Energy consumption, fuel substitution, technical change, and economic growth: Implications for CO2 mitigation in Egypt

Energy consumption propels economic growth but the level of CO2 emissions associated with a fossil-dominated energy structure raises concerns for the fight against climate change. To draw consensus, this study develops a translog-causality-based model in order to study causation between electricity, natural gas, petroleum, and economic growth in Egypt. In addition, the models' results are used to estimate the substitution possibilities between various energy pairs and to subsequently test the CO2 mitigation benefits arising from fuel substitution. Results support a bidirectional relationship between all energy types and economic growth in Egypt and suggest, also, that these energy types are substitutes. Although technical progress is estimated to be a bit slow (varying between 4.5% and 7.5%), there appears to be substantial CO2 emissions mitigation benefits from fuel substitution amounting to reductions in the range of 1.5 and 2.2 million metric tons under a 5% investment scenario and 2.5 and 4.5 million metric tons under a 10% investment scenario. These results have broader implications for energy conservation policies and industrial merger policies in developing countries. Moreover, by studying technical change, insights are provided on future CO2 mitigation potential driven by energy efficiency.