Impact of inter-fuel substitution on energy intensity in Ghana

Abstract

Energy intensity and elasticity, together with inter-fuel substitution are key issues in the current development stage of Ghana. Translog production and ridge regression are applied for studying these issues with a data range of 2000–2015. The current energy dynamics reveal the expected inverse relationship: higher energy intensity and lower elasticity with economic growth. There are evidences of energy-economic challenges: high energy cost, inefficiency and backfire rebound effect. The implications are higher energy losses in the system, more consumption of lower-quality energy together with low energy technology innovation. Energy is wasted and directly not productive with economic activities. It is observed further that the higher energy intensity invariably increases CO₂ emission because approximately 95% of total energy is derived from hydrocarbons and biomass. An inter-fuel substitution future scenario design was further conducted and the results were positive with growth, lower energy intensity, and improved energy efficiency. Therefore, government and energy policymakers should improve energy efficiency, cost, and productiveness. That is, they should change energy compositions and augment energy technology innovation, thus, increasing renewable share to 15% by 2026, reducing wood and charcoal by about 69%, and increasing natural gas to about 776%. Energy policymakers should enhance the installation of smart energy, cloud energy solution, tokenization of energy system and storage.

Graphical abstract

Keywords

energy intensity / energy elasticity / inter-fuel substitution prospects / energy contribution / Translog production approach / ridge regression

References

[1] Lee C C. Energy consumption and GDP in developing countries: a cointegrated panel analysis. Energy Economics, 2005, 27(3): 415–427

[2] Wolde-Rufael Y. Electricity consumption and economic growth: a time series experience for 17 African countries. Energy Policy, 2006, 34(10): 1106–1114

[3] ISSER. The state of the Ghanaian economy in 2011. Legon: Institute of Statistical, Social and Economic Research, 2012

[4] Duku M H, Gu S, Hagan E B. A comprehensive review of biomass resources and biofuels potential in Ghana. Renewable & Sustainable Energy Reviews, 2011, 15(1): 404–415

[5] RCEER. Guide to natural gas in Ghana. Resource Centre for Energy Economics and Regulation (RCEER) of University Ghana, 2006

[6] Lin B, Atsagli P, Dogah K E. Ghanaian energy economy: inter-production factors and energy substitution. Renewable & Sustainable Energy Reviews, 2016, 57: 1260–1269

[7] Kraft J, Kraft A. Relationship between energy and GNP. Journal of the Energy Division, 1978, 3(2): 401–403

[8] Allen R. The British Industrial Revolution in Global Perspective. Cambridge: Cambridge University Press, 2009

[9] Moe E. Energy, industry, and politics: energy, vested interests, and long-term economic growth and development. Energy, 2010, 35(4): 1730–1740

[10] Stern D I. Energy and economic growth in the USA: a multivariate approach. Energy Economics, 1993, 15: 137–150

[11] Akarca A T, Long T V. Relationship between energy and GNP: a reexamination. Journal of the Energy Division, 1980, 5: 326–331

[12] Dale M, Krumdieck S, Bodger P. Global energy modelling–a biophysical approach (GEMBA) Part 2: Methodology. Ecological Economics, 2012, 73: 158–167

[13] Özatalay S, Grubaugh S, Long T V II. Energy substitution and national energy policy. American Economic Review, 1979, 69: 369–371

[14] Stern D I, Kander A. The role of energy in the industrial revolution and modern economic growth. Energy Journal, 2012, 33(3): 127–154

[15] Csereklyei Z, Rubio-Varas M M, Stern D I. Energy and economic growth: the stylized facts. Energy Journal, 2016, 37(2): 223–255

[16] Apergis N, Payne J E. Energy consumption and economic growth: evidence from the commonwealth of independent states. Energy Economics, 2009a, 31(5): 641–647

[17] Ozturk I. A literature survey on energy–growth nexus. Energy Policy, 2010, 38(1): 340–349

[18] Stern D I. Energy and economic growth. In: Clevel C J ed. Encyclopedia of Energy. San Diego CA: Academic Press, 2004, 35–51

[19] Pirlogea C, Cicea C. Econometric perspective of energy consumption and economic growth relation in European Union. Renewable & Sustainable Energy Reviews, 2012, 16(8): 5718–5726

[20] Stern D I. Economic growth and energy. Energy Policy, 2004, 50: 518–527

[21] Stern D I. The role of energy in economic growth. Annals of the New York Academy of Sciences, 2011, 1219(1): 26–51

[22] Rafiq S, Salim R. The linkage between energy consumption and income in six emerging economies of Asia. International Journal of Emerging Markets, 2011, 6(1): 50–73.

