Could Environmental Related Taxes Moderate the Impacts of Digital Transformation and Renewable Energy Consumption on Environmental Degradation in OECD Economies?

Environmental tax systems serve as a particularly effective mechanism for governments in mitigating ecological damage and achieving sustainable development. OECD countries account for nearly 70% of global energy-related CO2 emissions in 2024. Considerably high emissions underscore the ongoing necessity for OECD economies to examine environmental sustainability. A comprehensive investigation into the environmental taxation frameworks across OECD member states would provide insight into whether their tax policies reasonably promote their energy or technological innovations, thereby enhancing the efficacy of environmentally oriented tax regimes. This research primarily seeks to investigate how environmental related tax interacts with digital transformation processes and renewable energy utilization patterns to shape consumption-derived carbon dioxide emissions throughout OECD nations. This paper employs the Feasible Generalized Least Squares (FGLS) and Panel-Corrected Standard Error (PCSE) analytical models to examine the moderating role of environmental taxation on how digital technologies and renewable energy consumption in influencing carbon emissions in OECD economies. The empirical analysis draws upon longitudinal macro-panel datasets encompassing 32 OECD member countries over a two-decade period spanning from 2001 through 2021. The empirical evidence robustly demonstrated the regulatory effectiveness of environmental taxation mechanism, as it consistently exhibited a negative and statistically significant effect on emissions across various model specifications. Effective environmental related taxes can augment the ability of digital technology to foster environmental efficiency. In addition, environmental related taxes may increase emissions when applied concurrently with renewable energy consumption. Comprehensive policy strategies that include environmental taxation, digital transformation, and robust institutional frameworks are crucial for achieving significant environmental advancements and ongoing economic growth. Governments should consistently advocate for digital innovation and renewable energy consumption, but these initiatives must be supported by more optimal environmental tax policies.