Digital economy: a driver for smart carbon reduction

Attaining carbon neutrality necessitates a comprehensive transformation, relying on the collective actions of every segment of society. Our research investigates how the digital economy influences the reduction of carbon emissions from a theoretical framework and practical analysis on the basis of measuring the digital economy of 274 prefecture-level cities in China from 2011–2022. The results indicate there is a strong causal link between the digital economy and carbon emissions, with the latter intensifying as the former increases. This relationship remains robust even after conducting tests using terrain data as instrumental variables and considering the ‘Broadband China’ pilot program. Heterogeneity analysis showed that cities in the eastern region, those not dependent on natural resources, and cities with regenerative capabilities are more effective in leveraging the digital economy to reduce carbon emissions. Additionally, we identify a threshold effect in the digital economy’s impact on carbon reduction, which depends on population size and urban innovation capacity. Mechanistic analyses have shown that reducing energy intensity, improving industrial structures, fostering technological innovation, and enhancing digital infrastructure are the crucial channels of impact. This research offers a fresh analytical framework for comprehensively testing the effects of the digital economy on carbon reduction. Additionally, it provides countable policy recommendations for developing nations, aiming to advance a holistic green transition in society while actively and progressively pursuing carbon peaking and neutrality objectives.