In the last quarter of 2021, His Excellency, President Muhammadu Buhari signed into law, the Climate Change Act 2021, to usher in a new dawn in Nigeria’s efforts towards environmental sustainability and ecosystem preservation by presenting a wholistic approach to reduce greenhouse gas emissions and attain net zero by 2070.
In this newsletter, we present our review of the Climate Change Act 2021 and seek to explore new initiatives such as the introduction of the Climate Change Fund, the Carbon Budget, the National Council on Climate Change, and obligations imposed on Government Entities, Private and Public entities, amongst others.
We believe that the Act will impact the way energy business is done in Nigeria as individuals and businesses will be required to become climate and environmentally conscious to ensure that their operations do not contravene any directive of the Council. We also believe that the possible introduction of carbon tax, reporting obligations and potential penalties for non- compliance could potentially increase the cost of doing business in the energy sector, which would likely have a knock on effect on other sectors.
BACKGROUND
On the 18th of November, 2021, His Excellency, President Muhammadu Buhari signed into law, the Climate Change Act 2021, (“The CCA”) thereby heralding a new dawn in Nigeria’s efforts towards environmental sustainability and ecosystem preservation. With this deliberate and effectual step, Nigeria begins fulfilling the commitments she made following her signature 1
to the Paris Agreement 2 and her Nationally Determined Contribution (“NDC” i.e., the climate actions made by nations to mitigate greenhouse gas emission, and adapt to climate impacts 3).
In 2021, Nigeria submitted an updated NDC to the United Nations Framework Convention on Climate Change (UNFCCC) with further commitments towards achieving the objective of the Paris Agreement. Passed shortly after the COP26 Conference, the CCA presents a wholistic approach to reducing greenhouse gas emissions, highlights responsibilities for private/public
entities and creates potential opportunities for employment with the central objective of leading Nigeria on its path to ecological recovery.
OBJECTIVE AND SCOPE OF THE CCA
The CCA sets a target for the years 2050-2070 for Nigeria to attain net zero greenhouse gas emission and promote sustainable economic development 4. Although net zero target as indicated in the CCA appears to depart from the specific target of 2060 stated by President
Muhammadu Buhari during the COP26 conference, it is still safe to say that the President’s commitment falls within the range envisaged under the CCA.
In terms of scope, the CCA applies to all Ministries, Departments and Agencies of the Federal Government of Nigeria (i.e., MDAs); public and private entities within the territorial boundaries of Nigeria. It is noteworthy that the wide application of the CCA reiterates the fact that dealing with climate change will involve the co-operative participation of all stakeholders.
KEY PROVISIONS OF THE CCA
Establishment of the National Council on Climate Change The CCA establishes the National Council on Climate
Change (the “Council”), a body charged with the responsibility of making policies on all matters in relation to climate change in Nigeria 5. The Council is chaired by His Excellency, the President and will be responsible for, amongst others, (i) coordinating the implementation of sectoral targets and guidelines for the regulation of the GHG emissions and other anthropogenic causes of climate change; (ii) implementing Nigeria’s Climate Change Action Plan; (iii) mobilising financial resources earmarked to support climate change actions in addition to the establishment and administration of a climate change fund; (iv) developing a mechanism for carbon tax in Nigeria, including developing and implementing a mechanism for carbon emission trading; (v) collaborating with the Federal Inland Revenue Service to develop a mechanism for carbon tax in Nigeria; (vi) collaborating with the Federal Ministry of Environment and the Federal Ministry of Trade to develop and implement a mechanism for carbon emission trading;
(vii) disseminating information on climate change, local vulnerabilities and risk, relevant laws and protocols, and adaptation and mitigation measures; and, (viii) providing advice and recommendations on technical, scientific, and legal matters relating to Climate Change, in accordance with the provisions of this Act 6.
The role of the President, Vice President, and ministers as members of the Council reflect the urgency of the climate crisis and the bold commitment of the Federal Government’s to meet the net zero target.
The Climate Change Fund
The CCA launches the Climate Change Fund (the Fund) 7 to be administered by the Council, as a depository of funds earmarked by the National Assembly for the running of the Council. Sources for the monies for the Fund include donations from international organisations, fines, and charges from private and public entities for flouting their climate change mitigation/adaptation
obligations; carbon tax and emissions trading.
The establishment of the Fund creates a framework to support the influx of climate finance by way of donations, grants, and investment from international organisations towards tackling the climate crisis. Before the enactment of the CCA, most climate related projects seek funding from foreign sources which is often expensive. The Fund will mean availability of local financing for businesses to engage in innovative climate projects. In addition, the provision of the CCA on
incentivising efforts towards clean energy transition will be a major driver in achieving the net zero target.
The Carbon Budget
The CCA introduces carbon budgeting. Carbon budgets are low-carbon polices adopted globally to control carbon emissions. Like a typical budget, a carbon budget is the cumulative amount of carbon dioxide (CO2) emissions permitted over a period to maintain a certain
temperature threshold 8. The country’s carbon budget will be set to align with the net zero target by ensuring that the amount of carbon ‘spent’ (emitted) within the country does not exceed the stipulated threshold 9. Close co-ordination and monitoring of all stakeholders is
required to achieve the objective of the budget. Stakeholders will be required understand how the carbon budget works and comply with relevant directives to remain within the limit. As implementation kicks off, it is expected that the Federal Ministry of Environment will provide guidelines for calculating carbon emissions.
