Macroeconomic and Institutional Reforms of Energy Pricing Policies in Nigeria; How Effective?

Abstract

The objective of this paper is to examine the impact of institutional reforms in Nigeria on energy pricing policies, energy supply, and fossil fuel subsidy initiatives, comparing them with global practices. This assessment scrutinizes Nigeria’s commitment to its predetermined goals by evaluating how these policies influence socioeconomic welfare, consumer productivity, and empowerment. Furthermore, the study reviews the primary challenges facing Nigeria’s energy sector, examining their macroeconomic dimensions and the impact of governmental institutional reforms. By utilizing variance decomposition (VDC) within the vector error correction model (VECM), the paper tests the influence of energy pricing and various reforms on key macroeconomic variables. This analysis is complemented by Granger causality tests to explore long-term cause-and-effect relationships among the variables. Additionally, the assessment employs inverse roots of AR to estimate the marginal social cost of reduced energy subsidies. The investigation also extends to using impulse response function techniques to explore the economic and environmental implications of energy subsidies and carbon emissions in Nigeria. The study highlights limitations such as technological constraints and inadequate regulatory or market-based policies, which diminish policy effectiveness. Consequently, the study recommends the development of more robust energy conservation policies, emphasizing the need for well-coordinated frameworks addressing climate change. It also calls for diversification in energy mixes.”