469480
TI Journals
ISSN:
23067276
Keywords
Abstract
Economic growth
Energy consumption
Vector error correction
Cointegration
Nigeria
Using a neoclassical aggregate production model where capital, labor, real exchange rate and energy are
treated as separate inputs, this study tests for the existence and direction of causality between economic
growth and energy use in Nigeria at both aggregated total energy and disaggregated levels as crude oil, coal,
natural gas and electricity consumption. Using the autoregressive distributed lag (ARDL) cointegration
technique, the empirical findings indicate that there exists longrun cointegration among output, labor,
capital, real exchange rate and energy use in Nigeria at both aggregated and all the disaggregated levels
except for coal. Then using a VEC specification, the shortrun dynamics of the interested variables are
tested. This indicates that there exists Granger causality running only from GDP to electricity consumption. I
thus propose policy suggestions to solve the energy and sustainable development dilemma in Nigeria as:
enhancing and guaranteeing energy supply; enhancing energy efficiency to save energy; diversifying energy
sources by exploiting renewable energy and drawing out appropriate policies and measures.
*Student #: 201398088
Econ 6009 (Graduate seminar) project paper
November 2014
1.
Introduction
Energy plays a vital role in the economic development of a country; it enhances the productivity of factors of production and increases living
standards. It is recognized that there is interdependency between economic development and energy consumption. The key question in energy
economics, however, is whether economic growth (EG) leads to energy consumption (EC) or whether EC leads to EG. The causal relationship
between energy consumption (EC) and economic growth (EG) has been well studied in economic literature. Lately, there has been a renewed
interest in examining this relationship due to the impact that energy consumption has on climate change, and because the higher economic
growth rates pursued by developing countries can only be achieved with the consumption of a larger quantity of commercial energy, which is a
key factor of production, along with capital, labour and raw materials. The aim of this paper is to empirically investigate the causal interactions
between EC and EG in Nigeria as a developing economy.
Energy consumption in Nigeria is mainly based on the use of fossil fuels which is nonrenewable. Petroleum, a very important source of energy
and economic commodity in Nigeria, has had so many problematic issues since the 1980s. There is the issue of subsidy, the issue of scarcity, the
issue of sharing of revenues accruing from petroleum, the fuel subsidy issue, which in December 2011 generated social and political problems
that paralyzed economic activities nationwide. Also, the issue of probes in the downstream petroleum subsector, and recently, the issue of
privatization and deregulation of the Nigerian Oil Industry. It appears these problematic issues may have arisen due to some unfavourable
characteristics of petroleum policies in Nigeria. Similar problems have been encountered in the electricity sector in Nigeria. In Nigeria, the
continuance energy crisis has led to economic lapses, and drastically undermined the effort to achieve rapid and sustained economic growth and
development. Likewise industries have been collapsing due to the same problem thereby leading to massive unemployment and hardship for the
great majority in the country.
The purpose of this study is to reexamine the existence and direction of causality between output growth and energy use in Nigeria at both
aggregated total energy and disaggregated levels as crude oil, natural gas, electricity and coal consumption. This is to be able to check not only
the direct effect of energy consumption on economic growth, but also, the indirect impact of energy consumption on economic growth through
its complementary effect on capital and labor, and also through the influence of the international trade on the Nigerian energy consumption
(being an energy exporter). This is accomplished by proposing a framework based on the neoclassical onesector aggregate production
technology where capital, labor, real exchange rate (proxy for international trade), and energy are treated as separate inputs. Therefore, this study
is expected to provide useful insight into the relationship between energy consumption and economic development in Nigeria, as a developing
economy. Also, it will contribute to the energy consumptioneconomic growth nexus literature, as it provides additional empirical evidence on
the relationship within the context of a developing and emerging economy. This study will be useful to stakeholders in the Nigerian energy
industry and market, and policy makers, as it provides evidence on the relationship between energy use and output growth. This research work is
organized as follow: Section I is the introduction; section II of the paper discusses the literature review, where both theoretical and empirical
studies on previous works are looked into. In section III, the methodology of this study is considered. Section IV discusses empirical results,
followed by a conclusion and policy implications in Section V.
2.