The Climate Change Action Plan
The Secretariat in consultation with the Federal Ministries of Environment, Budget and National Planning have been charged with the responsibility for the formulation of the Climate Change Action Plan in every 5-year cycle 10, with the first plan to be created within 12 months of the commencement of the CCA.
Going by the timeline of the CCA, the first Action Plan is to be created on or before October, 2022. Clearly, the content of the first action plan will require enormous work from stakeholders across various sectors of the economy given that it focuses on obtaining data on the past, present and projected greenhouse gas emissions.
In addition to providing readily available climate data for climate related investments in Nigeria, the execution of the Action Plan will be a huge milestone towards attaining the net zero target. The obligation of the Director General to provide annual reports is expedient to monitor the implementation of the Action plan.
Obligations Relating to Climate Change Actions
The CCA imposes obligations on different stakeholders within Nigeria Climate Change Plan and compliance is mandatory to avoid penalties. One of such obligations is that all budget proposals submitted by MDAs11 must be properly vetted, costed for climate change considerations, and must comply with their respective carbon emissions reduction target 12.
Similarly, entities with 50 or more employees are mandated to put in place measures to achieve the annual carbon emission reduction targets in line with the Action Plan and must designate a Climate Change Officer or Environmental Sustainability Officer, who shall submit to the Secretariat (through the State Director) annual reports on the entity’s efforts towards meeting its carbon emission reduction and climate adaptation plan. Organisations that fall within this category will now be required to source for skilled personnel to occupy the role of Climate Change Officers.
Nature Based Solutions
As part of its mandate to reduce GHG emissions and mitigate climate change, the CCA makes provision for nature-based solutions to climate change.
This entails harnessing the power of nature to reduce greenhouse gas emissions and help human adapt to the impacts of climate change. For Nigeria, this will entail deliberate development, maintenance, and conservation of carbon sinks across the nation. Carbon sinks absorbs carbon dioxide from the atmosphere, and they include forests, agricultural lands, wetlands, oceans etc. It is advised that the Council works closely with the National Conservation Fund given that the organisation plays a lead role in the promotion of nature conservation and environmental protection in Nigeria.
Impact of the CCA on Business
The immediate impact of the CCA will begin with individuals and businesses becoming more climate and environmentally conscious by ensuring that their operations do not contravene any directive of the Council. The possibility of being liable for carbon tax and other penalties for non-compliance may increase the cost of doing business. There are also additional disclosure obligations for businesses, who must now report annually on their plans to achieve reduced carbon emission and the modalities for the execution of those plans.
Focus on Power, Oil and Gas Sectors
The operations of players in the oil and gas sector will be the most hit, given that they account for a huge part of Nigeria’s GHG emissions. With about 75 million tonnes of Co2 equivalent a year, the emissions by the oil and gas sector exceed that generated from other sectors such as transport or electricity 13. The power sector is next in line with about 37.82million tonnes of emissions in 2020 14 alone.
Under the CCA, these companies will be provided with carbon budgets which they must comply with or face penalties. This is in addition to the penalties to be imposed on oil companies for gas flaring under the Petroleum Industry Act, 2021. Further, the CCA envisages the introduction of carbon tax to be charged on carbon emitters with the objective of reducing such emissions and encouraging the use of environmentally friendly alternatives. Taken together, the financial
implication of continuous GHG emissions is expected to rise exponentially for emitters.
Consequently, fossil fuel and power companies may be compelled to review their operations and businesses to line up with the global energy transition drive. As the momentum rise towards reducing the effect of climate change, the World Bank, development banks and other international financiers are wary of investing or supporting the development of fossil fuel projects. As such, players in the fossil focused sectors may encounter difficulty assessing finance to build new projects.
Mitigating Measures for Fossil Based Entities
Looking forward, the adoption of carbon capture and storage technologies (CCS)15 by fossil fuel companies will be immensely helpful in reducing their emissions and by implication minimize the likely carbon taxes payable. It is also apparent that the arguments around the high cost of incorporating CCS technologies will be whittled down in the face of financial impact of penalties for GHG emissions. Other modalities include a gradual transition of their businesses to cleaner energy technologies as seen with major international fossil fuel companies like British Petroleum, Royal Dutch Shell, and Total SA (there was recent name change to “Total Energies”). These companies have begun to delve into the development of renewable energy solutions such as solar, wind, biomass, green hydrogen.
For the power sector, attention must be given to the decarbonization of the national grid. This can be largely achieved by incorporation of renewable energy into the nation’s energy mix. The Rural Electrification Agency (REA) and other private players are making considerable progress in off-grid electrification with renewable energy; however, the required regulatory and infrastructural improvements must be made to adopt renewable energy unto the national grid. Thankfully, the proposed amendment to the Electric Power Sector Reform Act, 2005 looks to introduce Renewable Portfolio Standards (RPS) which mandates generation and distribution
companies to generate a certain percentage of electricity from renewable energy sources. This will contribute significantly to reducing the GHG emissions and keep Nigeria within its carbon budget.
CONCLUSION
The CCA represents Nigeria blueprint to achieving low GHG emissions, inclusive green growth, and sustainable economic development. As is, the CCA currently lacks clear and detailed steps for implementation of the laudable Climate Action Plan. However, it is expected that when the Council is constituted, and the Action Plan developed, there will be more clarity on the details for implementation. In sum, the CCA alone may not achieve the net zero targets. Hence, other incidental policies, laws, regulations and indeed actions must be taken across related sectors to incentivize the transition to clean energy technologies and promote investment in projects that will actualize the nation’s climate goals.
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Read the original publication at OALP.