[23] Chontanawat J, Hunt L C, Pierse R. Causality between energy consumption and GDP: evidence from 30 OECD and 78 non-OECD countries. In: Surrey Energy Economics Discussion Paper Series. Surrey Energy Economics Centre (SEEC), Department of Economics, 2006, 113

[24] Ayres R U, Warr B. The Economic Growth Engine: How Energy and Work Drive Material Prosperity. Cheltenham, Northampton: Edward Elgar Publishing, 2009

[25] Georgescu-Roegen N. The Entropy Law and the Economic Process. Cambridge MA: Harvard University Press, 1971

[26] Bloch H, Rafiq S, Salim R. Economic growth with coal, oil and renewable energy consumption in China: prospects for fuel substitution. Economic Modelling, 2015, 44: 104–115

[27] Best R. Switching towards coal or renewable energy? The effects of financial capital on energy transitions. Energy Economics, 2017, 63: 75–83

[28] Salim R A, Hassan K, Shafiei S. Renewable and nonrenewable energy consumption and economic activities: further evidence from OECD countries. Energy Economics, 2014, 44: 350–360

[29] Kwabena A A. What factors have influenced economic growth in Ghana? In: IEA Ghana, Policy Analysis. Institute of Economic Affairs, 2006

[30] Akinlo A E. Energy consumption and economic growth: evidence from 11 Sub-Sahara African countries. Energy Economics, 2008, 30(5): 2391–2400

[31] Twerefo D K, Akoena S K K, Egyir-Tettey F K, Energy consumption and economic growth: evidence from Ghana. Department of Economics, University of Ghana, Accra, Ghana, 2008

[32] Esso L J. The energy consumption-growth nexus in seven Sub-Saharan African countries. Economics Bulletin Access Economics, 2010, 30(2): 1191–1209

[33] Abaidoo R. Economic growth and energy consumption in an emerging economy: augmented granger causality approach. Research in Business and Economics Journal, 2011, 4: 1

[34] Sims C A. Role of approximate prior restriction in distributed lag estimation. Journal of the American Statistical Association, 1972, 67(337): 169–175

[35] Granger C W J. Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 1969, 37(3): 424–438

[36] Adom P K. Electricity consumption-growth nexus: the Ghanaian case. International Journal of Energy Economics and Policy, 2011, 1(1): 18–31

[37] Essah E A. Energy generation and consumption in Ghana. In: West Africa Built Environment Research (WABER) Conference, Accra, Ghana, 2011, 391–401

[38] Kwakwa P A. Disaggregated energy consumption and economic growth in Ghana. International Journal of Energy Economics and Policy, 2012, 2(1): 34–40

[39] Dramani J, Tandoh F, Tewari D. Structural breaks, electricity consumption, and economic growth: evidence from Ghana. African Journal of Business Management, 2012, 6(22): 6709–6720

[40] Bildirici M. The relationship between economic growth and electricity consumption in Africa: MS-VAR and MS-Granger causality analysis. Journal of the Energy Division, 2012, 37: 18

[41] Kwakwa P A. Energy-growth nexus and energy demand in Ghana: a review of empirical studies. Applied Research Journal, 2014, 1(1): 28–38

[42] Paul S, Bhattacharya R N. Causality between energy consumption and economic growth in India: a note on conflicting results. Energy Economics, 2004, 26(6): 977–983

[43] Odhiambo N M. Energy dependence in developing countries: does the level of income matter? Atlantic Economic Journal, 2014, 42(1): 65–77

[44] Bernard N L, Odhiambo N M. The dynamic causal relationship between electricity consumption and economic growth in Ghana: a trivariate causality model. Managing Global Transitions, 2014, 12(2): 141–160

[45] Patrick E, Dodzi K H E. Influence of the electricity consumption on economic growth in Ghana: an econometric approach. International Journal of Economics, Commerce, and Management (United Kingdom), 2014, 2(9)

[46] Ackah I, Adu F. The impact of energy consumption and total factor productivity on economic growth oil producing African countries. Bulletin of Energy Economics, 2014, 2(2): 28–40

[47] Ackah I. On the relationship between energy consumption, productivity and economic growth: evidence from Algeria, Ghana, Nigeria, and South Africa. University of Portsmouth United Kingdom, 2015, MPRA Paper No. 64887

[48] Esso L J, Keho Y. Energy consumption, economic growth, and carbon emission: cointegration and causality evidence from selected African countries. Energy Policy, 2016, 114: 492–497

[49] Zerbo E. Energy consumption and economic growth in Sub-Saharan African countries: further evidence. Economic Bulletin, 2017, 37(3): 1720–1744

