The Need to Channel Petroleum Subsidy Savings Towards Driving Green Growth and Sustainable Development in Nigeria

Photo credit: GOWTHAM AGM, pexels.com

In a daring move, Nigeria’s President, His Excellency President Bola Ahmed Tinubu GCFR, declared the immediate abolition of fuel subsidies during his Inaugural Address on May 29, 2023, stating quite simply that “subsidy is gone”. In the coming months, President Tinubu would go on to announce that the money from subsidy payments will be transferred to fund public infrastructure, education, health care, and jobs, among other critical developmental requirements for the country.

While the elimination of subsidies was praised as a key step in advancing Nigeria’s divestment from fossil fuels in the global climate change community, it remained unclear, indeed doubtful, whether this was the motivation for Nigeria’s decision. There is no denying that the decision to establish the Presidential Compressed Natural Gas Initiative (PCNGI)-an initiative aimed at promoting the widespread adoption of Compressed Natural Gas (CNG)-powered vehicles in Nigeria’s transportation system-will have an impact on the country’s greenhouse gas emissions and, as a result, will aid Nigeria’s net zero and decarbonisation efforts. However, much more is required to make the fuel subsidy programme serve Nigeria’s climate goals.

In thinking more holistically and systematically about how the elimination of petroleum import subsidies might assist in driving Nigeria’s climate action and ultimately position the country for long-term growth in line with global trends, one start in the right path is to set aside a specific percentage of subsidy savings for a special ring-finance fund that can be used to fund investments and projects in climate adaption, renewables, and climate-smart innovation. This is the path to toe.

It is therefore our recommendation that a minimum of 20% of the savings from the subsidy removal regime be dedicated especially to climate-related infrastructure and investments. The fund can be deposited in the Climate Change Fund, which was established by the Climate Change Act, and administered as grants, subventions, allocations for infrastructure projects, subsidies for renewable energy and climate-smart agriculture, and so on. Some of the money can also be used as catalytic funding to leverage bigger investments in renewable energy investment from international public and private sector sources. Going by projected savings, this will free up about N16bn annually for climate finance that can be used to drive sustainable development of Nigeria.

Parties to the international climate agreement at COP28 in Dubai, which the president and numerous ministers attended, committed to collaborate to triple the world’s installed renewable energy generation capacity to at least 11,000 GW by 2030. Despite Nigeria’s significant solar potential, with daily irradiation equivalent to more than a million tonnes of oil, far exceeding its oil and gas outputs, solar accounts for only 0.2% of installed capacity, making its contribution to the country’s energy mix almost insignificant.

According to a study conducted by Boston Consulting Group and All On (a Shell-funded impact investment company), the off-grid solar market in Nigeria had a compound annual growth rate of 22% between 2018 and 2022, making it one of the fastest growing in Africa during the same period. However, uptake is still hampered by high upfront costs, with only 1.25% of Nigerian households installing the system. According to the same study, installing solar in 30% of Nigerian households by 2030 would save 5 million metric tonnes of CO2, cutting household emissions by 30%. A dedicated fund created from fossil fuel savings can be utilised to invest in the expansion of on-grid and off-grid solar in Nigeria, thereby helping to bridge the energy poverty gap.

This becomes even urgent considering that Nigeria continues to have the world’s biggest unelectrified population, with over 90 million of the country’s 200 million people living off the grid.

A recent Agora policy report finds that climate change is causing increased hunger, poverty, disease burden, migration, conflict, and insecurity in Nigeria. It is damaging infrastructure, altering Nigeria’s coastlines, fuelling desertification, causing water scarcity, facilitating erosion, and resulting in revenue losses for states and the national government, with the cumulative total economic cost of climate change to Nigeria estimated to be up to USD100 billion by 2050. Climate change might reduce agricultural productivity by 10 to 25 percent by 2080. For some places in the country’s north, rainfed agriculture yields could fall by up to 50%. Increased warming trends will also make root crop and vegetable storage difficult for farmers who do not have access to refrigerators, exacerbating the already high degree of postharvest loss. Climate change is therefore arguably the biggest economic development challenge facing Nigeria.

President Tinubu will make a bold announcement by allocating 20% of the country’s subsidy savings to the Climate Change Fund, which can then be used to compel higher commitments from the international community. Such promises may take the shape of a strong demand for the debt-for-climate programme, additional money for adaptation, loss and damage, renewables, and a reform of the global finance infrastructure to reduce the risk of investment for potential green firms.