Climate Change and Sustainable Development in Nigeria Fin

8/7/2019 Climate Change and Sustainable Development in Nigeria Fin

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Climate Change and SustainableClimate Change and Sustainable

Development in NigeriaDevelopment in Nigeria : The: The

Challenges of Low Carbon EconomyChallenges of Low Carbon Economyand Achieving Vision 2020and Achieving Vision 2020

Akin Iwayemi

Department of Economics

University of Ibadan

Ibadan

[email protected]


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Outline of PresentationOutline of Presentation

1. Introduction

2. Main Questions and Issues

3. Key Messages

4. Economic Paradigms and Issues in CarbonEmission Reduction

5. The Domestic Economic and EnvironmentalContext

6. Low Carbon Economy and Vision 2020: Issues

and Challenges7. The Way Forward

8. Concluding Remarks


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1.1. Introduction and Problem OverviewIntroduction and Problem Overview

There is an emerging global scientific and political consensusthat rising concentrations of greenhouse gas (dominated bycarbon emission) in the atmosphere are having significantimpact on global climate with ultimate impact on sustainablehuman development.

Two recent reports have helped to make concerns about

climate change a leading global environmental anddevelopment issue in recent years. IPCC 2007 Report andthe Stern Report of 2006.

The Post-Kyoto Protocol Conference coming up inCopenhagen in December 2009 is another indicator.

Fossil fuel energy use, (crude oil, natural gas and coal) which

constitutes 80 percent of global energy supply has beenidentified as the dominant source of carbon emission. Theyaccount for 60 percent of energy-related human-inducedCO2 emission.

Meeting the growing global needs for energy services, andthe much needed expanded access of developing economiesto modern energy services will pose significant challenges in

the global quest for stabilizing carbon emissions and climatechange mitigation the coming decades.


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1.1. Introduction and ProblemIntroduction and ProblemOverview (contd.)Overview (contd.)

Given that Nigeria is a major oil exporting country and oil is amajor source of greenhouse gas emission what should she do inresponding to the challenges and problems posed by adopting a lowcarbon economy strategy of development?

Notably, Nigerias current comparative advantage is in adding valueto its natural resources of iron ore, limestone and hydrocarbonsthrough the production of steel, cement, petroleum products, coaland chemicals in the near to medium term.

Against the prevailing global climate mitigation pressures towardsmore widespread adoption of cleaner and low carbon energy, afundamental question is how a low income oil exporting developingcountry such as Nigeria should meet the rising energy needs of itsgrowing industries, economy and population in the near to mediumterm.

The objectives of this presentation are:

An overview of the economic, social, and environmental contextof the problem

An overview of the economics of carbon emission control andmanagement

Identification of the key challenges and constraints facingsustainable development anchored on achieving a low carboneconomy;

Recommendations on the appropriate roles for differentstakeholders in ensuring sustainable development anchored onachieving a low carbon economy.


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22 Key Questions and IssuesKey Questions and Issues

How do we value benefits and costs of carbon emission when theyhave the characteristics of public goods?

Who will bear the cost?

How should the cost be shared?

What does society have to forgo to achieve a low carbon economy?

Will the benefit exceed the cost of transition to a low carboneconomy?

What are the financial implications of such a development strategy.

What are the administrative, economic, fiscal, financial, social,political and institutional constraints facing the goal of low carboneconomy?

What are the benefits and costs of alternative carbon emissionpolicy options? A carefully thought-out cost benefit analysis and

financing mechanism will greatly enhance the ability to design andeffectively implement sound carbon emission adaptation andmitigation policies.


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3.3. Key MessagesKey Messages

Sustainable development underpinned by a low carbon economyinvolves a multifaceted set of economic, social, political, environmental,engineering, scientific, strategic and legal issues.

Low carbon emission objective is an essential element of soundenvironmental policy and sustainable development.

Achieving the twin objectives of low carbon economy and rapideconomic growth and elimination of poverty are worth the costs of suchan exercise.

A carefully thought-out cost benefit analysis and financing mechanismto support the desired goal will greatly enhance the ability to designand effectively implement sound carbon emission managementadaptation and mitigation.

Though the problem of insufficient local data confronts a comprehensiveanalysis, the conceptual scoping exercise that available data allowscoupled with informed professional expertise and judgment shouldprovide useful insights concerning a more optimal management and

adaptation strategies to support a low carbon economic growth path. Development of a low carbon economy must be integrated into

sustainable development in which sustained improvement in the wellbeing of the people and enlarging their social choices are key elements.

The low carbon economy issue is not only complex and difficult, butalso politically controversial as it involves a set of economic, social,political and environmental goals that are not necessarily mutuallyreinforcing in the short term.


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3.3. Key Messages (contd.)Key Messages (contd.)

The following set of broad but complementary policy strategies areconsidered essential in the transition to an energy and economicdevelopment anchored on carbon emission minimization andclimate change mitigation.

strengthening of market-based energy sector reforms includingpricing policies that will provide the necessary incentives forconsumers and producers to use and produce energy efficiently;

institutional support to encourage the culture of sound energymanagement in the industrial sector;

well-focused government intervention to support efficientutilization of abundant domestic renewable energy sources bythe private sector;

appropriate economic incentives to support domesticinvestment of efficient and environmentally cleanertechnologies and capital stock;

establishment of sound climate change governance structurethat will maximize synergy among the three key stakeholders,government, consumers and producers;

and an increase in regionally-based investment initiatives inenergy-efficient and environmentally cleaner energy supply tosupport a more integrated regional energy market in ECOWAS.