[50] Samuel Y A. An econometric modelling of financial development-aggregate energy consumption nexus for Ghana. 2017

[51] Appiah M O. Investigating the multivariate granger causality between energy consumption, economic growth and CO₂ emissions in Ghana. Energy Policy, 2018, 112: 198–208

[52] Omri A. An international literature survey on energy-economic growth nexus: evidence from country-specific studies. Renewable & Sustainable Energy Reviews, 2014, 38: 951–959

[53] World Bank Development Indicators (WDI). Online database, World Bank, Washington, DC, USA. 2017

[54] Frieling J, Madlener R. Estimation of substitution elasticities in three-factor production functions: identifying the role of energy. FCN Working Paper, 2016, Paper No. 1/2016

[55] Wesseh P K Jr, Zoumara B. Causal independence between energy con-sumptionand economic growth in Liberia: evidence from a non-parametric bootstrapped causality test. Energy Policy, 2012, 50: 518–527

[56] Anderson A. Business Statistics for Dummies. Wiley, 2013

[57] Woodland A. Substitution of structures, equipment, and labor in Canadian production. International Economic Review, 1975, 16(1): 171–187

[58] Klacek J, Vopravil J. Total factor productivity in Czech manufacturing industry: the KLEM approach. Statistika, 2008, 45(5): 414–428

[59] Li X. The variation tendency analysis on contribution rate to economic growth by production factor input in China . Management Science and Engineering, 2013, 7(2): 16–23

[60] Li L, Zhu K, Guo H. The empirical studies of science and technology progress contribution rate estimation in various regions of China. China’s Population, Resources, and Environment, 2011, (4): 55–61

[61] Christensen L R, Jorgenson D W, Lau L J. Transcendental logarithmic production frontiers. Review of Economics and Statistics, 1973, 55(1): 28–45

[62] Adetutu M O. Energy efficiency and capital-energy substitutability: evidence from four OPEC countries. Applied Energy, 2014.119: 363–370

[63] Fuss M A. The demand for energy in Canadian manufacturing. Journal of Economics, 1977, 5(1): 89–116

[64] Berndt E R, Wood D O. Engineering econometric interpretation of energy-capital complementarity. American Economic Review, 1979, 69(3): 342–354

[65] Magnus J R. Substitution between energy and non-energy inputs in the Netherlands: 1950–1976. International Economic Review, 1979, 20(2): 465–484

[66] Smyth R, Narayan P K, Shi H. Substitution between energy and classical factor inputs in Chinese Steel Sector. Applied Energy, 2011, 88(1): 361–367

[67] Zha D, Zhou D. The elasticity of substitution and way of nesting CES production function with emphasis on energy input. Applied Energy, 2014, 130: 793–798

[68] Hoerl A E, Kennard R W. Ridge regression: biased estimation for non orthogonal problems. Technometrics, 1970, 12(1): 55–67

[69] Hoerl A E, Kennard R W. Ridge regression: an application to non-orthogonal problems. Technometrics, 1970, 12(1): 69–82

[70] Wetherill F G. Evaluation of ordinary ridge regression. Bulletin of Mathematical Statistics, 1986, 18: 1–35

[71] O’Mahony M, Timmer M P. Output, input and productivity measures at the industry level: the EU KLEMS database. Economic Journal (London), 2009, 119(538): F374–F403

[72] Wheeler D, Tiefelsdorf M. Multicollinearity and correlation among local regression coefficients in geographically weighted regression. Journal of Geographical Systems, 2005, 7(2): 161–187

[73] Wooldridge J M. Introductory Econometrics: a Modern Approach. South-Western College Publishing, 2006

[74] Pickup M. Introduction to Time Series Analysis, Quantitative Applications in the Social Sciences. Thousand Oaks, USA: SAGE Publications, Inc., 2015

[75] White H. Author cocitation analysis and Pearson’s r. Journal of the American Society for Information Science and Technology, 2003, 54(13): 1250–1259

[76] Bensman S J. Pearson’s r and author cocitation analysis: a commentary on the controversy. Journal of the American Society for Information Science and Technology, 2004, 55(10): 935–936

[77] Marquardt D W, Snee R D. Generalized in inverses, ridge regression, biased linear estimation. Technometrics, 1970, 12(3): 591–612

[78] van Benthem A. Energy leapfrogging. Journal of the Association of Environmental and Resource Economists, 2015, 2(1): 93–132

[79] Lin B, Ankrah I, Manu S A. Brazilian energy efficiency and energy substitution: a road to cleaner national energy system. Journal of Cleaner Production, 2017, 162: 1275–1284

