Does carbon emission react to oil price shocks? Implications for sustainable growth in Africa

Abstract

This study examines the asymmetric effect of oil price changes on CO2 emissions for 30 African countries from 1987 to 2019. Using the panel non-linear autoregressive distributive lag (NARDL) methodology, the study reveals that an asymmetric relationship exists between oil price and CO2 emission as positive changes in the oil price are associated with a reduction in CO2 emissions. The negative change is also found to be associated with an increase in CO2 emission across the panel countries. In addition, in the long run, the degree of CO2 emission response to positive changes in oil price is more in oil-importing countries relative to oil-exporting countries. While CO2 emission response in oil-exporting countries responds more to negative changes in oil prices than in oil-importing countries. When we examine the response of GDP to a reduction in CO2 emission, we found that while a negative change in CO2 is associated with an increase in GDP in oil-importing countries, negative changes in CO2 emission significantly lead to a reduction in GDP in net oil-exporting countries. The study suggests strengthening the call for carbon emission reduction, especially in oil-exporting countries as oil price does not exhibit enough push factor towards the mitigation of CO2 emission in the continent.