Digital Trade Rules and Embodied Carbon Emissions: A Scale–Composition–Technique Analysis

Digital trade drives global trade expansion, yet its environmental implications remain ambiguous. This paper examines whether digital trade rules in regional trade agreements reduce bilateral trade-embodied carbon emissions, through which channels, and under what conditions. Using a rule depth index from TAPED matched with Eora bilateral embodied carbon, we estimate a high-dimensional fixed-effects model on a bilateral country–pair–year panel covering 188 economies over 2000–2023, with an instrumental variable based on lagged digital governance network size. Deeper rules significantly reduce embodied carbon. The composition and technique effects lower emissions, with the technique effect dominant; the scale channel’s indirect effect is not significant. The reduction is stronger for Global North pairs and highly binding provisions; pioneer exporters gain less, agreement upgrading does not significantly strengthen it, and the reduction varies by rule template. Carbon pricing attenuates the reduction, indicating partial substitution with environmental regulation. An event study, an extensive/intensive margin decomposition, and carbon leakage checks corroborate these findings. Rules advance climate objectives only if environmental provisions enter institutional design from the outset and are backed by domestic regulation. The index captures rule depth through provision coverage and binding force but cannot fully capture implementation quality.