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3. Key Messages (contd.)3. Key Messages (contd.)

Difficult policy choices face Nigeria and other oil and gasproducing and exporting developing economies.

More innovative sources of finance would have to be devisedfor a sustainable and successful low carbon economy.

Credibility and reputation in the design, choice andimplementation of policy.

Nigeria faces immense multi-dimensional challenges inachieving sustainable anchored on low carbon emission andexpanded economic access.

The international financial institutions and otherdevelopment stakeholders have complementary strategicroles to play in making a success of the goal of cleanerproduction and development future.


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44 Carbon Emission Reduction: TheCarbon Emission Reduction: TheEconomic Analytic FrameworkEconomic Analytic Framework

This section presents the analytical framework for carrying outeconomic analyses of the green house gas emission problem andthe policy responses to mitigate it through a low carbon economy.

A good understanding of the economic dimensions of green housegas emission problem is essential for efficient policy making .

First, the fundamental causal factor in the anthropogenic emissionsof greenhouse gases has economic origin: namely a market failuredue either to negative externality or information failure.

When markets are left to their own devices as often occurs forenvironmental assets such as the atmosphere, they tend toproduce inefficient social outcomes evident in sub-optimalemission level.

Correcting for the market failure through economic incentiveshas proven over the years to be more efficient than relyinglargely on regulatory standards and other command and controlmeasures in the design of efficient policy to minimize thetransition cost to a low carbon economy.

Second, economic analysis serves to provide a framework forestimating the costs and benefits of taking action to put in place alow carbon economy in furtherance of the goal of minimizing therisks of global climate change associated with greenhouse gasemission.


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There are two approaches to measuring the costs and benefits ofcarbon emission reduction and transition to a low carbon economy.

a partial equilibrium approach.

the general equilibrium model can be used to evaluate the costsand benefits of transiting to a low carbon economy at a moredisaggregated sectoral level.

Partial Equilibrium Analysis of Why Carbon Emission Occurs

The existence of excessive carbon emission which have been linkedto global warming and climate change can be explained by threetypes of market failure namely, externalities, market power andinformational asymmetry

Information failure and government-induced economic distortionsoften combine to exacerbate the emission problem.

Undefined or poorly defined property rights, or poorly enforced orimplemented remediation policies, or weak institutional framework

and lack of or inadequate information have also contributed. Some general economic results on environmental degradation such

as carbon emission:

Carbon emission cannot be completely eliminated.

It is worthwhile to invest in reducing or eliminating greenhousegas emission to the point where the marginal costs equals themarginal benefit of reducing emission.

Internalising costs implies that individuals and firms should bearthe full cost of GHG behaviour.


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Figures 1 and 2 which provide an overview of the economics of managingcarbon emission.

In all the diagrams the horizontal axis measures the quantity of carbonemission into the environment.

The vertical axis measures the value in monetary terms of the damages andabatement costs associated with the level of pollutants.

There are two dimensions of the problem as set up.

First is the damage function that reflects the societys valuation of thedamage from each additional level of exposure to carbon emission.

Second is the abatement cost function which relates the cost of abatementto the level of exposure to carbon emission.

The valuation of the damages of carbon emission is modeled by themarginal damage function MD which depicts the damage associated with anadditional unit of emission level.

The slope of the function will reflect whether each additional unit of

exposure results in higher or lower damages. If each additional unit ofexposure results in higher damages, the MD function will be upward sloping.When each additional exposure level is associated with higher damages, theslope of MD function will be increasing.

The MD function can also be interpreted to denote the marginal benefits ofhigher or lower risks when exposure to emission changes.


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4.4. Carbon Emission Reduction: TheCarbon Emission Reduction: TheEconomic Analytic FrameworkEconomic Analytic Framework

The marginal abatement cost functions MAC reflects therelationship between emission level and the cost of abatement.

Abatement costs include costs of capital, labour, energy, and otherinputs needed to abate carbon emission level.

MAC slopes downward to reflect the fact that lower emission levelimplies higher abatement cost for given abatement technology.

MAC may also be interpreted as the marginal control costs ofreducing emission level.

Optimal exposure occurs where the marginal abatement cost MACand the marginal damage function, MD, intersect.

In Figure 1 optimal emission occurs at where MD1 and MAC1intersect.

Suppose the government has acquired more information about thepotency of carbon emission or has become more aware of theproblem then each unit of emission exposure is valued more interms of the damages compared to the status quo.

The impact of this assumption is shown in the leftward shift in theMD function from MD1 to MD2 as shown in Figure 1.

The equilibrium shifts from pollution level e* to e1. The shaded areaillustrates the size of the environmental compliance cost when anew and lower level of carbon emission is desired.

The implication of this analysis is that lower emission levels andstandard has significant compliance cost to industry participants.