[80] Burke P J, Csereklyei Z. Understanding the energy-GDP elasticity: a sectoral approach. Energy Economics, 2016, 58: 199–210

[81] Shahbaz M, Salah Uddin G, Ur Rehman I, Imran K. Industrialization, electricity consumption and CO₂ emissions in Bangladesh. Renewable & Sustainable Energy Reviews, 2014, 31: 575–586

[82] Ma C, Stern D I. China’s changing energy intensity trend: a decomposition analysis. Energy Economics, 2008, 30(3): 1037–1053

[83] Jorgenson D W. The role of energy in productivity growth. Energy Journal, 1984, 5(3): 11–26

[84] Wang Z H, Zeng H L, Wei Y M, Zhang Y X. Regional total factor energy efficiency: an empirical analysis of industrial sector in China. Applied Energy, 2012, 97: 115–123

[85] Bataille C, Jaccard M, Nyboer J, Rivers N. Towards general equilibrium in a technology-rich model with empirically estimated behavioral parameters. Energy Journal, 2006, 27(01): 93–112

[86] Sinton J E, Levine M D. Changing energy intensity in Chinese industry: the relative importance of structural shift and intensity change. Energy Policy, 1994, 22(3): 239–255

[87] Schurr S H, Bruce C, Netschert. Energy in the American Economy, 1850–1975: an Economic Study of its History and Prospects. Baltimore, MD, USA: Johns Hopkins Press, 1960

[88] Liddle B. The importance of energy quality in energy intensive manufacturing: evidence from panel cointegration and panel FMOLS. Energy Economics, 2012, 34(6): 1819–1825

[89] Kaufmann R K. The mechanisms for autonomous energy efficiency increases: a cointegration analysis of the US energy/GDP ratio. Energy Journal, 2004, 25(1): 63–86

[90] Ghana Energy Commission. National energy statistics 2000–2013. Final Draft Report 2016

[91] Acheampong T, Ankrah F. Pricing and deregulation of the energy sector in Ghana: challenges and prospects. Imani Ghana Report for Ghana’s Energy Situation, Q1. 2014

[92] Ackah I. Analysis of energy efficiency practices of SMEs in Ghana: an application of product generational dematerialization. Africa Center for Energy Policy, 2017

[93] Jorgenson D W. Productivity and Economic Growth. Chicago: University of Chicago Press, 1991: 19–118

[94] Christensen L R, Jorgenson D W. Measuring the performance of the private sector of the U.S. economy. In: Milton Moss ed. Measuring Economic and Social Performance. New York: NBER, 1973, 233–238

[95] Freeman R A. Theory on the future of the rebound effect in a resource-constrained world. Frontiers in Energy Research, 2018, 6: 81

[96] World Bank. Energizing economic growth in Ghana: making the power and the petroleum sectors rise to the challenge. Washington DC: World Bank, 2013

[97] Panayotou T. Empirical tests and policy analysis of environmental degradation at different stages of economic development, ILO: World Employment Program Research, WEP 2–22/WP, 1993, 238

[98] Mehrara M. Energy consumption and economic growth: the case of oil exporting countries. Energy Policy, 2007, 35(5): 2939–2945

[99] Solow R M. Technical challenge and the aggregate production function. Review of Economics and Statistics, 1957, 39(3): 312–320

[100] Ghana Statistical Service. Annual Gross Domestic Product. 2015

[101] Wesseh P K Jr, Lin B, Appiah M O. Delving into Liberia’s energy economy: technical change, inter-factor, and inter-fuel substitution. Renewable Sustainable Energy Reviews Journal, 2013, (24): 122–130

[102] Greene W H. Econometric Analysis. 7th ed. Boston, MA: Pearson Education, Inc., 1951

[103] Stern D I. Energy quality. Ecological Economics, 2010, 69(7): 1471–1478

[104] Zha X G, Liu P K. Substitution among energy sources: an empirical analysis on biomass energy for fossil fuel of China. Renewable & Sustainable Energy Reviews, 2013, 18: 194–202

[105] Lu X, White H. Robustness checks and robustness tests in applied economics. Journal of Econometrics, 2014, 178: 194–206

[106] Li K, Lin B. How to promote energy efficiency through technological progress in China? Energy, 2018, 143: 812–821

[107] Li K, Lin B. An application of a double bootstrap to investigate the effects of technological progress on total-factor energy consumption performance in China. Energy, 2017, 128: 575–585

[108] Liu J, Cheng Z, Zhang H. Does industrial agglomeration promote the increase of energy efficiency in China? Journal of Cleaner Production, 2017, 164: 30–37

RIGHTS & PERMISSIONS

Higher Education Press and Springer-Verlag GmbH Germany, part of Springer Nature