Economic Impacts of Energy Transition Rapidity on the Electricity Sector in Ghana

Abstract

The ongoing energy transition demands significant increase in the shares of low carbon energy technologies in the supply mix. The intention is to ultimately phaseout fossil-fuel technologies to keep global temperatures well below 2oC relative to pre-industrial levels. Despite opening clear possibilities to solve global climate challenges, energy transition is significantly front-loaded with plausible economic and social costs. The existing spectrum of literature on the transition in developing electricity markets is yet non-exhaustive, especially for Ghana in the sense of accounting for the economy-wide implication across all sectors of a national economy arising from carbon abatement policies. This study employs forward-looking approaches in computable general equilibrium (CGE) and microsimulation modelling to compute the economic costs associated with accelerated deployment of three transition policies in the electricity sector. The simulated policies include carbon taxes, carbon capping, and renewable energy feed-in-tariffs (REFITs). The simulated polices achieve decent growth in renewable electricity supply but with increasing adverse impacts on growth and welfare rapid penetration rates. Relatively, carbon tax has less adverse impact on welfare than carbon capping through revenue re-distribution. REFITs also make available revenue from ratepayers to fund renewable electricity production albeit accompanied by higher consumer welfare losses as REFITs increase. Finally, a tractable pathway is proposed with minimal impact of each policy option towards decarbonising the electricity sector in Ghana by 2030.