Nigeria misses out in UAE’s $450m Africa carbon credits buy-out

By Ben Eguzozie.

Nigeria will miss out on a United Arab Emirates’ $450 million commitment to offset carbon credits in Africa, under which the rich Arab nation will pay off all carbon credits to be generated in Africa up to 2030, following the just-concluded inaugural Africa Climate Summit (ACS) in Nairobi, Kenya, organised by the African Union and the Kenyan government. 

At the summit, a group of UAE energy and financial companies indicated intentions to buy $450 million of carbon credits generated in Africa by 2030. This move has placed the UAE as a carbon credits leader in Africa, according to participants at the ACS, which included heads of state and government (in Africa), international organisations (the UN, EU Commission, AU, US Climate envoy, non-governmental organisations, civil society organisations and hundreds of African youths), who gathered to discuss ways to deliver innovative green growth and climate finance solutions for Africa.

A carbon credit is a permit which allows a country, organisation or individual to produce a certain amount of carbon emissions. These credits can be traded if the total allowance is not used. One carbon credit has a monetary value on the compliance and voluntary carbon markets of $40 to $80, on average. However, this can be expected to fluctuate greatly with supply and demand, which is also fuelled by regulations. Carbon credits are a type of market-based instrument that allows companies, governments, and other organisations to address their greenhouse gas emissions by funding projects that reduce or remove carbon dioxide or other harmful greenhouse gas (GHG) emissions from the atmosphere.

Nigeria, according to an OECD note in 2022, since 2018, does not levy an explicit carbon price. No fuel excise taxes are levied. Fossil fuel subsidies cover 14.2 percent of emissions in 2021, which have been unchanged since 2018.

The OECD report titled, “Pricing Greenhouse Gas Emissions: Key Findings for Nigeria”, indicating on the “share of greenhouse gas emissions subject to a positive price by instrument, 2018-2021,” said, “In total, 0% of GHG emissions in Nigeria are subject to a positive Net Effective Carbon Rate (ECR) in 2021, unchanged since 2018. Nigeria does not levy an explicit carbon price. No fuel excise taxes are levied. Fossil fuel subsidies cover 14.2% of emissions in 2021, unchanged since 2018”.

The report, noting further on ‘Percentage change in the average Net ECR by reference price, 2018-2021’, said, “the average Net ECR on GHG emissions has increased by nearly 100% since 2018 when measured in real 2021 euros. In real Nigerian naira (NGN) the average Net ECR has increased by nearly 100%. In nominal NGN, the average Net ECR has increased by nearly 100% since 2018. As the net ECR in 2018 was negative, percentage changes have to be interpreted with caution”.

During a panel event at the ACS, the African Carbon Markets Initiative (ACMI) informed of the non-binding agreement to buy $450 million of carbon credits from the UAE Carbon Alliance. Established last June, this coalition includes the Mubadala Sovereign Wealth Fund, renewable energy company Masdar and the UAE’s largest lender, First Abu Dhabi Bank.

The ACMI was launched at the 2022 UN framework convention on climate change (UNFCCC) known as COP27 held in Egypt. It powers Africa’s push for carbon credits. The group brings together nations including Kenya, Nigeria, Gabon and Western philanthropies like the Rockefeller Foundation and Bezos Earth Fund.

ACMI is run by American global consultancy company McKinsey. It is aimed at increasing the number of carbon credits generated on the African continent from 16 million a year in 2020 to around 300 million by 2030.

McKinsey quoting the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), sponsored by the Institute of International Finance (IIF) with knowledge support from McKinsey, estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. Overall, the market for carbon credits could be worth upward of $50 billion in 2030.

Yahoo Finance says the global carbon credit market traded value was $978.56 billion in 2022. The market is expected to reach $2.68 trillion by 2028 at a cumulative average growth rate (CAGR) of 18.23 percent during the forecast period of 2023-2028. There is increasing regulatory and stakeholder pressure on global corporations to lower emissions.

The initiative argues that large amounts of credits will be created only if buyers have enough interest. One of the initiative’s main tasks has been to secure an early commitment from investors, of which its biggest supporter is based in the UAE.

Over 30 heads of state joined nearly 25,000 delegates to raise support for climate action on the continent at the ACS. But environmental groups have strongly criticised the summit organiser’s strong focus on instruments such as carbon credits to mobilise funds.

According to Greenpeace Africa climate and energy campaigner, Thandile Chinyavanhu, “It is regrettable that the Africa Climate Summit is becoming a bazaar for carbon credit speculators and propagandists that serve to greenwash, rather than reduce harmful emissions.

“They are risky diversions from real climate and biodiversity action that requires ending fossil fuel expansion and industrial destruction of our ecosystems,” Chinyavanhu said.