Literature review
Various energy crisis and persistently high energy prices, particularly oil prices, have had a significant impact on the economic activity of most
economies. Hence, the causal relationship between energy consumption and economic growth has been a widely studied topic in energy
economics literature; as energy plays a significant role in any economy. The growth hypothesis suggests that energy consumption is an
indispensable component in growth, directly or indirectly as a complement to capital and labour as an input in the production process (Mulegeta
et al. 2010). Since production and consumption activities involve energy as an essential factor inputs, the relationship between energy
consumption and economic growth has been a subject of considerable discussions in the literature (Abdulnasser and Manuuchehr, 2005). The
question as to whether energy consumption has positive, negative or neutral impact on economic activities has motivated the interest of
economists and policy analysts hence the need to find out the direction of causality between energy consumption and economic growth (Eddine,
2009).
470
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
Empirical studies designed to test the causal relationships between energy consumption and economic growth are generally grouped into three
testable hypotheses. The first hypothesis suggests that energy consumption is a precondition for economic growth, given that energy is a direct
input in the production process and also, energy is an indirect input that complements labor and capital inputs (Odhiambo, 2009; Ebohon, 1996).
The second hypothesis assumes that there is a bidirectional or feedback relationship between energy consumption and economic growth. The
implication of the bidirectional relationship is that energy consumption and economic growth are complementary. This implies that an increase
in energy consumption will accelerate economic growth, and in the reverse also, an increase in economic growth will stimulate energy
consumption (Hon, 2009; Omotor, 2008). The third hypothesis which is neutral, assumes that there is no causality between energy consumption
and economic growth and thus policies that are aimed at conserving energy will not retard economic growth (George and Nickoloas, 2011;
Ezatollah et al., 2010). In an attempt to justify the first hypothesis, Odhiambo (2009) applied the autoregressive distributed lag (ARDL) bounds
test approach and Granger noncausality test for Tanzania for the 19712006 period. The results of the bounds test revealed a stable longrun
relationship between energy consumption and economic growth. While, the results of Granger noncausality showed the evidence of
unidirectional causality running from energy consumption to economic growth. The results imply that energy conservation policies would have
damaging repercussions on economic growth for Tanzania. Contradicting the first hypothesis, Mehrara (2007) looked at the relationship between
the per capita energy consumption and per capita GDP using the panel data for 11 oil exporting countries for the period 19712002. On the basis
of the panel cointegration technique and Granger causality test, the results showed a unidirectional causality from economic growth to energy
consumption for all the countries. His results indicated that energy conservation policies have no damaging effect on economic growth for this
group of countries. Moreover, Esso (2010) examines the longrun causality relationship between energy and economic growth for 7 subSahara
countries over the period 19702007. He applied Autoregressive Distributed Lag (ARDL) Bounds testing approach to cointegration. The
findings suggest unidirectional relationship running from energy consumption to real GDP for all countries involved, except CotedIvoire and
Congo. The result of causality indicates bidirectional relationship between energy consumption and real GDP in the case of CotedIvoire and
unidirectional causality from real GDP to energy for Congo. Von (2009), on the basis of panel data from 158 countries for the period 1980 2004
and employing semiparametric partially linear panel model, reports that energy consumption leads to increase in economic growth and the
effect of time trend is not significant. This justifies the first hypothesis.
Mawuse and Nezan (2009) on the basis of panel data for 4 West African Economic and Monetary Union (WAEMU) countries for the period
19702005 and applying Cointegration test and Vector Error Correction Model (VECM) carried out a study in support of the second hypothesis.
