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A. INTRODUCTION
Carbon markets are trading systems which operate on the principle that greenhouse gas (GHG) emissions can be quantified, traded, and offset. This market functions through two primary mechanisms: (a) compliance systems, where companies must meet regulatory emission reduction targets, and (b) voluntary markets, where organisations voluntarily purchase carbon credits in order to offset their emissions. A carbon credit is a tradable permit or certificate which grants its holder the right to emit one tonne of carbon dioxide (CO2) or an equivalent amount of another GHG. According to the World Bank, one carbon credit represents one metric ton of carbon dioxide equivalent (CO2e) that has been reduced or removed from the atmosphere through various projects such as renewable energy, reforestation, and energy efficiency initiatives.1
As the global momentum towards net-zero intensifies, developing economies increasingly seek to leverage carbon markets as both a climate change mitigation mechanism and a development tool for sovereigns. Nigeria, Africa's most populous nation and a major oil producer, is beginning to position itself as a key player in this transition. As of 2025, the country has made significant strides, including finalising its Carbon Market Activation Policy2 and launching related initiatives aimed at unlocking substantial investment flows.
Nigeria's progress reflects a growing recognition of carbon credits not only as climate instruments but also as vehicles for attracting finance, fostering technological innovation, improving its sustainability credentials and diversifying its economy, which is currently heavily dependent on fossil fuels. This article examines the evolution of Nigeria's carbon market and evaluates how emerging legal and institutional frameworks can enable the country to attract climate finance while advancing its decarbonisation goals.
B. WHAT LEGAL FRAMEWORKS GOVERN CARBON MARKETS IN NIGERIA?
(i) The Climate Change Act
The legal and institutional basis for a carbon market in Nigeria is rooted in the Climate Change Act, 2021 (the "CCA"). The CCA establishes the National Council on Climate Change (the "Council") as the chief regulator of climate-related matters in Nigeria. Notably, sections 4(i) & (j) of the CCA empower the Council to develop mechanisms for carbon taxation and carbon emissions trading.
The CCA further establishes a Climate Change Fund ("Fund") for financing, among other things, climate change advocacy, climate change mitigation and adaptation projects, and assessing climate change impact. The Fund will be partly funded by carbon tax and emissions trading.3
Section 19 of the CCA establishes a carbon budget, setting national and sectoral emission caps that form the groundwork for an emissions trading system ("ETS"). These carbon budgets are crucial to a functional carbon trading system. Under a carbon trading system, the Council allots carbon allowances to regulated companies. Such carbon allowances depend on the carbon budget for a particular period, as the aim of carbon allowances is to ensure that the collective allowances issued by the regulator do not exceed the carbon budget for the relevant period. This linkage between carbon budgets and carbon allowances establishes the foundation for a credible emissions trading scheme, signalling Nigeria's readiness to integrate market-based mechanisms into its broader climate strategy.
In line with the above, section 20 of the CCA requires the formulation of a Climate Action Plan. This identifies key mitigation activities to ensure that national emissions remain consistent with carbon budget goals and Nigeria's Nationally Determined Contributions ("NDCs").
(ii) The NCCC Regulatory Guidance on Nigeria's Carbon Market Approach 2023
On the 24th of June 2023, the National Council on Climate Change published a notice titled "Regulatory Guidance on Nigeria's Carbon Market Approach" (the "Regulatory Guidance"). This Regulatory Guidance reinforces Nigeria's commitment to the global efforts to reduce emissions that contribute to climate change. Under the Regulatory Guidance and the CCA, Nigeria reiterated its alignment with the Paris Agreement, particularly in relation to Article 6.2 of the Paris Agreement.
This was reflected in the recognition of voluntary cooperation in the implementation of NDCs and the international transfer of carbon credits under the Regulatory Guidance, further agreeing with the need to apply robust accounting to ensure the avoidance of double-counting. However, the CCA presently does not contain explicit provisions or guidance concerning participation in the voluntary carbon market. This regulatory gap permits self-regulation and the development of standards by independent bodies for carbon credit projects. In recognition of the vital role played by domestic private sector participants in Nigeria's carbon market development, the NCCC, under the Regulatory Guidance, confirmed that regulatory clearance in the form of a 'No-Objection' is not compulsory for the issuance and trading of certified credits generated across various sectors, thereby aligning with the directives set out in Article 6.2 of the Paris Agreement.
(iii) The Nigeria Carbon Market Activation Policy 2025 (the "CMAP")
The Nigeria Carbon Market Activation Policy 2025 (the "CMAP") seeks to strengthen Nigeria's carbon market architecture by providing a coordinated framework for emission reduction, investor confidence, fiscal incentives, and alignment with national climate targets. It also aims to facilitate low-carbon investment, enhance transparency, and generate revenue from climate finance.
In line with the above, the CMAP further establishes Nigeria's stance under the Regulatory Guidance to explore international cooperation and a voluntary carbon market. This will involve entering into voluntary cooperative relationships with other willing countries, particularly signatories to the Paris Agreement. Further to this, Nigeria is looking to become an active participant in the Paris Agreement Crediting Mechanism ("PACM").4
The CMAP is a key step to future regulatory clarity in the carbon trading space. It examines fiscal incentives and policies, institutional arrangements, and the regulatory framework for Nigeria's carbon market. The CMAP also expresses the government's intentions, through the Council, to issue regulations relating to carbon trading, providing market participants with a predictable and stable regulatory environment, particularly defining market mechanisms, institutional frameworks, how to change the use purpose of Internationally Transferred Mitigation Outcomes ("ITMOs")5 , ownership and rights to such ITMOs, benefit sharing, and dispute resolution mechanisms, and fiscal incentives, among other things. Such fiscal incentives will include tax incentives and other related benefits.
