Decoupling Economic Growth from Fossil Fuel Dependence: Assessing the Asymmetric Impact of Price Deregulation on Renewable Energy Substitution in Nigeria.

Abstract

This study examines the asymmetric impact of fossil fuel price deregulation on renewable energy substitution in Nigeria, evaluating whether escalating retail pump prices serve as a catalyst for clean technology adoption or exacerbate structural energy poverty. Utilizing quarterly time-series data 2004Q1-2025Q4 , the empirical framework models the interactive dynamics between disaggregated Premium Motor Spirit retail pump prices (PMSP+, PMSP-), real per capita income (PCRGDP), nominal foreign exchange rates (EXR), national electricity grid generation (ELEC), and renewable energy capital imports (REN). Employing a Non Linear Autoregressive Distributed Lag (NARDL) bounds testing approach, the empirical results confirm a robust long-run cointegrating relationship . Formal Wald test restrictions fail to reject symmetry in the short run and show only weak long-run price asymmetry indicating that while fuel price shocks drive overall energy adjustments, short-run substitution mechanisms respond largely symmetrically alongside severe macroeconomic bottlenecks. While positive long-run price shocks exhibit a positive elasticity, immediate clean energy substitution is severely constrained by foreign exchange devaluation pass-through (EXR) and real income limitations (PCRGDP). Furthermore, persistent public utility grid failure forces commercial enterprises into involuntary generator reliance. To resolve this "Energy Transition Paradox," this study recommends that fiscal savings realized from fuel subsidy removal be recycled into targeted import tariff waivers, zero-rated VAT schemes, and concessional foreign
exchange allocation for imported off-grid renewable energy hardware.