Global oil and gas prices are generally influenced by different factors like uncertain supply, temporary spikes and declines in demand, varying infrastructure investment levels, and political unrest in major oil-producing nations. Sustained skyrocketing oil and gas prices have implications for climate change and the environment. Increased oil and gas prices spur the development of some renewable energy sources. There may also be less consumer demand for fossil fuels which is good for the environment.
However, this climate advantage is somewhat negated by coal production and consumption which may also be resorted to as a more affordable alternative to high natural gas prices. On the other hand, where oil and gas prices stay low, there will be less motivation for the growth of renewable energy sources and decarbonization. Low fossil fuel prices may stifle future development and uptake of more sustainable energy sources thus, leading to greater emission of greenhouse gases (GHG).
To solve the issue of too high or too low oil and gas prices and their attendant effects on the environment, the development of climate policies that encourage carbon pricing is a popular solution that is often proffered. Carbon pricing is a tool that encapsulates the outward consequences of GHG affecting the public like the health effects of pollution and property damage from pollution and traces these consequences to their emitters typically through a price on the carbon emitted such that these sources can be accountable and take steps to reduce their emissions.
Petrol prices per litre, subsidy, and implications for carbon emissions in Nigeria
Zoning in on petrol price as a proxy measure for emissions in Nigeria, every year from 2019 to 2021, there seems to be both a correlation and non-correlation between this proxy measure and emissions in Nigeria. Over the past three years (January 2020 – September 2022), the average price ($) per litre of petrol in Nigeria per month is as follows:
Image from TradingEconomics https://tradingeconomics.com/nigeria/gasoline-prices
We see $0.47 in January 2020, $0.43 in January 2021, $0.39 in January 2022, and an increase to $0.44 as of September 2022. The defunct Petroleum Products Pricing Regulatory Agency (PPPRA) in Nigeria, in addition to other duties, was authorized to set the cost of petroleum products in Nigeria and oversee and control supply and distribution. However, under the country’s new Petroleum Industry Act (PIA) passed in 2021, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) is charged with these responsibilities.
As of now, the Nigerian government subsidizes petroleum. Through its subsidy, it counterbalances the global cost of oil for consumers by making petrol prices reduced and consistent. It then pays for the difference between the market price and the subsidized price. There are however indications of deliberations to remove the subsidy. Currently, there is a major dependence on petrol in the country for transportation as well as individual and corporate electricity generation for homes and businesses. Low petrol prices increase GHG emissions from transportation and generators. On the other hand, where subsidies are removed and petrol prices increase, there may be a shift towards renewable energy sources in Nigeria. This shift will fit into the country’s recently launched energy transition plan to attain reduced emissions in the power, oil and gas, transport, cooking, and industry sectors.
Comparison between petrol prices and carbon emissions in Nigeria (2019-2021)
Despite the projections on the relationship between petrol prices and emissions generally, a comparison within Nigeria shows that this correlation may or may not exist. According to the European Commission’s Emissions Database for Global Atmospheric Research (EDGAR), Nigeria emitted 120.26 Metric tons (Mton) of fossil carbon in 2019, 120.34 Mton in 2020, and 127.03 Mton in 2021. The figures for 2022 are not available yet. When compared with the data trends on petrol prices as highlighted by Trading Economics in the image below, of the three years (2019 – 2021), petrol prices were at their highest in 2019, lowest in 2020, and climbed higher in 2021 but still not as high as the 2019 prices. Interestingly, when petrol prices were at their highest in 2019 (January – December), Nigeria’s fossil carbon emissions were at the lowest of the three years. Petrol prices were lower in 2020 compared to 2019 and fossil carbon emissions increased in 2020 compared to 2019. This appears to support the suggestion that there may be a correlation between oil and gas prices and emissions. However, comparing 2020 and 2021, petrol prices were the same at $0.43 from November 2020 – April 2021 but fell to $0.4 from May 2021 – December 2021. Overall, as between 2020 and 2021, 2021 had the higher petrol price but 2021 also had the highest metric tons of emissions of the three years. This appears to negate the suggestion that there may be a correlation between oil and gas prices and emissions.
Image from TradingEconomics https://tradingeconomics.com/nigeria/gasoline-prices
Note that fossil carbon emissions are not limited to emissions from petrol combustion. Therefore, petrol prices and petrol combustion alone may not be a true reflection of the entire fossil carbon emissions reported by EDGAR. Lastly, whether there is a correlation between petrol prices and carbon emissions in Nigeria, there should be continued national efforts towards emissions reduction in Nigeria through increased and efficient renewable energy sources.
This Post was submitted by Climate Scorecard Nigeria Country Manager Oluwatoyin Oladapo
Resources
https://www.ibisworld.com/us/bed/oil-natural-gas-price-index/112568/
https://environment.harvard.edu/news/high-oil-prices-can-help-environment
https://www.climatecentral.org/news/extreme-oil-prices-costly-to-climate-20469
https://www.climatecentral.org/news/extreme-oil-prices-costly-to-climate-20469
https://www.imf.org/en/Blogs/Articles/2015/12/02/the-price-of-oil-and-the-price-of-carbon
https://carbonpricingdashboard.worldbank.org/what-carbon-pricing
https://guardian.ng/news/finally-government-scraps-dpr-pppra-pef-for-new-agencies/ ; https://www.nmdpra.gov.ng/our-mandate/