Essays on alternative energy options, environment and economic growth : the case study of Nigeria

Ikhide, Emily Edoisa (2019-12)

Thesis (PhD)--Stellenbosch University, 2019.


ENGLISH SUMMARY : The contribution of energy to the economic productivity of developed and developing countries has been a controversial topic in economic theory. The theoretical and empirical literature on the impact of energy on economic growth are inconclusive. Coupled with recent issues of global warming and climate change, rapid depletion of fossil fuels and increased energy demand for growth have increased debates and concerns on sustainable growth for the global economy. Therefore the study explored the relationship between alternative energy sources, economic growth and environmental quality with focus on the Nigeria economy. Specifically, the study addresses the following three questions: (a) what is the contribution of energy consumption (renewable and non-renewable) on economic growth in Nigeria? (2) Does economic growth influence environmental quality? (3) Does renewable energy compare with fossil fuels in terms of cost and benefits? The results of the study have been organised into three empirical essays. The first empirical essay explored the impact of disaggregated energy consumption on economic growth in Nigeria. Results based on a bounds test cointegration analysis suggest that fossil energy use is a strong determinant of growth in the long run. From the results, a unit increase in fossil fuel energy consumption will lead to a 0.056 unit increase in economic growth, holding other factors constant. In terms of elasticity, a one per cent increase in fossil fuel energy consumption will lead to a 0.056 per cent increase in economic growth. This implies that fossil fuel energy consumption plays a significant role in increasing productivity of the economy and thereby driving economic growth, confirming the existence of the growth hypothesis in Nigeria. Contrary to a priori expectations, renewable energy consumption has a negative effect on economic growth in both the short and long run. The results show that a unit increase in renewable energy consumption, holding other factors constant, would reduce economic growth by 0.093 units in the long run. In terms of elasticity, this implies that a one per cent increase in renewable energy consumption will lead to a 0.093 per cent reduction in economic growth Aggregate energy consumption, however, has a positive effect on economic growth with a coefficient of 1.34, implying that a one per cent increase in energy consumption will increase economic growth by 1.34 per cent, holding other factors constant. This implies that policy should be focused on a comprehensive examination of an optimal energy portfolio to drive growth. The second essay investigated the influence of economic growth on environmental degradation in Nigeria. The study employed yearly time series data from 1980-2016, using an ARDL bound testing approach to examine the long run linkages among energy consumption; economic growth and CO2 emissions in Nigeria. The results confirm the existence of a long run relation among the series and provided evidence in support of the Environmental Kuznets Curve (EKC) hypothesis in Nigeria. Estimates of the main parameters all have the expected signs. A positive effect is seen between GDP per capita and CO2 emissions, while a negative effect of the squared GDP per capita to CO2 emissions is found. This implies that as GDP moves beyond the Environmental Kuznets Curve turning point, environmental quality begins to set in. The result of the calculated threshold point of $1,862 GDP per capita implies that at the early stages of development, economic growth leads to increases in carbon emission up to a threshold of $1,862 GDP per capita after which the effect of economic growth on CO2 switches to negative, hence further economic growth leads to decline in CO2 emissions at the later stage of development. However, the observed threshold estimates suggest that the environmental degradation effect of GDP growth is bigger than environmental quality enhancement effect. The third essay investigated the economic viability of energy options in Nigeria for financing an optimal energy portfolio. Cost benefit analysis using life cycle cost analysis and cost effectiveness analysis used to calculate the levelised costs were employed for the assessment of seven different technologies (gas, solar, wind, large hydropower, biomass, diesel-powered and coal). Based on these method, the life cycle cost and the levelised cost were also used as the criteria for choosing the most economically feasible energy options to be included in the energy portfolio, this was followed with a sensitivity analysis. The results clearly revealed that when the environmental effects are taken into consideration from a cost and benefit point of view, hydro, wind, solar and gas sources are the most competitive and viable options amongst the available energy resources. The findings of this essay have pertinent policy implications and suggest the need for a more integrated energy and growth policy. On the whole, the study makes a unique contribution to the literature in three main ways. First, it is one of the first few studies to explore separately the effect of alternative (renewable and non-renewable) energy sources on economic growth in Nigeria. It showed that for a developing country such as Nigeria with large developmental gaps and slow growth in the midst of abundant renewable and conventional energy resources, the path to sustain growth and rapid development cannot be by fossil energy alone, rather a more careful approach of combined energy sources (renewable and non-renewable) would be necessary to achieve sustainable growth. This understanding is important for policy makers in focusing on a comprehensive examination of an optimal energy portfolio to drive sustainable economic growth and development. Second, the study examined the threshold effect of growth and the environment. By incorporating nonlinear terms we showed the turning point (threshold) of the relationship between economic activity and the quality of environment and confirm the shape of the relationship to support EKC in the case for Nigeria. In addition, we have shown that the net effect on the environment may be negative as the environmental degradation effect of growth is larger than the environmental quality enhancement effect. This helps in rethinking policy strategies in enhancing growth and improving environmental quality at the same time. Finally, based on the establishment of the effects of energy consumption on economic growth and the environment, the economic viability of energy options (renewable and non-renewable) for a portfolio mix was assessed, taking into consideration Nigeria’s rich energy (global energy force) and growth (it is one of the largest economy in Africa). Using a discounted cost benefit analysis by calculating the life cycle cost, and levelised cost analysis to arrive at the supply potential of multiple energy sources, this paper identifies viable energy options for Nigeria and proposes a portfolio of options which the country can consider in her energy production and use.

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