The carbon reduction effect of ICT: A perspective of factor substitution

Information and communications technology (ICT) investment is beneficial for achieving economic growth within a low carbon system, as the substitution or complementation of ICT to energy offset increased carbon emissions. Based on Chinese provincial panel data during 2000-2018, we incorporate ICT capital as a separate factor to the trans-log production function and identify factor substitution to study ICT's carbon reduction effects. The results show that China's technical progress is more biased towards non-ICT capital, ICT capital and fossil energy, deviate from non-fossil energy and labor. The carbon reduction effect of ICT is manifest by its substitution with fossil energy (0.528) and complementation to non-fossil energy (-0.072), which is comprehensive improvement in both energy productivity and energy structure. Besides, the threshold model reveals an "N" curve carbon reduction effect of substitution elasticity between ICT and fossil energy, whereas it is the opposite for non-fossil energy, and the current substitution elasticities are both in the interval that undermines carbon reduction. This paper confirms ICT's potential in carbon reduction, while this potential is not amplified in production modes of most provinces, and future efforts are required for its suitable match with low carbon transformation.