As leaders worldwide have observed the harmful effects of greenhouse gas emissions on the atmosphere in recent years, the focus has gradually shifted towards the quest for clean and renewable energy. According to the World Health Organization (WHO), climate change induced by greenhouse gas emissions is expected to cause nearly 250,000 deaths per year between 2030 and 2050 through malnutrition, malaria, and heat stress. This phenomenon underscores the severe impact of greenhouse gas emissions on human lives. 

It has been recommended that proper attention be paid to reducing air pollution by advocating for cleaner energy sources. These efforts have taken various forms and approaches, including innovation geared toward carbon credits. The creation of carbon credits is an initiative aimed at managing the amount of carbon dioxide (CO2) released into the atmosphere through the issuance of permits with a limit on the amount of greenhouse gas emissions from companies, organisations, and governments.

Carbon credits are vital emissions trading schemes designed to reduce greenhouse gas emissions. They represent a quantifiable reduction in emissions achieved by implementing cleaner technologies, adopting energy efficiency measures, or implementing sustainable practices. Each carbon credit typically equals one metric ton of carbon dioxide (CO2) or its equivalent gases that have been avoided, reduced, or removed from the atmosphere.

In practice, limits set on carbon emissions are value creation–the right to emit, which invariably means that a company that successfully keeps its emissions in check and does not exceed its stipulated limit has something (its unused right to emit) to sell. Consequently, carbon credits are like points awarded to companies for avoiding gas emissions or absorbing some carbon dioxide back from the atmosphere. These carbon credits are traded amongst companies, as those that properly control their gas emissions and stay below their limit can sell carbon credits earned to those that exceed their CO2 emission limit. Carbon credits aim to reduce air pollution, encourage using cleaner energy sources, and foster the goal of reaching net zero emissions.

In Africa, stakeholders continue to intensify efforts to transition to net zero emissions amid climate change and political headwinds. Some of these political discussions involve the pressing need to eradicate poverty, which might impede the focus on reducing CO2 emissions. Also, net zero commitments could lead to further imbalances between developed and developing nations. 

Despite the geopolitical quagmire, Africa remains committed to achieving net zero emissions and contributing to climate change despite other challenges confronting the continent. 54 African countries, including Nigeria, have ratified the Paris Agreement. To curtail climate change, 196 nations implemented the Paris Agreement at the United Nations (UN) Climate Change Conference in Paris, France, in December 2015. 

As shown in the chart above, greenhouse gas emissions have grown from 185,003 million metric tonnes in 2010 to about 207,782 million metric tonnes in 2022, representing a growth of 12% and a compounded annual growth rate of 1% over 12 years. Likewise, Africa and sub-Saharan Africa witnessed growths of 20% each over the same period, justifying the urgency for sustainable solutions to combat the effects of climate change. 

As the largest economy in Africa, Nigeria has a crucial role in global efforts to combat global warming on the continent. Considerable attention has been paid to net zero emissions. Also, the potential use of carbon credits to incentivise companies and stakeholders across industries has been considered to reduce air pollution from bush burning, fossil fuel use, and vehicle emissions, among other sources. 

Against this backdrop, several climate-friendly policies have been formulated or are in the works. For example, Nigeria’s National Council on Climate Change announced plans for a national carbon tax policy. The government would set prices for greenhouse gas emitters to pay for each ton of emission. This policy is expected to shore up government revenues while simultaneously reducing emissions. Recall that at the 2021 United Nations Climate Change Conference (COP 26) held in Glasgow between October and November, President Buhari announced Nigeria's commitment to achieving net-zero emissions by 2060. Following that commitment, the Buhari administration enacted the Climate Change Act of 2021, passed into law the same year. It is worthy of note that the National Council on Climate Change was established by the Act and inaugurated in September 2022 to foster partnership among various government agencies, the private sector, civil society organisations, and other stakeholders in Nigeria to combat and mitigate the impact of climate change. Additionally, the Act provided for seamless and unparalleled collaboration between the NCCC and the Federal Inland Revenue Service (FIRS) to develop a mechanism for carbon tax in Nigeria.  

