Productivity costs of the green energy transition in Africa

Abstract

Transitioning to renewable energy generates tangible benefits in terms of the environment and emissions of greenhouse gases. However, the economic productivity costs of switching to clean energy cannot be overlooked, in addition to the large resource requirements, potential disruption in energy systems, risks of job losses, and emergence of new inequalities. Therefore, it is crucial to identify and quantify synergies and trade-offs. This paper investigates the productivity cost of abandoning the use of fossil fuels in African countries, using econometric techniques applied to panel data, including the fully modified ordinary least square. The paper finds that, while renewable energy supply is beneficial to increase total factor productivity, in general, a shift toward a higher share of renewables in the power mix is not without productivity cost on the economy. The analysis accounts for other sources of productivity, such as human capital and the diffusion of embodied technology imported from abroad into local markets. The data also reveal that the energy transition could have heterogeneous effects depending on the regions' and countries' characteristics and stages of transition.