Climate Action: Nigeria’s $25.6 Billion Green Bonds for Economic Resilience.

Nigeria is a key player in the global energy space, boasting abundant oil, gas reserves, and coal. In line with the global target for net-zero carbon emissions, the country has committed to achieving carbon neutrality by 2060.

As Africa’s leading oil and gas producer, Nigeria is vulnerable to climate change and the social, economic, and security costs associated with global warming. As a resource-intensive nation with oil and gas as the mainstay of its economy, Nigeria strives to embrace the global push towards energy transition and define its pathway in harmony with its broader developmental aspirations.

In 2021, shortly after the conclusion of COP-26 in Glasgow, Scotland, former President Muhammadu Buhari signed the Climate Change Bill into law. The Bill, now called the Climate Change Act, mandates mainstreaming climate change action and the establishment of a National Council on Climate Change.

The Act serves as a tool for measuring the country’s environmental and economic progress towards a net-zero emission plan. The government has significantly advanced the energy transition agenda by enacting the Climate Change Act. This Act provides a crucial legal framework for achieving low greenhouse gas emissions and promoting green growth alongside sustainable economic development in Nigeria. It is designed to coordinate climate change action across ministries and mainstream these actions with national development priorities, facilitating the mobilization of finance and resources necessary for effective climate change mitigation.

The Climate Change Act establishes a National Council on Climate Change, chaired by the President and comprising ministers, the CBN Governor, the Chairman of the Governors Forum, and the President of ALGON to represent sub-national interests. The Act includes provisions for private sector participation in governing climate change and energy transition, such as carbon trading and private sector investment in nature-based solutions, which help balance emissions through carbon sinks and biodiversity preservation.

The Act aims to achieve Nigeria’s long-term climate goals, including a net-zero carbon emission target, national climate resilience, and climate finance. It seeks to enhance cross-ministerial coordination of climate change action and engage businesses and civil society organizations in the country’s climate objectives, promoting climate-resilient social and economic development. One key aspect of the Act is the provision for five-year carbon budgets, approved by the Federal Executive Council, to increase efforts towards achieving net-zero greenhouse gas emissions between 2050 and 2070.

Agora Policy report

Last year, a report by Agora Policy, an Abuja-based think tank, highlighted that climate change might cause Nigeria to lose trillions of dollars in stranded assets. The report estimated the country’s total economic cost of climate change to be about $100 billion yearly. It warned that climate change can potentially jeopardize Nigeria’s economic development and alter its “geographical, social, and political trajectory for decades or even centuries.”

The report, however, pointed out that although climate change is a threat, it also allows the country to diversify its economy. “Climate change is increasing hunger, poverty, disease burden, migration, conflict, and insecurity in Nigeria. It is damaging infrastructure, changing Nigeria’s coastlines, fueling desertification, producing water scarcity, facilitating erosion, and resulting in the loss of revenue for states and the national government,” the report’s executive summary says.

“With these far-reaching negative effects on the country’s human and natural systems, climate change has the potential to jeopardize the country’s economic development and alter its geographical, social, and political trajectory for decades or centuries. Some of the repercussions of climate change on the nation may be irreversible. Therefore, it should be evident that climate change is not a marginal or peripheral issue that the government and the people of Nigeria can take lightly. Even though climate change poses significant threats to Nigeria’s economic development, it also presents an opportunity to diversify the economy, expand the country’s energy portfolio, address energy security concerns, and increase global economic competitiveness. To transform climate change from a significant threat into an opportunity requires deliberate planning supported by immediate, bold, and courageous action.”

While acknowledging that successive administrations recognize the dangers climate change poses to the socioeconomic development of the country, the report called for a clear roadmap to ensure the effective implementation of climate change-related policies. “There is evidence that successive Nigerian governments recognize the enormous threat of climate change and the necessity for action, as indicated by many policy declarations, documents, and a new National Climate Change law. However, the actual action is still behind schedule. The government has not yet established a clear roadmap for the effective and comprehensive implementation of key policies and commitments, and there are no clear budgetary provisions for their implementation.”

