Elsevier

Energy

Volume 211, 15 November 2020, 118665
Energy

The prominence of renewable and non-renewable electricity generation on the environmental Kuznets curve: A case study of Ethiopia

https://doi.org/10.1016/j.energy.2020.118665Get rights and content

Highlights

  • The effect of renewable energy generation on Ethiopia’s CO2 emissions is examined.

  • The validity of the EKC hypothesis is examined.

  • Renewable energy generation reduces CO2 emissions.

  • Non-renewable energy generation reduces CO2 emissions.

  • The EKC hypothesis exists in Ethiopia.

Abstract

Ethiopia is one of the fastest growing economies in Africa. During the last three decades, it has been thriving with stupendous efforts for a transition from non-renewable energy use to a renewable energy-dominant economy. It is against this background that this study attempts to highlight the role of renewable energy and non-renewable energy in affecting CO2 emissions under an augmented EKC framework. To achieve this goal, the study exploits data for the period 1981–2015. The Autoregressive Distributed Lag (ARDL) model is employed and the results surprisingly revealed that both renewable and non-renewable energy use reduce Ethiopia’s CO2 emissions. The unexpected inhibiting effect of non-renewable energy on CO2 emissions might be attributed to the fact that share of non-renewable energy in the overall energy mix of Ethiopia has become insignificant after experiencing decline consistently during the last three decades. The outcome supports the existence of the EKC hypothesis as well as a N-shaped pattern of association between real GDP per capita and CO2 emissions per capita, particularly in the long run. There is evidence for long run causality, especially from the explanatory variables to CO2 emissions per capita. Policy implications are discussed.

Introduction

Ethiopia is one of the fast-growing economies which lies on the horn of Africa. With a staggering 10.3% of economic growth, the highest for any African country, it boasts a 104-million population that made it the second most populated country in Africa after Nigeria. Despite such an impressive economic growth record, Ethiopia is still considered as one of the poorest countries in the world as it is still ranked in the low-income category. As a result of phenomenal economic growth, Ethiopia succeeded with reducing its level of poverty from 30% in 2011 to 24% in 2016. Moreover, government polices implemented as part of the second Growth and Transformation Plan (GTP) II aimed to build and expand world class infrastructure through public investment with a view to transforming the country into a manufacturing hub. Also, the second GTP thrived to achieve an 11% growth rate in 2019/20.

The increase in economic growth and the decline in poverty led to a surge in the use of energy as the percentage of population with access to electricity rose from 0.01% in 1990 to 42.9% in 2016. However, despite significant increase in energy consumption, most of the Ethiopia’s energy mix comes from renewable energy sources. From 1974, fossil fuels was the main contributor to Ethiopia’s electricity generation which was 41%. However, use of fossil fuels in electricity generation declined to 0.038% in 2015 (World Bank, 2020).

Ethiopia is blessed with abundant renewable energy resources that can potentially generate over 60,000 MW (MW) of electric power. Due to rapid gross domestic product (GDP) growth during the previous decade, demand for electricity has been consistently on the rise. To keep pace with this rising demand of electricity for a giant population of over 100 million poses serious challenges and is undoubtedly a daunting task to undertake and accomplish. To make things even worse, average electricity demand is forecasted to grow by approximately 30% per year. The country still suffers from severe energy poverty with only 30% people having access to electricity. Only 60% of households are connected with national grid.

The energy scenario has experienced a quantum leap as use of renewable energy in electricity generation started to rise substantially from 59% in 1974 to over 97% of total electricity generation in 2015 (World Bank, 2020). As such, Ethiopia has become one of the lowest CO2 emitters in Africa. Therefore, it might be plausible to assume that the environmental Kuznets Curve (EKC)1 hypothesis exists in Ethiopia. A number of recent empirical studies have proved that the presence of the EKC is dependent on the significance of renewable energy and air pollution [2]; Danish et al., 2017 [25,32,41]; Yao. et al., 2019). In order to generate a robust result, there is a need to provide for both quadratic and cubic forms of GDP in the EKC model [9].

Remittance inflows play a key role in the Ethiopian economy and can consequently affect environmental quality in the country. It plays a double-edged role on the environmental degradation as it has the potential to either exacerbate or reduce environmental quality in the country. Remittance inflows into Ethiopia have been increasing in most of the years. It rose from US$76 million (2010 prices) in 1981 to US$345 million (2010 prices) in 2010 and further rose to US$514 million (2010 prices) in 2015 (World Bank, 2020). One of the reasons for such increase is that Ethiopians live in 85 different nations [7]. Secondly, most of the remittance senders stay in rich countries. For instance, about 82% of Ethiopian migrants resided in non-African countries and African countries were responsible for only 9% of the remittance inflows into Ethiopia [7].

Given the current renewable energy-based energy landscape coupled with an impressive economic growth track record along with its rapid integration into the global economy, it would be interesting to explore the EKC model augmented with renewable energy and remittances in the context of Ethiopia as to the best of the authors’ knowledge, no such investigation has so far been undertaken. Basically previous studies that examined the EKC hypothesis in Ethiopia has utilized energy intensity Hundie and Daksa [22]. However, including renewable and non-renewable energy is more comprehensive in reflecting real scenario of Ethiopia as its energy mix has dramatically changed from being dominated by fossil fuels to renewable energy domination. Thus, this study is going to address a gap in augmented EKC literature with special reference to Ethiopia.

Section snippets

Review of literature

The relation among income (economic growth), renewable energy and CO2 emissions has been mostly studied under the framework of EKC hypothesis. Over time, the EKC base model was extended with other emissions driving macro factors. Since countries have been, over the years, pursuing with efforts to increase use of renewable energy in their energy mix, empirical studies examining and comparing between the roles of renewable and non-renewable energies on emissions continue to surge. In order to

Model

In the ground breaking seminal EKC approach, GDP and square of GDP were assumed to be the factors that determine environmental equality. The model was further extended with additional policy variables for the purpose of policy making, forecasting as well as for reducing omission variable bias. Energy production and remittance inflows have been introduced to the emissions equation as additional explanatory actors [39]; Danish et al., 2017 [32]; Shahbaz, 2018 and [4]. Remittance inflows have also

Discussion of the results

The long-run positive impact of GDP on emissions as evident from the findings of this study is consistent with some earlier studies of Shahbaz et al. [39]; Danish et al. (2017), Sinha and Shahbaz [41]; Bekhet and Othman [4]; and Dong et al. [18,19] that sustained the EKC hypothesis. Some previous studies have lent support for negative influence of renewable energy production on emissions [39,43]; Danish et al., 2017 [4,41]; among others). There is evidence for causality, especially from the

Conclusion

During the last two decades, Ethiopia succeeded to have been sustaining with the highest economic growth among African countries and has witnessed a staggering upsurge in its renewable energy generation along with a steady decline in non-renewable energy generation. Therefore, the presence of the EKC in Ethiopia cannot be ruled out. Thus, the key objective of this study is to verify the validity of an augmented EKC in Ethiopia that includes renewable energy generation, non-renewable energy

Author contribution

Usama Al-mulali: Conceptualization, Validation, Writing - Review & Editing, Visualization, Supervision; Sakiru Adebola Solarin: Methodology, Software, Formal analysis, Investigation, Data Curation, Project administration; Mohammad Salahuddin: Resources, Writing - Original Draft,

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

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