Fuel subsidies and carbon emission: evidence from asymmetric modelling

It is expected that fuel subsidy removal should hinder carbon emissions growth through low energy consumption channels amid higher energy prices. However, outliers in this theoretical disposition make empirical proof of the fuel subsidy-carbon intensity apt and primitive. Despite established fuel subsidy abolishment gains for climate and economic welfare, the relevance, magnitude and policy implications remain dimly. This paper employs the non-linear autoregressive distributed lag (NARDL) estimation procedure to gauge the contemporaneous influence of fuel subsidy for carbon intensity in Nigeria. Findings revealed that fuel subsidy removal inversely relates to Nigeria's carbon emission in the short run and long run. The study recommends a complementary policy option that ensures additional financial savings to the government should be invested in public sector growth that can cushion the effect of relative income loss to the citizenry. The Nigerian government should ensure measures are kept in place to discourage overconsumption of alternative energy (for example coal) that could also threaten the green economy paradox.

Automated summary

Removing fuel subsidies is expected to reduce carbon emissions growth through low energy consumption channels, although empirical evidence of this is limited. The study found that removing fuel subsidies is negatively correlated with Nigeria's carbon emissions in both the short term and long term, suggesting additional financial savings should be invested in the public sector to mitigate the impact on citizens' income loss.