Digitalisation and Carbon Efficiency: Does the Digital Economy Enable Sustainable Production Systems?

ABSTRACT This paper examines the effect of digitalisation on carbon intensity in 44 countries from 2000 to 2024 using a principal component index that combines internet use, mobile connections and landline telephone ownership. The standard model uses a static Common Correlated Effects Mean Group (CCEMG) regression. Other specifications, such as CS‐ARDL(1,0), interaction, quadratic, interactive fixed‐effects CCEMG threshold and dynamic subgroup estimators, allow for cross‐sectional dependence, adjustment dynamics and heterogeneity. The results show no statistically significant average, short‐run or long‐run effect of digitalisation on carbon intensity. The interaction terms of financial development and institutional quality, and the squared digitalisation index, are also not statistically significant. Although the threshold model estimates a digitalisation level of 1.438, the likelihood‐ratio confidence interval covers the search range, suggesting weak identification. Furthermore, digitalisation does not significantly affect carbon intensity in most country subgroups; the only exception is a long‐run positive and marginally significant effect in countries with high‐energy intensity. Energy intensity stands out as the most significant positive contributor to carbon intensity. Hence, the results refute the theoretical expectations of Ecological Modernisation and Socio‐Technical Transition about the inherent environmental benefits of digital growth. Digital connectivity is an enabling infrastructure, with environmental impacts conditional on electricity supply and use. Given policy and firm practices, investments in digital connectivity should go hand in hand with investments in clean electricity, energy efficiency improvements and industry decarbonisation to advance SDGs 9, 12 and 13.