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Figure 2 shows how technological changes can change the marginalabatement cost function.

This is demonstrated by the leftward shift of the abatement costfunction from MAC1 to MAC2.

MAC2.reflects the adoption of a new technology or best-practicestechnology that makes it feasible to achieve higher environmentalstandard e*1 instead of e*0 and at a lower social cost, P1 compared

to P0. The role of technology in the economics of emission reduction is

captured in the leftward shifts in MAC in Figure 2.

The final illustration in Figure 2 combines the effect of technologicalchanges on abatement and a shift in the damage function valuationas assumed in Figure 1.

The prediction of the model is that society can achieve a loweremission level at lower cost to the society through technologicalchanges. This is a form of the double dividend gain inenvironmental economics.


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5. Context of the Problem: Economy and5. Context of the Problem: Economy andthe Environmentthe Environment

A look at Table 1 provides some perspectives on economic growthand industrial development trends in Nigeria.

The data summarize the available evidence on economic andindustrial development in Nigeria during the last twenty five years.

Industrial value added, consisting of crude oil, mining andmanufacturing, experienced a 2.1 percent average annual declinein the 1980s.

In contrast, value added in agriculture and services grew at 2.9 and2.7% respectively.

There was a generally mild economic recovery across the threemajor economic sectors in the 1990s.

However, the industrial sector experienced the lowestimprovement, about 1% growth, compared to agriculture andservices which grew at 3.3 and 3.1% respectively.

In the period 2000-2004, the industrial sector staged a remarkableincrease in value added.

Average annual growth in value added in the industrial sector was afive-fold increase compared to the previous decade.

A key observation is the unstable pattern of growth of the industrialsector compared to other sectors.

This is largely a reflection of the impact of unstable development in

world oil market which dictated the pattern of development in theoil dominated economy.


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5 Context of the Problem: Economy and5 Context of the Problem: Economy andthe Environmentthe Environment

Table 1: Economic Growth in Nigeria 1980 to 2004

Period Industry Agriculture Services GDP Per capita

GDP1980-89 -2.1 2.9 2.7 0.8 -2.0

1990-99 0.9 3.3 3.1 2.4 -0.3

2000-04 5.1 5.3 6.1 5.4 3.1Source: Africa Development Indicators 2006. World Bank: Washington D.C.


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The aggregate industrial trend masks the development in themanufacturing sector. Nigerian manufacturing consists mainly ofprocessing agricultural products and light manufacturing industries

The manufacturing sector is dominated by small and medium scaleenterprises. The growth performance of the sector was impressivein the 1960s and 1970s, at 9.1 per cent and 12 per cent growthrespectively.

However, the gains of the import substitution industrializationdisappeared in the 1980s against the background of StructuralAdjustment Policy (SAP)-induced policy measures that includedpartial trade liberalization, exchange rate and industrial policies.

Consequently, growth in manufacturing production fell sharply to0.8 per cent in the 1990s. Another indicator of poor performance isthe index of manufacturing production which declined from 100 in1990 to 88.1 in 2006.

Table 2, which shows the comparative trends in the share ofmanufacturing in GDP for selected developing countries, providesanother insight about industrial development in Nigeria.

In 1980, manufacturing sector value added constituted 8.4 percentof real GDP. This share fell sharply to 5.5 percent in 1990. Itfurther fell to 4.5 percent in 2000. The share of the manufacturingsector stagnated in the first half of this decade.


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Three striking observations are evident in Table 2.y The low share of manufacturing in GDP

y The de-industrialization of the Nigerian economy apparent in the decliningshare of manufacturing during the period of analysis.

y Poor comparative performance of Nigerian manufacturing sector . This isnoticeable in the enormous gap between the share of manufacturingsector in GDP in Nigeria and such other developing countries as Brazil,Mexico, Indonesia and South Africa. Also remarkable is that the share ofthe manufacturing sector in GDP in Ghana is almost double Nigeria.

Table 2: The Share of Manufacturing Value Added in GDP 1980 to 2005 (inPercent)

Country 1980 1990 2000 2005

Nigeria 8.4 5.5 4.5 4.6

Mexico 22.3 20.8 20.3 17.7

Indonesia 13 20.7 27.7 -

Brazil 33.5 - 17.1 -

Ghana 7.8 9.8 9 8.6South Africa 21.6 23.6 19 19.1Source: World Bank: Nigeria Competitiveness and Growth Table 1-8

The scale of the enormous industrial challenge that Nigeria faces in achieving thegovernments goal of being among the top 20 economies in the world by 2020 ishighlighted by the need to quadruple or even quintuple the relative share of themanufacturing sector to reach the current level in these other higher incomedeveloping countries.


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Industrial capacity utilization is an important indicator ofperformance in the manufacturing sector. There is often acorrelation between rapid industrial growth and high capacityutilization.

The crisis of Nigerian manufacturing is also captured by thecapacity utilization rate which remained below 40 % from themiddle of the 1980s to the end of the 1990s.

Since the beginning of this decade, there has been some noticeableimprovement in capacity utilization. Capacity utilization, whichachieved a recent peak of almost 58 percent, has not fallen below50 percent since year 2000.

