Financial expansion and CO2 mitigation in top twenty emitters: Investigating the direct and moderating effects of the digital economy

Abstract

The top twenty carbon-emitting nations contribute around 80% to global CO2 emissions. The transformation of business operations, products, and services through establishing a digital economy (DGE) might help these nations to accomplish Sustainable Development Goals (SDGs) and carbon neutrality. However, digitalization poses certain direct and indirect effects on the environment, and also emissions and digitalization levels vary across nations. Further, the decoupling of economic growth and emissions makes it very challenging to reduce emissions without decreasing economic growth. Against this background, this research assesses the impacts of DGE and financial expansion (FE) on emissions in the top twenty emitters by considering the direct effect of DGE as well as its indirect effects through economic growth. The newly proposed method of moment quantile regressions (MM-QR) is adopted to unveil the associations between variables by accounting for distributional and heterogeneous variations in variables from 2003 to 2019. The novel findings demonstrate that DGE significantly boosts emissions. However, the indirect effects of DGE on emissions through economic growth reduce emissions and thereby, stimulate environmental quality. Interestingly, both direct and indirect effects of DGE are noticeable only from quantiles 6 to 9 and these impacts exhibit an increasing trend. FE decreases CO2 and uplifts environmental quality in all quantiles without much variation. Economic growth (GR) augments CO2; however, the magnitude of its effects reduces from lower to upper quantiles. Population density (PDN) alleviates environmental deterioration and its effects intensify from lower to upper quantiles. Afterward, the Driscoll-Kraay (DK) regression test confirmed the results of the MM-QR. Based on these novel results, a policy framework is proposed to reduce electronic waste and accelerate digital penetration in different sectors of the economy to enhance resource-saving and achieve carbon neutrality.