Environmental Sustainability and CO2 Emissions in Mexico: Unveiling the Roles of Fiscal Policy, Digital Innovation, and Renewable Energy Transitions

Abstract

Addressing environmental degradation has become a pressing priority in the era of global sustainability. As carbon dioxide (CO<inf>2</inf>) emissions continue to escalate—particularly in emerging economies—identifying effective policy and technological pathways for emissions reduction is essential. This study investigates how economic growth, governance mechanisms, and technological advancement influence environmental sustainability in Mexico during the period 1980–2023. Mexico, a key emerging economy with ambitious climate goals, serves as a critical case for exploring these dynamics. Using annual time series data, the study employs the autoregressive distributed lag (ARDL) bounds testing method, supported by robustness checks using fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and canonical cointegration regression (CCR) techniques. The findings reveal that fiscal decentralization and economic growth significantly contribute to environmental degradation, while renewable energy consumption and globalization are associated with reductions in CO<inf>2</inf> emissions. Although ICT expansion holds long-term efficiency potential, it currently exacerbates emissions due to its dependence on fossil-fuel-based infrastructure. These results underscore the complex trade-offs involved in aligning fiscal, technological, and energy policies with sustainability goals. The study concludes with clear policy recommendations: Mexico should reform its fiscal decentralization frameworks, invest in renewable-powered ICT infrastructure, and accelerate clean energy development to fulfill its climate commitments. The findings offer actionable insights to guide low-carbon transitions in emerging economies.