The findings suggest a bidirectional relationship for the panel as a whole, the findings reveal not only feedback between energy consumptiongrowth nexus but also support regional energy policies which must take account some countries specificities. Also, using time series data for the
period 19702009 and applying the techniques of Vector Autoregressive (VAR) and Vector Error Correction Model (VECM), Magazzino (2011)
reports the long run bidirectional relationship between energy consumption and economic growth in Italy. Similarly, using time series data from
Malaysia for the period 19712008 and applying ARDL bounds testing approach to Cointegration and causality tests within a Vector Error
Correction Model (VECM), Faridul et al. (2011) discovers that energy consumption is affected by economic growth and financial development
in the short run and in the long run. Yu and Jin (1992) used cointegration analysis to test the longrun relationship between energy use and
employment as well as industrial output in the USA. They found that no cointegrating relationship exists between energy use and these two
variables. This justifies the third hypothesis. Also, Stern (1993) examined the causal relationship between energy use and GDP in the USA. He
employed a multivariate vector autoregressive (VAR) analysis and used a weighting index of energy quality, where content of energy use shifts
from lower quality energy such as coal to high quality energy such as electricity, rather than using a measure of total energy use. He also
employed a different test of causality. He found that total energy use does not Granger cause GDP. However, using a weighting measure of
energy, a unidirectional Granger causality is found, running from energy use to GDP. Stern (2000) extends his analysis on the US economy by
introducing cointegration analysis of the relationship between energy and GDP. He found again that total energy use does not seem to have
Granger causality with GDP. However, using quality weighting index of energy, it is found to Granger cause GDP. His cointegration results
thus show that energy cannot be excluded from the cointegration space. In three of the five models estimated he found unidirectional causality
between energy use and GDP where causality runs from energy use to GDP. In the other two models he found a bidirectional causal relationship
between energy use and GDP. Stern results suggest that energy is considered to be a significant input factor that affects GDP in the USA. Also,
using the VEC specification, Ghali and El Sakka (2004) found out that there is bidirectional Granger causality between output growth and
energy use in Canada. This implies that energy can be considered as a limiting factor to economic growth in Canada. It can be seen that so far,
there is a lack of consensus on the actual relationship between energy consumption and economic or output growth in the energygrowth
literature. This stems mainly from the difference in analytical techniques and the form of the data used.
3.
Methodology
(1)
Where Y is the real GDP; K is the capital stock; L is the level of employment; ER is real exchange rate; E is total energy consumption in
aggregated level or crude oil consumption, natural gas consumption, electricity consumption and coal consumption at disaggregated level, and
the subscript t denotes the time period. Taking the differential of Eq. (1) we obtain:
=
(2)
Where is the partial derivative of Y with respect to its ith argument. On dividing
Eq. (2) through by and rearranging the resulting expression, we obtain the following growth equation:
= + +
(3)
Where a dot on the top of a variable means that the variable is now in a growth rate form. The constant parameters a, b, c and d are the elasticity
of output with respect to capital, labor, real exchange rate and energy, respectively.
The relationship between output and capital, labor, real exchange rate and energy inputs described by the production function in Eq. (1) suggests
that their longrun movements may be related. Furthermore, if one allows for shortrun dynamics in factorinput behavior, the analysis above
would also suggest that past changes in capital, labor, real exchange rate and energy could contain useful information for predicting the future
471
Empirical Analysis of the Relationship between Economic Growth and Energy Consumption in Nigeria: A Multivariate Cointegration Approach
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
changes of output, ceteris paribus. The longrun and short run dynamics between the variables is examined using the ARDL to test for
multivariate cointegration, and Granger causality within the context of the Vector Error Correction Model.
3.2 Test for cointegration and granger causality
A recently advanced cointegration approach, known as the autoregressive distributed lag (ARDL) [Pesaran et al (2001)], has become popular
among researchers. In Pesaran et al (2001), the cointegration approach, also known as the bounds testing method, is used to test the existence of
a cointegrated relationship among variables. The procedure involves investigating the existence of a longrun relationship in the form of an
unrestricted error correction model for each variable as follows:
= +
+
+
+
,
+
,
+ ,
,
+
+ ,
,
+
,
+
+
+
= +
,
,
+
+ ,
,
+
+
+
,
+
+
+
,
+ ,
+
+
+
+
+
= +
,
= +
,
,
+
+ ,
,
+
+ ,
,
+
+
(4)
= +
,
+
+
,
+
+
+
(5)
(6)
(7)
(8)
Where Y is the natural logarithm of GDP, K is the natural logarithm of Gross capital formation, L is the natural log of the percentage of the
population employed, ER is the natural logarithm of real exchange rate, and E is the natural logarithm of energy consumption. The Ftests are
used to test the existence of longrun relationships. The Ftest used for this procedure, however, has a nonstandard distribution. Thus, the Pesaran
et al (2001) approach computes two sets of critical values for a given significance level. One set assumes that all variables are I (0) and the other
set assumes they are all I (1). If the computed Fstatistic exceeds the upper critical bounds value, then the null hypothesis (no cointegration) is
rejected. If the Fstatistic falls within the bounds set, then the test becomes inconclusive. If the Fstatistic falls below the lower critical bound
value, it implies no cointegration. When a longrun relationship exists, the Ftest indicates which variable should be normalized. For instance,
the null hypothesis of equation (4) is H 0 : 1 = 2 = 3 = 4 = 5 = 0.
