Need to Channel Petroleum Subsidy Savings Towards Driving Green Growth, Sustainable Development in Nigeria
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.