In the long run, per capita GDP and renewable energy consumption reduce carbon emissions, whereas AI investments (AIINV), Foreign Direct Investment (FDI), and the Human Development Index (HDI) increase them. The results show that AIINV and FDI do not contribute to reducing carbon emissions. In this context, the findings suggest that investments in the energy sector are not directed toward encouraging the transformation of energy sources. These results highlight the environmental risks posed by the growing prevalence of AI. However, AIINV and FDI have the potential to help reduce carbon emissions if they are aligned with the transformation of energy sources. Thus, aligning AI with green innovation and sustainable environmental policies is essential. This study emphasizes the importance of enabling the energy transition to reduce carbon emissions arising from AIINV and FDI in the sector. Promoting eco-efficient technologies and sustainable innovation processes can help mitigate the carbon-intensive effects of digital transformation.