Achieving carbon neutrality in an emerging oil-producing country: Renewable energy transition and international trade flows in Ghana

Oteng, Clement; Obeng, Camara Kwasi; Gamette, Pius Article Achieving carbon neutrality in an emerging oil-producing country: Renewable energy transition and international trade flows in Ghana Research in Globalization Provided in Cooperation with: Elsevier Suggested Citation: Oteng, Clement; Obeng, Camara Kwasi; Gamette, Pius (2024) : Achieving carbon neutrality in an emerging oil-producing country: Renewable energy transition and international trade flows in Ghana, Research in Globalization, ISSN 2590-051X, Elsevier, Amsterdam, Vol. 9, pp. 1-14, https://doi.org/10.1016/j.resglo.2024.100244 This Version is available at: https://hdl.handle.net/10419/331168 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/4.0/ Achieving carbon neutrality in an emerging oil-producing country: Renewable energy transition and international trade flows in Ghana Clement Oteng a , * , Camara Kwasi Obeng b , Pius Gamette c a School of Economics, University of Cape Coast, Ghana b Department of Economic Studies, School of Economics, University of Cape Coast, Ghana c Department of Applied Economics, School of Economics, University of Cape Coast, Cape Coast, Ghana ARTICLE INFO JEL: F17 F47 Q21 Q41 Keywords: Energy transition Ghana International trade Share of low carbon energy Share of renewable energy in electricity ABSTRACT Over the past decade, climate variabilities have emerged as shaping the dynamics of international trade. The adverse externalities posed by climate change require a corresponding improvement in the production of food, trade and the adoption of abundant renewable energy resources. Our study focused on evaluating the impact of renewable energy transition on international trade flows in Ghana. We employed the dynamics ARDL simulation model to analyse our results using data from various institutions. We found that energy transition using both low carbon energy and renewable energy in electricity generation by 1% and 5% significantly increases the balance of trade to the 4th year after which energy transition decreases the balance of trade to the 9th year. After the 9th year, energy transition by both percentages increases the trade balance of Ghana. We observe that the energy transition by 5% has a higher impact than the energy transition by 1%. Additionally, it is observed that using the share of renewable energy in electricity generation has a decreasing rate relative to the first four years. Drafting renewable energy plans such as allocation of funds, supportive policy frameworks and incentives such as green financing, subsidies, and tax incentives can enhance and develop renewable energy infrastructure to increase renewable energy efficiency and reliability for international trade. 1. Introduction The commencement of this decade has catalysed structural changes in the global trade landscape. Geopolitical tensions, the aftermath of the pandemic, the evolving supply chain, and climate disruptions are now entrenched trends, which are reshaping the dynamics of trade (Observatory of Economic Complexity. OEC, 2024). The adverse externalities posed by climate change and by estimation, the world population hitting 9.8 billion in 2050, pose challenges including food insecurity, poverty, malnutrition, strained land resources and negative environmental impact. This requires a corresponding improvement in the production of food by about 70 % (United Nations Economic Commission for Africa UNECA, 2021), trade and the adoption of abundant renewable energy resources (Clift et al., 2024; Estev˜ ao &Lopes, 2024). The current climate crisis requires mitigation strategies such as renewable energy and being able to trade among countries (Mohammed Idris et al., 2023; Pawlak & Smutka, 2022). Countries are adopting approaches to reducing carbon emissions and achieving the Sustainable Development Goal (SDG) 7.1 and SDG7.2. The demise of unabated fossil fuels by 2050 was adopted at the Conference of Parties (COP) 28. COP 28 included credible plans for an energy system that almost or wholly avoids fossil carbon source exploitation and production. These strategies include renewable energy transition, transfer of green technologies, financial support, sustainable agriculture among others. Additionally, each country submits its own national plans for reducing emissions, known as Nationally Determined Contributions (NDCs). These plans are to be updated every five years to reflect increased ambition. The goal is to limit temperature rise below 2◦C, and preferably to 1.5 ◦C. Contemporarily, there are concerns about various dynamics in the energy transition discourse. The issue most discussed is energy transition’s role in achieving the global target of reducing worldwide mean temperature (Clift et al., 2024; Wei et al., 2023). Other discussions focus on the possibility of energy transition to curb energy insecurity within and between countries and regions (Estev˜ ao &Lopes, 2024; Hafner & Tagliapietra, 2020; Jiang &Khan, 2023). The view is that the transition from current over-reliance on fossil fuels usage to 100 % renewables is a * Corresponding author. E-mail addresses: [email protected],[email protected],[email protected] (C. Oteng), [email protected] (C.K. Obeng), [email protected],[email protected] (P. Gamette). Contents lists available at ScienceDirect Research in Globalization journal homepage: www.sciencedirect.com/journal/research-in-globalization https://doi.org/10.1016/j.resglo.2024.100244 Received 24 February 2024; Received in revised form 1 August 2024; Accepted 4 August 2024 Research in Globalization 9 (2024) 100244 Available online 5 August 2024 2590-051X/© 2024 The Author(s). Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license ( http://creativecommons.org/licenses/bync-nd/4.0/ ). threat to energy equality and energy security since renewables like solar and wind are intermittent making them unpredictable and unreliable. Given the perception that economic progress is closely tied to affordable energy sources, it is challenging for governments to reduce energy consumption and, consequently, make significant lifestyle changes. Additionally, countries are always willing to trade. Countries need to transition to renewable energy by 2050 as adopted at COP 28 while trade blocks such as the African Continental Free Trade Area (AfCTA) aim to increase trade flows in and out of Africa. Trade has the potential to eradicate extreme poverty and promote inclusive and sustainable development (Egbendewe, et al., 2017; Gyamfi et al., 2023; Ilechukwu & Lahiri, 2022). Trade is the cross-cutting means to achieve sustainable development under SDG 17 (Appiah et al., 2023; Hagos et al., 2023; World Bank, 2020). Economic integration remains a vibrant path to achieve growth and development (Appiah et al., 2023; Hagos, 2023; United Nations Conference on Trade and Development. (UNCTAD), 2020). However, with the temporary resurgence in trade volume in 2021 and 2022, growth was uneven, which sparked logistical challenges and trade disputes. The year 2024 is emerging as a critical pass for the global economy, marking a potential shift in economic policies and patterns of trade. The shift to electric vehicles made China overtake Germany, the US, and South Korea in exports as the electric vehicle continues to grow at double-digit rates in 2023 (IEA, 2024). There was a 3 % growth in the energy sector with the global electronic and electrical markets expanding by 8.2 % (OEC, 2024). Despite this, SSA accounts for a small share of the global commodity trade and also has the lowest intraregional commodities trades (16 % verse 17 % for South and Central America, 42 % for North America, 62 % for the European Union (EU), and 64 % for Asia) (Davis, 2016). Nevertheless, several regional economic communities have been established such as Economic Community of West African States (ECOWAS), Central African Economic and Monetary Union (CAEMU), Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) and the recent AfCFTA, which is expected to boost trade by 52 % (Appiah et al., 2023; Hagos, 2023; United Nations Economic Commission for AfricaUNECA, 2017). These trade blocks aim to facilitate goods and services movements between countries and to enjoy economies of scale. Increase in export capacities of the global south countries such as Ghana is considered crucial for the promotion of sustainable development, poverty reduction, and globalisation (World Bank, 2020). Ghana recorded a surplus merchandise trade of 43.54 % in 2022 and foreign trade of 58 % of GDP in 2021 (World Bank, 2022). According to WTO data, in 2021 Ghana’s exported goods were US$14.73 billion and imported goods were US$13.63 billion. However, Ghana exported US$9.17 billion worth of services while importing US$12.34 billion worth of services. In March 2022, the merchandise trade surplus reached an alltime high of US$676.21 million (Bank of Ghana [BoG], 2023). Trade can positively influence productivity, production growth and quality. This is mostly influenced by trade policies, including specific tariffs, quality standards, incentives availability, restrictions, technical requirements, and bilateral and regional trade agreements (OECD, 2014; Punthakey, 2020). Climate-smart trade such as the EU’s Carbon Border Adjustment Mechanism policies and openness to trade are critical to reducing emissions and poverty. The Russia-Ukraine war has revisited the importance of energy transition on economies (Genc &Kosempel, 2023). Ghana’s energy transition plan is set to achieve net zero by 2060 driven by thermal, hydro and other renewables in the electricity generation mix. Renewable energy, battery electric vehicles, clean cooking stoves and low-carbon hydrogen would cover 90 % of this targeted abatement (Sustainable Energy for All. SEforALL, 2023). The envisioned energy transition is expected to meet electricity demand of 380,000GWh. A diversified energy mix includes 21GW of renewable energy with affordable generation costs below 4.5 cents/kwh in 2070 (Ministry of Energy, 2022). Emissions would be reduced by 70 %, and renewables in the power mix by 45GW generation capacity from solar PV, nuclear, on–and off-shore wind, geothermal, and hydropower. The current installed capacity is 5194 MW with a 25 % reserve margin (Energy Commission, 2024). Excluding hydro, renewable energy generates 117 MW. Ghana plans to achieve universal energy access by 2030. According to the ministry, energy self-sufficiency, low-risk access to supplies and system stability will ensure freeing-up greater oil and gas share of Ghana’s consumption for export by 90 % under NetZero (SEforALL, 2023). This is based on the carbon content of products exported to the EU from non-EU countries. Studies assert that through renewable energy, countries can diversify their economies, create jobs, and enjoy stable energy pricing while easing import dependence (Rabbi et al., 2022; United Nations, 2022). Global fluctuating oil prices and structural changes in energy policies added value to trade but introduced costly noise into the picture of overall global trade (OEC, 2024). By a thoughtful multifaceted association among and between the SDGs and their set targets, researchers and academia can better support policymakers to think analytically about the interactions between various SDGs. This includes how activities to achieve one goal would affect other goals between and within sectors (Bisaga et al., 2021; Fuso Nerini et al., 2018; Nilsson et al., 2016). The main objective of our study is to evaluate the impact of renewable energy transition on international trade flows in Ghana. Specifically, we analyse the links between SDG7.2 and international trade flows. Given that the associated cost of renewable energy adoption is falling (International Renewable Energy Agency. (IRENA), 2020) and hence, reinforcing the expectation to switch to renewables from conventional fossil fuels, we analyse how renewable energy share in Ghana’s energy mix affects imports and exports. The prices of solar PV modules have declined by almost 80 % and wind turbine prices have reduced by about 30 to 40 % (International Renewable Energy Agency. (IRENA), 2020). It is important to note that the flip side of regional consolidation in 2023 resulted in a surge in protectionism. Developing countries have always been restricted by the World Trade Organisation and other multinational organisations to develop capacities for green technologies production (Acheampong &Tyce, 2024; Lewis, 2014). Yet, the US and the EU have launched NetZero acts. This fuels green protectionism that constrains industrialisation efforts for the