Output and substitution elasticities of energy and implications for renewable energy expansion in the ECOWAS region

This study estimates output and substitution elasticities of renewable energy and nonrenewable energy for the Economic Community of West African States (ECOWAS) and discusses implications for expanding the former. The results show that nonrenewable energy promises greater benefits for ECOWAS economic transition, with output elasticities averaging between 0.052-0.579 and −0.055 to 0.223 for nonrenewable energy and renewable energy respectively. Overall estimated technological progress is low (−0.5% to 2.6%); the bulk coming from input efficiency. Substitution elasticities (0.02-0.94) suggest potential for switching towards renewable energy. Notwithstanding, scale, economics and sitting problems inherent in renewable power generation challenge the opportunities for energy substitution. A sustainable policy solution, therefore, appears to be one favoring scaled and efficient electricity generation from fossil energy in the short-run with a gradual switch towards renewable power in the long-run. In general, the applied model provides insights that energy efficiency enhances sustainable growth by propelling technological advancement especially when technical change is scale-biased and factor-augmenting. The study also provides insights that impacts of exogenous shocks to inputs are temporary, and hence, do not jeopardize efforts aimed at scaling output through increased and efficient use of labor, capital and energy; especially nonrenewable energy.