Digital Technology Adoption and Changes in Energy Intensity in German Manufacturing Firms.

This article investigates the relationship between digital technology adoption—measured by software capital as a proxy for firm-level digitalization—and energy intensity in German manufacturing firms using administrative panel data from 28,600 firms between 2009 and 2017. Employing a translog cost function and a CES production function approach, the study finds a statistically significant but very small negative association: a 1 percent increase in software capital corresponds to only about a 0.003 percent decrease in energy intensity, indicating limited energy savings from ICT adoption at the firm level. The analysis reveals that previous industry-level studies likely overestimate this relationship due to aggregation biases arising from heterogeneity across industries and differences between firms, especially since energy-intensive industries show stronger ICT-related energy reductions. These findings suggest that while digital technologies contribute somewhat to energy efficiency, they are not a major driver of energy intensity improvements in manufacturing firms, highlighting the need for integrated environmental and digital strategies in policy and management.