Climate change has brought about so many devastating effects on the nations of the world thereby increasing the daily need for solutions to deal with carbon emissions globally.
As a result of this, Carbon trading has become extremely popular among individuals and organizations leading to the emergence of carbon exchanges, which offer great opportunities for cutting carbon emissions.
Carbon trading on carbon exchange is a programme targeted at reducing greenhouse gas emissions by giving firms or countries a right to emit carbon dioxide at an agreed price per tonne- rates with each carbon credit tied to an emission reduction project and represents a defined amount of carbon kept out of the atmosphere.
On the African continent, the governments are not relenting in their efforts to ensure that they achieve the various targets for reducing carbon emissions. For this article, we will narrow the efforts down to Nigeria to explore the journey of the West African country in establishing its Carbon Exchange to aid its carbon emission-cutting target.
This will be done under various subheads for clearer understanding.
Why the Need for a Carbon Exchange?
As pointed out earlier, the need for carbon trading to aid the reduction in carbon emissions has brought about the need for Carbon Exchanges.
Carbon Exchange is the system whereby different countries exchange carbon credits through carbon trading.
Carbon trading entails the process of buying and selling carbon credits. Some of these credits are permits that allow a company or other entity to emit CO2, and some of these credits represent one ton of CO2 emissions that is already been offset and the right vehicle to drive the need is the Carbon exchange.
Efforts by the Nigeria government on launching a carbon exchange
With the country’s determination on achieving net zero emission by 2060 driven by the United Nations Framework Convention on Climate Change, the Kyoto Protocol, and the Paris Agreement, Nigeria has been working to improve on existing policies, regulations, and measures it is adopting to ensure that the goal is actualized. To this end, it has and is still coming up with and implementing some strategic measures which will lead to the realisation of its carbon exchange,
Some of these include:
The Climate Change Act 2021
Several efforts were put into getting this act to serve as a legal framework to coordinate the activities of the country as regards tackling climate change and all that has to do with it.
The climate act is an offshoot of Nigeria’s Energy Transition plan and it establishes a legal framework for Nigeria to develop climate change mitigation and adaptation strategies that are integrated with other relevant policies and promote inclusive green growth and sustainable economic development. It also sets a target for Nigeria to achieve net-zero emissions by the years, 2050 to 2070.
Launch of Emission Trading Scheme
In 2022, the Nigerian Government launched the Emissions Trading Scheme, ETS, which is aimed at providing policy recommendations that will guide the National transition to a green economy.
The Scheme was established in line with the legal framework provided in the Climate Change Act 2021 which seeks to reduce carbon emissions through a carbon market base approach to meet its Net Zero target.
The emission trading system plays an important role in determining carbon credit pricing for trading carbon credits. Companies are permitted to obtain carbon credits for each ton of CO2 emission they emit under this system. Nigeria recently unveiled its own emissions trading system, which will aid in the pricing of carbon and inspire trust in investors considering the carbon trading market.
Introduction of Carbon Tax System and budget system
Working with the climate act, Nigeria will anytime soon introduce a carbon tax and budgetary system in line with the country’s Energy Transition Plan.
A carbon tax comes in two broad forms, namely: an emissions tax, which is based on the quantity an entity produces, and a tax on goods or services that are generally greenhouse gas-intensive, such as a carbon tax on gasoline.
Under the arrangement, the Nigerian government would be expected to set a price that emitters pay for each ton of greenhouse gas emissions.
The core benefits of this tax system include helping to generate revenue for the government, encouraging consumers to take steps to switch fuels, adopt new technologies, and reduce emissions to avoid paying the tax.
This measure is being put in place to work alongside other measures under the carbon reduction target plan of the country.
The budget system
The climate change act provides that the carbon budget (which means the approved quantity of GHG emission that is acceptable over a specified time) and the budgetary period for Nigeria must be set and periodically revised in line with the country’s climate change act to comply with international obligations.
The goal of the carbon budget is to keep the average increase in global temperature within 2 degrees Celsius and make a concerted effort to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels.
For the Carbon Budget, Director-General of the National Climate Change Council, Salisu Dahiru, has this to say;
“The carbon budget is now going to provide allowances for every entity, whether government or private sector, in terms of how much emissions it may be allowed, and exceeding those emissions could also attract penalties. What will be the nature of these penalties, these penalties are going to be contained in another deliverable that the Climate Change Act has also requested the council to do. That is to develop a framework for a carbon tax system in Nigeria. It will also look at where projects are being implemented in the country.
Moving on, the National Climate Change Council is also working on developing an effective framework for carbon trading.
Pioneering the African Carbon Markets Initiative
To move closer to the realisation of its objective of effective net zero emissions and carbon trading, Nigeria joined few other African countries to pioneer a voluntary carbon market programme on the continent tagged the Africa Carbon Markets Initiative (ACMI.
The initiative which was unveiled in Egypt in 2022 at the COP 27 will work in tandem with Nigeria’s energy transition plan and is projected to produce up to 30 million carbon credits per year by 2030, which at US$20 per credit would earn Nigeria more than US$500 million annually as well as create more jobs for the teeming population.
All these are geared towards the goal of achieving an effective carbon exchange platform for Nigeria.
Though Nigeria’s carbon emission has fluctuated over the years, it has been on the increase in recent years has reached 127 million tonnes in 2021 according to the data hub, Knoema.
This is not to say the country is relenting in its efforts at reducing gas emissions, rather it is only a pointer that more needs to be done in the area of fast implementation of its carbon trading programs, especially for the coming on board of the carbon exchange to make sure Nigeria’s carbon emission target for 2030 and 2060 have a viable means of actualisation.