Is Nigeria ready for global energy transition by 2025?

IN 2017, Nigeria ratified the 2015 Paris Agreement, an international agreement adopted by 196 countries to combat the climate change crisis. 

The agreement adopted at the 21st United Nations (UN) conference of the parties, also known as COP21, saw countries’ commitment to reducing global warming. 

They are required to make action plans in the form of commitments referred to as nationally determined contributions (NDCs). 

The idea is to communicate plans of how countries intend to reduce their carbon emissions and adapt to climate change. Nigeria, as part of its NDCs, committed to cutting its carbon emissions unconditionally by 20 per cent or conditionally by 45 per cent with international support by 2030. 

Other targets it set as part of its NDCs include: ending gas flaring by 2030, make for efficient gas generators, ensure 30 per cent energy efficiency by 2030 (2 per cent per year), among others. 

In March 2021, Nigeria revised its NDCs to include clean cooking as a way of ensuring conversion from cooking fuels such as kerosene and charcoal to eco-friendly cooking gas and efficient wood stoves. 

In view of this was the unveiling of the National Gas Expansion Programme and the National Autogas Roll-out Initiative which comprised three alternative fuels, LPG, CNG and LNG, as options for transportation, industrial and domestic use. 

The alternative fuel is aimed at affording Nigerians a cheaper, cleaner and eco-friendly energy option, with lesser impact on the environment. 

Prior to this, the country had developed policies as part of its climate action, including the Vision 20:2020 which identifies climate change as a threat to sustainable development and a potential catalyst for irrecoverable damage on Nigeria’s natural resources, food production and infrastructure. 

Nigeria’s economy, global energy transition threat 

Recently, at the just concluded COP26 Conference on Climate Change, several nations, including Nigeria, reaffirmed their commitment to the Paris Agreement 2015 and adopted climate change policies with a target to go carbon-neutral by 2050 or 2060. 

This implies that the usefulness of fossil fuels will diminish significantly, and even where they are still utilized, must be offset with some form of carbon capture technology. 

The reality of this is that Nigeria may need to do more in ensuring that it meets the target especially as the country’s economy is heavily dependent on revenue from fossil fuel. 

Already, global organisations such as the African Development Bank (AFDB), World Bank and their likes have stopped funding fossil fuel projects. 

Also, 20 countries including the United States and Canada committed at the COP26 climate summit to stop public financing for fossil fuel projects abroad by the end of 2022, and instead steer their spending into clean energy instead. 

Some of the countries that signed the pledge include Denmark, Italy, Finland, Costa Rica, Ethiopia, Gambia, New Zealand and the Marshall Islands, plus five development institutions including the European Investment Bank and the East African Development Bank. 

What this means is that the ability of industry players to access needed funds with which to bring assets into production and by extension, reduce government revenue ordinarily derivable from this extractive industry will be impacted. 

Nigeria whose source of revenue is heavily dependent on the oil and gas sector may now need to set realistic goals towards diversification. 

No doubt, revenue from the non-oil sector has been on the increase within the last few years. 

To corroborate this assertion, the Vice President, Professor Yemi Osinbajo had at the Nigerian Society of Chemical Engineers (NSCHE) 51st Annual International Conference/AGM held recently in Lagos, said revenue recently flowing into the nation’s treasury are majorly from non-oil and gas exports. 

Osinbajo, who spoke through the Minister of Science, Technology and Innovation, Dr Ogbonnaya Onu, said the Federal Government had worked assiduously to ensure that the country achieve economic diversification. 

According to him, the nation could not afford to be taken off guard as crude oil and gas were no longer the major fuels that drive global economies as more technologically developed nations of the world have switched to clean and renewable energy. 

“Many countries in different continents are now preparing themselves to depend less on fossil fuels. 

“Electric cars are found on roads and streets of many of the technologically developed countries of the world. 

“This has sent a clear signal and a strong message that fossil fuels will not be as important as they are in years to come,” Osinbajo had said. 

FG makes over N12trn from non-oil sector in five years 

Data gathered from the Nigeria Bureau of Statistics (NBS) showed that between 2016 and 2020, the non-oil sector comprising telecommunications, agriculture, transportation, textile industries among several others, contributed over N12.2 trillion to the country’s economy. 

The data showed that within the period being reviewed, there was a steady increase in income from the sector. 

For instance, the Year to Date income for 2016 was put at N1.8trillion, 2017 at N2.2 trillion, while 2018, 2019 and 2020 were N2.5 trillion, N2.7 trillion and N3 trillion respectively, with an average 12 per cent increase within the period. 

In November, 2021, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said the country’s non-oil revenue had risen by 15.7 per cent above the FG’s targets to N1.15 trillion. 

Also, the recently published GDP report by the National Bureau of Statistics (NBS) showed that the sector grew by 5.44 per cent in real terms during the reference quarter (Q3 2021). 

The growth recorded in the sector was mainly driven by trade, Information and Communication (Telecommunication) followed by Financial and Insurance (Financial Institutions); Manufacturing (Food, Beverage & Tobacco); Agriculture (Crop Production); Transportation and Storage (Road Transport). 

