The carbon emissions trading market is finally taking off in Nigeria. There are at least 5 regulatory developments which support this conclusion. First, is the publication of the revised National Policy on Climate Change (2021-2030) by the Department of Climate Change at the Federal Ministry of Environment. Second, is the passing of the Climate Change Act (the “Act“) in 2021 which establishes the National Council on Climate Change (the “NCCC“). Amongst others, the NCCC has statutory powers to regulate carbon emissions trading and enforce sectoral emissions targets. Third, is Nigeria’s announcement of its Net Zero commitment at COP26 in Glasgow in 2021. The Nigerian government also launched its Energy Transition Plan (the “ETP“) in 2021 with support from the COP26 Energy Transition Council (ETC). The ETP represents Nigeria’s strategy to achieving net-zero emissions by the year 2060 while lifting 100 million Nigerians out of poverty. Prior to this time, Nigeria has signed the 2015 Paris Agreement ratified the same in in March 2017.
What is Carbon Emissions Trading?
The Act does not specifically define carbon emissions trading. However, as a practical matter, carbon emissions trading is a market-based approach to controlling pollution, which allows parties to buy and sell rights to emit certain pollutants within a regulated scheme. Carbon emissions trading remains one of the key strategies for reducing emissions of CO2 and other Green House Gases (GHGs).
What is the structure of Nigeria’s Carbon Emissions Trading Market?
Nigeria currently operates a voluntary carbon market. Thus, there is currently no generally applicable cap and trade scheme by which the government sets a cap on the amount of GHGs that businesses are allowed to emit on a yearly basis.
Given that the local carbon market is still largely unregulated, there is yet no central registry for recording all carbon credit transactions thereby increasing the risk of double counting, which is the risk that credits from certain projects may be recorded on several registries. There is also the risk that carbon credits which are sold do not exist or are owned by another person. However, the Commission has indicated its interest to issue no-objection certificates to approve the issuance and transfer of certified credits generated across all sectors within the context of Article 6.2. of the Paris Agreement.
There is also no requirement for registration of projects yet. Accordingly, companies may establish projects locally and may also engage in cross-border carbon emissions trading. Investors may participate in the industry by establishing exchanges, as brokers or as aggregators. Investors may also invest directly in a carbon offset projects in return for rights to the carbon credits which the project generates or contract with a project developer for purchase of carbon credits through an Emission Reduction Purchase Agreement. However, companies looking to carry on business either as buyers, brokers, exchanges or sellers will need to comply with local corporate and tax regulations.
The foregoing insight is not intended to constitute legal advice and is not prepared with a specific context in mind. Kindly seek professional advice specific to your situation. You may also reach out to your usual Balogun Harold contact or via support@balogunharold.com for support.
