Nonrenewable and renewable energy substitution, and low–carbon energy transition: Evidence from North African countries

Abstract

Extant literature has mainly considered labor, capital, and energy as production input factors but treated technology as given; however, technology plays a double role in enhancing factor productivity and carbon emission reduction, which is vital for the low-carbon energy transition. This paper uses the transcendental logarithm production model to estimate factor output and energy substitution among oil, natural gas(NG), and renewable energy(RE) in North African countries from 1990 to 2017. Authors accounted for technological progress(TP) in the estimation by incorporating dynamic technology efficiency and total patent count. The empirical results show that TP enhances the use of more capital, labor, NG, and RE to produce economic output in Tunisia due to biased TP towards abundant and affordable NG(scale and price effect) while the reverse is true for Algeria, Egypt, and Morocco resulting from biased TP towards scarcer capital accumulation(scale effect). The implication is that with improvement in obsolete capital accumulation, TP can enhance the decoupling of fossil energy from economic growth in these economies. We also found TP fosters energy substitution of NG for both oil and RE but not oil for RE except for Algeria. These results also imply TP can foster low-carbon energy transition by promoting energy substitution to cleaner alternatives, especially in Algeria, Egypt, and Morroco, while renewables should replace natural gas in Tunisia by an intentional policy. Several targeted policy measures are formulated based on these results.