The impact of digitalization, renewable energy, and natural resources on environmental quality: the role of government expenditure in EU27 countries

Environmental degradation remains one of the most pressing challenges confronting humanity in recent decades. Guided by Ecological Modernization Theory (EMT) and Resource Curse Theory (RCT), this study investigates the role of digitalization (DIGIT), government expenditure (GOV), renewable energy consumption (REN), total natural resource rents (TNRR), and economic growth (GDP) in shaping environmental quality (EQ) across 27 European Union countries from 2000 to 2022. The Method of Moments Quantile Regression (MMQR) approach is employed to capture the heterogeneous effects of these factors across different emission levels. The empirical findings reveal that DIGIT, GOV, and REN exert a negative and statistically significant effect on CO₂ emissions, thereby enhancing environmental quality. Conversely, GDP and TNRR show positive and significant effects, indicating that economic growth and resource dependence contribute to environmental degradation. The interaction between DIGIT and GOV further demonstrates a significant negative impact on CO₂ emissions, underscoring their complementary role in fostering environmental improvement. To ensure robustness and address potential endogeneity concerns, the study also employs advanced long-run estimation techniques, including CUP-FMOLS, BA-OLS, and Two-Stage Least Squares (2SLS). The results from these robust analyses are consistent with the MMQR estimates, reaffirming the reliability and validity of the findings. The study provides actionable insights for EU policymakers, emphasizing that promoting digitalization, expanding renewable energy investments, and aligning fiscal policies with sustainable innovation can collectively reduce CO₂ emissions and advance the EU’s long-term climate and sustainability objectives.