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Impact of Energy Consumption and Industrial Performance on Carbon Dioxide Emissons in Three Largest Economies of Sub-Saharan Africa

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posted on 2023-03-09, 12:19 authored by Shehu Mahe

The debate on global climate change has received increasing attention by researchers, and policymakers in both public and private sectors, as well as other relevant stakeholders. The consensus is that excessive emissions of greenhouse gases, particularly carbon dioxide emission, remain a crucial threat to achieving sustainable environmental quality and development across the world. Many influential studies continued to focus on lowering emissions in advanced rich countries, with little attention on developing economies. Although studies have focused on the determinants of carbon dioxide emission in the advanced economies with mixed findings amidst several policy-recommendations, which may not be appropriate for developing economies due to their relative low level of economic subsistence. Hence, this study empirically examines the impact of energy consumption, financial development, foreign direct investment, gross domestic product growth, and industrial performance on carbon dioxide emissions in Nigeria, Ghana, and South Africa by using autoregressive distributive lag (ARDL) model, vector autoregressive and Toda-Yamamoto causality techniques from 1980Q1 to 2017Q1.

The findings reveal the existence of cointegration among the variables in the models of the three studied countries. Similarly, the outcome from the estimated model for Nigeria illustrates a negative and significant relationship between fossil fuel energy consumption, financial development, foreign direct investment, industrial performance, and carbon dioxide emission. The result from the model of Ghana also reveals a negative link among fossil fuel consumption, financial development, foreign direct investment, industrial value, and carbon dioxide discharge. However, the outcome from the South African model shows that financial development, foreign direct investment, economic growth, and industrial value increase the level of carbon dioxide emissions. Moreover, from the impulse response function for Nigeria shows a positive shock among fossil fuel energy consumption and carbon dioxide emission from the short run to longer periods. Similarly, the finding from the impulse response function for Ghana and South Africa also illustrate that shock in energy use accelerates the capacity of carbon dioxide emission in these economies. The estimate from the variance decomposition in Nigeria, Ghana and South Africa reveals a positive and significant shock of fossil fuel energy consumption on carbon dioxide emissions. This means that fossil fuel energy consumption increases the level of carbon dioxide emissions in these countries. Similarly, the result of impulse response for Nigeria, Ghana and South Africa indicates negative shocks of energy consumption, foreign direct investments, credit, and industrial value toward carbon dioxide emissions. However, domestic credit and economic growth positively influence carbon dioxide emissions in South Africa. Nonetheless, the result from variance decomposition for Nigeria, Ghana and South Africa reveals that fossil fuel use, economic growth, foreign direct investments, and industrial performance forecast positively on the trend of carbon dioxide emissions in long-run quarter in these economies. Lastly, the outcome from the Toda-Yamamoto causality test for Nigeria shows the existence of causality between economic growth, industrial value, credit, fossil fuel and carbon dioxide emissions. In the case of Ghana and South Africa, the result reveals no causality among the variables. However, energy resources have no influence on carbon dioxide discharge in South Africa.

Since the results of fossil fuel energy use, industrial performance, foreign direct investment, and financial development have significant negative impact on the level of carbon dioxide discharge in these countries. It is important for policy makers to emphasize on more appropriate policies that will consider financial reform, sound industrial policies and all avenues that will attract clean foreign investment to stimulate sustainable development in these economies. This could be through further control on high explosion of carbon dioxide emissions by making availability of low emissions technologies, provision of financial incentives that will encourage the use of low carbon dioxide emissions technology and removing trade barriers that will attract foreign investment, human capital development and research. Consequently, policy on the restructuring of financial and industrial sectors should meet up with the designed goals to enhance the level of environmental quality. This entails that it is important to consider policies on mitigation of carbon dioxide emission; especially regarding policies that will promote environmental quality. Based on the findings of the study, energy consumption and financial progress, economic growth and industrial value addition have positive and significant relationship with carbon dioxide discharge. This entails that energy consumption increases the level of carbon dioxide emissions in these countries. Therefore, there is the need for extensive policies on energy use regulations and emphasis should be on other low emission alternatives of energy such as solar, thermal, wind and hydro energy. This will help in mitigation of carbon dioxide discharge and improve the environmental quality in sub-Saharan Africa countries.

From the foregoing, this study recommends the need for relevant stakeholders to implement strategies to reduce carbon emission in the continent to support higher trajectory of environmental quality through adoption of innovative energy technologies to promote intra- and inter-generational equity in the use of natural resources in sustainable manner over time.

The study accentuates the need for financial system regulators to develop regulatory-incentive strategy to encourage banking credit intermediation for businesses to adopt environmentally friendly energy sources in their productive activities. Moreover, governments of these countries should strengthen their environment-related policy frameworks to counteract the import of pollution-intensive industries in a bid to achieve a non-declining trajectory in environmental quality overtime in the African continent.



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