Digitalization and the environment: The role of information and communication technology and environmental taxes in European countries

Abstract

This study examines the impacts of digitalization through information and communication technology (ICT) and environmental taxes on greenhouse gas (GHG) emissions in 23 European Union (EU) countries between 2000 and 2017. Using the Pooled Mean Group estimator, the empirical results provide evidence that ICT development and environmental taxes improve environmental sustainability while research and development investments and income per capita deteriorate environmental sustainability. Furthermore, the results based on the Dynamic Panel Threshold Regression model show that the relationship between ICT and GHG emissions is dependent on the level of environmental taxes. During the period of low environmental taxes, the effect of ICT on GHG emissions is positive and insignificant but once environmental taxes cross the threshold value, the effect of ICT becomes negatively related to greenhouse gas emissions. This suggests that the period of low environmental taxes does not support the environmental friendliness of ICT development in the European region. The policy implication of these findings is that ICT, environmental taxes, and renewable energy can be possibly stirred up to achieve long-term environmental sustainability in the EU region.