Understanding the nonlinear effect of digital technology development on CO2 reduction

Abstract Digital technology, including advancements in artificial intelligence, the Internet of Things, and data analytics, has the potential to revolutionize tackling the problem of carbon dioxide emissions and achieving sustainable development. The paper aims at checking the nature of the impact of digital technology development on carbon dioxide reduction for the EU countries in 2013–2020. The study applies the following methods: entropy methods, panel‐corrected standard error, and feasible generalized least squares. The digital technology development index enabled the classification of all the EU countries into two distinct groups: High Digital Technology Development and Moderate/Lower Digital Technology Development. The findings confirm that digital technology development has a significant impact on decreasing carbon dioxide emissions. In the first stage, the growth of digital technology causes a faster decrease in carbon dioxide emissions. However, beyond a certain threshold, the further improvement of digital technology results in diminishing marginal benefits of CO2 emissions reduction. Thus, the EU government should catalyze the extension of digital technologies among all sectors and levels. In addition, it requires enhancing digital literacy of the society and local authorities.