Developing Carbon Credits Markets in Nigeria: Golden Opportunities and Daunting Tasks
By Baba El-Yakubu
From the gradual submergence of the coastline in the south to ferocious desert encroachments in the north; daily, Nigerians witness the adverse effects of climate changes. As global awareness of such changes intensifies, countries increasingly seek innovative mechanisms to mitigate greenhouse gas emissions – largely responsible for global warming, and escalating climate change. One such mechanism is the carbon credit market, which provides economic incentives for reducing emissions. With its significant industrial activities, environmental challenges, and vast forests, Nigeria has golden opportunities to develop a robust carbon credit market. To achieve this, however, there are herculean hurdles to be resolved.
A carbon credit is an instrument or permit issued by a recognized body. It represents one ton of carbon dioxide (CO2) or its equivalent in greenhouse gas (GHG) emissions removed from the atmosphere. Such removal or avoidance may lead to a cleaner and non-warming atmosphere. Therefore, certain amounts of carbon credits are given to companies whose activities such as manufacturing, aviation, construction and farming emit CO2 and/or GHG. Obviously, some companies may consume all the given credits and demand more while others may have excess and be willing to trade. The carbon credits market is devised for such trading. The markets are of two broad types (i) the compliance market – enforced by regulatory requirements, and (ii) the voluntary market – where private companies and individuals purchase carbon credits voluntarily. It is not clear what type may be developed in Nigeria. Already, Nigeria expressed its commitment to achieving emission control targets. The body responsible for meeting the targets and all other relevant activities is the NCCC – National Council on Climate Change. Nigeria is a signatory to the Paris Agreement on climate change. Furthermore, on November 8, 2022, the new Africa Carbon Markets Initiative (ACMI) was inaugurated at the United Nations Climate Change global conference held in Sharm, Egypt. Nigeria joined other countries in the agreement to collaborate with ACMI to scale the production of carbon credit across the continent.
Nigeria has abundant resources that are required to achieve ACMI’s objectives of successful mitigation of greenhouse gases emissions. First, Nigeria possesses a wealth of renewable energy resources, including solar, wind, and hydropower. The solar intensity in the northern region is one of the riches in the world. It has an annual average sunshine of about 6.25 h, ranging from 3.5 h in the coastal regions to 9.0 h in the northeast. The mean daily solar radiation can be as high as 7.0 kWh per square meter/day. Leveraging these resources can help generate carbon credits through projects that replace fossil fuel-based energy with cleaner alternatives. Second, agriculture is a major part of Nigeria’s economy, and it has substantial potential for carbon credit projects. Sustainable agricultural practices, such as reforestation, agroforestry, and methane capture from livestock, can generate carbon credits. These practices not only reduce emissions but also enhance food security and improve livelihoods for farmers. The reforestation has a very important benefit. For instance, recent records show that Gombe State experienced devastating tree cover loss from its forests. Areas such as Dukku, Balanga, Shomgom, Yamaltu, and Kaltungo were responsible for the largest tree cover loss between 2000 and 2020. According recent media report, the state Governor stated that between 65 and 96 percent of the entire forest cover has already been lost. Similarly, in the neighboring Bauchi State, areas such as Alkaleri, Darazo, Tafawa Balewa, Katagum, and Toro were responsible for 64% of all tree cover loss between 2001 and 2023. Carbon credits offer a viable solution to mitigate these issues by incentivizing sustainable practices.
Developing a carbon credit market can contribute to Nigeria’s economic diversification efforts. Oil is dirty. Its processing leads to GHGs emissions and it is mostly disliked by international investors. By creating a new revenue stream through the sale of carbon credits, Nigeria can reduce its reliance on oil exports. This can be particularly beneficial in times of fluctuating oil prices. Nigeria’s forest reserves are great potential carbon credits revenue generators. Furthermore, there is growing international interest in supporting carbon credit projects in developing countries. Nigeria can attract foreign investment and technical assistance through partnerships with international organizations and developed countries looking to offset their emissions. Programs such as the Clean Development Mechanism (CDM) under the Kyoto Protocol and initiatives under the Paris Agreement can provide funding and support for carbon credit projects in Nigeria. In a very encouraging development for Nigeria; Singapore and Ghana signed a carbon credit agreement on May 27, 2024. This engenders cooperation towards global environmental sustainability. The agreement simply means that businesses in Singapore can offset a part of their emissions limits by purchasing carbon credits in the Ghanaian market based on locally certified carbon reduction projects in Ghana. Obviously, implementing such projects can create jobs and stimulate economic development, particularly in rural areas. Projects such as reforestation, renewable energy installations, and sustainable agricultural practices require labor and can provide employment opportunities for local communities. Additionally, these projects often come with social benefits, including improved air quality, enhanced biodiversity, and better health outcomes.