Global South economies (Acheampong &Tyce, 2024). The important metric of nontariff measures rose by 40 % (OEC, 2024). Non-tariff defensive measures signify trends towards bolstering domestic industries and enforcing environmental standards at the expense of free trade, where policy measures also function as economic positioning tactics. The policy domain most likely to drive the dynamics of trade will be the environment. Sustainability will become more integral to trade strategies. There will be an increase in eco-centric trade agreements, carbon tariffs and similar initiatives reflecting the imperfect but net positive global commitment to addressing climate change. Extant literature cautions that developing countries will be heavily impacted by the Carbon Border Adjustment Mechanism of the EU as they will find it challenging to stay ahead of swiftly changing initiatives and go green quickly enough to remain competitive (Acheampong, &Tyce, 2024; Eicke et al., 2021; Perdana &Vielle, 2022). Fast-motion continental drift is the watchword for trade strategies adaptation to an increasingly divided world of shrinking demand and heightened economic tensions. Also, as an exporter of fossil fuel, the transition to abundant renewable energy sources on international trade could be mixed and worth examining for a country like Ghana. There are several studies on energy as well as on trade dimensions. Studies (e.g., Greenville et al., 2017; Kowalski et al., 2015; Punthakey, 2020; Webber &Labaste, 2010) mainly focused on the impacts of trade policies on global value chain participation, with some peripheral analysis of foreign direct investment (FDI) and investment policies. Their thoughtful studies completely avoided renewable energy and trade. Other studies have attempted to reveal the impacts of trade C. Oteng et al. Research in Globalization 9 (2024) 100244 2 preferences on receiving regions such as SSA, ECOWAS, CAEMU etc. (e. g., Didia, et al., 2015; Haile et al., 2017) while studies such as Egbendewe et al. (2017) analysed intra-regional trade on food security. Akinyemi et al. (2017) investigated energy transition in Africa and the associated trade-offs and synergies relating to trade and energy security. Scholarly works such as Heard et al. (2017); Jacobson et al. (2013); and Loftus et al. (2015) have been done on the feasibility of renewable energy sources. Afonso et al. (2021); Li et al. (2021); Silva et al. (2012) explored the relationship between renewable energy sources and economic growth. These insightful studies focus on economic growth, specifically aggregated GDP. Yet, little is known about the effects of renewable energy policies on trade flows. The study closer to our study is Mohammed Idris et al. (2023) and Ilechukwu and Lahiri (2022) who evaluated the implication of increasing renewable energy share for international trade for OECD and 152 countries respectively. To fill this void, our study expands on the study by Mohammed Idris et al. (2023) and Ilechukwu and Lahiri (2022) and contributes to the debate on the effects of renewable energy transition on trade. Macroeconomic development including trade remains an important policy goal because of its ability to move people out of poverty. This study aids in opening more domestic opportunities for export promotion and modifications that put Ghana in a position to reap more benefits from the renewable energy transition. 2. Related literature 2.1. Energy transition dynamics The growing trends in Green House Gas (GHG) emissions and the restrictions on petroleum production adopted at COP28 will result in a faster energy transition. Many countries exporting oil and companies that produce oil will shift their attention from fuels dominated by fossil to zero or low-carbon emission sources of energy (Bedani et al., 2020). Several organisations provide consensus forecasts that renewables share in the energy mix will rise in the future (Fattouh et al. 2019). The energy transition is driven mostly by changes in technology, the desire to reduce costs and inefficiency, population and economic growth, and the exhaustion of existing energy resources (Nwaneto et al., 2018). In the intervening time, carbon pricing and the EU’s Emission Trading Scheme policies are also being developed for a gradual energy shift to low or zero-emitting carbon sources (Johnstone et al., 2021). However, the energy transition requires a huge investment of capital and resources (Sol´ e et al., 2018). Consequently, there are intricacies in the energy transition and the processes are beyond just the replacement of one source of fuel (that is, fossil fuels) with another energy source (that is, renewables). Nevertheless, certain Asian nations, such as China and India, are developing energy strategies that tackle both air quality and emissions issues while simultaneously accommodating the anticipated growth in energy requirements which can boost trade. China has prioritised using natural gas in displacing residential and commercial heating by using coal. Also, there has been a change in the US state emissions commitment (Johnstone et al., 2021). The dynamics of the energy transition have elevated certain global important questions for petroleum and trade. Johnstone et al. (2021) discussed how oil and gas industries can navigate a changing strategic landscape while still generating returns for their shareholders. Nevertheless, certain oil and gas companies around the world are retorting in different means. These include diversification of business models, provisions of support for the growth of decarbonization technologies such as capture and storage, re-examination of geopolitics and geography to reduce exposure, and adoption of an environment that focuses on climate and social governance into business models. SDGs 7 and 13 as well as COP28 provide a framework for all countries in the world to make commitments towards less CO 2 pollution and zero fossil fuels. Favourably, renewables costs are falling (IRENA, 2020) reinforcing the expectation to switch to renewables from conventional fossil fuels. Solar PV module prices have declined by almost 80 %, while wind turbine prices have reduced by about 30 to 40 % (IRENA, 2020). Shown in Fig. 1, the Stated Policies Scenarios (STEP) and Announced NetZero pledges (NZE) would increase renewables from 12 % to 35 % in the Announced Pledges Case (APC) of the total supply of energy in 2050. Sources of renewables would reach novel levels as indicated in the APC. This would increase from 30 % in 2020 to 70 % in 2050 of the total supply of electricity, while there would be an increasing decrease in coal. Nuclear power and renewables are going to displace the use of fossil fuels in the NZE. This causes the fossil fuel shares to decrease from 80 % to 20 % by 2050 and renewables would be dominant in the power sector. More than 66.67 % of energy supply would be from bioenergy, solar, geothermal, wind, hydro-energy, and solar. The capacity of solar PV would rise by about 20-fold by 2050 while wind would be about 11-fold. Fossil fuels will decline by about 80 % to 20 % in 2050. The remaining fossil fuels in 2050 will be utilised to produce plastics and in CCUS facilities (IEA, 2021). 