Assessing the Macroeconomic Impacts of Financing Options for Renewable-Energy Policy in Nigeria: Insights from a CGE Model

Abstract

In 2015, Nigeria formulated its Renewable Energy and Energy Efficiency Policy (NREEEP) to promote the development of renewable-energy systems in line with the Paris Climate Agreement and Sustainable Development Goals. With that as inspiration, we examined the effectiveness and macroeconomic impacts of Nigeria’s renewable-energy policy using a computable general equilibrium (CGE) model. We calibrated the PEP-1-1 CGE model on Nigeria’s updated social accounting matrix (SAM) and ascertained the effects on key energy, economic, and environmental variables. We found that a production subsidy was effective in developing the renewable-electricity sector and encouraging the use of renewable electricity, regardless of how the subsidy was financed. The fiscal incentive for the renewable electricity sector had positive impacts on such key macroeconomic and welfare variables as employment, real GDP, household income, and welfare if the subsidy was financed by government deficit. Macroeconomic impacts were unfavourable, however, if the subsidy was financed by adjustments in government expenditures.