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The Climate Effect of Digitalization in Production and Consumption in OECD Countries

How does increasing digitalization affect the environment? A number of studies predict that digitalization will ultimately reduce environmental degradation but seem to overestimate the emission-reducing effects of digitalization through increases in resource efficiency, while underestimating substantial rebound effects and negative environmental impact of the construction and maintenance of complex digital infrastructures. Additionally, the environmental benefits of decreasing consumption of one-time usage goods may be outweighed by the environmental costs of the production of ICTs and the increasing use of digital technologies.

This paper analyzes the relationship between degrees of countries’ level of digitalization and environmental indicators by use of a panel data set of 37 economies. It is the first paper to differentiate between emissions associated with a countries production and those connected to a countries consumption, accounting for emissions related to exports and imports. The level of digitalization in production is approximated by companies’ investments in digital technologies. The chosen indicator to measure consumers’ proclivity to digital technologies is online shopping behaviour. The paper addresses the problem of changes in unobserved heterogeneity by using the recently developed Group Fixed Effects estimator.

Results indicate that the beneficial environmental effects of digitalization on reducing climate gas emissions slightly outweigh the undesired environmental effects, both in production and consumption.

Ultimately, we find that increases in digitalization have a net positive effect on the natural environment.

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