Nigeria’s New ETS Holds Promise in Driving Sustainable Development and Combating Climate Change

In Nigeria’s pursuit of sustainable development and climate action, the federal government, in collaboration with and support of the Africa Carbon Market Initiative (ACMI), aims to tap into the country’s carbon market, estimated at a value of $2.5 billion. This initiative marks a significant step towards environmental stewardship and economic growth.

The Intergovernmental Committee on Carbon Market Activation Plan, chaired by Mr. Zacch Adedeji, was inaugurated by Vice President Kashim Shettima on March 7, 2024. This committee’s establishment underscores Nigeria’s commitment to tackling climate change through innovative policy measures and adopting the emission trading system (ETS).

The ETS developed in Nigeria is based on carbon pricing and aims to regulate emissions across various industries and geographical regions, ultimately reducing Nigeria’s carbon footprint while promoting economic growth. The system targets key industries responsible for significant carbon emissions, such as energy production, manufacturing, transportation, and agriculture. Geographically, it will initially focus on regions with high industrial activity and carbon emissions, gradually expanding to cover the entire country. Additionally, Nigeria is exploring the possibility of linking its ETS with other countries’ systems to enhance efficiency and facilitate international cooperation in emission reduction efforts.

The system operates by limiting the overall volume of emissions permitted during a designated period, referred to as the emission cap. Participating industries are allocated emission allowances corresponding to their respective carbon output targets. These allowances can be purchased, sold, or exchanged between companies, establishing an emission permit market. Companies that emit below their allocated allowances can sell surplus permits, while those exceeding their limits must purchase additional permits or face penalties.

For example, consider a scenario where Company A, a manufacturing firm, is allocated 1,000 emission permits for the year. Suppose Company A emits only 800 tons of carbon dioxide during the year. In that case, it can sell its surplus 200 permits to Company B, another industry player needing additional allowances to meet its emission targets. This transaction benefits both companies financially while incentivizing emission reduction efforts.

Nigeria’s ETS is managed by a designated regulatory body, likely a collaboration between government agencies such as the Federal Inland Revenue Service, the National Council on Climate Change (NCCC), and relevant industry stakeholders. This regulatory body is responsible for issuing permits, monitoring compliance, enforcing regulations, and maintaining the integrity of the trading system.

Upon implementation, Nigeria anticipates benefits such as reduced emissions, improved air quality, increased investment in clean technologies, and enhanced access to international climate finance. However, challenges in designing and implementing the ETS include stakeholder engagement, robust monitoring, transparent permit allocation, and public awareness campaigns.

Learning from global experiences, Nigeria aims to overcome these challenges by fostering collaboration, implementing effective monitoring mechanisms, and prioritizing public engagement. By leveraging international partnerships and building capacity, Nigeria’s ETS holds promise in driving sustainable development and combating climate change.

This Post was submitted by Climate Scorecard Nigeria Country Manager Michael Johnson.



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