In addition, the CMAP also presents an overview of Nigeria's carbon market ecosystem. Under this ecosystem, market participants will include:
- Project / mitigation activity developers;
- Project owners;
- Validation and verification bodies;
- Buyers;
- Intermediaries;
- Carbon registries and standard bodies;
- Government and regulators;
- Environmental NGOs;
- Investors; and
- Startups and universities.
It also outlines other guiding principles for Nigeria's carbon market, besides voluntary participation, which include adopting crediting mechanisms under the PACM, approving emission reduction and removal activities (also "A6.4ERs")6 for ITMOs, and encouraging non-market approaches or mechanisms. Non-market approaches refer to collaborative actions between countries aimed at reducing GHGs and improving the climate, but that do not involve trading carbon credits. This includes knowledge sharing, infrastructure development or mitigation projects, and technology transfer. It may also, broadly, include carbon credit-worthy projects that project owners decide not to claim carbon credits for.
(iv) Decarbonising Infrastructure in Nigeria Summit Report (2025)
The Decarbonising Infrastructure in Nigeria Summit was convened on July 2nd 2025, under the theme "Unlocking Climate Finance for Sustainable Development" and hosted in Abuja, Nigeria.
The summit confronted a fundamental challenge that extended beyond simple policy coordination: how to simultaneously close Nigeria's staggering $3 trillion infrastructure gap by 2050, while achieving net-zero emissions by 2060, all within a context of rapid demographic growth, urbanisation pressures, and intensifying climate impacts. With infrastructure accounting for nearly 79% of global greenhouse gas emissions, the transformation required transcends incremental improvements and demands systemic reimagining of how infrastructure is conceived, designed, financed, and valued in an era of climate urgency.
Perhaps most critically, the summit exposed fundamental institutional coordination challenges. While comprehensive policy frameworks exist, including the Energy Transition Plan, Nationally Determined Contributions, and the Nigeria Climate Change Act 2021, their implementation remains fragmented due to poor integration into Nigeria's budgetary and fiscal planning processes. Much of the existing climate finance flowing into Nigeria has been debt-based, raising serious sustainability concerns in an already constrained fiscal environment where over 80% of government revenue services existing debt obligations.
The summit achieved concrete outcomes that positions Nigeria for accelerated climate action implementation. One of the key decisions from the summit is the establishment of a National Decarbonisation Coordination taskforce within 90 days, chaired by the Vice President with representation across ministries, states, private sector, and civil society. The taskforce will mandate climate risk screening for all infrastructure projects exceeding N10 billion and coordinate implementation of nationally determined contributions across all sectors.
C. WHAT TYPES OF CARBON MARKET MECHANISMS EXIST IN NIGERIA?
As previously noted, carbon markets are fundamentally based on two main mechanisms – compliance and voluntary carbon markets.
The compliance-based carbon market is typically government-regulated and mandated, as participants are mandated by law to leverage the market to limit or offset emissions. Under this structure, participants who perform emission-related activities, especially when such activities exceed their carbon allowances, can offset such activities by undertaking emission reduction and removal activities certified by the relevant regulator or buy available carbon credits. Under compliance markets, entities that exceed their emission allowances must offset the excess through verified mitigation projects or by purchasing certified credits from others. By contrast, voluntary markets allow private actors to offset emissions in pursuit of corporate climate goals or environmental, social, and governance ("ESG") commitments. Essentially, compliance-based markets are based on a strong-arm approach to reduce carbon emissions and ensure climate adaptation.
Voluntary carbon markets, though subject to government regulation, typically involve private parties and organisations voluntarily trading their carbon credits to offset their emissions, even if below their carbon allowances. Companies and organisations that participate in the voluntary carbon market either have climate goals they seek to achieve or aim to improve their ESG rating.
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Footnotes
1. World Bank, "State and Trends of Carbon Pricing 2023,", Available at: https://carbonpricingdashboard.worldbank.org).
2. Nigeria's Carbon Market Activation Policy (NCMAP), is a national framework to structure its carbon market, aiming to generate $2.5 billion by 2030 from high-integrity carbon credits, fund its energy transition, attract green investment, create jobs (up to 2.3m), and support local communities, especially farmers, by linking sustainable projects (like agriculture and clean energy) to international standards under the Paris Agreement's Article 6.
3. Section 15 of the CCA.
4. Part 3, paragraph 15 of the CMAP.
5. IMTOs are measurable and quantifiable results that reflect any reductions in GHG emissions achieved through projects or initiatives designed to mitigate climate change, and which can be transferred internationally amongst sovereigns or private sector players. Such transferred ITMOs are placed within the purchasing country's ledger under ITMOs, or other International Mitigation Purposes (OIMP), for private sector participants.
6. A6.4ERs are Article 6.4 Emission Reductions, which are high-integrity carbon credits generated by projects under the Paris Agreement's Article 6.4 mechanism, a UN-supervised international carbon market designed to help countries meet their climate goals (NDCs) through emission reductions and removals, recorded in a registry and authorized for specific uses like offsetting emissions or supporting other mitigation efforts.
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