Nigeria, like many other countries, no doubt is exploring innovative ways to reduce greenhouse gas emissions and transition to a low-carbon economy. One such mechanism is carbon credit trading, which has gained significant attention globally.
Nigeria has made significant strides in tackling climate change, and its commitment to reducing emissions is commendable and this is exemplified by the country’s Net Zero commitment announcement at COP26 in Glasgow in 2021 which marked a crucial turning point.
This pledge was reinforced by the passage of Nigeria’s Climate Change Act of 2021, which established the National Council on Climate Change (NCCC) to spearhead climate change mitigation efforts.
The Climate Change Act applies to all Ministries, Departments, Agencies, and public and private entities within Nigeria, demonstrating the government’s dedication to a comprehensive approach.
Carbon credits, also known as carbon offsets, are certificates issued to entities that reduce greenhouse gas emissions through various projects, such as renewable energy, energy efficiency, or reforestation. These credits can be traded on international markets, allowing countries or companies to purchase credits to offset their emissions.
In Nigeria, carbon credit trading is facilitated by the United Nations Framework Convention on Climate Change (UNFCCC) and the Nigerian government.
Some companies or organisations in Nigeria have developed projects that reduce greenhouse gas emissions, such as solar power plants or sustainable agriculture initiatives.
Independent auditors verify the project’s emissions reductions and the project is registered with the UNFCCC or other recognised carbon credit registries. Carbon credits are issued to the project developer based on the verified emissions reductions. They are traded on international markets like the European Climate Exchange or the International Emissions Trading Association.
Nigeria’s engagement with carbon markets is strategically linked to its development priorities and Nationally Determined Contributions (NDCs).
The country aims to meet its commitments under the Paris Agreement, specifically Article 6, which outlines global trade rules for reducing greenhouse gas emissions.
To achieve better results there are collaborative efforts between government agencies, the Central Bank of Nigeria (CBN) and the private sector. Prioritising access to carbon markets in alignment with the Paris Agreement’s cooperative model. Regulatory guidance on Nigeria’s carbon market approach published by the NCCC.
Nigeria launched the African Carbon Markets Initiative (ACMI) during COP27 to further support its climate goals, encouraging private investment in Africa’s energy development and amplifying the continent’s involvement in carbon credit markets.
Nigeria has also moved forward to establishing a robust legislative foundation for carbon trading through the Climate Change Act of 2021 which was a groundbreaking legislation that addressed the country’s pressing climate concerns.
This Act provides a framework for mainstreaming climate change actions and establishes a system of carbon budgeting and the National Council on Climate Change (NCCC).
The Act performs key objectives like mainstream climate change actions and integrates climate change consideration into national development policies and programs. It enables a carbon budgeting system that manages and reduces greenhouse gas emissions. It oversees climate change efforts, ensuring coordination and implementation.
The Act also reinforces Nigeria’s commitment to the Paris Agreement and its updated Nationally Determined Contributions (NDCs), aiming to cut carbon emissions to reach net zero by 2060. With this legislation, Nigeria has taken a significant step towards environmental sustainability and preservation.
To also prove the country’s commitment to environmental sustainability, Nigeria signed the Paris Agreement in September 2016 and ratified it in March 2017, committing to reduce its greenhouse gas emissions.
This commitment aligns with Article 6.2 of the Paris Agreement, which requires parties to promote sustainable development, ensure environmental integrity, and maintain transparency (no specific source, based on user question).
Nigeria has taken several steps to achieve its climate goals.
In 2021 the country updated its Nationally Determined Contributions (NDCs), increasing its unconditional emission reduction target to 20 per cent and conditional target to 47 per cent by 2030.
The updated NDC also broadens the scope and coverage of Nigeria’s climate commitments, including new sectors such as waste and water and new gases like short-lived climate pollutants and hydrofluorocarbons.
Furthermore, Nigeria has launched its NDC Implementation Framework to drive national climate action and achieve significant emission reductions. This framework is designed to coordinate, mobilise, and track progress towards Nigeria’s national climate targets, including reducing emissions by 20 per cent by 2030, compared to a business-as-usual scenario or up to 47 per cent contingent on international support.
The federal government is also making strides in addressing climate change through its commitment to the Paris Agreement, specifically Articles 6.2, 6.4, and 6.8.
The National Council on Climate Change (NCCC) has issued the Regulatory Guidance on Nigeria’s Carbon Market Approach, reaffirming the country’s dedication to reducing greenhouse gas emissions.
To achieve this goal, the NCCC has conducted a preliminary analysis to develop a governance framework and processes for implementing cooperation mechanisms under Article 6. This framework aims to harness collaborative efforts between government agencies, the Central Bank of Nigeria, and the private sector to prioritise access to carbon markets.
