Does Digital Finance Drive Renewable Energy Consumption? Evidence from Nigeria

Abstract

Nigeria faces a critical paradox: despite abundant renewable energy resources, over 85 million citizens remain trapped in energy poverty, largely due to limitations in the conventional financial system. This study examines whether digital finance can address this challenge and identifies the mechanisms through which it influences renewable energy consumption (REC) in Nigeria from 2009 to 2022. Grounded in Schumpeter’s Financial Innovation Theory, Lundvall’s National Innovation Systems framework, and the Stern Review’s climate-economic perspective, the study employs an ARDL-ECM approach. Results show that digital finance significantly increases REC in both the short and long term, with a 1% rise in the digital finance index improving long-run per capita REC by 0.84%. Credit accessibility is the primary transmission channel, with loan availability and household income jointly explaining about 40% of the total impact. Economic growth and technological advancement further promote clean energy adoption, while carbon emissions have no significant influence due to weak carbon pricing mechanisms. Robustness tests using solar energy consumption confirm the findings. The study recommends embedding digital financial infrastructure, particularly credit-based and income-enhancing digital financial services, into Nigeria’s renewable energy transition strategy.