Despite the growing awareness of the deteriorating climatic conditions and steps taken to achieve net zero emissions, Nigeria remains highly dependent on carbon for production. Establishing a carbon credit industry in Nigeria presents a unique opportunity to mitigate greenhouse gas emissions, foster sustainable development, and contribute to the transition to a low-carbon economy. 

Potential Benefits for Nigeria:

• Economic Opportunities: The Tinubu administration aims to reach a $1 trillion GDP target in the next seven years. Establishing a carbon credit industry in Nigeria can unlock new economic opportunities and attract investments in renewable energy, energy efficiency, and sustainable development projects. Taking a cue from the European Union Emissions Trading System (EUETS), Europe’s flagship tool for achieving its carbon mitigation objectives launched in 2005, was reported to have generated revenue amounting to approximately €14.7 billion in 2019, with a significant portion allocated to climate and energy-related projects, while the renewable energy sector employed over 1.4 million people in the EU in 2018 according to the European Environment Agency. A carbon credit market would catalyse the provision of jobs, stimulate innovation, and drive economic growth in sectors such as renewable energy and agriculture.

• Environmental Impact: By incentivising emissions, reductions and sustainable practices, a carbon credit industry can help Nigeria achieve its climate goals and reduce its carbon footprint. It can contribute to cleaner air, improved public health, and preservation of natural ecosystems and biodiversity. For example, the cap-and-trade system of the EU ETS ensures that emissions reductions are achieved at the lowest cost to the economy. Thus, companies have the leeway to choose the most cost-effective measures to reduce their emissions or purchase allowances from other companies, leading to the efficient allocation of resources and minimising the overall cost of compliance. A recent study conducted by the London School of Economics and Political Science, in collaboration with the Grantham Research Institute on Climate Change and the Environment, analysed installation-level data on emissions from National Polluting Emissions Registries in France, Netherlands, Norway, and the United Kingdom. The study revealed that between 2005 and 2012, there was a 10% reduction in carbon emissions, which was in line with existing micro and macro evidence.

• Social Development: Investing in carbon mitigation projects can have positive social impacts, including improved access to clean energy, enhanced livelihoods for local communities, and empowerment of vulnerable populations. It can promote social equity, resilience, and inclusive development nationwide. According to the International Emissions Trading Association (IETA), China's carbon market has the potential to become the world's largest, with estimates suggesting that it could generate tens of billions of dollars in annual trading volume. As such, foreign investors and companies are eager to participate in China's carbon market, leading to increased investment and trade opportunities for the world’s second-largest economy. In Kenya, carbon offset projects have facilitated the deployment of clean energy technologies such as solar, wind, and biogas systems in rural areas. For example, the Kenya Biogas Program, a carbon offset project registered under the Clean Development Mechanism (CDM), has installed thousands of biogas digesters in rural households, providing clean cooking fuel and reducing reliance on traditional biomass fuels.

• Global Leadership: By embracing a low-carbon development pathway and participating in international carbon markets, Nigeria can demonstrate its commitment to climate action and position itself as a leader in sustainable development in Africa and beyond. It can enhance its reputation, strengthen diplomatic relations, and attract support from the international community. For instance, in Sweden, according to its Ministry of Environment, in 2011, Sweden emitted 61.4 million tonnes of carbon dioxide equivalent (Mt CO2 eq) of greenhouse gases. Relative to 2010, that represents a reduction of 6%; compared with 1990, a decrease of 16%, the trend in Swedish greenhouse gas emissions since 1998 has been downward. Sweden consistently ranks among the top countries with the lowest greenhouse gas emissions per capita. It has emerged as a leader in sustainable development, leveraging its carbon credit initiatives to promote renewable energy and emissions reductions. According to the OECD, as of 2023, Sweden is one of its best-performing members in reducing greenhouse gas emissions, primarily due to its comprehensive policy framework and efficient policies.