2.2. Effects of renewable energy on trade Empirically, Waziri et al. (2018) analyse the impact of increased renewable energy consumption in advanced countries with high income (NEICs) on Nigeria’s exports of petroleum. Their results indicated that the increased consumption of renewable energy in developed NEICs adversely affects Nigeria’s exports of oil and gas, leading to a significant decrease in revenue generated from these exports. Onyije et al. (2018) reveal that Nigeria’s oil and gas exports may encounter intense competition in the international oil market. Using production, Hoang et al. (2020) find a positive co-movement between industrial production and consumption of renewable energy. Similarly, Bilgili, (2015) finds that the consumption of renewable energy has positive effects on industrial production in the US. However, Xie et al. (2021) find that the relationship between energy consumption transition and productivity is non-linear. That is, either too low or high consumption degree of energy transition does not enhance productivity. St¨ ockl et al., (2021) find a significant degree of uncertainty when it comes to predicting future oil demand. In the same vein, Bradshaw et al. (2022) indicate that the shale revolution and the decreasing costs and swift adoption of renewable energy are establishing the groundwork for a new oil landscape that poses a challenge to the economic well-being of oil-exporting nations. The study also reveals that future oil demand dynamics exhibit considerable uncertainty, presenting a comparative evaluation of the world’s major oil exporters, specifically Russia and Saudi Arabia. In Khan and Shaheen’s (2020) study, the authors reveal a statistically significant, albeit small, negative elasticity between renewable energy consumption and the demand for imported crude oil in India, China, and Japan. However, the substitution effect is found to be both statistically insignificant and small for the US. These impressive studies have analysed the effect of renewable energy consumption on the petroleum subsector in advanced petroleum economies with little attention paid to trade. Additionally, the analyses are made on the petroleum imports by the importing countries. The use of petroleum import values may be misleading since the importing countries always import from different countries and therefore the analyses may be erroneous. Based on this gap in the existing literature, we propose the following hypotheses: First hypothesis: H1: energy transition significantly affects the balance of trade. Second hypothesis: H2: energy transition significantly increases both mechanised non-oil exports and imports. In international carbon markets, certain nations engage in the purchase and sale of emission reduction credits. This makes it possible for nations to reach their carbon reduction goals more economically. The exchange of carbon credits has the potential to impact international collaboration and economic ties. Additionally, different nations C. Oteng et al. Research in Globalization 9 (2024) 100244 3 implement diverse policies and regulations to promote or hinder the energy transition. These policies can affect trade by influencing the competitiveness of certain industries, creating barriers to entry, or promoting international cooperation in the development and deployment of clean energy technologies. We assume that the falling cost of renewable energy transition makes exports more competitive so much foreign exchange is generated to finance imports. This is contrary to the absorption approach theory, which states that an economy has a deficit if people absorb more than they produce. 3. Methodology 3.1. Theoretical model specification Following the works of Goldstein and Khan (1985); and Rose and Yellen (1989), our study adopts the Imperfect Trade Substitution (ITS) model. This model is a trade model for two countries engaging in trade. This model assumes that goods produced domestically and those that are imported are imperfect substitutes. The model supposes that when it comes to the volume of goods imported by citizens of the domestic economy, there is a positive correlation with domestic income and a negative correlation with import prices relative to other countries. Likewise, the quantity of goods and services that foreign economies import from the domestic economy is directly associated with the income of those foreign economies and shows a negative correlation with relative prices. The ITS model can, thus, be stated as: Qdm =f(Y,pm)(1) Q* dm =f(Y* ,P* m)(2) where Qdm(Q* dm)the amount of goods imported by the domestic (foreign) economy, and Y(Y*)denotes the income level measured in domestic (foreign) output. The relative price of imported goods in the domestic economy is denoted by pm, and P* mrepresents the corresponding relative price of imports abroad. Models (1) and (2) are the Marshallian demand functions, which are characterised by positive relative income elasticities and negative price expectations. According to Rose and Yellen’s (1989) perspective, the supply of exports is heavily influenced by the price comparison between exportable goods and other items as indicated in the model: Sqx =f(px)(3a) S* qx =f(P* x)(3b) where the equation describes the export from either domestic or foreign economy expressed as Sqx(S* qx); the relative prices of exports are expressed as the ratio of the price of exported goods in domestic currency, psto the domestic price level (p), denoted as px;likewise, the relative price of export