This technique has certain econometric advantages compared with other single cointegration procedures. They are as follows: (i) endogeneity
problems and inability to test hypotheses on the estimated coefficients in the longrun associated with the EngleGranger method are avoided; ii)
the long and shortrun parameters of the model in question are estimated simultaneously; iii) the ARDL approach to testing for the existence of a
longrun relationship between the variables in levels is applicable irrespective of whether the underlying regressors are purely I(0), purely I(1),
or fractionally integrated; iv) It is superior in small sample.
Following Granger (1988), and Engle and Granger (1987), I estimated a VEC model for the Granger causality test for our problem at hand. The
VEC representation is as follow:
= +
= +
= +
= +
= +
,
,
,
,
,
,
(9)
,
,
,
,
(10)
(11)
(12)
(13)
Where p is lag length and is decided according to information criterion and final prediction error. The parameters , are the cointegrating
vectors, derived from the longrun cointegrating relationships (i.e. =1Kt+2 Lt+3ER t+4Et+ where is stationary residuals) regression,
and their coefficients , are the adjustment coefficients. The parameters i, (i=1, 2, 3, 4, 5) are intercepts and the symbol denotes the
difference of the variable following it.
In addition to being consistent with the specifications in Equations (2) and (3), the model in Equations (4) (8) describes the intertemporal
interaction between output and the factor inputs included in the production function. Once the equilibrium conditions represented by the cointegrating relations are imposed, the VEC model describes how, in each time period, output growth is adjusting towards its longrun
equilibrium state. Since the variables are supposed to be cointegrated, then in the short term, deviation of output from its longrun equilibrium
path will feed back on its future changes in order to force its movement towards the longrun equilibrium state. The cointegrating vectors from
which the errorcorrection terms are derived are each indicating an independent direction where a stable, meaningful longrun equilibrium state
exists. The coefficients of the errorcorrection terms, however, represent the proportion by which the longrun disequilibrium in the dependent
variables is corrected in each shortterm period.
Using the model in Equations (913), Granger causality tests between the variables can be investigated through the following three channels:
i.
ii.
iii.
The statistical significance of the lagged errorcorrection terms (ECTs) by applying separate ttests on the adjustment coefficients. This
shows the existence of a longrun relationship
A joint Ftest or a Wald 2test applied to the coefficients of each explanatory variable in one equation. For example, to test whether
energy use Grangercauses output in Eq. (3), we test the following null hypothesis: : , = , == , =0. This is a measure of
shortrun causality;
A joint Ftest or a Wald 2test applied jointly to the terms in (i) and the terms in (ii)
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International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
4.
10
11
.5
LNGDP
12
D.LNGDP
1
13
1.5
14
1980
1990
2000
date
2010
2020
1980
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2000
date
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Empirical Analysis of the Relationship between Economic Growth and Energy Consumption in Nigeria: A Multivariate Cointegration Approach
2.4
.4
2.6
.2
2.8
LN G CF
D .LN G CF
0
.2
3.2
.4
3.4
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
1980
1990
2000
date
2010
2020
1980
1990
2000
date
2010
2020
.15
.1
4.4
.05
LN LAB
D .LN LAB
0
4.5
.05
.1
4.6
4.3
473
1980
1990
2000
date
2010
2020
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1990
2000
date
2010
2020
1
4.5
 .5
LN RER
D .L N R E R
5 .5
.5
6 .5
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
1980
1990
2000
date
2010
2020
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1990
2000
date
2010
2020
2000
date
2010
2020
.1
5.2
LN C O C
5.4
D .L N C O C
.1
5.6
.2
5.8
1980
1990
2000
date
2010
2020
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1990
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Empirical Analysis of the Relationship between Economic Growth and Energy Consumption in Nigeria: A Multivariate Cointegration Approach
3.5
1
.5
4.5
LN N GC
D .LN N GC
0
.5
5.5
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
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1990
2000
date
2010
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date
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2000
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2010
2020
LNELC
2.5
D .LN ELC
.2
.4
.6
3.5
.2
1.5
475
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date
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1990
2
1
LN CC
3
D .L N C C
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
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1
31 .5
32
.5
3 2 .5
LN T E C
D .L N T E C
33
3 3.5
.5
34
1980
1990
2000
date
2010
2020
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1990
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Empirical Analysis of the Relationship between Economic Growth and Energy Consumption in Nigeria: A Multivariate Cointegration Approach
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
VARIABLES
LNGDP/LNCOC
LNCOC/LNGDP
LNGDP/LNNGC
LNNGC/LNGDP
LNGDP/LNELC
FSTATISTICS
3.51
4.61
2.46
3.58
0.30
*The critical value ranges of Fstatistics are 3.964.53 and 3.213.74 at 5% and 10% level of significance respectively
[Paresh Kumar Narayan (2005)].