Other characteristics of the manufacturing sector which haveimportant implications for the future of the sector as an anchor formodernization and sustainable industrial development include:

over dependence on imported input,

low level of industrial integration evident in weak intra and inter-sectoral linkages;

high resource costs of domestic production behind high tariffprotection, infrastructural failures and lack of new investment


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In conclusion, the initial economic and industrial conditionssummarized described above, provides some perspective to theproblem of industrial development in Nigeria.

Lack of significant advancement in industrialization beyond lowlevel import substitution,

unstable economic growth patterns,

weak sectoral linkages, low per capita income,

high incidence of poverty and low human development indicators

These initial conditions frame the boundaries of the challengesfacing the complex nexus among climate change, economicdevelopment and low carbon economy in Nigeria.

They also raise fundamental questions about the scope, direction

and strategy of sustainable development in Nigeria.


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Energy use currently dominated by fossil fuel energy (oil, gas andcoal), is strongly correlated with industrial development and risingconcentrations of carbon dioxide (CO2) in the atmosphere, themajor factor in human-induced climate change.

In the first part of this section we review briefly the evidence onenergy sector development in Nigeria.

Inadequate quantity, poor quality and low access to modern energy

services, especially electricity and diesel, is arguably the mostpressing industrial problem of our time.

Petroleum products dominate the structure of domestic non-biomass energy consumption. In 2005, petroleum productsconstituted 82.5 percent of the total energy use, hydro, 12 percentand natural gas 5.5 percent. Coal constituted the residual of 0.03percent. In addition, transport energy demand constitutes thelargest share of the demand for petroleum products.

The trend in energy consumption in Nigeria in comparativeperspective is shown in Table 3.

A close look at the data reveals two key observations.

One is the low level of energy consumption.

The other is the slow growth rate of energy consumption.


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Table 3: Per Capita Energy Consumption 1980 to 2005 (in million BTU)

Year Nigeria Algeria Egypt South Africa Africa World Total

1980 6.2 42.6 16.6 90.0 14.4 63.8

1981 7.3 35.0 18.7 94.6 14.4 62.2

1982 7.1 47.8 20.3 98.0 15.1 61.1

1983 7.0 51.9 22.3 95.8 15.4 60.8

1984 7.4 54.2 23.7 100.5 15.7 63.0

1985 7.7 47.6 24.2 99.2 15.6 63.7

1986 7.4 46.8 24.1 99.6 15.6 64.3

1987 7.6 48.8 24.6 98.6 15.6 65.1

19887.9 50.6 24.1 99.3

15.8 66.4

1989 8.3 47.8 24.4 91.1 15.3 66.4

1990 7.9 48.5 25.4 91.8 15.2 65.9

1991 8.5 52.7 24.6 93.8 15.3 65.0

1992 8.4 49.4 24.0 94.1 15.1 64.1

1993 8.3 44.8 25.0 92.0 14.7 64.1

1994 7.6 45.0 25.1 99.1 15.0 63.8

1995 8.2 46.4 25.1 98.4 15.0 64.3

1996 8.2 44.2 26.7 98.4 15.0 65.1

1997 8.0 41.4 27.1 106.4 15.3 65.3

1998 7.5 42.4 27.4 100.4 14.8 64.6

1999 7.3 41.8 27.8 102.0 14.9 65.1

2000 7.1 40.7 28.4 104.2 15.0 65.6

2001 7.8 40.7 30.9 105.3 15.4 65.5

2002 7.8 40.8 31.0 102.2 15.2 66.0

2003 8.0 40.8 32.6 109.7 15.5 67.8

2004 7.8 39.2 33.9 117.3 16.0 70.3

2005 8.3 43.8 35.5 113.7 16.1 71.8

Source: Energy Information Administration, International Energy Annual 2005.

DOE, Washington DC


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The gap in energy consumption between Nigeria and comparator countriesis substantial. This development is a manifestation of the two types ofenergy crises that characterize the Nigerian economy.

First is the recurrent severe petroleum products shortages of whichkerosene and diesel are currently the most prominent. The gasoline marketis much better supplied than kerosene and diesel mainly because of itshigher political profile.

This factor explains why the government has embarked on large import

volumes to remedy domestic shortages of the product. Gasolineconsumption subsidy in the last three few years have been estimated tocost the government more than N1 trillion.

The second dimension of Nigerias energy crises is exemplified by prolongedelectricity crisis.

Two key indicators of electricity market crisis are:

the frequency of electricity interruptions evident in black-outs andbrown-outs

and pervasive reliance on self-generated electricity. Despite being energy-resource abundant, Nigerias electricity market,

dominated on the supply side by the state-owned Power Holding Companyof Nigeria (PHCN) has been incapable of providing minimum acceptableinternational standards of electricity service reliability, accessibility andavailability for the past three decades


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Another perspective on the electricity crisis is evident in the trendin capacity utilization (see Figure 2 and Table 4). Total installedcapacity in 2006 was 7011.6 MW. However, this year has been lessthan 2000 MW was in operable conditions.

