Carbon Credit In Nigeria: Understanding Its Operations And Challenges

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Gresyndale International is a corporate law firm that helps international entities come into West African countries and function effectively, especially in Nigeria and Kenya. Our subsidiary, Gresyndale Legal, offers premier legal advisory services to businesses worldwide. Our team of dedicated and exceptional lawyers provides top-notch services in various areas of law.
As the world grapples with the challenges of climate change, Nigeria, like many other countries, is exploring innovative ways to reduce greenhouse gas emissions and transition to a low-carbon economy.
Nigeria Environment

1. INTRODUCTION:

As the world grapples with the challenges of climate change, Nigeria, like many other countries, is exploring innovative ways to reduce greenhouse gas emissions and transition to a low-carbon economy. One such mechanism is carbon credit trading, which has gained significant attention globally.

Nigeria has made significant strides in tackling climate change, and its commitment to reducing emissions is commendable. The country's Net Zero commitment announcement at COP26 in Glasgow in 2021 marked a crucial turning point. This pledge was reinforced by the passage of Nigeria's Climate Change Act of 2021, which established the National Council on Climate Change (NCCC) to spearhead climate change mitigation efforts. The Climate Change Act applies to all Ministries, Departments, Agencies, and public and private entities within Nigeria, demonstrating the government's dedication to a comprehensive approach.

This article will delve into the concept of carbon credit in Nigeria, its challenges, and how it operates.

2. WHAT ARE CARBON CREDITS?

Carbon credits, also known as carbon offsets, are certificates issued to entities that reduce greenhouse gas emissions through various projects, such as renewable energy, energy efficiency, or reforestation. These credits can be traded on international markets, allowing countries or companies to purchase credits to offset their emissions.

3. CARBON CREDIT OPERATIONS IN NIGERIA:

In Nigeria, carbon credit trading is facilitated by the United Nations Framework Convention on Climate Change (UNFCCC) and the Nigerian government. Nigerian companies or organizations develop projects that reduce greenhouse gas emissions, such as solar power plants or sustainable agriculture initiatives. Independent auditors verify the project's emissions reductions. The project is registered with the UNFCCC or other recognized carbon credit registries. Carbon credits are issued to the project developer based on the verified emissions reductions. They are traded on international markets like the European Climate Exchange or the International Emissions Trading Association.

Nigeria's engagement with carbon markets is strategically linked to its development priorities and Nationally Determined Contributions (NDCs). The country aims to meet its commitments under the Paris Agreement, specifically Article 6, which outlines global trade rules for reducing greenhouse gas emissions.

Nigeria's Carbon Market Approach:

Collaborative efforts between government agencies, the Central Bank of Nigeria, and the private sector. Prioritizing access to carbon markets in alignment with the Paris Agreement's cooperative model. Regulatory guidance on Nigeria's carbon market approach published by the NCCC.

Nigeria launched the African Carbon Markets Initiative (ACMI) during COP27 to further support its climate goals, encouraging private investment in Africa's energy development and amplifying the continent's involvement in carbon credit markets.

4. NIGERIA'S CARBON TRADING REGULATORY FRAMEWORK:

Nigeria has established a robust legislative foundation for carbon trading through:

1. The Climate Change Act,2021:

Nigeria's Climate Change Act of 2021 was a groundbreaking legislation that addressed the country's pressing climate concerns. Before its enactment, Nigeria needed more dedicated laws to tackle climate change. This Act provides a framework for mainstreaming climate change actions and establishes a system of carbon budgeting and the National Council on Climate Change (NCCC). The Act performs key objectives like mainstream climate change actions and integrates climate change consideration into national development policies and programs. It enables a carbon budgeting system that manages and reduces greenhouse gas emissions. It oversees climate change efforts, ensuring coordination and implementation.

The Act also reinforces Nigeria's commitment to the Paris Agreement and its updated Nationally Determined Contributions (NDCs), aiming to cut carbon emissions to reach net zero by 2060. With this legislation, Nigeria has taken a significant step towards environmental sustainability and preservation.

2. The Paris Agreement of 2015:

Nigeria signed the Paris Agreement in September 2016 and ratified it in March 2017, committing to reduce its greenhouse gas emissions. This commitment aligns with Article 6.2 of the Paris Agreement, which requires parties to promote sustainable development, ensure environmental integrity, and maintain transparency (no specific source, based on user question).

Nigeria has taken several steps to achieve its climate goals. In 2021 the country updated its Nationally Determined Contributions (NDCs), increasing its unconditional emission reduction target to 20% and conditional target to 47% by 2030. The updated NDC also broadens the scope and coverage of Nigeria's climate commitments, including new sectors such as waste and water and new gases like short-lived climate pollutants and hydrofluorocarbons.

Furthermore, Nigeria has launched its NDC Implementation Framework to drive national climate action and achieve significant emission reductions. This framework is designed to coordinate, mobilize, and track progress towards Nigeria's national climate targets, including reducing emissions by 20% by 2030 compared to a business-as-usual scenario or up to 47% contingent on international support.

3. The Governing Law on Nigeria's Carbon Market Approach:

Nigeria is making strides in addressing climate change through its commitment to the Paris Agreement, specifically Articles 6.2, 6.4, and 6.8. The National Council on Climate Change (NCCC) has issued the Regulatory Guidance on Nigeria's Carbon Market Approach, reaffirming the country's dedication to reducing greenhouse gas emissions. To achieve this goal, the NCCC has conducted a preliminary analysis to develop a governance framework and processes for implementing cooperation mechanisms under Article 6. This framework aims to harness collaborative efforts between government agencies, the Central Bank of Nigeria, and the private sector to prioritize access to carbon markets.