4.4 Test results for Vector Error Correction and Granger causality
The optimal lag length for the Vector Error Correction model was determined using the Akaike Information Criteria (AIC) and the Schwarz
Bayesian Information Criteria (SBIC). It was found to be 4.
LAG
AIC
SBIC
0
8.20329
7.92305
4
45.9316*
38.9256*
478
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
The regression result for the estimation of the long run relationship of the neoclassical production model is shown in Table 4 below.
(1)
LNGDP
0.0938
(0.34)
LNGCF
(5)
LNGDP
0.418
(1.81)
LNLAB
4.557***
(4.29)
4.315***
(4.32)
1.286
(1.33)
2.745*
(2.33)
3.389***
(3.66)
LNRER
0.121
(0.88)
0.0570
(0.47)
0.0528
(0.57)
0.207
(1.68)
0.0738
(0.65)
LNCOC
4.197***
(6.77)
1.071***
(7.40)
LNNGC
1.289***
(9.44)
LNELC
0.381***
(5.54)
LNCC
1.187***
(8.18)
LNTEC
_cons
8.884
(1.52)
27.68***
(6.08)
4.298
(0.90)
27.78***
(5.15)
10.54
(1.58)
34
34
34
34
34
t statistics in parentheses
*
p < 0.05, ** p < 0.01, *** p < 0.001
Column1 shows the result where crude oil consumption is used as the energy input, column2 shows the result for natural gas consumption,
column3 for electricity consumption, column4 for coal consumption, and column5 shows the result for total energy consumption as the energy
input. The result reveals that all else held constant, a 1% increase in crude oil consumption brings about a 4.20% increase in GDP on the
average; a 1% increase in natural gas consumption leads to a 1.07% increase in GDP on the average; a 1% increase in electricity consumption
brings about a 1.29% increase in GDP on the average; a 1% increase in coal consumption leads to a 0.38% decrease in GDP on the average; and
a 1% increase in total energy consumption leads to a 1.19% increase in GDP on the average. The coefficient of each energy input in each case is
found to be statistically significant at the 0.1% level of significance. The result is not surprising as the graphical representation of the series
reveal a linear trend in their levels. However, the estimated residual in each regression is found to be stationary using the ADF. They were also
tested for autocorrelation, using the BreuschGodfrey (BP) test, and the null hypothesis of no autocorrelation could not be rejected at a lag length
of one.
The result of short and longrun Granger causality is determined within the VECM framework. The shortrun causal effects are demonstrated
through the Fstatistics of the explanatory variables and long run causality is tested with the help of statistical significance and sign of the error
correction term. The results show that there is no causality relationship between energy growth and each of the various forms of energy
consumption, except electricity consumption in the short run at both 5% and 10% level of significance; there is a unidirectional causality running
from energy growth to electricity consumption at 5% level of significance. There is also no short run causal relationship between economic
growth and total energy consumption. Also, the results reveal that there is no causal relationship between the various forms of energy
consumption (except electricity consumption) and economic growth in any direction in the long run; as the coefficients of the error correction
term are not statistically significant in all of them. However, there is a long run causality running from economic growth to electricity
consumption at 5% significance level. Also, there is a long run causality from economic growth to total energy consumption at 10% significance
level. The results are shown in Table5 (a and b).
LNGDP

LNCOC
1.32
(0.33)
1.13
(0.43)
1.55
(0.23)
1.38
(0.30)
1.15
(0.42)
LNNGC
LNELC
LNCC
LNTEC
*Probability > F in bracket
LNCOC
1.19
(0.39)
LNNGC
0.26
(0.99)
LNELC
5.09
(0.005)
LNCC
2.04
(0.12)
LNTEC
0.29
(0.99)
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Empirical Analysis of the Relationship between Economic Growth and Energy Consumption in Nigeria: A Multivariate Cointegration Approach
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
LNGDP

LNCOC
0.11
(0.91)
0.01
(0.94)
0.15
(0.29)
0.07
(0.47)
0.01
(0.93)
LNNGC
LNELC
LNCC
LNTEC
LNCOC
0.08
(0.23)
LNNGC
0.48
(0.15)
LNELC
1.01
(0.000)
LNCC
0.97
(0.25)
LNTEC
0.49
(0.10)
5.
