This study examines whether bilateral green finance (BGF) can successfully reduce carbon dioxide emissions in West Africa by promoting the growth of renewable energy sources and enhancing energy efficiency. The study estimates linear panel models for lagged per-capita CO2 emissions using an unbalanced panel of 15 West African nations from 2000 to 2023. To account for contemporaneous correlation and heteroskedasticity, correlated panel-corrected standard errors and Driscoll–Kraay corrections are used. Lagged BGF is the primary explanatory variable, which is supplemented by foreign direct investment, energy intensity, trade openness, methane emissions, total renewable energy consumption, access to electricity in urban areas, renewable electricity output, and an SDG 7b infrastructure indicator that captures installed renewable capacity.
According to preliminary estimates, BGF is positively and significantly correlated with lagged CO2 emissions, suggesting that West Africa's current green finance allocation patterns are not yet translating into complete decarbonization. Reductions in per-capita CO2 emissions are also strongly correlated with higher percentages of renewable electricity output and lower energy intensity, underscoring the significance of allocating green finance to projects that improve efficiency and decarbonize the power sector. On the other hand, there is a positive correlation between emissions and both total renewable energy consumption and increased access to electricity, which is indicative of the region's rapid electrification, structural change, and economic growth.
By using quantile regressions to compare mean and distributional effects, the study demonstrates that the positive correlation between BGF and emissions is stronger at the median and upper quantiles of the emissions distribution. Building on these results, the study develops and evaluates a mediation hypothesis according to which energy efficiency and the deployment of renewable energy act as transmission channels through which BGF could, in theory, lower emissions, even if the reduced-form BGF–CO₂ relationship is currently positive. The findings offer policy-relevant insights for redesigning bilateral green finance instruments to better support West Africa's low-carbon transition by leveraging efficiency gains and renewable energy.
