New insights into how digitalization is driving decarbonization in Chinese enterprises: Cost-saving or efficiency-enhancing?

China, the world's largest developing economy, is pursuing simultaneous digital and low-carbon transitions, yet the causal mechanisms linking digitalization to decarbonization remain inadequately understood. This study provides firm-level evidence on how digitalization affects carbon intensity, disentangling the underlying mechanisms through efficiency-enhancing and cost-saving pathways. Results show that digitalization significantly reduces carbon intensity, helping decouple economic growth from carbon emissions—a finding robust to instrumental variable strategies and alternative variable measurements. However, this decarbonization effect is heterogeneous: it is concentrated in high-tech firms, non-state-owned enterprises, and firms operating in regions with weaker environmental regulation, reflecting divergent organizational capabilities in leveraging digital tools. Channel analysis confirms that digitalization lowers carbon intensity by raising production and operational efficiency. In contrast, while digitalization reduces financing and agency costs, these savings may raise carbon intensity if reallocated to scale production rather than sustainability—an outcome driven by managerial myopia. Our findings offer two critical implications: policymakers should steer corporate digital strategy toward sustainability objectives, while firms must accelerate internal structural and cultural adaptation to fully realize digitalization's green potential.