LNGDP
1
0.124
0.2463
0.4697
0.7612
0.7626
0.9067
0.7751
LNGCF
LNLAB
LNRER
LNCOC
LNNGC
LNELC
LNCC
1
0.0803
0.1262
0.1186
0.1105
0.1457
0.0937
1
0.1354
0.1924
0.1852
0.3969
0.0314
1
0.6909
0.6741
0.433
0.4608
1
0.8316
0.6615
0.7089
1
0.6844
0.7297
1
0.7353
This study attempted to analyze the causal relationship between energy use and economic growth in Nigeria. Based on the neoclassical one
sector aggregate production technology, I developed a VEC model after testing for multivariate cointegration between output, capital, labor, real
exchange rate and energy use. The cointegration test indicates that energy enters significantly the cointegration space. However, the shortrun
dynamics of the variables show that there is no causality between the various forms of energy consumption and economic growth, except
electricity consumption. The flow of causality runs only in one direction from economic growth to electricity consumption. This result is not
surprising, as the oil and gas subsector has been the least transparent sector in the Nigerian economy, due to corruption and gross
mismanagement. According to the Nigerian National Bureau of Statistics (NBS), the oil and gas subsector accounts for 95% of the Nigerian
export earnings, 75% of the countrys federal government revenue, but contribute less than 30% on the average to the countrys real GDP.
The energygrowth nexus poses important challenges to Nigerian policy makers, considering the high energy consumption growth rate, high
CO2 emissions level and its growth rate. Economic growth rate is expected to keep as high as 78% in the next 20 years. In light of the close
energygrowth nexus, how can Nigeria realize sustainable development and cut down GHG emissions? Since the emissions mainly result from
consumption of fossil fuels, reducing energy consumption seems to be the direct way of handling the emissions problem. However, due to the
negative impact on economic growth, direct measure to reduce energy consumption is not viable in Nigeria. On the other hand, in Nigeria pure
development itself may not be a solution to environmental and ecological problem. Hence, active policies and measures must be implemented.
First of all, enhancing energy supply security and guaranteeing energy supply is of uttermost importance to Nigeria. Particularly in the short run,
proper supply of electric power, natural gas and oil is vital to the function of economic activity. Concerning electricity, long years of epileptic
power supply has hindered the proper development of the small and medium scale enterprises (SMEs) in the country, and also led to the exit
from the country of some multinational manufacturing companies that are mainly energy dependent. The electricity supply has mainly been
hydrobased; Nigeria can increase the supply of its electric power by making use of the natural gas associated with the exploration of crude oil to
augment the hydro power, instead of flaring it into the atmosphere, which has been the order of the day. The recent privatization of the electric
power supply subsector of the economy could also be a move in the right direction, if properly implemented and monitored. As far as crude oil
supply is concerned, the domestic consumption is mainly in form of its biproduct which has been highly subsidized over the years with no
positive impact. The major problem has been that out of the four refineries in Nigeria, only one is semifunctional due to gross mismanagement,
hence, the country has to export crude oil and import the refined products. The existing refineries should therefore be renovated up to their full
capacity utilization levels. The oil companies, especially the multinational should be encouraged to build their own refineries at least as a joint
venture, as a result of the capital cost. The subsidies on the oil products should be scrapped and the fund diverted to the development of other
sectors, especially agriculture. The bilateral agreement between Nigeria and Algeria to transport the Nigerian natural gas to Europe through the
pipeline in Algeria should be properly implemented instead of leaving it to lie fallow as an ordinary paper agreement over the years. Taking
advantage of the recent Russian crisis could be a way to capture a share of the market in Europe, which is looking for a way to diversify its
source of natural gas supply. Nigeria should also aim at an effective longterm policy to enhance energy efficiency, and to diversify energy
supply with preference on renewable energy such as wind power, solar (which are in great abundance in the country), and others.
480
International Journal of Economy, Management and Social Sciences Vol(4), No (10), October, 2015.
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