“Transitioning to a green economy is a complex endeavor that requires meticulous planning, stakeholder participation, and a dedication to sustainable development. Leveraging climate action to pursue economic development in Nigeria is a viable and essential strategy. Incorporating climate considerations into economic development strategies can result in inclusive and sustainable growth. Such a move can provide Nigeria with excellent opportunities to construct a climate-resilient economy that promotes growth, reduces poverty, creates good green jobs, and contributes to reducing greenhouse gas emissions and environmental sustainability. By proactively addressing the issue of stranded assets, Nigeria can position itself for a more resilient and prosperous future.”

“The emphasis should be finding methods to industrialize and transition without substantially increasing the country’s emissions profile. To accomplish this, Nigeria must implement mitigation and adaptation strategies that considerably enhance its macroeconomic stability, economic transformation, and job creation while minimizing the negative impacts of climate change on development. The global transition from a high-carbon economy to a low-carbon economy is already well underway through a multitude of international and national initiatives, many of which are led by high-polluting industrialized nations that are keen to transform their economies and position their countries as net beneficiaries of the new global green economy. These strategies and investments will inevitably alter the global political, economic, and geopolitical landscape, producing winners and losers worldwide. Whether Nigeria will swim or sink in the face of climate change and the global green growth transition will depend on its willingness to take urgent action now and re-align its national development strategies towards a low-carbon economic future,” the report stated.

Energy transition plan

At COP-26, the Energy Transition Council was established, and Nigeria was selected as a key country for support among other nations across Africa and Asia. This support led to the development of Nigeria’s energy transition plan, which outlines a clear pathway for achieving universal access to clean energy by 2030 and carbon neutrality by 2060 and details the necessary actions to meet these targets.

Vehicular transportation, firewood, kerosene, charcoal used for cooking, and the widespread use of generator sets in homes and commercial and industrial activities are Nigeria’s biggest contributors to carbon emissions. Energy consumption within buildings accounts for 40 percent of total emissions in the country, primarily due to high-emitting cooking stoves and diesel generators. For Nigeria to decarbonize, buildings must transition to biogas and efficient firewood in rural areas and focus on deep electrification in urban areas. This transition will also require shifting from generators to renewable energy sources, such as solar technologies and decentralized renewables, to reach enterprises beyond the grid.

Nigeria’s energy transition plan necessitates a solar-driven capacity increase of over 5GW per year for 40 years until 2060. This substantial requirement is why Nigeria advocates for gas as a transition fuel, emphasizing its role in creating the grid base load firmness necessary to integrate renewables at scale.

Addressing emissions in Nigeria requires multi-sectoral pathway solutions, which the government understands. However, challenges remain regarding the scale of capital expenditure financing needed for infrastructure, resource availability and affordability, cultural habits, and lack of awareness.

According to Sharon Ikeazor, former Minister of State for Environment, Nigeria needs an investment of about $410 billion to finance the clean energy transition. This investment includes $162 billion for generation capacity, $135 billion for transmission and distribution infrastructure, $79 billion for buildings, $21 billion for industry, and $12 billion for transport.

Green economic initiatives committee

President Bola Tinubu recently established a committee to oversee green economic initiatives in Nigeria. The committee will coordinate and oversee all policies and programs related to climate action and green economic development. Chaired by Tinubu, the 25-member committee will identify, develop, and implement innovative non-oil and non-gas climate action initiatives.

The committee is responsible for coordinating the activities of relevant federal institutions to achieve the Federal Government’s climate action and green economic objectives, as well as its non-oil and non-gas ambitions. It will collaborate with government agencies, state governments, civil society organizations, and other entities to meet these climate action goals. Additionally, it will work with other countries and multilateral institutions to fulfill Nigeria’s climate action objectives and carbon market ambitions.

