Energy efficiency as a mediator in the relationship between the digital economy and carbon emissions for achieving net zero goals

Pakistan faces critical challenges in balancing rapid economic growth with environmental sustainability, particularly in reducing carbon emissions. While energy efficiency improvement and mitigating carbon emissions play the crucial role to recognize reaching carbon peak and attaining carbon neutrality. The digital economy is emerging as a key driver of economic development, its effects on energy efficiency remain underexplored within the Pakistani context. Existing research has yet to clearly elucidate how the digital economy and environmental governance jointly influence carbon emissions, and the extent to which energy efficiency mediates this relationship. This study examines the relationship between digital economy, energy efficiency, and environmental governance in reducing carbon emissions, using time-series data from 1990 to 2023. Employing the STIRPAT and ARDL models, the study analyzes both direct and indirect effects of energy efficiency as a mediator between digital economy and carbon emissions. The digital economy expansion exacerbates emissions and energy efficiency plays an important role as a mediator in this relationship. Improving energy efficiency can mitigate emissions, While the digital infrastructure growth is not helping to improve energy efficiency therefore, it increases carbon emission directly. The overall effect mediated by 10.88% via energy efficiency on carbon emissions indirectly whereas, digital economy caused 3.88% of carbon emission directly. Moreover, a percentage increase in information and communication technology led to a reduction in carbon emissions by 0.0043%. Increases such as improved living standards, education levels, increased use of renewable energy sources, urbanization, and environmental governance regulations have substantially contributed to reducing carbon emissions. Conversely, population size and gross domestic product growth tend to increase emissions, with no significant impact observed from the labor force participation rate. These findings underscore the need for policymakers to integrate energy efficiency considerations into digital economy policies promoting energy-efficient technologies like smart grids, data center, and solar powered micro grids particularly developing in rural areas can reduce emissions while expending digital access to ensure sustainable digital transformation aligned with environmental priorities.