Impact of Digital Finance on Global Climate Change: Sectoral Evidence

Concerning the issue of global climate change, an urgent response is required to decrease carbon emissions in alignment with the Paris Agreement (12 December 2015), particularly in achieving the Sustainable Development Goals (SDGs). Over the past few decades, the mining of cryptocurrencies has emerged as a significant contributor to carbon emissions due to the rapid growth of the cryptocurrency market, resulting in a substantial increase in the computational demands of mining machines and energy consumption associated with generating digital tokens. This chapter aims to investigate the impact of digital currency trading activities (digital finance) on climate change. To achieve this objective, this study employs the DCC-GARCH model using daily trading data of five major cryptocurrencies based on market capitalization (Bitcoin, Ethereum, Tether, BNB, and Ripple) and global climate change (CO2 emissions). Climate change data from five different sectors (power, ground transportation, residential, domestic aviation, and international aviation) are used. The findings show that cryptocurrency mining (trading activity) leads to higher CO2 emissions, particularly in the power sector, which, in turn, adversely impacts global climate change.