Green energy transition financing in the East African community: A dynamic fixed effects - autoregressive distributed lag model

Abstract

The East African Community faces significant challenges in financing its Green Energy Transition (GET) despite its green energy potential to meet energy needs and climate commitments. To address this, this study evaluates the impact of green energy financial flows on GET in the EAC using a Dynamic Fixed Effects-Autoregressive Distributed Lag model on panel data from 2000 to 2022. Anchored in the PESTEL framework and the Techno-Economic, Socio-Technical, and Political Co-Evolution Theory, study findings reveal that green grants, the quality of environmental policies, the overall policy and institutional environment, and access to electricity are significant short- and long-run drivers of GET in the EAC. This research uniquely provides empirical evidence on the effects of green energy financial flows within a developing economic bloc, highlighting the co-evolutionary interplay among political, economic, socio-technical, and environmental factors. Additionally, it focuses specifically on green energy rather than renewable energy. The empirical results underscore the critical role of targeted financial incentives, robust regulatory and institutional frameworks, and expanded electricity access. Furthermore, observed cross-sectional dependency among EAC nations calls for cooperative regional policy initiatives. This study recommends diversifying financing sources, strengthening governance, and removing barriers to private and public engagement, which are crucial to a sustainable EAC energy future.