ENERGY CONSUMPTION, POLLUTION CONTROL AND ECONOMIC GROWTH IN NIGERIA BY FOLUSO AKINSOLA AND

1. ENERGY CONSUMPTION, POLLUTION CONTROL AND ECONOMIC GROWTH IN NIGERIA BY FOLUSO AKINSOLA AND BABATUNDE W. ADEOYE, Ph.D DEPARTMENT OF ECONOMICS, UNIVERSITY OF LAGOS

2. Outline • Introduction • Issue of concern • Literature Review • Methodology • Empirical Result and Analysis • Conclusion

3. INTRODUCTION • Prior to the age of industrialization, environmental problems were local and minor, because of the earth's own ability to absorb and purify minor quantities of pollutants through natural means such as the carbon, nitrogen, oxygen and water cycles among others. • Towards the middle of the twentieth century however, the quantities of various pollutants in the atmosphere began to be too enormous to be eliminated by the natural cycles alone.

4. INTRODUCTION 2 • During the last decade many experts have warned against the risk of global climate change deriving from the increasing accumulation of anthropogenic Greenhouse Gases (GHGs) in the atmosphere. • The Millennium Development Goals (MDGs) explicitly commit the world community to making progress in achieving environmental sustainability • The primary air pollutants found in most urban areas are carbon, sulphur, nitrogen and hydrocarbons. These pollutants are dispersed throughout the world's atmosphere in concentrations high enough to gradually cause serious health problems.

5. INTRODUCTION 3 • The increased atmospheric concentrations of Carbon dioxide (CO2) and other GHGs are responsible for melting ice, rising sea levels, and a greater number of more destructive storms. Pollution from various industries, the burning of fossil fuels, methane from farm animals, forest destruction, rotting/dead vegetation etc have led to an increased number of greenhouse gases in the atmosphere. • The World Health Organization (WHO) states that 2.4 million people die each year from causes directly attributable to air pollution (WHO, 2007). • The substantial damage to the Nigerian Environment by air pollution has been traceable to the growth of the oil industry, population explosion and a lack of environmental regulations. Nevertheless, other sources like automobiles and diesel-fired electricity generators also contribute to air pollution. In 2001, Nigeria emitted about 23.5 million metric tons of carbon, slightly down from a high of 27.7 million metric tons of carbon emitted in 1996

6. The Issue of Concern 1 • Several years ago, problems of environmental quality were only unique to developed and industrial economies. • Developing economies were thought to have fewer environmental problems , but now, it has become clear that massive environmental degradation has in fact occurred in developing world. • The environmental deterioration is rather serious involving diminishing economic productivity and acceleration of social dislocation

7. The Issue of Concern 2 • Gas flaring in Nigeria, is a major cause of air pollution. According to data from the Carbon Dioxide Information Analysis Center, gas flaring accounted for 40% of carbon emissions in 2005. • Due to a lack of gas utilization infrastructure, more gas is flared in Nigeria than anywhere else in the world (FOE, 2005) • Close to 2.5 billion cubic feet of gas is flared in Nigeria every day, amounting to about 70 million tons of Carbon (UNDP/World Bank, 2004).

8. The Issue of concern 3 • Environmental problems in developing countries are in fact, more likely to be matters of life and death than they are in the developed world. • Therefore, the relationship between carbon emissions and economic growth has important implications for environmental and economic policies. • Grossman and Kruger (1995) showed that the link between economic growth and environmental pollution follows an inverted U-shaped pattern, referred to as the Environmental Kuznets Curve (EKC). This finding suggests that lower income regions are ‘too poor to be green’, and only when they become rich enough will the benefits from a clean environment outweigh its costs.

9. The Issue of concern 4 • As far as studies on Carbon emissions are concerned, the existence of a bell-shaped relationship between pollutants and income, postulated by the EKC hypothesis, has only been confirmed in some panel studies for Organization for Economic Co-operation Development (OECD) countries . • Many authors claim that the EKC hypothesis does not hold for global pollutants that have long-lasting effects, and for which abatement costs tend to be high, such as Carbon dioxide (CO2). • Nigeria happens to be a dumping ground for old technologies. Moreover, trade openness that contributes to growth in the GDP per capita will increase the levels of pollution unless the necessary measures are taken to prevent this from happening

10. Objective of the study • The broad objective of this study is to analyze the link between air pollution and economic growth in Nigeria in order to ascertain if the Environmental Kuznets Curve (EKC) hypothesis holds for Nigeria by examining the relationship between economic growth and air pollution. • The study made use of secondary data sourced from the Central Bank of Nigeria (CBN) Statistical bulletin of various years, as well as the websites of the Energy Information Administration and the Carbon Dioxide Information Analysis Center. This study examined data specific to the Nigerian economy for the period 1980 – 2006. Since Nigeria is highly dependent on fossil fuels, the reduction of carbon emissions represents a serious environmental challenge for the Nigerian economy. It is of paramount interest for the purpose of economic, social and environmental policies to investigate whether increase in per capita income actually leads to a reduction in pollution in Nigeria.

11. Literature Review • Carbon dioxide (CO2) is one of the major pollutants in the atmosphere, and is responsible for about 57% of the global warming trend (NOAA, 2005). It is estimated that extraction and burning of fossil fuels is the source of about 70-90% of anthropogenic carbon dioxide emissions (Strong, 1992; Edge and Tovey, 1996). • According to Olusegun (2009), growing population and rising per capita economic growth have fuelled the increase in emissions rates in broad terms. Two trends appear to be taking hold; the amount of energy used per unit of gross domestic product is increasing after years of decline. This could mean that gains in energy efficiency are slowing, or there is a growth of heavy industries. Second, the energy sources that countries are using are more carbon-intensive than in the past.

