THE IMPACT OF OIL PRICE ON TRANSITION TOWARDS RENEWABLE ENERGY CONSUMPTION IN ETHIOPIAN ECONOMY

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.