The NCCC recognises the crucial role of domestic private sector operators in enhancing the appeal and success of Nigeria’s carbon market.
To encourage participation, the NCCC has stated that regulatory approval will not be mandatory for the issuance and transfer of certified credits produced across all sectors. This development is a significant step towards creating a sustainable and climate-resilient economy in Nigeria, aligning with the country’s Nationally Determined Contributions (NDCs) and its commitment to achieving net-zero emissions by 2060.
Nigeria is making significant strides in the voluntary carbon market, guided by government policies and development priorities to ensure credibility and predictability. A key component of this strategy is the “No-Objection” process, which regulation will require to approve the issuance and transfer of certified credits generated across all sectors, aligning with Article 6.2 of the Paris Agreement.
Project developers will submit proposals for carbon credit projects to the National Council on Climate Change (NCCC).
The NCCC will conduct a thorough review and evaluation of each project. The NCCC will issue a “No-objection” to the project developer if approved. This process will enhance the credibility of carbon credits, support market transactions, and uphold environmental integrity and sustainable development goals. This development is part of Nigeria’s efforts to develop its voluntary carbon market, which is expected to be worth over $500 million annually by 2030, generating up to 30 million carbon credits. The country aims to achieve net-zero emissions by 2060, and the “No-objection” process is a crucial step towards realising this goal.
Fossil Fuel Reliance Challenges
Despite actions of government which are backed by legislation, inadequate funding and project execution in the power sector to provide reliable electricity to consumers especially to the industrial sector has compounded the efforts by government.
This is because Nigerians have been found to spend a staggering $10 billion annually on petrol and generator maintenance.
This exponential growth in petrol and power generating set usage was revealed in a new report by Sustainable Energy for All (SEforALL).
This exorbitant expenditure underscores the country’s heavy reliance on fossil fuels for energy generation, despite significant challenges and environmental concerns.
According to the report produced in partnership with the Lagos State Government, the high cost of fuel and generator (genset) maintenance places a heavy burden on households and businesses, hindering economic growth and development.
“Nigerians reportedly spend $10 billion (N7.6 trillion) annually on fuel and maintenance for small petrol genset,” SEforALL said in its latest report entitled, “Beyond Gensets: Advancing the Energy Transition in Lagos State.”
The report explained that the average small business in Africa’s biggest economy spends N20,000 to 40,000 per month just on fuel.
“This is the largest cost to many small and medium enterprises (SMEs) in their operations,” SEforALL said.
Nigeria, one of Africa’s largest economies, has long struggled with an unreliable power supply, forcing its citizens and businesses to resort to self-generated electricity.
Nigeria faces critical energy challenges from the lack of access to electricity and clean cooking to the scarcity and price hike of petrol.
“The cost of electricity for petrol generators is 83 percent higher than the cost of electricity from the grid,” SEforALL said.
The report noted that Lagos State’s heavy reliance on diesel-powered generators has resulted in an alarming environmental toll, with estimated annual carbon emissions reaching 39 million tons of CO2 equivalent (tCO2e), higher than three other African countries such as Rwanda, Gabon, and Togo.
The study revealed that emissions from Lagos’ residential, commercial, and market sectors are overwhelming.
The residential sector alone accounts for 21 million tonnes of CO2 emissions annually, while the commercial sector contributes 17.8 million tonnes, with markets adding a further 141,125 tonnes.
“Together, these emissions amount to 39 million tonnes of CO2, a staggering figure when compared to emissions from other nations,” SEforALL said.
The report further states that Togo emits approximately 9.8 million tonnes of CO2 annually, Rwanda 10.6 million tonnes, and Gabon 10.2 million tonnes.
The report estimates that Lagos State alone has a genset capacity of around 19 gigawatts (GW), far exceeding the national grid’s installed capacity of 12.2 GW.
“This dependency has not only placed Lagos at the forefront of Nigeria’s power generation challenges but has also contributed to a substantial environmental burden,” the report said.
The report notes that the city’s dependence on gensets is largely a consequence of Nigeria’s unreliable electricity grid, which has long struggled to meet demand due to inefficiencies, underinvestment, and maintenance issues.
Despite having an installed capacity of 13,014.14 megawatts (MW), Nigeria’s national grid frequently operates below optimal levels, with outages and inconsistent power supply forcing residents and businesses to rely on alternative power sources like generators.
According to the World Health Organization (WHO), air pollution is a leading environmental risk factor, responsible for millions of deaths worldwide each year.
The SEforALL report stressed the importance of transitioning to cleaner, more sustainable energy sources in Lagos and across Nigeria.