The poor capacity utilization record is apparent in average capacityutilization of less that 40% for most of the period. The large gapbetween installed and actual capacity is a partial reflection of theelectricity supply crisis. Notably, for almost three decades no new

generating plant was added to the grid. Also of interest is the generating plant mix which consists of

hydroelectric and thermal power generating plants. In 2006, gas-fired power plants dominated the supply system constituting about73 percent of generating power capacity. Hydroelectricityconstituted the remaining 27 percent. The bulk of generating plantsare old as no new generating plant was added to the grid between1990 and 2007.

Two other supply side problems have exacerbated the powersupply problem. One is water flow problems which have seriouslyundermined the performance of the three hydro stations (Kainji,Jebba and Shiroro) in recent decades. This is inked to reducedwater volumes in the River Niger and its tributaries due to climatechange.

The other is the gas supply disruptions to gas-fuelled generatingplants due to increasingly more frequent technical failure fromsuppliers of gas and militant attacks on gas pipeline in the Niger

Delta.


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Figure 1: Electricity Consumption 1970 to 2004 in MWhours

0.0

500.0

1000.0

1500.0

2000.0

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200

200

Year

Megawatt

Total Consumption Mwhours

Source: Derived from Central Bank of

igeria Statistical Bulletin Volume 15, December 2004

Figure 2: Indicators of Electricty Crisis in Nigeria 1970 to 2004

0.0

10.0

20.0

30.0

40.0

50.0

60.0

197

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Year

Perc

Capacity Utilization % Transmission and Distribution Losses %


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In summary, the following stylized facts capture the essentialfeatures of the Nigerian energy sector.

First, the economy is characterized by persistent inadequatequantity, poor quality and low access to energy despite the largedomestic endowments of non-renewable and renewable primaryenergy resources.

Crude oil and natural gas reserves are currently estimated at 35billion barrels and 185 trillion cubic feet respectively. Coal reservesare also substantial at 2.75 billion metric tons.

Also, large amount of renewable energy resources including hydroelectricity, solar, wind and biomass energy are present. Hydroresources are estimated at 14,750 MW. Solar radiation is estimatedat 3.5-7.0 Kilowatt-hour/m2 per day, wind energy 2.0-4.0 m/s,wind energy 150,000 Terra Joule per year and biomass at 144million tons per year.

Secondly, Nigeria is a world ranking exporter of liquefied naturalgas (LNG). Yet, her gas-dominated electric grid experience frequentsystem collapse due often to inadequate gas supply. Through gasflaring Nigeria is among the worlds largest source of carbonemission, a major factor in global warming and climate change.

Third is the extensive substitution of highly polluting self-generatedpower for poor public electricity supply.

Also the scarcity of kerosene combined with shortage-induced highkerosene prices has induced greater use of fuelwood for the lowand middle income classes with adverse environmentalconsequences.

The protracted nature of the energy crises associated with chronicenergy infrastructural gaps have worsened despite huge amount of


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5.1 Context of the Problem: Carbon5.1 Context of the Problem: CarbonEmission in NigeriaEmission in Nigeria

The trend in total CO2 emission from fossil fueluse in Nigeria between 1980 and 2005 is shownin Table 4.

Emission from fossil fuels rose from 25 in 1980

t056 in 2004. Industry related CO2 emission is low in

Nigeria.

Overall, carbon emission from fossil fuel

production and use is small in Nigeria in termsof both regional and global averages as can beobserved in Table 4.


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Table 5: Carbon Dioxide Emission from Burning Fossil Fuel 1980 to 2005 (in

Million Metric tons)Year Nigeria Algeria Egypt South AfricaAfrica World

1980 68.50 64.72 42.19 234.19 534.47 18,330.68

1981 56.80 52.87 50.07 253.27 533.88 18,074.20

1982 57.46 63.50 56.17 271.16 569.87 17,974.14

1983 56.45 69.49 64.69 274.74 594.73 18,093.91

1984 58.71 72.65 72.04 294.47 625.73 18,942.79

1985 61.91 68.76 79.06 298.81 641.15 19,408.42

1986 59.06 71.54 80.89 305.52 658.70 19,790.50

1987 59.45 76.95 83.79 311.89 674.80 20,341.12

1988 62.61 80.34 83.25 316.17 690.56 20,998.041989 76.56 78.60 85.94 294.87 695.85 21,330.10

1990 81.41 82.88 91.74 295.48 718.13 21,394.92

1991 87.70 85.53 94.06 307.73 741.00 21,281.46

1992 92.61 81.57 93.00 317.03 751.33 21,246.75

1993 96.19 81.91 94.63 315.87 768.38 21,481.45

1994 94.98 83.81 97.75 343.86 804.56 21,644.31

1995 99.84 87.59 98.54 344.20 817.88 21,989.88

1996 101.55 84.21 107.85 348.99 835.78 22,530.53

1997 91.82 80.45 111.29 380.21 860.53 22,969.09

1998 88.58 84.48 114.07 361.99 850.09 22,900.861999 84.59 84.20 114.64 373.23 863.97 23,289.59

2000 80.42 83.26 119.04 383.42 881.24 23,751.01

2001 91.16 78.78 131.67 390.74 913.67 24,011.54

2002 90.52 81.25 132.96 377.11 911.89 24,545.94

2003 92.37 81.27 142.46 409.38 960.27 25,779.84

2004 91.83 79.70 152.00 438.13 1,010.45 27,185.85

2005 105.19 88.10 161.79 423.81 1,042.92 28,192.74

Source: EIA 2007


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The structure of GHG emission in Nigeria in 2000 for which data is available isshown in Table 5. The bulk of CO2 emission is from the transport sector. Themanufacturing sector contributes only 11 percent of CO2 emission.

