Rethinking Climate Change Prevention through Digitalization: Do Circular Economy and Environmental Policy Matters?

Digital transformation is a top priority on the global agenda, with most countries striving to harness its potential for economic and societal progress. The main aim of this study is to offer an insightful overview of digitalization, focusing on its implications for the environment and exploring how it shapes sustainability efforts. This study again examines whether the quality of circular economy and environmental policy influence the relationship between digitalization and climate change prevention, using balanced panel data from 8 OECD countries from 2000 to 2022. Findings from the least square dummy variable (LSDV) and two-step system GMM models show that digitalization has a varied impact on climate change prevention, with strong evidence that digitalization contributes significantly to reducing climate change. The results also highlight a significant negative moderating effect of the circular economy on ecological footprint and carbon emission, while environmental policy negatively and positively moderates the digitalization-climate change prevention relationship. Moreover, causality regression results reveal unilateral, bidirectional, and non-directional causality between digitalization, circular economy, and environmental policy to climate change prevention. The study concludes that digital adoption should be carefully regulated to enhance its role in mitigating climate change in these countries.