For Nigeria to realize the aforementioned opportunities, there are important hurdles to be resolved. Let me start with the most important. One of the significant challenges in developing a carbon credit market in Nigeria is the lack of a comprehensive regulatory and institutional framework. NCCC is launching a carbon credit market framework by the end of the year. Clear regulations, policies, and institutions are necessary to support the development, monitoring, and verification of carbon credit projects. Without a robust framework, it will be difficult to ensure transparency, accountability, and the integrity of the carbon credits generated. A recent survey among international stakeholders shows that 85% of respondents strongly require effective MRV – Monitoring, Reporting, and Verifications. These depend heavily on local market capacity. Another hurdle is a general lack of awareness and understanding of carbon credits and their benefits among stakeholders in Nigeria. This includes government officials, businesses, and the general public. Capacity building and education are essential to ensure that stakeholders are well-informed and capable of participating in the carbon credit market. Training programs, workshops, and information campaigns can help bridge this knowledge gap.
As experiences from Ghana and Kenya show, developing carbon credit projects requires significant upfront investment. For example, to complete a bankable feasibility study may require about $1m. Many potential project developers in Nigeria may lack access to the necessary capital. Financial constraints can be a major barrier to the initiation and scaling of carbon credit projects. Access to funding, whether through government support, international grants, or private sector investment, is crucial for overcoming this challenge. Lack of finance may lead to poor quality Project Design Documentation (PDD). The integrity of the carbon project relies heavily on the reliability of information in its PDD. In addition, ensuring the credibility and accuracy of carbon credits involves rigorous monitoring, reporting, and verification processes. These processes can be complex and costly, particularly in remote or rural areas. NCCC’s plan to launch the carbon market framework is a very good development. It must be operationalized judiciously. This is because establishing reliable MRV systems and building local capacity to implement them is critical to maintaining the integrity of the carbon credit market. Another key requirement for a successful carbon project is a financial feasibility study. This partly depends on the carbon credit prices. Unfortunately, the prices and demands can be highly volatile. This volatility can make it difficult for project developers to predict revenues and plan investments. Developing a stable and predictable market for carbon credits requires efforts to create consistent demand, possibly through government policies, corporate commitments, and international agreements. Therefore, for an effective market, NCCC’s framework must have provisions for balancing supply-demand gaps and creating an insurance mechanism against price fluctuations.
Other important problems that may be peculiar to the Nigerian market are land tenure and social issues. Land tenure can pose significant challenges for carbon credit projects, particularly those involving land use changes such as reforestation or agroforestry. The market must be developed based on the federal laws. The land belongs to the state government. Unclear or contested land ownership can lead to disputes and hinder project implementation. This is particularly important because carbon projects are long-term. Additionally, it is essential to consider the social implications of carbon credit projects, ensuring that they do not displace communities or infringe on local rights. In Kano city, a survey shows mean monthly consumption of firewood of 332 kg/household. This is a low-cost energy. Under strict reforestation and carbon credit market framework; what may be the alternative? In some cases, there could be challenges due to ancestorial claims or religious practices. NCCC must pay attention to these challenges.
Ghana and Kenya are leading the carbon credit market development in Africa. One enviable benefit of the Singapore-Ghana agreement is that project developers must contribute 5% of proceeds from authorized carbon credits to climate adaptation efforts in Ghana. Nigeria must catch up. As discussed above, the development of a carbon credit market in Nigeria holds substantial opportunities for environmental sustainability, economic diversification, reforestation, job creation, and social development. However, realizing this potential requires resolving practical hurdles, including establishing a robust regulatory framework, enhancing awareness and capacity, securing financial resources, and ensuring credible verification processes. By overcoming these and leveraging its abundant resources and international partnerships, Nigeria can play a significant role in the global carbon credit market while advancing its own sustainable development goals.
Baba El-Yakubu is the PTDF-Professor of Chemical Engineering at Ahmadu Bello University, Zaria and Consultant at Carbon Assets Nigeria Limited
