The energy use of capital inputs: Towards cleaner production in Nigeria

Abstract

To reduce fossil energy consumption and mitigate carbon emission in an economy, it is important to examine the energy use of the physical capital factor input, taking the Nigerian production process as an example, given that Nigeria is the largest economy in Africa by Gross Domestic Product (GDP), Purchasing Power Parity (PPP), Population, etc. On the other hand, while existing literature assumes energy-use as an independent factor input, this article argues that energy-use is a dependent factor input in a production function relationship. Therefore, this paper seeks to model the production processes differently, by considering energy-use as a dependent factor input of production. Hence, the Energy Efficient Constant Elasticity of Substitution (EE-CES) production function is proposed to model the aggregate production process in Nigeria while taking energy-use as a capital-dependent input factor. The Indirect Least Square (ILS) results show a 19% actual capital energy-efficient level in Nigeria. The marginal productivity of energy-efficient capital exceeds that of labour and energy-inefficient capital. The Nigerian factor inputs exhibit increasing returns to scale with a homogenous of degree three-second. On average, the Nigerian production process is more labour intensive than capital intensive. Therefore, conscious efforts are required to simultaneously make the Nigerian production process more capital-intensive and improve the energy-efficiency of the capital input. The implication of this study is not peculiar to Nigeria but includes other developing economies, mostly African economies, with a more labour-intensive production system.