Determinants of Economic Benefit from Environmental Welfare in sub-Saharan Africa: Evidence from Energy Transition in Ghana

Abstract

This study analysed the economic effect of energy transition on holistic environmental welfare in sub-Saharan Africa. It models the long run and short run determinants of environmental welfare using the Autoregressive Distributed Lag (ARDL) econometric methodology. The empirical analysis examined environmental welfare in Ghana, one of sub-Saharan Africa’s leading countries in electricity access and a strong advocate of the continent’s ideas on energy transition. The study found a positive and highly significant relationship between energy price and environmental welfare. Also, CO2 emissions had a negative and statistically significant effect on environmental welfare, confirming the adverse effect of fossil fuel use on environmental welfare in sub-Saharan Africa. The study also found that environmental welfare in Ghana is explained by state borrowing. The results indicate that the value of future economic benefits, if sub-Saharan African countries transition to renewable energy now, far outweigh the benefit expected from retaining fossil fuel as the main energy source till 2070. Thus, sub-Saharan Africa’s decision to hold unto fossil fuels as its main source of energy while a transition to cheaper and environmentally friendly renewable energy is ongoing, constitutes an economic setback for the continent. The analysis also indicate that Ghana’s energy transition plan, which largely reflects the sub-Saharan African plan, does not conform to the current financial reality of the countryand requires a second thought in favor of a speedy transition to renewable energy. Sub-Saharan Africa will be better off with a quick transition to renewable energy than otherwise.