Is energy transition possible for oil-producing nations? Probing the case of a developing economy

Abstract

An expected decline in oil revenue and a complicated global energy market present significant concerns about oil-producing countries’ intentions to move away from fossil fuels. Understanding the dynamics of these concerns, particularly in light of potential energy transitions, is crucial for future energy supply and sustainable energy discussion. Given the scarcity of research on the issue, this study examined whether an implied shift from fossil fuels to a cleaner energy state is possible for Ghana, a small oil-producing economy in sub-Saharan Africa. A two-state Markov Switching Model (MSM) was applied to a dataset covering 1980–2019. Results based on a multivariate state-dependent regression technique were documented as follows: First, the probability of transitioning from a nonrenewable energy state to a renewable energy state is 76.5%. Second, there is 80.2% chance of remaining in a renewable energy state for five years. Third, fossil fuel production undermines cleaner energy development as 1% growth in nonrenewable energy causes a 0.20% decline in renewable energy generation. Finally, trade openness and foreign direct investment promote cleaner energy growth. The study concluded that Ghana’s economy has a greater chance of transitioning from fossil fuels and an equally higher chance of realizing a cleaner energy state, despite a declining policy support for renewable energy development.