Challenges and Considerations:

While the establishment of a carbon credit industry holds immense potential, Nigeria also faces several challenges and considerations:

• Regulatory Framework: Developing robust policies, regulations, and institutional frameworks is essential to support the functioning of a carbon credit market in Nigeria. This includes defining eligibility criteria, monitoring and reporting requirements, and ensuring transparency and accountability in carbon offset projects.

• Capacity Building: Building technical expertise, institutional capacity, and public awareness are critical to the success of a carbon credit industry. This involves training professionals, educating stakeholders, and promoting best practices in emissions reduction and project implementation.

• Market Infrastructure: Establishing market infrastructure, including trading platforms, registries, and verification mechanisms, is essential to facilitate the buying, selling, and tracking of carbon credits. It requires collaboration between government agencies, private sector actors, and international partners.

• Risk Management: Addressing risks such as carbon price volatility, project viability, additionality, and leakage is essential to ensure the integrity and effectiveness of carbon offset projects. Implementing robust risk management strategies and safeguards can enhance investor confidence and project sustainability.

Recommended Actionable Steps

Regardless of the constraints of setting up a carbon credit industry, the following are recommended for Nigeria: 

• Policy Development: Formulate comprehensive policies, laws, and regulations to support the development of a carbon credit industry. This includes setting emission reduction targets, establishing a regulatory framework, and creating incentives for investment in carbon mitigation projects.

• Capacity Building: Invest in capacity-building initiatives to enhance technical expertise, institutional capacity, and public awareness of climate change, carbon markets, and sustainable development practices.

• Project Development: Identify and prioritise carbon mitigation projects in critical sectors such as renewable energy, energy efficiency, afforestation, and waste management. Develop project pipelines, conduct feasibility studies, and engage stakeholders to attract investment and support project implementation.

• Market Infrastructure: Establish the necessary market infrastructure, including carbon registries, trading platforms, and verification mechanisms, to facilitate the trading of carbon credits and ensure transparency, accountability, and integrity in the market.

• Partnerships and Collaboration: Foster partnerships and collaboration between government agencies, private sector actors, civil society organisations, and international partners to mobilise resources, share expertise, and promote knowledge exchange in building a thriving carbon credit industry.

• Monitoring and Evaluation: Implement robust monitoring, reporting, and verification (MRV) systems to track emissions, measure the impact of carbon mitigation projects, and ensure compliance with regulatory requirements and international standards.

• Promotion and Awareness: Promote the benefits of carbon credits, promote investment opportunities, and encourage participation in carbon markets through targeted outreach, capacity building, and communication campaigns.

Establishing a carbon credit industry in Nigeria holds immense potential to drive sustainable development, mitigate climate change crises, and position the country as a leader in green growth and innovation. By harnessing its abundant natural resources, investing in clean technologies, and embracing a low-carbon development pathway, Nigeria can create a brighter and more sustainable future for its people and the planet. Through concerted efforts and collaboration, Nigeria can seize the opportunities presented by the carbon credit market and contribute to a greener, more resilient world for future generations.

References: 

Dr Jessica Omukuti. Net Zero Commitments by Businesses in Africa: A stocktake https://netzeroclimate.org/wp-content/uploads/2022/11/NZ-Businesses-Africa-report-Nov22.pdf 

Regulatory Guidance on Nigeria’s Carbon Market Approach https://natccc.gov.ng/publications/NCCC%20Regulatory%20Guidance%20on%20Nigeria%E2%80%99s%20Carbon%20Market%20Approach.pdf

Nigeria sets sights on developing carbon markets, government working on carbon tax

https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/electric-power/040523-nigeria-sets-sights-on-developing-carbon-markets-government-working-on-carbon-tax

Nigeria’s Climate Change Act – things to know and prepare for

https://www.pwc.com/ng/en/assets/pdf/nigeria-climate-change-act%20.pdf

How carbon farming credits can boost Nigeria’s economy;

https://punchng.com/how-carbon-farming-credits-can-boost-nigerias-economy/