1. Introduction
Over the past few decades, the impact of the digital economy has permeated various socioeconomic domains, affecting an array of areas including communication modalities, production methods, and entrepreneurial frameworks. Specifically, digital technologies reduce transaction costs by providing more accessible communications, advance the manufacturing sector with a more productive and more ecological sustainable production [
1], and reallocate financial resources for boosting financial inclusion [
2]. Hence, the transformation and evolution of digital technologies have become crucial for industrialization, ultimately influencing the economy and the environment [
3,
4]. There is considerable optimism that the digital economy can play a vital role in addressing climate change and associated environmental challenges. The integration of digital technologies into the design of smart cities, transportation networks, industrial processes, and energy conservation initiatives is anticipated to lead to a substantial reduction in carbon dioxide emissions [
5]. However, some lines of argument indicate that digitalization is more detrimental than beneficial to the environment [
6]. This concern mainly stems from the rising energy consumption in the production and disposal of digital facilities, which may partly or wholly offset the potential capabilities of environmental protection [
7]. As a result, a wide variety of arguments have investigated whether the digital economy can improve or worsen environmental performance [
8].
Climate change is now a global menace, along with sea-level rise, wildfire outbreaks, and extreme weather. The severe situations beyond the national borders require all the countries to be more responsive to environmental issues. Any attempt to tackle these challenging issues focuses on reducing greenhouse gas emissions, especially CO
2 emissions [
9]. The emission of digital-related pollutants in developing countries is attributable, in part, to the employment of low-level skills and technologies in waste management [
10]. On the contrary, the majority of preceding research regarding the influence of digitalization on productivity at the national level has uncovered that digital technologies exhibit a more pronounced and favorable impact on efficiency in developed nations, as compared to their developing counterparts.
China, as the largest developing nation and a substantial manufacturing hub, has been struggling with a mounting environmental burden caused by elevated levels of energy consumption and subpar energy efficiency [
11]. In the current era of digitalization, the fusion of technology and environmental preservation has emerged as a pivotal goal in the pursuit of China’s high-quality development. Accordingly, the Chinese government has implemented a bunch of initiatives (e.g., “Digital China” and “Broadband China” strategies) to boost digital development. With regard to the 2020 White Paper on the Development of China’s Digital Economy released by the China Academy of Information and Communications Technology (CAICT), China’s digital economy reached a total of 6.28 trillion USD in the same year, representing 38.6% of the national GDP. Undoubtedly, advanced technological solutions in industries and financial sectors wield significant impact in propelling economic growth and mitigating ecological footprints. As depicted in
Figure 1, the trends of carbon dioxide emissions and the digital economy from 2012 to 2017 are apparently intertwined in China. The graph shows an overall decreasing trend in CO
2 intensity with the development of the digital economy. However, as the digital economy continued to grow, the decline in CO
2 intensity between 2015 and 2017 was not significant. Therefore, evaluating the potential benefits of digitalization for developing countries has emerged as a critical imperative.
As a result, it prompts the inquiry of how to optimize the efficacy of digital technologies as a driving force for resource utilization efficiency and industrial pollution mitigation. The increasing adoption of digital technologies coordinated with effective environmental regulations can be a vital catalyst for mitigating climate change and reshaping carbon abatement tactics. Asymmetrical information is one of the possible causes of ecological straits, exacerbates the financial burden of environmental preservation, and undermines the efficacy of environmental law enforcement [
12]. The interaction, intelligence, and instantaneity of digital technologies can mitigate asymmetrical information, effectively solving and preventing pollution events. Environmental authorities can employ digital facilities to monitor polluted firms in real time and adopt stricter penalties for environmental damages [
13]. Moreover, digital facilities (e.g., the Internet and mobile phones) facilitate the public’s engagement in supervising and reporting environmentally damaging practices to the government. This serves as a way to address certain shortcomings of traditional environmental regulations. These considerations establish the framework for analyzing the interdependent connection among the digital economy, ecological criteria, and carbon dioxide emissions.
On the basis of our earlier discussion, it seems that the effects of the impact of the digital economy on the environment are somewhat equivocal. Additionally, the intricate nature of digitalization exhibits similarities across both developed and developing nations. Furthermore, while the digital economy and environmental regulations could have a significant influence on carbon dioxide emissions, the level of interdependence and the connection among these components remain relatively limited. Hence, it is worth exploring profound evidence on the digital economy, environmental regulations, and other determinants of carbon emissions in developing countries. Building on the aforementioned arguments, the present study explores the interplay between the digital economy and environmental regulations, as well as other pertinent independent variables such as the industrial structure, GDP per capita, number of patents, and population intensity, with regard to their impact on CO2 emissions. In order to achieve this objective, we first utilize the CRITIC methodology to develop a comprehensive set of indicators to assess the performance of the digital economy in China. This paper uses a fixed-effect model and an instrumental variable estimation model to test the impact of the digital economy on carbon emissions. This method can successfully achieve the estimation goal of this paper. Firstly, the fixed-effect model, as the main method to deal with endogeneity, can adequately identify the causal effect of the digital economy on carbon emissions; combined with instrumental variable estimation regression, it can further identify the impact of the digital economy on carbon emissions. Secondly, due to the fact that the digital economy can only be measured at the provincial level, fixed-effect models can differentiate the impact of unobservable macro factors on carbon emissions at the provincial level, thereby better identifying the impact of the digital economy on carbon emissions. Lastly, some relevant studies have adopted similar methods, which better demonstrates the effectiveness of this method and provides further evidence for the use of this method in this article.