12. LITERATURE REVIEW 2 • Ikeme (2008) points out that climate change is expected to bring about a shift in climatic belts resulting in greater fruitlessness in the tropics with huge impacts on energy production and supply. • According to him, because Nigeria relies heavily on hydroelectricity which accounts for over 36% share of its electricity energy sources, the resulting interruptions in power supply due to limitations in available generation capacity in the hydro stations would not only result in waste of national resources; but will also have adverse effect on the manufacturing sector of the economy. • Smulders (2000) asserts that economic growth, which has brought about huge improvements in the standard of living during the past decades have not been without a dark side. Air pollution, municipal waste problems, loss of wilderness areas, habitat destruction, threats to biodiversity, resource depletion, and the global greenhouse problem seem to be linked to economic growth.

13. LITERATURE REVIEW 3 • Economic growth has increased productivity and technological progress, however, if care is not taken can also cause damages to the environment. • A clean environment boosts productivity of production factors so that it has a productive value. • The standard policy measures for greenhouse gases abatement are basically four – Kyoto Protocol. • energy efficiency improvement measures, • command-and-control measures (i.e., implementing emission reduction targets by decree), • domestic carbon taxes and • an international emissions trading regime.

14. METHODOLOGY • Halicioglu, F. (2008) uses the following model in his estimation of the long-run relationship between Carbon dioxide (CO2) emissions, energy consumption, economic growth and foreign trade in linear logarithmic quadratic form with a view of testing the validity of the Environmental Kuznets Curve (EKC) hypothesis as follows: • Ct= a0+ a1 et+ a2 yt+ a3 yt2+ a4 ft+εt………………………………….(4.1) • Where Ct is CO2 emissions per capita, et is commercial energy use per capita, yt is per capita real income, yt2 is square of per capita real income, ft is openness ratio which is used as a proxy for foreign trade and εt is the regression error term. This study adapts the above model into the form shown below, and makes use of the Error Correction Model (ECM) in its estimation: • The mathematical model is represented by: • CEMC = f (GRGDPPC, GDPPCSQ, ENECON, TO)………………………….. (4.2) • While the econometric model is represented by: • CEMC = β 0 + β 1GRGDPPC) + β2LOG (GDPPCSQ) + β3LOG (ENECON) + β 4 (TO) + ε CEMC- CARBON EMISSION, GRGDPPC- GROWTH RATE OF GDP, ENECON-ENRGY CONSUMPTION IN NIGERIA, TO-TRADE OPENNESS

15. A PRIORI EXPECTATION • β1 > 0, β2 < 0, β3 > 0, β4 > 0 • under the Environmental Kuznets curve hypothesis, the sign of β1 is expected to be positive, whereas, a negative sign is expected for β2. One expects that because higher level of energy consumption should result in greater economic activity and stimulate CO2 emissions, β3 should be greater than zero. The sign for β4 is expected to be positive in a developing country as they tend to have dirty industries with heavy share of pollutants, as discussed in Grossman and Krueger (1995)

16. GRANGER CAUSALITY TEST RESULT

17. RESULT 2 • The null hypothesis was rejected at the 10% level of significance for Gross Domestic product and trade openness. That is, Gross Domestic Product and Trade openness granger causes Carbon emissions, but not vice versa. Hence causality is unidirectional. There is no causality between energy consumption and carbon emissions

18. ERROR CORRECTION MODEL

19. RESULT 3 • These variables are Growth rate of GDP per Capita (GRGDPPC), GDP per Capita squared (GDPPCSQ), and energy consumption (ENECON). • The error correction mechanism parameter (ECM) is also significant. Their significance is also indicated by the value of their probabilities. Therefore, from the findings above, we reject the null hypotheses that GDP per Capita (GRGDPPC) and energy consumption (ENECON) are not significant determinants of carbon emissions in Nigeria. While we accept the null hypothesis that trade openness (TO) is not a determinant of carbon emission in Nigeria.

20. CONCLUSION • The main conceptual framework for this study is the Environmental Kuznets curve hypothesis, which asserts that there is an inverted U-shaped relationship between air pollution and economic growth. Implying that with an increase in economic growth, air pollution tends to increase, get to a peak, and then decrease as countries see the need for a cleaner environment. • The evidence presented in this paper shows that there is no evidence for the common inverted U-shaped pathway for carbon emissions in Nigeria which is hypothesized that countries follow as their income rises. It seems unlikely that the Environmental Kuznets Curve (EKC) hypothesis is a complete model of emissions or concentrations. Perhaps the most important insight is in Grossman and Krueger’s (1995) original paper: ‘We find no evidence that economic growth does unavoidable harm to the natural habitat’ • Pearson’s (1994) conclusion seems to be the most coherent and logical when he says that the relationship between economic growth and the environment should be treated as an instrument of projection, or as a path – where and how economic growth reduces pollution. EKC hypothesis is not a convincing tool able to explain how a n economy deals with its environmental quality while growing.

21. POLICY RECOMMENDATIONS • Research should be done in the area of cleaner sources of fuel such as solar energy, hydroelectric power and wind energy to reduce resultant pollutions from the use of fossil fuels. • Nigeria should design new environmental policies to reduce environmental degrading, especially in the area of gas flaring and release of toxic gases from industries and vehicles. • The policies to tackle environmental pollutants require the identification of some priorities to reduce the initial costs and efficiency of investments. Nigeria should measure the exact scale of environmental pollutants that it generates and imports by industries. • Apart from rules and regulations to reduce pollutant emissions, the market based solutions in the form of pollutant taxes would ease the extent of this problem. Telli et al. (2008) presents useful policy alternatives in which carbon tax is used as a main policy tool. • Nigeria should incorporate environmental concerns into her macroeconomic policies more intensely to reduce the pollutant emissions and to sustain economic growth

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