Other committee functions include monitoring, evaluating, and guiding the progress of all federal climate action and renewable energy projects and activities. It will track and guide the implementation of initiatives developed by the Energy Transition Working Group and supervise the work of the Presidential Steering Committee on Project Evergreen. Furthermore, the committee will prepare a half-yearly update on green ambitions, covering all climate action achievements of the federal government.

According to a statement issued by George Akume, the Secretary to the Government of the Federation, “This is to remove the constraints to coordination, foster a whole-of-government approach to climate-action programs, provide an efficient governance architecture, and ensure that all relevant institutions in the sector are aligned with the President’s vision and collectively implementing the Renewed Hope Agenda on climate action.”

$10.6bn, $15bn Green Bonds

The Nigerian Government has issued two Green Bonds, amounting to $10.6 billion and $15 billion in the first and second tranches, respectively, for the development of the energy sector. A third tranche is underway, targeting $50 billion, aimed at projects with clear environmental benefits that promote the transition to low-carbon and climate-resilient growth, including climate mitigation and adaptation. The government believes this will unlock additional investment opportunities under Nigeria’s Energy Transition Plan, benefiting bondholders, issuers, suppliers, manufacturers, and other stakeholders across the value chain.

Minister of Innovation, Science, and Technology Uche Nnaji announced this at the official unveiling and popularization of the gazettes on the National Energy Policy and National Energy Master Plan held recently in Abuja. He highlighted that the National Energy Master Plan has been developed to address all factors essential for the balanced and coordinated development of the sector, including energy demand, supply, production, processing, research and development, and manpower training, which are crucial for the nation’s technological advancement.

Nnaji reiterated that the gazetted government policy directions hold significant importance for general application and official recognition by the government, Nigerians, and other stakeholders. He commended the Commission for achieving this milestone, seeing it as an opportunity to enhance Nigeria’s Energy Policy standards, facilitate investments in the energy sector, and promote the transition from fossil-based to low-carbon options, according to a statement by Atuora Obed, Deputy Director of the Press and Public Relations Unit of the Ministry of Innovation, Science, and Technology.

At COP-26, the Energy Transition Council was established, and Nigeria was selected as a key country for support among other nations across Africa and Asia. This support led to the development of Nigeria’s Energy Transition Plan, which outlines a clear pathway for achieving universal access to clean energy by 2030 and carbon neutrality by 2060 and details the necessary actions to meet these targets.

Gas as a green energy source

Addressing emissions in Nigeria requires multiple sectoral pathway solutions, which the government understands. However, challenges remain concerning the scale of capital expenditure financing needed for infrastructure, resource availability and affordability, cultural habits, and lack of awareness.

The country needs an investment of about $410 billion to finance the clean energy transition. This shows a $162 billion net spend on power generation capacity, $135 billion on transmission and distribution infrastructure, $79 billion on buildings, $21 billion on industry, and $12 billion on transport.

Amid the call for a transition to greener energy sources, there is an argument that oil and gas producers like Nigeria, a developing nation, should be allowed to leverage revenue from these resources to build their economies, tackle poverty, combat energy poverty, and transition to cleaner energy sources. The adoption of gas as a green energy source by the European Union (EU) has provided an opportunity for Nigeria to harness its vast gas reserves for economic growth and development. As of January, the country’s natural gas reserves stood at 209.26 trillion cubic feet (tcf).

In July 2022, EU lawmakers backed a proposal from the European Commission, the EU’s executive arm, to label natural gas and nuclear power as green and sustainable energy sources. Although gas contains methane, contributing to global warming, it is less environmentally harmful than coal and other fossil fuels.

PCNGI

Nigeria launched the Decade of Gas initiative in 2021, aiming to transform the country into a gas-powered economy by 2030. Several commitments have been made to enhance domestic gas utilization in recent years through public and private sector programs. The Central Bank of Nigeria (CBN) initiated a N250 billion intervention facility in August 2020, followed by the National Gas Expansion Programme (NGEP) launch in December 2020.

