Linear And Non-Linear Impact Of Interest Rate On Sustainable Energy Consumption In Nigeria

Abstract

This study examined the impact of interest rate on renewable energy consumption in Nigeria from 1991–2021. The data for this study were obtained from World Bank Development Indicators, the Central Bank Statistical Bulletin, and the World Carbon Budget. The study employed Non-linear Autoregressive Distributed Lag (NARDL) model. Wald test result shows that an asymmetric relationship exists between the interest rate and renewable energy consumption in the long run. The empirical results reveal that interest rate exerts a negative and statistically significant impact on renewable energy consumption in both the short run and long run, implying that higher borrowing costs reduce investment in renewable energy technologies. The NARDL results further shows that increases in interest rate have a stronger negative impact on renewable energy consumption than equivalent decreases. Also, the long run result revealed that positive and negative changes are significant. It was observed that the impact of positive and negative change s were all negative as shown in their respective coefficients of -0.465768 and -0.410854, respectively. The study concludes that Nigeria’s transition towards sustainable energy is strongly influenced by the cost of capital associated with renewable energy investment. It therefore recommends that monetary authorities adopt interest-rate-supportive policies such as green-lending windows, subsidised credit, tax incentives, and renewable-energy financing schemes to enhance accessibility and accelerate clean-energy adoption. Strengthening renewable-energy financing frameworks will not only improve investment viability but also support national growth, energy security, and emission reduction commitments.