Table 6: Carbon Dioxide Emissions in Nigeria by Economic Activity as Per Centof Total in 2000.Electricity and Heat Production 12Other Energy 11.5Manufacturing and Construction 11Internal Transportation 41.6Residential 9.3Agricultural and Other 0.0Total 100.0Source: World Resources Institute, http:/earthtrends.wri.org.


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5.25.2 Carbon Emission, Energy andCarbon Emission, Energy andEconomic DevelopmentEconomic Development

Historically, expanding access to energy had been a key factor insustained economic growth and development.

It is conventional wisdom that energy consumption per capita isstrongly correlated with the level of economic growth and livingstandards.

Since oil and gas dominate modern energy consumption structure,

it is clear that rising economic prosperity is likely to exacerbate theproblem of carbon emission in the country.

Attempt to model CO2 emission has gained currency in recentyears based on an identity which has gone through a number ofrefinements in the search to explore energy-climate nexus. Weadopt a similar framework of analysis.

The carbon emission relationship is derived as the product of fourfactors, namely, CO2 emissions per unit of fossil fuel energy

consumed, fossil fuel consumed per unit of energy consumed,energy consumed per unit of GDP, GDP per capita and population.

This identity provides us with a framework for exploring somepolicy issues that will impact climate change response from theindustrial sector perspective.

* * *i i i i

i

i i i

E FEC TEC GDP CE

FEC TEC GDP GDP ! (1)


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There are four major elements in the identity.

Emission per unit of fossil fuel energy consumed (E/FEC),

share of fossil fuel energy in total energy consumption,(FEC/TEC),

Energy intensity of sectoral GDP, (TEC/GDP)

Sectoral share in GDP.

Changes in these factors will impact carbon emission positively ornegatively.

If the composition of FEC changes from high to lower carbon basedenergy such as natural gas, it will exert downward pressure on CEall other things being equal.

Also, if share of non-fossil fuel in total energy increases, this willalso reduce CE.

The third term which is energy intensity (TEC/GDP) is alsonegatively correlated with carbon emission. The lower the unit ofenergy used in producing output the lower the amount of emission.

The last factor is likely to be positively correlated with carbonemission given that expanding economic activities are associatedwith higher carbon emission in line with the Kuznets environmentalquality curve.


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If the share of manufacturing should increase as GDP grows rapidlyas expected in the MDG goals are to be achieved, CE is likely to risein Nigeria except gains in emission per unit of energy consumedand energy use efficiency counteracts or compensates for thepositive effects of output increase on carbon emission CE.

In the short term carbon emission may increase due to thelikelihood that environmentally dirty industries (power generationbased on fossil fuels, iron and steel, chemicals, cement, paper,

transportation) would feature prominently in Nigerias industrialdevelopment strategy in the foreseeable future.

Thus there are significant policy challenges in changing the energyparadigm to one that would support the massive drive forindustrialization that Nigeria requires to be among the leadingworld economies by 2020 as well as being climate compliant.


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6.6. Towards an Economic DevelopmentTowards an Economic DevelopmentDriven by Low Carbon Energy Paradigm:Driven by Low Carbon Energy Paradigm:

Issues and ChallengesIssues and Challenges What are the key challenges that face Nigeria as an economy in

transition from an inefficient low productivity to a more robust lowcarbon economy that is climate change mitigation compliant?

How significant are the challenges that confront the design andimplementation of climate policies associated with sustainableenergy and economic development in Nigeria?

The challenges which are both structural and institutional are

enormous because of their cross-cutting nature. I have identified six sets of factors that pose significant constraints

for the implementation of low carbon economy associated withsustainable energy and economic development in Nigeria.

How these challenges are managed would determine the criticalsuccess factors in mainstreaming climate change into and energyand economic development decision making processes in Nigeria.

First, and perhaps the most important challenge, is the prevailingdomestic environment defined by difficult initial social andeconomic conditions.


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Issues and ChallengesIssues and Challenges The manufacturing sector on which sustained economic growth

must be anchored is currently characterized by:

low level of forward and backward integration evident in weak intra andinter-sectoral linkages;

high resource costs of domestic production behind high tariff protection,

infrastructural failures,

low productivity,

high capacity underutilization,

high rate of business failure,

lack of investment in new productive capacity

and lack of cost competitiveness.

Also low per capita income, high incidence of poverty and lowhuman development indicators define important aspects of the

challenges. Another dimension of the economic challenge is highlighted by theneed for Nigeria to quintuple the relative share of themanufacturing sector in GDP from the current low level to reach thelevel attained in South Africa. The difference with some Asiacountries that Nigeria wants to emulate their development patternsuch Malaysia and Singapore is staggering.

