Is energy transition inflationary in Sub-Saharan Africa? Policy implications from panel quantile analyses

Abstract

The high costs of clean technology and its associated mechanisms pose a significant obstacle to the global transition to cleaner energy, which aims to achieve carbon neutrality and improve environmental health, particularly in energy-poor regions such as sub-Saharan Africa (SSA). Unlike previous studies, this study examines the heterogeneous impact of energy transition on inflation levels in 46 SSA countries from 1990 to 2024, using Quantile regression (QR) and Method of Moments Quantile regression (MMQR) as a robustness check. The Quantile technique reveals how shocks impact SSA economies differently across low, median and high inflation levels, which average-based methods cannot detect. The Quantile outcomes indicate that first, renewable energy consumption has a significant positive effect on inflation (proxied by Consumer Price Index (CPI)) at the 50th and 75th quantiles. Second, renewable energy consumption has a significant positive impact on inflation (proxied by Gross Domestic Product (GDP) Deflator) at the 10th, 25th and 50th quantiles across the SSA region. On the contrary, renewable energy consumption has a significant negative effect on inflation (proxied by GDP Deflator) at the 90th quantile. However, these QR findings are not fully sustained under MMQR, where the estimated effects become statistically insignificant across the distribution, suggesting that the initial inflationary and deflationary results may be model sensitive. In view of the contrasting outcomes, by implication, policymakers in SSA should avoid assuming a uniform inflationary or deflationary effect of renewable energy transition and instead design flexible, macroeconomically coordinated energy policies that account for distributional conditions and estimator sensitivity before implementing large-scale reforms.