Decarbonization Pathways in Developing Economies: Digitalization, Finance, and Renewable Energy in Pakistan

Abstract

Climate change has created unprecedented pressure on developing economies, Pakistan being one of the most climate-vulnerable countries in the world, despite its emission levels, which are less than one percent of the world's greenhouse gas production. This study deals with the impact of the digital environment, technological innovation, use of renewable energy tools, and financial development on the greenhouse gas production of Carbon dioxide in Pakistan using annual time series data in the period of 1980 to 24. The autoregressive distributed lag and error correction analyses are employed to analyze the long-run and short-run dynamics, which are backed by specific diagnostic tests for the robustness of results. The findings show that in the long-term expansion of tests, the digital ecosystem and technological innovation have a strong negative impact on emissions for showing that the country is overdependent on growth from the use of fossil energy sources and energy-intensive application of technology. On the contrary, renewable energy consumption demonstrates a significant negative relationship and provides evidence that it is a viable option in the equation of decarbonization. Financial development, though, is positively correlated with emissions, so it appears that capital flows have actually encouraged carbon-intensive industries to the exclusion of green investments. Short-run estimates reinforce the results, with an immediate countervailing effect on trade via renewable energy and trade-offs in technological innovation. The existence of a significant and negative error correction term implies that there exists a stable long-run equilibrium among the variables. The aggregate findings from this work provide an important case for the need to balance the importance of digitalization, innovation, and financial sector reform vis-à-vis renewable energy expansion as part of Pakistan's sustainable development path into the future. Strengthening the role of green finance, stimulation of low-carbon innovations, and mainstreaming of environmental goals in digital and financial systems are critical to emission reduction and building climate resilience.