Overall, the unimpressive domestic social and economic conditionspartly define the scale of the challenge that confrontsmainstreaming climate change into economic and energydevelopment policies in Nigeria.


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Issues and ChallengesIssues and Challenges

Secondly, there is the current energy condition broadly defined bysignificant deterioration in energy infrastructure, inadequate and unreliablesupply of commercial energy to industrial end users.

In addition, there is significant inefficiency in total energy consumption thatis dominated by biomass energy.

The current low level of electricity and energy consumption per capita byglobal development standards present another challenge.

Nigeria lags much behind such African countries as South Africa, Egypt andAlgeria (Table 7 and 8 provides some magnitudes of the wide energy gapand poverty in Nigeria in comparative regional and international terms.).

Electricity consumption in Algeria is almost ten times what obtains inNigeria. The gap is more staggering in comparison with South Africa whoseconsumption per capita is almost thirty three times Nigeria.

While Nigeria has adequate energy resources to meet her long term energyneeds the significant scaling up of energy infrastructure required to bridge

the energy gap summarizes the key challenge from the initial fossil-fueldominated energy conditions. How to eliminate the persistent suboptimal levels of energy infrastructure

capacity and service provision and establishing a credible, reliable andefficient energy supply that will support a low carbon economy andsustainable human development defines another dimension of the scale ofthe challenges that Nigeria faces.


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Issues and ChallengesIssues and Challenges The third major challenge concerns meeting the financial

requirements of the substantial expansion in quantity, quality andaccess to energy infrastructure services, which are essential torapid and sustained industrial and economic growth, employmentgeneration, poverty reduction and overall well-being of thepopulation in a country where most of the 140 million people arepoor.

According to a recent official projection, the cost of electric power

system expansion that is expected to eliminate current electricitypoverty and raise electricity per capita from the current extremelylow level of140Kwh to 1,110kwh in 2015 and 5,000Kwh in 2030 isabout $262 billion.

Even then, Nigerias per capita consumption in 2030 will be about20% above the level that obtained in South Africa in 2003

Thus, the financial implications of eliminating the persistentsuboptimal levels of energy infrastructure capacity and service

provision and establishing a credible, reliable and efficient energysupply defines another dimension of the scale of the challenges thatNigeria faces in trying to meet her energy consumption needs.

The amount to commit to provide and deliver adequate, reliableand affordable supplies of environmentally cleaner energy to meetthe requirements of rapid economic development is enormous giventhe antecedent of the industry.

66 T d E i D l tT d E i D l t


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Issues and ChallengesIssues and ChallengesTable 7 Electricity and Income Per Capita for selected countries in 2004

Country Per Capita IncomeUS $

Per CapitaElectricityConsumption(Kwh)

Ratio of Other CountriesPer Capita ElectricityConsumption to Nigeria

Nigeria 430 140.2 1.00Egypt 1250 1337.4 9.54Algeria 2270 913.6 6.52

South Africa 3630 4559.5 32.52

Source: Energy Information Administration, International Energy Annual 2004.DOE, Washington DC.

Table 8 Installed Power Capacity (GW) in Selected Countries 1980 to 2004

Nigeria Egypt Algeria South Africa1980 2.240 4.867 2.185 18.3831990 4.960 11.474 4.657 31.0152000 5.85 17.861 6.044 39.8172004 5.888 17.958 6.468 40.481

Source: Energy Information Administration, International Energy Annual2004. DOE, Washington DC.


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Issues and ChallengesIssues and Challenges

The financial requirement is daunting yet it is achievable. However, themobilization of the financial resources to support the dramatic scaling up ofenergy infrastructure capacity must factor in four types of risks:

economic

socio-political

technological

and environmental (methane leaks, climate change compatibility, oilspills).

Optimal sharing of these risks among the three principal market actors,namely, consumers, investor/producers and the government is essential toefficient resolution of the problem for sustainable energy future in Nigeria.

Overcoming this challenge would hinge substantially on having theappropriate incentive structure anchored on industry restructuring,privatization, sound regulatory framework, and financial support forrenewable energy.

Fourth, meeting the challenges of providing adequate, reliable and widelyaccessible energy service involves more than summing up and getting thenumbers and supply details right, whether in terms of the mega-wattselectricity, cubic metres of gas delivery to industrial, residential and exportconsumers and barrels of refined petroleum products.


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Issues and ChallengesIssues and Challenges It involves getting the environmental and climate change

perspective right which implies developing and deploying cleanerenergy based on renewable energy such as hydro, solar, wind andbiomass would be a key policy challenge given their economic,technical and strategic implications.

Fifth, there is the technological challenge associated with efficientchoices of environmentally clean technologies to support industrialdevelopment anchored on greenhouse gas emission minimization.

This involves optimal choice of energy and other technologies tosupport the vision of a low carbon economic development.

Nigeria is characterized by higher energy-, material-, and pollution-intensive technologies of production and consumption than mostother countries because of its poorer record of economic growthand capital formation. This is mainly explained by the ageing stockof the capital associated with the harsh economic conditions.

Poor economic growth performance for the past decade coupled

with weak investment activity have impeded the rapid adoption ofmore resource-efficient and cleaner technologies that embodynewer processes and incorporate higher energy efficiency, higherresource recovery, and lower emission and waste generation.

