Abstract:
Global economy must undergo a transition from utilize of non-renewable to renewable energy
resources, for environmental sustainability objective. This strategic shift is crucial for country
as it provides a certain degree of stability and reduces reliance on oil imports. As my best of
knowledge there is no study in Ethiopia which investigated the impact of oil prices on the
transition towards renewable energy consumption. The main purpose of this study was
investigating the impact of oil prices on the transition towards renewable energy consumption
in the Ethiopian economy utilizing Vector Error Correction Models (VECM) techniques.
Renewable energy consumption was estimated in both short-run and long-run models using
econometric and descriptive techniques. The model was also tested different diagnostics tests
and other methods using annual time series data covering the period range from 2000 to 2021
year. The Johansen co-integration results of both the trace test and the Max-Eigen value test
had three co-integrating equations relationship for the model. The VECM results revealed that
oil Price (OP), Trade openness, and Carbon dioxide have statistically significant and positive
influence on REC in the long run but, RGDP has a significant and negative impact. In short run
renewable energy consumption and oil prices were statistically significant at five percent level.
The study recommended that public policies should be put in place which encourage of
investment in renewable energy, promote free trade, transfer of technology and create
awareness how can renewable energy consumption can mitigate climate change and helps the
county to improve energy security in the long run.
