The Impact of Digital Economy on the Cost of Carbon Emission Reduction—A Theoretical and Empirical Study Based on a Carbon Market Framework

Yuguo Ji, Xinsheng Pang () and Yu Yang
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Yuguo Ji: School of Economics and Management, Beijing Forestry University, Beijing 100083, China
Xinsheng Pang: School of Economics and Management, Beijing Forestry University, Beijing 100083, China
Yu Yang: China Academy of Public Finance and Public Policy, Central University of Finance and Economics, Beijing 100081, China

Sustainability, 2025, vol. 17, issue 21, 1-30

Abstract: A central sustainability question is how the digital economy helps societies decarbonize at lower cost. We develop a carbon-market-consistent framework to show how digitalization can strengthen market governance, reduce regional carbon-abatement costs, and accelerate green transformation. Using data for 30 Chinese provinces from 2011–2022, we estimate panel fixed-effects models and conduct numerical simulations to test the digital economy’s dynamic, inverted-U-shaped effect on abatement costs, accounting for internal and external drivers. The digital development shifts the abatement–cost curve downward and leftward by speeding the transition from internal mitigation costs to external trading costs, enabling regions to reach the cost-reduction stage earlier and at lower overall cost. Mechanism evidence indicates two channels: externally, digitalization enhances carbon-market sophistication (liquidity, price discovery, and compliance efficiency); internally, it promotes technological progress and energy-efficiency improvements that raise emission-reduction productivity. In the short run, emissions trading provides external incentives that buffer production-cost pressures from digital-capital investment; in the long run, digital growth accelerates the energy transition and structurally increases abatement efficiency. Heterogeneity analysis shows a more pronounced inverted-U in central and western provinces, while eastern provinces have largely entered a sustained cost-decline phase. By lowering the social cost of achieving emissions targets, the digital economy directly supports sustainable development and China’s green, low-carbon transition.

Keywords: sustainable development; digital economy; carbon abatement costs; carbon emissions trading; green transformation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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