Nigeria often hailed as the "Giant of Africa," faces challenges when it comes to energy production and consumption, similar to other countries. On one hand, it is blessed with abundant natural resources which have traditionally been the backbone of its energy sector. However, overdependence on fossil fuels (coal, petroleum and natural gas) has had an adverse effect on the climate including floods, pollution and erosion.
At the 26th Conference of the Parties (COP26) held in the United Kingdom in 2021, Nigeria's former president, Muhammadu Buhari announced Nigeria's commitment to carbon neutrality by 2060. In an effort to show Nigeria's commitment towards achieving net zero carbon emission, the Nigeria Energy Transmission Plan ("ETP") was developed and Nigeria's Climate Change Act 2021 was enacted. Nigeria's commitment was reiterated at the COP27 in November 2022 in Egypt where the Africa Carbon Markets Initiative ("ACMI") was inaugurated (as stated in our article); and further reiterated in the National Council on Climate Change ("NCCC") Regulatory Guidance on Nigeria's Carbon Market Approach released in June 2023, as detailed in our article.
This article aims to help you better understand energy transition in Nigeria including key terms relating to the carbon credit market.
1. What is Energy Transition?
Energy transition refers to the global shift from fossil fuel-based energy sources to renewable and sustainable energy alternatives such as hydro, wind, biomass, solar and thermal energy. It is a comprehensive and long-term process aimed at reducing greenhouse gas emissions, mitigating climate change, and achieving a more sustainable energy system. The primary objective of the energy transition is to move away from reliance on non-renewable and environmentally harmful energy sources, such as coal, oil, and natural gas, and transition towards cleaner, more sustainable, and low-carbon energy technologies.
2. What are the benefits of the energy transition?
The following are some of the benefits of embracing energy transition:
- Environmental protection: A shift to clean energy sources will help reduce greenhouse gas emissions and combat climate change. It will also mitigate air pollution, improving public health and ecosystem health.
- Energy security: By diversifying its energy sources, Nigeria can reduce its dependence on imported fossil fuels, enhancing energy security and economic stability.
- Job creation: The renewable energy sector has the potential to generate thousands of jobs, ranging from manufacturing and installation to research and development.
- Easy access to energy: With renewable energy initiatives like mini-grids, more rural communities can gain access to electricity, fostering social and economic development.
3. What Laws Affect Energy Transition in Nigeria?
The applicable laws are Nigeria's Climate Change Act, 2021 ("CCA"), Energy Transition Plan ("ETP") and the Electricity Act, 2023.
4. Which Governmental Authority or Agency Regulates Energy Transition in Nigeria?
The CCA established the National Council on Climate Change (NCC) in Nigeria, granting it the authority to formulate policies and decisions related to all aspects of climate change within the country. The NCC is to also oversee the implementation of the provisions outlined in the Climate Change Act.
It is also important to note the following governmental agencies, ministries and organizations involved in the regulation of the renewable energy sector in Nigeria: Nigerian Electricity Regulatory Commission ("NERC), Federal Ministry of Power, Federal Ministry of Water Resources, Federal Ministry of Environment, Nigerian Bulk Electricity Trading Plc and Transmission Company of Nigeria.
5. What are the available investment opportunities in Nigeria's Energy transition?
In order to achieve carbon neutrality by 2060, Nigeria needs an estimated amount of $10 billion per annum. According to the NCCC, Nigeria has an investment portfolio of $23 billion of projects/programmes which provides potential investors with various options. The portfolio identifies investment opportunities in generation, transmission and distribution (infrastructure upgrade and new distribution connections), metering, gas commercialization, clean cooking, government buildings, e-mobility, healthcare and technical assistance.
An example of a project is the deployment of solar energy projects such as the Solar Power Naija initiative, which aims to install 5 million solar home systems in rural areas and underserved urban areas by the end of 2023. Another example is the Energy Transition & Access Facility for Africa ("ETAFA"), an innovative financing initiative designed to facilitate the allocation of $50 Million towards the support of distributed renewable energy ("DRE") projects in Nigeria.
Conclusion
Nigeria's pursuit of renewable energy and energy transition marks a crucial step towards a sustainable future. Embracing cleaner energy sources not only addresses environmental concerns but also enhances energy security, creates job opportunities, and improves access to electricity for rural communities.
We have set out below a few keywords and their meanings to aid in understanding carbon credit.
A Glossary of Terms Relating to the Carbon Credit Market
The following is a short list of terms relating to the carbon credit market:
- Greenhouse Gas (GHG): This is a gas that contributes to the greenhouse effect by absorbing infrared radiation. In simple terms, it is a type of gas that allows sunlight to pass through the Earth's atmosphere but prevents the heat from leaving the atmosphere. Examples of GHG are carbon dioxide, methane, nitrous oxide, hydrochlorofluorocarbons (HCFCs), hydrofluorocarbons (HFCs) and ozone in the lower atmosphere.
- Net Zero: This simply means cutting greenhouse gas emissions to as close to zero as possible, such that any remaining emissions can be easily re-absorbed from the atmosphere by oceans and forests.
- Deforestation: This refers to the removal or thinning of forests by humans for uses such as agricultural croplands, urbanization, or mining activities.
- Carbon Credit: This is a tradable certificate representing the reduction or removal of one metric ton of carbon dioxide or its equivalent in greenhouse gases.
- Cap-and-Trade: This is a regulatory system where a government or authority sets a limit (cap) on total greenhouse gas emissions and allows companies to trade emission allowances.
- Emission Allowance: This is a permit issued by a regulatory body that allows an entity to emit a specified amount of greenhouse gases within a given period.
- Carbon Offset: This is a reduction in greenhouse gas emissions or removal of carbon dioxide from the atmosphere, typically achieved through investing in emission reduction projects.
- Additionality: A key criterion for carbon offset projects, indicating that the emission reductions or removals are above what would have occurred in the absence of the project.
- Verified Carbon Standard (VCS): A widely used standard for validating and verifying carbon offset projects.
- Gold Standard: A rigorous certification standard for carbon offset projects that also emphasizes sustainable development and social co-benefits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