Despite commitment to Paris Agreement, global transition worries FG 

“Through the federal government has reaffirmed its commitment to meeting the set target on renewable clean energy and has various policies to this effect, it is still worried that the global shift may further shrink the income of other oil revenue-dependent countries. 

“Already, the volatility of global crude prices, the cuts in OPEC quota, the proliferation of countries finding hydrocarbons and making the same available for exploitation via bid rounds have all impacted the demand for crude as well as the revenue and profits accruable from it. 

“This suggests a new direction of travel for economies that heavily depend on fossil fuels that is fraught with steep challenges. If not well managed, one major risk is for such transition to unleash unintended yet harmful consequences on their populations, many of which already live in poverty or fragile contexts,” the Minister of State for Petroleum Resources, Timipre Sylva said at the 2021 Africa Energy Futures held in Texas, United States (US) stated. 

He argued that a prompt reduction in fossil fuel revenue without sufficient time or support to manage macroeconomic risks and the structural transformation required to build diversified, sustainable and resilient economies, could have catastrophic social knock-on effects for millions of people. 

He noted that many fossil fuel-based economies, as a result of increasing populations, high levels of urbanisation and burgeoning energy demand are experiencing severe economic contractions and unsustainable levels of debt.

Based on the Federal Government’s position, it is rather safe to say that if something is not done, Nigeria may in a couple of years to come to be faced with the recession experienced in 2016 due to falling oil prices caused by an increased supply of oil from shale-producing countries like the US, Canada, and China. 

Also, the Federal Government had worried that the conversation around “how” fossil fuel developing economies can undertake an orderly exit from fossil fuels, while safeguarding the rights and interests of their citizens is barely articulated in global discussions on climate change. 

Highlighting the issues, experts’ opinion 

Crude oil revenue is the country’s fiscal lifeline as it provides almost 65 per cent of government revenues which is shared among all three tiers of government (federal, state and local). 

The monthly federal allocation is used by the tiers of government to pay salaries among other administrative expenses. 

This implies that a dwindling income as a result of energy transition becomes a threat to the survival of the country’s thirty-six states and 774 Local Government Areas (LGA). On the other hand, oil revenue accounts for about 90 per cent of foreign exchange earnings which helps stabilize fluctuations in the exchange rate through central bank interventions. As a result, dwindling FOREX earnings coupled with the country’s high dependence on imports may further weaken the local currency, thus leading to increase in local price of imported goods. Also, with the country’s increasing debt profile of about $38 billion which requires semi-annual debt servicing there is need for access to foreign exchange which may soon be difficult to come by. 

“This is why discussions have now commenced on the establishment of an African Energy Bank whose focus would be on funding fossil fuel projects for which the international financial ecosystem will no longer provide any funding support,” says Sylva. 

“Our people currently depend on fossil fuels and the monetisation of the fossil fuel resources represent our pathway to decarbonisation.” 

“By way of strategy, I think we should be paying more attention to gas than to fossil fuel,” says Mr Muda Yusuf, the former Director General (DG) Lagos Chamber of Commerce and Industry. 

Yusuf who spoke with the Nigerian Tribune stressed the need for government to further deepen investments in gas as a way to forestall future implications of the global energy transition on the country’s economy. 

He said, “We have abundant gas reserves which is on the cleaner side compared with fossil fuel and investment in gas has been on for a quite some time even now we should be seen more as a gas-producing country than oil-producing country because the potential in the demand for gas is huge and it will continue to be there.” 

Yusuf further opined that developing countries such as Nigeria would require between 25 to 30 years before they can gain serious traction on energy transition. 

“It will take a while before we can gain serious traction in this energy transition. We will be talking between 25 to 30 years. It is still very far away,” he added. Paul Alaje, an Economist with SPM professionals on his part, said there was a need for the government to come up with innovations to salvage its economy. 

“If Nigeria does not innovate, I am afraid we might be inching closer to the beginning of the end of our economy and where there is no economy, there is no life,” he said. 

He said despite claims by the government that it has diversified, the economy was still majorly dependent on projections and earnings from crude oil. 

He added, “The obvious part is that the Nigerian government must have been caught between the devil and the red sea, global warming is a reality. The average global temperature that we had ten, 20, 30 years ago is completely different as global warming continues to be a source of concern for everyone in the world. 

“Nigeria’s economy depends majorly on our projections and earnings from crude oil. Even when the government claims that we have diversified our economy but government revenue at least, a significant proportion 40 to 50 per cent is whatever the government generates from fossil fuel and government FOREX up to 50 per cent is whatever comes from crude oil. So these are major challenges that Nigeria may not be able to do so much about.” 

YOU SHOULD NOT MISS THESE HEADLINES FROM NIGERIAN TRIBUNE

Lagos Is Second Least Liveable City In The World For 2021

Lagos is the second least liveable city in the world for the year 2021. This is according to the most recent annual ranking put together by the Economist Intelligence Unit (EIU)…

FACT CHECK: Did UNICEF Say Blocking Children’s Access To Pornography Constitutes Human Rights’ Infringement?

CLAIM 1: A Twitter user claims UNICEF said any efforts to block children from accessing pornography might infringe their human rights.

VERDICT: MISLEADING!