Digitalization, Green Innovation, and Carbon Emissions: Unraveling the Role of Environmental Policy and Industrial Transformation in OECD Countries

Abstract

This study investigates the effects of digitalization, environmental innovation, environmental policy stringency, and green industrial transformation on carbon emissions in OECD economies. Using panel data from 34 OECD countries covering 1999–2024, the study employs a two-step system generalized method of moments (GMM) approach to address endogeneity and dynamic relationships among the variables. The findings reveal that digitalization and stringent environmental policies significantly reduce carbon dioxide (CO₂) emissions, highlighting their importance in promoting environmental sustainability. Conversely, environmental technological innovation and green industrial transformation are positively associated with carbon emissions, suggesting potential transitional inefficiencies, rebound effects, and continued dependence on carbon-intensive production processes. Furthermore, the interaction between environmental technology and policy stringency exhibits a positive association with emissions, indicating that technological advancements do not necessarily deliver environmental benefits without effective policy coordination. Trade openness is associated with lower emissions, while the effects of foreign direct investment vary across model specifications. Environmental taxation exhibits no statistically significant effect. These findings underscore the importance of integrating digital transformation, technological innovation, and environmental regulations into coherent decarbonization strategies. The study recommends strengthening environmental policy implementation, accelerating renewable energy integration, and promoting energy-efficient industrial restructuring to facilitate sustainable, low-carbon development across OECD economies.