The role of fossil fuel subsidies in preventing a jump-start on the transition to renewable energy: Empirical evidence from Algeria

Abstract

In fact, the debate on the gradual elimination of fossil fuel subsidies as a precursor to accelerating renewable energy transition has received much less scholarly attention in Algeria, which is one of the largest producers and exporters of oil and natural gas in Africa and ranked eighth among the top 25 fossil fuel subsidizers in the world. Thus, this study aims to investigate the impact of fossil fuel subsidies on renewable energy generation in Algeria between 1996 and 2021 using the autoregressive distributed lag (ARDL) approach developed by Pesaran et al. (1996, 2001) and Pesaran et al. (1999). The main findings emphasize that the phase-out of inefficient fossil fuel subsidies can give a sturdy impetus to renewable energy development in Algeria in the short and long run. The speed of adjustment towards long-run equilibrium is 34.05% annually in Algeria. Furthermore, a decrease of 1% in fossil fuel subsidies sparks a 15.19% increase in renewable energy production in Algeria in the long run. Consequently, it is incumbent upon policymakers and relevant authorities in Algeria to preemptively redirect their efforts and strategies to phase out fossil fuel subsidies, which proved to be a major stumbling block to the expeditious development of renewable energy sources.