from the foreign economy is represented as px, which is calculated as P* xdivided by P*. The domestic economy’s relative import prices can be expressed as: pm=E×P* x p=(E×P* x p)×(P* x p)≡q×P* x(4) where the exchange rate (nominal) is denoted E; accordingly, the domestic currency of foreign exchange and q(q=E×P* x p)expresses the exchange rate (real). In the same way, we express the relative price of imports as: P* m=P* x p At the point of balance, the quantities of goods exchanged and the prices of exports in each country are determined by the conditions outlined in Equations (5) and (6) Qdm =SQX (5) Q* dm =S* QX (6) =Rose and Yellen (1989) assert that trade should not essentially be equal to zero when capital flows are present. Model (1) —(7) could be calculated for the import and export levels and the relative price ratios, which are denoted as P* xand Px, by considering the diverse factors and determinants that would influence import demands domestically. In achieving our objective, our study analyses the effect of renewable energy transition on trade. Following the literature (e.g., Ren et al., 2021), we proxy energy transition with the share of renewable energy consumption. 3.2. Model simulation using the dynamic ARDL model Besides understanding the overall impact of a shock, which is indicated by the long-term multiplier, it is often valuable to determine the time it takes for specific effects of the shock to fade or to quantify the extent to which the shock has dissipated after a certain number of periods. The median and mean of the lag distribution of exogenous variables give statistics about the adjustment pattern a series dependent variable makes to disequilibrium. Again, to overcome the problem of point estimate, increased emphasis has been placed on evaluating the extensive series of substantive implications from their statistical models in recent times among economists and social scientists. This has been mainly useful in Ordinary Least Square (OLS) models with autoregressive processes. King et al. (2000) suggest that technological Fig. 1. Total Energy Supply by Source in STEPS and APC. Sources: IEA (2021). C. Oteng et al. Research in Globalization 9 (2024) 100244 4 advancements in computing power have brought about a new era of engaging in simulation-based approaches. To comprehensively analyse the substantive effects, it is necessary to consider various quantities of interest, including the long-term effects, as well as median and mean lag lengths as asserted by De Boef and Keele (2008). In AR models, the most effective approach to observe the long-term effects of exogenous variables is to simulate predicted values and confidence intervals for specific scenarios across a designated number of time intervals. For this study, we employ the dynamic simulation ARDL model with cointegration variables entrenched in a VAR time series (Jordan & Philips, 2018; Johansen, 1988). Applying dynamic ARDL simulations has gained recognition, especially, in analyses of energy, health and environmental economics. The model algorithm is valuable for cointegration, and short and long-run equilibrium relationships in both level and differences (Sarkodie &Owusu, 2020). The advantage of the dynamic ARDL simulations is that it has a visualisation interface for examining the likely counterfactual variation in the anticipated adjustable based on the concept of ceteris paribus (Sarkodie &Owusu, 2020). The application of the novel dynamic ARDL simulation follows simple but technical guidelines. The ARDL bound testing procedure utilised in the dynamic ARDL simulation necessitates a strict I (1) dependent variable (Jordan &Philips, 2018; Sarkodie &Owusu, 2020). Thus, the only probable participant for cointegration is an endogenous variable that is I (0). The method is considered to evaluate the effects of a group of regressors effects on a dependent variable with measurement variables that are taken in isolation over time. That is a single equation model framework. Conversely to OLS, both the lagged and current values of regressors are taken into account in an ARDL framework and the assessed effect on the dependent variable can be either observed steadily on future time steps or instantaneously (Shabbir et al., 2021). Dynamic ARDL simulation techniques are being used in many works to capture shocks in climatic and socioeconomic indicators (Sarkodie &Strezov, 2018; Sarkodie &Owusu, 2020; Shabbir et al., 2021). Our study gives specifics based on policy inputs in accounting for potential shocks owing to the current energy transition to renewables. The study selects the regression models utilising dynamic simulations ARDL model via 1000 simulations of the vector of parameters from a multivariate normal distribution. The empirical model for our trade variables is: yit =ai+a2RECt+λ2RECt−1+λ3BʹQt+et(7) where yrepresents our trade variables of the ARDL simulation analyses and BʹQare the control variables. Our trade variable includes the balance of trade, exports and imports of agricultural and industrial sectors productions. Ghana in its Nationally Determined Contributions (NDCs) plans to achieve 10 % of renewable energy penetration in its energy mix by 2030 and double energy efficiency by 20 % (MESTI, 2021). Our study, therefore, states the business-as-usual to be 1 % and rapid transition to be 5 % annually to these targets. 3.3. Data sources We used secondary monthly data series from the Ministry of Finance (MoF), the Bank of Ghana (BoG), and the Energy Commission of Ghana. The monthly data series was from January 2015 to April 2023 due mainly to availability. Data on merchandised trade flows, exchange rates, and commodity prices such as international gold and cocoa prices were obtained from the BoG. We sourced data from the Ministry of Finance on energy funds, subsidies, non-oil GDP and nominal GDP. Data on energy transition, the share of hydro in electricity generation, the share of low carbon in energy, export and imports of electricity, and renewable energy share were obtained from the Energy Commission of Ghana (see Appendix A). We have provided the summary statistics in Table 1. From Table 1, the mean of merchandised exports is US$1181.596 million with a minimum of US$696.32 and a maximum of US$1928.93. This implies that the average of the merchandised exports is US $1181.596. The average of electricity