Biodun Ogunleye, commissioner of energy and mineral resources, Lagos State, highlighted the need for Lagos to lead Nigeria’s energy transition.
“By understanding and working to mitigate the impacts of diesel and petrol generator sets, we are taking decisive steps toward a cleaner, more sustainable energy future for Lagos and Nigeria as a nation,” he said.
The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) has expressed concern over the increase in petrol pump prices in Lagos and Abuja.
Dele Oye, National President, NACCIMA, made this known in a statement on Wednesday in Lagos.
Oye said that the prices, which had reached N998 and N1,030 per litre respectively, were placing a strain on businesses and households across the country.
He spoke on the potential economic consequences of the price hike, warning that the increase could lead to higher transportation costs, exacerbate inflation and severely impact small and medium-sized businesses.
He said that the decision, influenced by several underlying factors, warranted careful examination of its potential repercussions on the economy, particularly in the realms of pricing for goods, services and transportation.
“With transportation costs directly tied to fuel prices, this increase will serve as a catalyst for higher freight charges.
“Given that fuel is a primary driver of inflation, the rise in petrol prices will exacerbate the already high inflation rate in Nigeria.
“Households will find themselves paying more not only for fuel, but also for everyday goods and services, prompting a vicious cycle of rising costs and economic hardship.
“The recent fuel price increase will have a profound impact on micro and nano businesses, many of which rely heavily on petrol generators to power their operations,” he noted.
According to him, the overall economic landscape for SMEs can shift from potential growth to survival.
He explained that this would not only impact individual enterprises, but also limit job creation and economic development in communities across Nigeria. explained.
The NACCIMA president called on the Nigerian National Petroleum Corporation Ltd. (NNPCL) to demonstrate the necessary goodwill to support Dangote refinery operations.
This, he said, would ideally stabilise local petrol prices, reduce Nigeria’s dependence on imported petrol and contribute to national self-sufficiency.
Oye also called on the Central Bank of Nigeria to be more effective in implementing monetary policies that stabilise or strengthen the Naira.
He noted that as importation costs rise due to currency depreciation, domestic fuel prices would likely continue on an upward trajectory.
“It is imperative that we advocate for robust strategies that not only stabilise fuel prices but also bolster domestic production capabilities, ensuring that the Nigerian economy can navigate these turbulent times more effectively.
“As stakeholders, NACCIMA will continue to engage with government entities to encourage a more conducive climate for growth and sustainability,” he said.
However, experts believe that Nigeria can benefit immensely from carbon credit as that can contribute to Nigeria’s climate change mitigation efforts.
Carbon credit trading also can help generates revenue for Nigerian project developers and Carbon credit projects will further promote sustainable development, job creation, and technology transfer.
Nigerian companies can equally access international carbon markets, enhancing their competitiveness and Carbon credit projects can also encourage investment in renewable energy, improving Nigeria’s energy security.
These however comes with some key challenges beca Carbon credit trading involves complex regulatory frameworks and verification processes.
Also, trading carbon credits incurs significant transaction costs and there is limited awareness about carbon credit trading among Nigerian stakeholders.
In addition Carbon credit prices fluctuate with international market demand and projects may fail to deliver expected emissions reductions.
Also, Nigeria’s carbon credit policy framework is still evolving and there is insufficient expertise and resources for project development and verification and also inadequate infrastructure hinders project implementation.
To get it right, experts have recommended that a comprehensive framework is needed to provide clarity and direction for Nigeria’s carbon market development. This can be achieved through targeted legislation from the legislature or comprehensive regulations from the National Council on Climate Change (NCCC).
They also advocated for a centralized carbon registry which they considered vital for recording, tracking, and verifying carbon credits. This will ensure transparency, accountability, and market integrity while facilitating compliance monitoring and certification processes.
To effectively develop Nigeria’s carbon market, they said government should prioritize collaboration among government ministries, departments, agencies, the Central Bank of Nigeria, and the private sector to prioritize access to carbon markets.
Government should also provide clear guidelines and regulations for carbon credit trading aligned with Article 6 of the Paris Agreement and establish robust accounting measures to prevent double counting and ensure environmental integrity.
They express the belief that Carbon credit trading presents opportunities for Nigeria to reduce greenhouse gas emissions, promote sustainable development, and access international markets.
However, addressing the challenges and limitations is crucial to harnessing the benefits of carbon credit trading. Nigeria must develop a robust policy framework to overcome these challenges, build capacity and expertise, improve infrastructure, and enhance awareness and education.
A well-structured carbon market framework will ultimately support Nigeria’s transition to a low-carbon economy, driving economic growth and environmental sustainability.