Nigeria aims to boost gas production to 12.2 billion cubic feet daily by 2030. Achieving this target requires substantial investment in deepwater gas projects and infrastructure development. Despite the enactment of the Petroleum Industry Act (PIA), progress has been slow due to low investment as oil and gas companies demand incentives for Non-Associated Gas (NAG).

President Bola Tinubu recently introduced fiscal incentives for NAG midstream and deepwater developments through an executive order to increase gas production and meet local demand while boosting exports for foreign exchange earnings.

“Gas tax credits shall apply to non-associated gas (NAG) greenfield developments in onshore and shallow water locations, where the hydrocarbon liquids fall between 0-100 barrels per million standard cubic feet of gas,” announced Minister of Information Mohammed Idris in a statement.

The Minister also stated, “A 25 percent gas utilization investment allowance shall apply on qualifying expenditure on plant and equipment incurred by a gas utilization company in respect of any new and ongoing project in the midstream oil and gas industry.”

Additionally, the president directed the “implementation of commercial enablers for new brownfield and greenfield to incentivize investments for oil and gas projects in deep water.” The Federal Government believes these incentives will address the lack of differentiation between NAG fields in the PIA and eliminate value erosion for ongoing gas-related projects.

“These incentives address the lack of differentiation between NAG fields in the PIA, yield competitive returns, and prevent value erosion for ongoing gas utilization projects, including NLNG Train 7, due to changes introduced by sections 6 and 9 of the 2023 Finance Act,” Idris explained.

The Presidential CNG Initiative (PCNGI) aims to reduce Nigeria’s dependence on fossil fuels, enhance energy independence, and contribute to environmental sustainability. This initiative plans to put one million gas-powered vehicles on the road by 2027, with an average annual conversion rate of 250,000.

Moreover, the Nigeria Customs Service has been directed to implement a zero percent duty on CNG, Liquefied Petroleum Gas (LPG), CNG equipment components, conversion and installation services, LPG equipment components, and related services.

Over $50m investment attracted

Since the beginning of the year, the Presidential Compressed Natural Gas Initiative (PCNGI) has attracted over $50 million in investment. “I am pleased to announce that since December, over $50 million have been mobilized directly by the sector, much more than any amount of money that has been mobilized in the sector in the last eight years combined in just five months,” said Michael Oluwagbemi, Programme Director/Chief Executive of PCNGI, at a stakeholders’ forum held recently in Lagos.

The government has mobilized the private sector for CNG use and investments. Through PCNGI, Nigeria aims to open new investment opportunities for domestic and global gas sector investors.

“Thousands of Nigerian companies are investing in the sector because they see that the present administration is serious about moving the country forward and leveraging the gas resources God has given us,” Oluwagbemi stated.

A mere Deja Vu?

Biomass remains the major energy source in Nigeria, contributing about 78 percent of the country’s primary energy supply. According to the International Centre for Energy and Environmental Development (ICEED), over 70 percent of Nigerian households use firewood for cooking, leading to deforestation and the deaths of over 93,000 Nigerians annually.

In 2019, the Federal Government announced a target to achieve a 40 percent adoption rate of Liquefied Petroleum Gas (LPG) within five years (13.8 million households) and a 73 percent adoption rate within ten years (33.3 million households). However, the initiative has not met its objectives. The government aimed to achieve LPG consumption of five million tons by 2023, increasing household LPG use from 750,000 tons to two million tons by 2021 through greater acceptability and awareness. Yet, current LPG consumption in the country remains below two million tons annually.

Presently, many Nigerians cannot afford LPG. At about N1,100 per kilogram, it is beyond the reach of many. Whether the Green Bond initiative will face the same struggles as the National Gas Expansion Program (NGEP) or the Nigerian Gas Flare commercialisation Programme (NGFCP). Despite their promising beginnings, these initiatives have not achieved their objectives. Given the current government’s numerous challenges, the Presidential Compressed Natural Gas Initiative (PCNGI) may encounter similar obstacles if nothing is done differently.