exports is 805.53GWh while the average of merchandised imports is US$1103.359 million. This is smaller than the merchandised exports by US$78.237 million. However, the minimum value of merchandised imports is greater than the minimum value of merchandised exports but the maximum value is smaller than that of the merchandised exports. This means that Ghana exported merchandised goods more than imported merchandised goods by 6.6 %. This is driven mainly by crude oil exports. This is because, without crude oil, Ghana exported US$3.57 billion worth of crude petroleum and imported US$1 billion in 2021 according to OEC (2024). This is not surprising since Ghana was the highest global importer of used clothing (US $214 million) in 2021. It is worth noting that the dispersion of merchandised exports (US$224.275 million) is greater than that of merchandised imports (US$113.766). For non-oil imports, the average is US$889.876 million. This implies that, on average, Ghana imports US $213.483 worth of crude oil. This is more than 19.3 % of merchandised imports. The trade balance has, on average, US$78.237 million with a minimum value of negative US$665 million and a maximum value of US $666.99 million. This implies that there some certain years that Ghana imports more than exports. Additionally, the average exchange rate is GHȻ5.402 per US$ with a minimum of GHȻ3.219 and a maximum value of GHȻ13.073. These show that the Ghanaian cedis has been depreciating against the US$ by more than 10 times. This indicates the weakest of the Ghana currency in international trade. The energy fund has a mean of GHȻ4.097 million with a minimum value of GHȻ0.937 million and a maximum value of GHȻ6.10 million while subsidies have a mean value of GHȻ2.28 million with a minimum value of GHȻ9.626 million and a maximum value of GHȻ14.2 million. In the same period, economic activity has a nominal growth rate of 12.213 % with a minimum growth rate of negative 1.71 % and a maximum growth rate of 35.5 %. This implies that Ghana sometimes has a negative growth rate which must be a concern for policymakers to address. An average growth rate of 12 % by all standards is good but for a country struggling to create jobs for its youth and Table 1 Summary statistics of the variables. Variable Description of variables Obs Mean Std. dev. Min Max Merchandised exports Merchandise Exports in US$ Millions 100 1181.596 224.275 696.32 1928.93 Electricity export GWh Electricity Export (GWh) 100 805.53 461.302 249 1855 Merchandised imports Merchandise Imports in US$ Millions 100 1103.359 113.766 882.37 1530.28 Nonoil merchandised imports Merchandise Imports_Non-Oil in US$ million 100 889.876 96.399 635.14 1212.2 Merchandised trade balance Merchandise Exports Less Imports Trade Balance in US$ Millions 100 78.237 232.462 −665 666.99 Share of renewable in electricity Share of electricity by Hydro (%) 100 60.758 17.440 34.448 91.725 Share of low carbon energy Share of low carbon energy (%) 100 6.497 1.228 3.71 8.32 Exchange rate Standard local currency units per US$ 100 5.402 1.875 3.219 13.073 Energy fund Energy fund in GHȻ100 4,096,802 1.00E+07 93,712 6.10E+07 Subsidies Subsidies in GHȻ100 2.38E+07 1.77E+07 9,625,973 1.42E+08 Nominal growth BoG Composite Index of Economic Activity (Nominal Growth) (%) 100 12.213 6.011 −1.71 35.5 C. Oteng et al. Research in Globalization 9 (2024) 100244 5 emerging as a crude oil producer, it is not encouraging. There was a time in time in 2013 when Ghana experienced a growth rate of more than 13 % and was the leading economy in West Africa and Africa by extension. These current figures show that Ghana is experiencing a decreasing growth rate. We measure energy transition by two key variables. These are the share of renewable energy in electricity generation and the share of low-carbon energy in our energy sector. From Table 1, on average, the share of renewable energy is 60.758 % with a minimum value of 34.448 % and a maximum value of 91.725 %. These indicate the effort Ghana is making in the energy transition dynamics accepted globally. However, the other share of low carbon has a mean of 6.497 % with a minimum value of 3.71 % and a maximum value of 8.32 %. This is because hydroelectricity dominates the energy sector of Ghana. We present the stationary tests of the independent variables. We used the Dickey–Fuller and the Phillips–Perron tests. The null hypothesis of both tests posits the presence of a unit root in the variable. PhillipsPerron incorporates Newey-West standard errors to address serial correlation, while the Augmented Dickey-Fuller test incorporates extra lags of the first-differenced variable. Shown in Appendix B, all the variables are stationary at levels except exchange rate which is stationary at the first difference. 4. Results and discussions 4.1. Impact of renewable energy transition on merchandised trade balance This section presents the results of the dynamic simulated model of energy transition and merchandised trade balance. Table 2 presents the effect of energy transition on the merchandised trade balance. We observe that the lag of the balance of trade increases the trade balance in the current period. The results further show that the coefficient of share of renewable energy in electricity is negative even though it is not significant. Additionally, we observe that the share of low-carbon energy has insignificant negative effects on the merchandised balance of trade. Plausibly, industries that rely less on carbon-intensive activities dominate Ghana’s economy. The transition to low-carbon practices might not have a big influence on trade dynamics if the main GDP-generating industries are not highly dependent on high-carbon production processes. The kinds of products and services Ghana buys and exports are very important. The impact on the trade balance can be negligible if the traded goods are not strongly linked to high carbon emissions or if there is a small market demand for low-carbon products. Trade balances may be impacted by the state of the world economy and consumer demand for low-carbon goods. Additionally, Ghana is still in the early phases of implementing low-carbon policies; as the economy changes, the implications on the trade balance could not become apparent right away. These empirical results confirm Bradshaw et al. (2022) who indicate that future oil demand