The NCCC recognizes the crucial role of domestic private sector operators in enhancing the appeal and success of Nigeria's carbon market. To encourage participation, the NCCC has stated that regulatory approval will not be mandatory for the issuance and transfer of certified credits produced across all sectors. This development is a significant step towards creating a sustainable and climate-resilient economy in Nigeria, aligning with the country's Nationally Determined Contributions (NDCs) and its commitment to achieving net-zero emissions by 2060.

Nigeria is making significant strides in the voluntary carbon market, guided by government policies and development priorities to ensure credibility and predictability. A key component of this strategy is the "No-Objection" process, which regulation will require to approve the issuance and transfer of certified credits generated across all sectors, aligning with Article 6.2 of the Paris Agreement.

Project developers will submit proposals for carbon credit projects to the National Council on Climate Change (NCCC). The NCCC will conduct a thorough review and evaluation of each project. The NCCC will issue a "No-objection" to the project developer if approved. This process will enhance the credibility of carbon credits, support market transactions, and uphold environmental integrity and sustainable development goals. This development is part of Nigeria's efforts to develop its voluntary carbon market, which is expected to be worth over $500 million annually by 2030, generating up to 30 million carbon credits. The country aims to achieve net-zero emissions by 2060, and the "No-objection" process is a crucial step towards realizing this goal.

5. BENEFIT OF CARBON CREDIT IN NIGERIA

  1. Emissions Reduction: Carbon credit projects contribute to Nigeria's climate change mitigation efforts.
  2. Financial Benefits: Carbon credit trading generates revenue for Nigerian project developers.
  3. Sustainable Development: Carbon credit projects promote sustainable development, job creation, and technology transfer.
  4. Global Market Access: Nigerian companies can access international carbon markets, enhancing their competitiveness.
  5. Improved Energy Security: Carbon credit projects encourage investment in renewable energy, improving Nigeria's energy security.

6. CHALLENGES FACING CARBON CREDIT IN NIGERIA:

  1. Complexity: Carbon credit trading involves complex regulatory frameworks and verification processes.
  2. High Transaction Costs: Trading carbon credits incur significant transaction costs.
  3. Lack of Awareness: Limited awareness about carbon credit trading among Nigerian stakeholders.
  4. Dependence on International Markets: Carbon credit prices fluctuate with international market demand.
  5. Risk of Project Failure: Projects may fail to deliver expected emissions reductions.
  6. Inadequate Policy Framework: Nigeria's carbon credit policy framework is still evolving.
  7. Limited Capacity: Insufficient expertise and resources for project development and verification.
  8. Infrastructure Constraints: Inadequate infrastructure hinders project implementation.

7. RECOMMENDATION

Nigeria has made significant progress in establishing a sustainable carbon market, but key steps remain. Two crucial areas that require attention are:

A. Unified Framework:

A comprehensive framework is needed to provide clarity and direction for Nigeria's carbon market development. This can be achieved through targeted legislation from the legislature or comprehensive regulations from the National Council on Climate Change (NCCC), as outlined in the Guidance Note.

B. Carbon Registry:

Establishing a centralized carbon registry is vital for recording, tracking, and verifying carbon credits. This will ensure transparency, accountability, and market integrity while facilitating compliance monitoring and certification processes.

To effectively develop Nigeria's carbon market, the government should prioritize:

  1. Collaboration: Engage government ministries, departments, agencies, the Central Bank of Nigeria, and the private sector to prioritize access to carbon markets.
  2. Regulatory Clarity: Provide clear guidelines and regulations for carbon credit trading aligned with Article 6 of the Paris Agreement.
  3. Market Integrity: Establish robust accounting measures to prevent double counting and ensure environmental integrity.

By addressing these areas, Nigeria can unlock the full potential of its carbon market, generate substantial revenue, and achieve its emissions reduction targets.

CONCLUSION:

Carbon credit trading presents opportunities for Nigeria to reduce greenhouse gas emissions, promote sustainable development, and access international markets. However, addressing the challenges and limitations is crucial to harnessing the benefits of carbon credit trading. Nigeria must develop a robust policy framework to overcome these challenges, build capacity and expertise, improve infrastructure, and enhance awareness and education.

A well-structured carbon market framework will ultimately support Nigeria's transition to a low-carbon economy, driving economic growth and environmental sustainability.

REFERENCES:

Reports and Journals

International Emissions Trading Association (IETA). (2022). "Nigeria's Carbon Market: Opportunities and Challenges."

World Bank. (2022). "State and Trends of Carbon Pricing 2022."

African Development Bank. (2020). "Carbon Markets in Africa: Opportunities and Challenges."

Statutory Laws & Regulations

Federal Government of Nigeria. (2021). "Climate Change Act, 2021."

National Council on Climate Change (NCCC). (2022). "Regulatory Guidance on Nigeria's Carbon Market Approach."

International Agreements:

United Nations Framework Convention on Climate Change (UNFCCC). (2015). "Paris Agreement.

United Nations. (2021). "Nationally Determined Contributions (NDCs) – Nigeria.

News Articles and Online Resources:

Reuters. (2022). "Nigeria aims to earn $500 mln annually from carbon market.

Vanguard. (2022). "Nigeria's carbon market: A new economic opportunity.

Climate Change Policy & Practice. (2022). "Nigeria Develops Regulatory Guidance for Carbon Market."

Academic Journals:

Journal of Cleaner Production. (2022). "Carbon pricing in Africa: A systematic review.

Energy Policy. (2022). "Carbon markets in developing countries: Challenges and opportunities.

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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.

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