An Econometric Analysis of the Macroeconomic Determinants of Crbon Dioxide Emissions in Nigeria

Abstract

"Global concern for climate change as a result of incessant environmental damaging impacts of greenhouse gas emission is still surging high. Many researchers have examined the linear relationship of carbon emission with economic growth for decades now, yet, little or no studies critically examined the macroeconomic determinants of carbon dioxide emissions. Thus, this study focused on an econometric analysis of the macroeconomic determinants of CO2 emission in Nigeria, covering the periods between 1981 and 2016 using both linear and non-linear Autoregressive Distributed Lag (ARDL & NARDL) models. The time series data used were sourced from the database of the World Bank Development Indicators, 2016 and Central Bank of Nigeria Statistical Bulletin, 2017 edition. The main macroeconomic variables driving CO2 emissions in Nigeria include: Energy Consumption (EC), Financial Development (FD), Per capita GDP (GDP), share of Manufacturing output in GDP (MAN), Population density (PO) and Trade Openness (TO). The time series properties of the data were examined using the Augmented Dickey Fuller (ADF) unit root tests for stationarity, and it was found that all the variables were first differenced stationary, I (1), except FD and PO that were stationary at the level form. Interesting finding from ARDL estimations revealed that in the long run, a percentage increase in EC, MAN, GDP2, and PO would cause a decrease of about 1.03, 1.14, 36.40, and 0.46 percentages respectively in carbon emission in Nigeria, while a percentage increase in GDP, GDP3, FD, and TO would potentially cause an increase of about 0.001, 23.93, 0.002 and 0.001 percentages in total carbon emission in Nigeria. Also, the finding from environment-economic relationship, refutes the validity of EKC and found N-shaped relationship in Nigeria. However, from the NARDL model estimation, positive and negative changes in GDP, EC, and MAN are likely going to exhibit asymmetric relationship with carbon emission in Nigeria. Overall changes in GDP Per capita showed strong magnitudes of impacts on CO2 emission, and GDP Per capita bidirectionally granger caused energy consumption, which reversely caused increase in CO2 emission. Trend analysis revealed that emission fell on average from 0.64 metric tons between 2005 and 2010 to 0.52 metric tons between 2011 and 2016. Based on these findings, the study therefore recommends among others a concerted efforts of Ministry of finance in partnership with the ministry of environment in strengthening green bond issuance made as commitment to reduce emission in a bid to fulfil the Nationally Determined contributions in the Paris Agreement (2016) and give subsidies and incentives to encourage the competitiveness of renewable energy technologies. Also, the study encourages government to initiate carbon tax for polluting industries and increase energy supply to stimulate capacity industrial production to promote economic activities which will in turn increase GDP per capita which is still very low to reach EKC threshold level of income, since increase in energy use, responded negatively to CO2 emission in the long run."