dynamics exhibit considerable uncertainty, presenting a comparative evaluation of the world’s major oil exporters. Conversely, Waziri, et al. (2018) reveal that consumption of renewables in advanced countries of net energy-importing countries affected Nigeria’s petroleum exports negatively in so doing instigating a substantial reduction in the revenue sums being made therefrom. Also, Khan and Shaheen (2020) found the elasticity between crude oil import demands and consumption of renewables even though there was a small size magnitude. Other variables such as energy fund and exchange rate increase merchandised trade balance. While the lag of subsidies decreases the merchandised balance of trade. An increase in the exchange rate might result in lower imports for domestic consumers and higher export prices for overseas customers. In the case of Ghana, exports could become more costly for overseas consumers if the value of the Ghanaian Cedi increases, which could result in a decline in export volumes. Simultaneously, imports can become more affordable for domestic customers, which might encourage more imports. Exchange rate fluctuations can have an effect on export earnings for nations like Ghana that depend on the export of commodities or raw resources. An increase in the value of the national currency may result in a drop in export revenue if the nation’s exports are valued in foreign currencies, such as US dollars. Further, industries may see lower energy prices if the energy fund is utilized to fund the creation of more economical and efficient energy sources. Reduced energy prices have the potential to improve Ghanaian exports and the country’s goods trade balance by making the country’s products more competitive on the international market. Figs. 2a and 2b show that energy transition using both low carbon energy and renewable energy in electricity generation by 1 % and 5 % significantly increases the balance of trade to the 4th year after which energy transition decreases the balance of trade to the 9th year. After the 9th year, energy transition by both percentages increases the trade balance of Ghana. We observe that the energy transition by 5 % has a higher impact than the energy transition by 1 %. Additionally, it is observed that using the share of renewable energy in electricity generation has a decreasing rate relative to the first four years. This implies that low carbon energy will have greater impacts on the trade balance after the 9th year. These corroborate the study by Xie et al. (2021) who find that the relationship between energy consumption transition and productivity is inverse N and non-linear. That is, too high or too low a degree of energy transition does not enhance productivity. Plausibly, there will probably be large investments made in renewable energy infrastructure during the initial years of the shift to lowcarbon energy. A temporary negative impact on the trade balance could result from an increase in the importation of technology, machinery and experience. Between the 5th and the 9th year, as Ghana becomes more self-sufficient in renewable energy, the need to import traditional fossil fuels may decrease. This reduction in fossil fuel imports could lead to an improvement in the balance of trade during this period. Also, Ghana may be able to export its knowledge and technology in renewable energy to other nations in the region if it can build a strong low-carbon energy sector. This might have a favourable effect on the trade balance. After nine years, greater industrialization and economic expansion could result from Ghana’s ability to build a robust low-carbon energy sector. A rise in imports could affect the trade balance as a result of a higher demand for products and services. Table 2 Energy transition and merchandised trade balance. Coef Coef Lagbalance 0.409*** (0.093) 0.445*** (0.088) Share of renewable in electricity −1.711 (1.054) Share of low carbon energy 16.304 (14.381) Exchange rate 43.523*** (11.992) 38.678*** (11.957) Log of energy fund 0.330 (33.259) −6.568 (33.444) Log of subsidies 90.209** (43.636) 87.447** (43.037) Nominal growth −4.458 (3.233) −4.893 (3.229) Lagexch 9.449 (24.785) 8.645 (24.598) Lagenergyfund −9.200 (22.278) −4.966 (22.403) Lagsubsidy −61.140* (34.404) −68.997** (34.379) Lageconom 0.839 (3.645) 0.934 (3.618) _cons −1757.253** (865.513) −1370.846 (857.142) C. Oteng et al. Research in Globalization 9 (2024) 100244 6 4.2. Impact of energy transition on merchandised exports In this section, we discuss the outcome of the dynamic simulated model of energy transition and merchandised exports. Table 3 presents the point estimate of the effect of energy transition on merchandised exports. We observe that the lag of merchandised exports, exchange rates and subsidies have positive effects on current merchandised exports while the lag of energy funds and lagged exchange rate have negative effects on merchandised exports. The share of renewable in electricity generated has a positive but no significant effect on merchandised exports. Additionally, we observed that the share of lowcarbon energy increases merchandised exports. Thus, a 1 % increase in energy transition by share of low-carbon energy increases merchandised exports by 0.461 % and it is significant at a 1 % level. The implication is that to increase merchandised exports, Ghana must increase its share of low-carbon energy adoption and use. These findings confirm the study by Bilgili (2015) and Hoang et al. (2020) who find a positive co-movement between industrial production and consumption of renewable energy in the long run. However, the findings are contrary to those of Stockl and Zerrahn (2020) who find a significant degree of uncertainty when it comes to predicting future oil demand. Ghana must invest in low-carbon energy. By investing in low-carbon energy, Ghana can diversify its energy mix by reducing its dependence on traditional fossil fuels. This diversification makes the country less vulnerable to fluctuations in global oil prices, providing stability for both domestic and export-oriented industries. Also, in recent times, renewable energy technologies like wind and solar electricity have become more and more affordable globally. Businesses in Ghana may experience reduced production costs as a result of emerging technologies which contribute to decreases in price. Ghanaian