Subsequently, we examine the correlation between the digital economy and the emissions of carbon dioxide (CO2) over the period spanning from 2012 to 2017. This study employs an instrumental variable methodology to ascertain the impact of the digital economy on carbon dioxide emissions, utilizing the exogenous variability in historical access to postal and telecommunications services as an instrument for measurement. We perform a series of heterogeneity analyses by geographical regions and their population characteristics, and then indicate how results can vary across these dimensions. Our research team conducted an investigation that centers around the regulatory framework needed to moderate the impact of the digital economy on the environment. This study also incorporates a careful examination of macrolevel processes, including technological innovation and industrial organization. Our empirical research provides strong evidence supporting the proposed mechanisms. The findings of our investigation suggest that (i) the digitalization of the economy has a substantial and enduring impact on the reduction in carbon dioxide emissions, (ii) various tests examining heterogeneity reveal that the effects of digitalization are particularly pronounced and efficacious in densely populated and prosperous regions of China, and (iii) incorporating digitalization into environmental policies yields favorable regulatory outcomes at the interface between the digital economy and carbon emissions reduction.
There are three possible contributions of this paper to the literature. (i) Many people believe that business development can cause damage to the environment. The reason is that enterprises may neglect environmental protection in pursuit of profits, and cause massive resource consumption and pollution emissions in the process of enterprise production, resulting in the incompatibility between enterprise development and environmental protection objectives. This paper builds a new theoretical framework on the impact of the digital economy on the CO2 intensity of enterprises, which provides a new path for enterprises and governments to participate in environmental protection. (ii) This paper finds that environmental regulations also have a positive moderating effect on the CO2 intensity of the digital economy on businesses, enriching existing research on areas related to the impact on carbon emissions intensity. (iii) The results have significant policy implications for mitigating the environmental ramifications of the expanding digital economy, providing valuable insights for policymakers and stakeholders alike, which can help Chinese policymakers effectively plan future environmental regulations, as well as offer guidance to policymakers in other developing countries.
The remainder of this document is structured as follows:
Section 2 engages with an in-depth review and analysis of the existing literature regarding the subject matter;
Section 3 outlines the intricacies of our research methodology and the nature of the data gathered;
Section 4 showcases the empirical findings that were derived through our inquiry;
Section 5 offers a summation of our research findings, accompanied by policy implications.
2. Literature Review
The digital economy is characterized by the utilization of digital knowledge and information as essential components of production, facilitated by advanced information networks. Accordingly, investigations into the influence of digital technologies on carbon dioxide emissions can furnish valuable insights. A pertinent area of inquiry pertains to the nexus between the digital economy and environmental considerations. However, the digital economy’s beneficial and detrimental environmental implications have been widely debated for the past decade, without reaching a consensus.
First, some scholars have concluded that the deployment of digital technologies in various sectors of the economy can lead to potential pollution reduction and energy conservation. The study found that the digital economy has a catalytic effect on the level of total factor carbon production in China, with significant regional heterogeneity, and it can be one of the important ways to improve the level of green development [
14]. Digital technologies are related to creating a cleaner and more environmentally sustainable production process. The “Broadband China” pilot policy, as a quasi-natural experiment, found that network infrastructure construction can reduce environmental pollution through the double difference method [
15]. The authors pointed out that the application of image recognition technology to environmental pollution detection can effectively improve detection efficiency and accuracy [
16]. Salahuddin, Alam, and Sadorsky [
17] conducted a research study examining the impact of labor-saving machines on CO
2 emissions reduction compared to the utilization of labor-intensive production processes and mechanization. Their findings suggest that the implementation of labor-saving machinery is a more promising approach to reducing CO
2 emissions. The second viewpoint suggests that the growing production, utilization, and disposal of digitalization have adverse environmental impacts and stimulate polluting emissions and wastes [
18]. In addition to the adverse effects on CO
2 emissions, digital technologies could increase energy consumption by producing digital facilities and running the infrastructure. Research conducted recently indicates that there exists an inverted U-shaped correlation describing the effects of digital technologies on carbon dioxide emissions. That is, the environmental quality becomes worse in the early stage of digitalization; however, pollution is reduced along with thriving digitalization [
19,
20]. Some scholars also argued that the relationship between digitalization and the environment is theoretically ambiguous and worth further analysis [
19]. To steer digitalization toward a sustainable direction, it is crucial to take into account the diverse impacts it has, as highlighted by Pamlin in 2002.