A reversal of the current economic conditions is critical to theattainment of sustainable energy and economic growth.

The current level of technological capacity for adaptation anddissemination as well as the level of research and developmentcurrently falls far below what is required to support the type ofindustrial growth that China and some East Asian countriesexperienced in the last twenty five years.


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Issues and ChallengesIssues and Challenges Eliminating this critical shortage will be challenging to the

government, the private sector and educational institutions.Capacity building in research and development that promotes thechoice of economically and environmentally efficient energy usepatterns is essential to eliminating this constraint.

The finally challenge is institutional in nature. Developing andsustaining the appropriate institutional infrastructure to supportplanning and efficient implementation of robust sustainable

economic and energy development that is climate changemitigation compliant would be an important challenge.

Adequate institutional framework to support well-focused plan ofaction to actualize the vision of low carbon industrial developmentis a sine qua non for success.

The institutional infrastructure must be sufficiently robust and pro-active to support effectively the implementation of an integratedinstitutional approach to the cross-cutting economic,

environmental, technological and strategic dimensions of a lowcarbon industrial development strategy.


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77.. Towards a Low Carbon EnergyTowards a Low Carbon EnergyFuture in Nigeria: The PolicyFuture in Nigeria: The Policy

ImperativesImperatives A set of broad but complementary policy strategies are considered

essential in the transition to an energy and industrial developmentanchored on carbon emission minimization and climate changemitigation.

Policy interventions to strengthen market based energy sectorreforms is an essential part of meeting the energy andenvironmental challenges discussed earlier.

They must encourage more efficient allocation of resources. Byproviding the necessary incentives for consumers to use energyefficiently.

Improvement in energy use pattern can only be sustainable when itis carried out in the context of a general improvement in theutilization of other productive resources.

These interventions must correct market and government failuresand thereby encourage efficient energy use patterns.

The market environment must be sufficiently free such thatconsumers can economically trade off energy costs against servicequality without policy induced distortions.

The policy environment must be such that consumers caneconomically trade off energy costs against service quality withoutpolicy induced distortions.


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ImperativesImperatives

An appropriate energy pricing structure is fundamental tothe emergence of a sustainable energy future in Nigeria.

The culture of sound energy management in the industrialsector; The culture of energy management (of which energyaudit is a key component) to improve upon energy efficiencymust be widely encouraged and vigorously pursued by moreand more business enterprises in the region.

More efficiency oriented scheduling maintenance andservicing of equipment, waste reduction and recycling, andretrofitting would significantly reduce waste in energy usingactivity.

It is suggested that up to a quarter of current energy usecan be dispensed with in many firms with effective energymanagement.

Demand side efficiency is considerably cheaper than theexpansion of supply facilities and this should be pursuedmore vigorously.

Recent energy sector reform including price deregulationshould help many enterprises and major consumers to bemore rational in their use of energy services.


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ImperativesImperatives Government intervention to support efficient utilization of abundant

domestic renewable energy sources by the private sector must bewell-focused.

Support in terms of subsidies and other fiscal incentives to lowerthe investment price of low carbon energy future and make theenergy mix more climate compliant is justified because of thewelfare gains from the dynamic externalities of the adoption of lowcarbon based industrial and energy technologies.

However, because subsidies are expensive to sustain, they have tobe well targeted. An incentive compatible public private sectorparticipation approach would be the best option given the Nigerianenvironment.

An important policy measure is the design of appropriate economicincentives to support domestic investment of efficient andenvironmentally cleaner (low carbon energy) technologies andcapital stock;

Policy reforms should focus on encouraging a level-playing field forall energy forms in terms of internalizing the environmental andeconomic costs of different energy types.

sound climate change governance structure that will maximizesynergy among the three key stakeholders, government,consumers and producers.


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88 Concluding RemarksConcluding Remarks

Nigeria is a signatory to the United Nations Framework Conventionfor Climate Change (UNFCCC) and the Kyoto Protocol which aims atclimate change mitigation through the stabilization of greenhousegas concentrations in the atmosphere.

As part of her obligation under UNFCCC and the Kyoto Protocol,climate change anchored on an increasingly de-carbonized economyshould be mainstreamed into the development policy process.

However, despite her obligation and the greater vulnerability of theeconomy to climate change, there is lack of research on the cross-cutting nature and character of the interactions among climatechange, energy and economic development.

Yet, policy makers need information on the trade offs involved aswell as on the challenges and choices they imply for the differentstakeholders in the economy in order to minimize the scope forcostly policy errors and regret.

This paper has attempted to give some preliminary thoughts to thecross-cutting issues and questions associated with transiting to alow carbon economy in the quest for sustainable development thatis climate change mitigation compliant.

It is a modest contribution to the knowledge gap in an importantarea of mainstreaming climate change into the developmentprocess in Nigeria. Policymaking that is based on careful researchhas a better chance of narrowing the scope for poorly informed butenvironmentally and economically expensive politically-motivateddecisions.


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The EndThe End

Thank you for your attention.

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Climate Change and Sustainable Development in Nigeria Fin