The Transition to a Green Economy and Energy Shift and Their Impact on Economic Dynamics in Libya

Abstract

This study examines the impact of transitioning toward a green economy and the energy shift on Libya’s economic growth from 1990 to 2022. As a rentier economy heavily reliant on fossil fuel exports, Libya faces structural challenges in aligning its production patterns with global climate agreements and sustainable development goals. The research employs the Autoregressive Distributed Lag (ARDL) model to capture the dynamic interactions between environmental and economic variables in both the short and long run. The empirical framework includes renewable energy consumption, fossil energy consumption, and carbon dioxide (CO2) emissions as independent variables, alongside a dummy variable representing political crises post-2011 to account for institutional instability.

The results of the ARDL bounds test confirm a stable long-term equilibrium relationship among the variables. In the long run, findings indicate that both renewable and fossil energy consumption are positively and significantly associated with economic growth. Specifically, a 1% increase in renewable energy consumption leads to a 0.46% rise in GDP, supporting the "energy-driven growth" hypothesis. Conversely, carbon emissions exert a negative impact on growth, aligning with the Environmental Kuznets Curve (EKC) framework, which suggests that environmental degradation eventually hampers economic performance. Furthermore, the political crisis dummy variable shows a significant adverse effect on economic dynamics, emphasizing the necessity of institutional stability for sustainable progress. The error correction term (ECM) was recorded at -0.38, indicating that approximately 38% of short-term deviations from the equilibrium are corrected annually. These results highlight the dual nature of the Libyan economy, which possesses promising potential for clean energy despite its current fossil fuel dependence. The study recommends expanding investment in renewable infrastructure and implementing proactive environmental policies to reduce carbon intensity without compromising growth.