Furthermore, another corpus of the literature has highlighted the influence of the digital economy on the environment, emphasizing that digitalization alone is inadequate in decreasing harmful emissions. Specifically, digital technologies have reduced the worldwide outdoor activities and freightage (e.g., teleworking, online meetings, and e-commerce), thus diminishing fuel consumption and greenhouse gas emissions. With the development of the digital economy, the impact of the coal-based energy structure on carbon emissions is gradually decreasing [
21]. Furthermore, the digital economy can reduce transaction costs and reallocate resources through more accessible communication tools that help mitigate carbon emissions (e.g., online business, inclusive finance, and sharing economy). Furthermore, digitalization allows for faster diffusion of information, leading to innovations in the energy and technology sectors. These innovations are conducive to optimizing production processes, transforming and upgrading the manufacturing industry, and ultimately reducing pollutants [
5]. Digital facilities (e.g., the Internet and mobile phones) allow for rapid dissemination of knowledge and awareness pertaining to education and training in the field of environmental management, contributing to enhanced environmental awareness and pro-environmental behavior of the public. Lastly, the new-generation digital technologies, especially big data and artificial intelligence (AI), have higher sensitivity, adaptability, and linkage, and are practical implementations for government environmental detection.
After examining the discourse on the topic, it is evident that the correlation between the digital economy and the environment has been a topic of continuous discourse for a number of decades. Multiple studies have highlighted the potential for reducing CO
2 emissions through information dissemination, technological advancements, and decreased transaction costs [
22]. Existing articles on the impact of the digital economy on CO
2 emissions intensity have mainly used OLS models with mediating effects models to estimate the digital economy on carbon emissions [
23], while some studies have also found a positive moderating effect of R&D investment on the digital economy on CO
2 emissions intensity [
24]. One study measured comprehensive indicators of the level of development of the digital economy by constructing a system of indicators using the entropy value method and found that, with the development of the digital economy, more and more cities are shifting to low-carbon development. The downside is that the data obtained by the crawler on the frequency of digital words in listed companies may not be pure enough [
25]. Digital technology has varying impacts on CO
2 emissions across different economic sectors. However, the previous literature has neglected to analyze the influence of environmental regulations.
Therefore, there is a necessity to enhance comprehension regarding the impact of the digital economy and environmental regulations on carbon dioxide emissions. This represents the innovation of this article, which endeavors to bridge this research void.
5. Conclusions and Policy Recommendations
The aim of this paper was to investigate the potential role of the digital economy and environmental regulations in addressing the environmental consequences of CO2 emissions. Considering digital technologies’ immediate and intellectual characteristics, the digital economy could act as a positive contributor to tackling climate change and other environmental issues. To substantiate this argument, we first examined the correlation amid the digital economy and the environment. The results suggested that digitalization significantly decreases CO2 emissions, and this negative relationship is more pronounced in affluent and densely populated regions. Next, we examined whether environmental regulations stimulate digitalization’s productive role in carbon reduction. Our findings suggested that the digital economy has a significant impact on CO2 emissions through environmental regulations, and the positive moderating effect of environmental department employees is more salient than environmental legislations and penalties. Lastly, we investigated other mechanisms via which the digital economy affects CO2 emissions. We showed that digital technologies play a significant role in public participation in environmental protection, the technological innovation of firms, and real-time supervision of environmental violation activities. Overall, we showed that the digital economy is a crucial factor that significantly impacts CO2 emissions by influencing the effectiveness of environmental regulations.
Addressing environmental issues and ensuring sustainable development are crucial topics for China and other developing nations. Hence, highlighting the potential benefits of digitalization and environmental regulations can offer valuable insights for addressing environmental pollution. Our research revealed a substantial negative correlation between the digitalization of the economy and the levels of carbon dioxide emissions, providing useful insights for decision makers across various societal domains. Moreover, we did not observe any significant impact of the digital economy on CO
2 emissions in less developed economies and sparsely populated regions, where the coefficient was still negative (as shown in
Table 3 and
Table 5). Hence, policymakers in China should accelerate the construction of digitalization in less developed areas, comprehensively consider regional diversities, and adjust measures according to local circumstances.
In response to the findings of this paper, some relevant policy recommendations are provided. Firstly, using its legislative power and jurisdiction, the government should further strengthen law enforcement related to environmental protection and increase the penalties for environmental violations, thus effectively curbing environmental violations caused by enterprises in pursuit of profit. Secondly, the government should increase policy and financial support for technology-based and innovative enterprises, encourage and guide them to upgrade technologies related to energy conservation and environmental protection, use the information provided by digitization to drive technological innovation, and solve the pollution problems caused by enterprises in the production process from the source. In addition, policymakers should accelerate investment in digitization and the public should use internet and other online platforms to access environmental information and build awareness of their responsibility to protect the environment and save energy, thus enhancing the overall digitization of society and thus contributing to a favorable climate for environmental protection throughout society. Future research could further consider other impacts of digitization on the production areas of enterprises, such as energy efficiency and environmental information disclosure, to enrich research in related areas.