Exploring the inter-factor and inter-fuel substitution possibilities in Tunisia: the potential of renewable energy

Tunisia is among the developing countries that have taken initiatives to develop renewable energy and strengthen energy efficiency. Moreover, it has considerable potential, especially in the field of wind and solar energy. However, the country is still dependent on fossil fuel energy. In this context, the transition to renewable energy is considered one of the possible solutions to reduce energy dependence and strengthen the economy in general. Therefore, the aim of this research study is to evaluate the role of renewable energy in shaping the energy transition in Tunisia in order to qualify the possibilities of energy transition. Accordingly, we investigate the potential for substitution between the following factors and fuels: Capital, labor, renewable, and non-renewable energy in Tunisia using a translog production function approach. Due to the multicollinearity of the model, the ridge regression method is used to estimate the parameters of the function. The obtained results showed that the possibility of substitution between inputs, especially between renewable and non-renewable energy, can replace fossil fuels with clean energy consumption. Moreover, to maximize the potential of renewable energy in Tunisia, this study recommends that policy makers should take more reliable measures to reflect the exact price of energy through price regulation measures, encourage investment in research and development, and introduce carbon taxes that could accelerate this transition.