products and services are more competitive on the global market due to lower manufacturing costs, which could lead to an increase in export volumes. Furthermore, environmental responsibility and sustainability are becoming increasingly important in many developed nations and global marketplaces. Consumers and companies in these markets might find low-carbon goods and services more enticing, which would raise demand for Ghana’s exports. For electricity exports, the lag of electricity exports increases electricity exports to other countries such as Togo and other neighbouring countries. It is observed that energy transition using the share of renewable generated through electricity surprisingly reduces the export of electricity. It is observed that a 1 % increase in the share of renewable Fig. 2a. Low share of carbon energy on merchandised trade balance. Fig. 2b. Share of renewables in electricity on merchandised trade balance. C. Oteng et al. Research in Globalization 9 (2024) 100244 7 energy in electricity generation reduces electricity exports by 11.647GWh. The share of renewable electricity in the energy mix can be influenced by the level of infrastructure development. It is generally known that there are challenges in implementing or maintaining renewable energy infrastructure in Ghana. This could impact the overall contribution of renewables to the electricity grid. Further, the level of investment in renewable energy projects in Ghana can significantly influence their contribution to the electricity grid. Adequate funding and support for renewable projects are essential for their successful implementation and integration into the energy system. We also observe that the share of low-carbon energy increases the export of electricity. Thus, a 1 % increase in the share of low-carbon energy increases electricity exports by 70.79GWh. This means that Ghana can increase electricity exports by investing in low-carbon energy sources. Low-carbon and sustainable energy sources are becoming more and more important in many nations and areas as a result of environmental concerns and pledges to lower GHG emissions. Since low-carbon electricity, such as that produced by renewable energy sources, is in line with these global trends, it is more appealing to nations looking to import greener energy. Also, countries often set renewable energy targets as part of their climate change mitigation strategies, as Ghana has been doing. Achieving and surpassing these targets, can enhance a nation’s reputation and standing in international forums, potentially opening up opportunities for electricity exports. Figs. 3a and 3b show that energy transition increases merchandised exports up to the 6th year and after merchandised exports fluctuate by energy transition. We also observe that the energy transition by 5 % for both shares of transition has greater impacts than the 1 % transition scenarios. Figs. 3c and 3d describe the simulated effects of energy transition on the export of electricity. It is observed from Fig. 3c that both scenarios of low carbon share increase the export of electricity to the 4th year after which it starts decreasing to the 9th year. It starts increasing electricity exports from the 10th year. However, the ranges of the 5 % are shorter than the 1 % transition scenario. Plausibly, there may have been large initial investments made in renewable energy infrastructure, such as wind and solar farms. These expenditures may result in higher output, which could create an excess of electricity that can be exported. Also, in the initial period, there might be an economic upswing that increases the demand for electricity, both domestically and for export. However, as economic conditions stabilize or other countries develop their renewable capacities, the demand for electricity exports from Ghana may decrease. We observe from Fig. 3d that a 5 % scenario of the share of renewable in electricity generation increases the export of electricity to the 4th year after which a 5 % energy transition scenario fluctuates with decreases and increases. However, the 1 % scenario decreases the exports of electricity to the 2nd year after which it increases electricity exports to the 4th year. After the 4th year, a 1 % energy transition scenario has unstable effects on electricity exports. This indicates that investments in renewable energy infrastructure contribute positively to Ghana’s electricity production capacity. However, the fluctuations in the subsequent years suggest that economic conditions, both domestically and internationally, might be influencing the demand for electricity exports. The initial decrease in electricity exports in the 2nd year under the 1 % scenario may be due to slower development in renewable energy projects. The subsequent increase in exports until the 4th year could be attributed to the gradual adoption and growth of low-carbon technologies. However, the instability post-4th year indicates that the 1 % transition scenario may not provide a sustainable or reliable long-term solution. 4.3. Impact of renewable energy transition on merchandised imports In line with the objectives of the paper, this section discusses the Table 3 Impact of energy transition on merchandised exports. Merchandised exports Electricity export Coef Coef Coef Coef Lagexport 0.472*** (0.094) 0.461*** (0.091) Lelectri 0.446*** (0.093) 0.398*** (0.105) Share of renewable in electricity 1.480 (1.046) −11.647*** (2.523) Share of low carbon energy 0.461*** (0.091) 70.790** (36.983) Exchange rate 82.513*** (9.586) 82.403*** (9.180) 10.158 (23.084) 25.263 (24.935) Log of energy fund 24.905 (33.094) 19.024 (31.570) 36.532 (81.184) 90.666 (87.685) Log of subsidies 108.4042** (42.090) 115.658*** (40.751) 8.084 (103.261) −10.997 (112.853) Nominal growth 0.571 (0.925) 0.105 (0.905) 3.270 (2.229) −0.897 (2.345) Lagexch −70.641*** (23.161) −65.398*** (22.540) −16.1045 (56.467) −0.036 (61.915) Lagenergyfund −15.120 (22.195) −10.913 (21.070) −36.516 (54.130) −76.226 (58.268) Lagsubsidy −62.2966* (34.163) −56.435* (33.107) 4.492 (81.885) 62.815 (89.063) Lageconom 4.2666 (3.551) 4.384 (3.440) 7.787 (8.562) 6.013 (9.376) _cons −1510.190* (825.571) −1692.350** (800.853) 495.092 (1993.717) −1268.32 (2162.579) Fig. 3a. Low share of carbon energy on merchandised exports. C. Oteng et al. Research in Globalization 9 (2024) 100244 8