Landscape of Climate Finance in Nigeria

Overview:

• Nigeria has established a rich policy landscape dedicated to planning for, and responding to, climate change. With greenhouse gas emissions rising continually since 2009, Nigeria needs to ensure prospective growth follows a low-emissions development pathway, preventing carbon lock-in as the country undergoes further industrialisation and urbanisation.
• Nigeria is already highly vulnerable to the impacts of climate change with key risks including but not limited to agriculture & food security; floods & droughts; water stress; and ecosystem stress.
• The purpose of the report in partnership with FSD Africa and CPI is to inform and facilitate discussions among policymakers and public and private financiers, identifying gaps and opportunities for increasing both the quantity and quality of climate finance in Nigeria.

 Key barriers and challenges for climate finance in Nigeria include: 

• Mobilizing private finance: Nigeria’s capital markets are comparatively well-developed – that is, relative to other African countries – however, private sector investment accounts for only a fifth of total tracked climate finance. Institutional investors and asset managers currently represent an untapped pool of capital.
• Capacity constraints: Nigeria still faces capacity constraints to adequately implement, manage, and report on climate action. Overall, awareness and understanding of the challenges posed by, as well as possible cost-effective solutions to, climate change is lacking, with data and knowledge gaps undermining a comprehensive assessment of financing needs.
• Disclosures: Despite initiatives spearheaded by the Central Bank of Nigeria and the Nigerian Stock Exchange, disclosures remain limited. The current information asymmetries serve to stifle investment while preventing a complete assessment of the landscape of private climate finance in Nigeria.
• Technology: Nigeria lacks the necessary technological resources and expertise to implement the energy transition and adaptation action more broadly. Technology gaps – whether in relation to data, goods/services, or expertise – inhibit the country from being able to adopt more advanced solutions to climate change.
• Coordination: coordination failures across actors and sectors undermine the potential for a “whole of government” and “whole of society” approach to climate action. The climate challenge demands a “whole of government” approach to ensure policy frameworks are directly connected to finance and cross-cutting issues involve all relevant ministries.

Key findings/ data points:

• In 2019/2020, an average of USD 1.9 billion per year of public and private capital was invested in climate-related activities in Nigeria; this is only 11% of the estimated USD 17.7 billion needed annually to meet the country’s conditional NDC target of reducing emissions 47% below BAU by 2030.The tracked USD 1.9 billion of climate finance flowing to and within Nigeria is minimal relative to the size of the country’s economy with a GDP of USD 432 billion.
• Fossil-fuel financing in Nigeria continues to dominate: the country was ranked second in Africa in terms of the number of fossil fuel projects financed between 2016 and 2021, with one LNG project therein receiving more than the total climate finance tracked in 2019/2020.
• At USD 663 million in 2019/2020, adaptation finance in Nigeria is not consistent with the extent of the country’s vulnerability to climate change;according to ND-GAIN Nigeria is the 53^rd most vulnerable and 6^th least-ready country for adapting to climate change, with Lagos one of the 11 sinking cities globally that could soon be underwater.
• Of the existing adaptation finance in Nigeria, 90% is financed via debt which raises questions in terms of debt sustainability, especially as the frequency of climate shocks increases.
• Overall,the USD 1.9 billion of tracked climate finance mainly flowed from international public actors with a strong preference for debt lending, largely investing in energy-related mitigation projects and some cross-sectoral adaptation activities
• The majority of climate finance was committed for energy systems with solar receiving the lion’s share of investment therein (66%).
• The magnitude of AFOLU investments – 16% of total climate finance, or USD 301 million – is minimal relative to the sector’s share of GDP (24.4%) and its vulnerability to climate change.
• Waste, Water and Industrial Processes & Product Use (IPPU) are key sectoral gaps in Nigeria’s climate finance landscape, despite the priority allocated to each in national adaptation and mitigation strategies.

Recommendations: 

Policy 

• Operationalise the provisions of the New Climate Change Law. The new Law – passed in 2021 – sets the tone for a very advanced, top-down climate change regime moving forward. Stakeholders should seek to ensure the many provisions are indeed operationalised, as fast as possible, particularly in terms of establishing a market for, and putting a price on, carbon. Designing the regulatory and legal framework needed for a carbon market will be a key step in this regard.
• Cost needs across (priority) sectors with accompanying sectoral action plans. Currently, Nigeria’s documented climate finance needs are reported in aggregate, articulated only at the level needed to achieve the conditional NDC by 2030. To better understand where and how climate finance should be prioritised, actors should work to provide costed needs estimates by sectors, for mitigation and adaptation respectively, with sectoral action plans that map objectives with the responsible (federal) institution within a specified timeline for action.
• Build on the existing green bond tagging framework to establish national, and in turn sub-national, climate budget tagging.As part of the green (sovereign) bonds initiative pioneered by the Government, efforts have already been channelled into tagging and tracking green components of the annual budget. Relevant stakeholders should work to augment the existing institutional infrastructure such that a full budget review, or CPEIR, may be conducted to assess domestic climate finance not tracked in this report.
• Ensure the National Action Plan on Gender and Climate Changeis widely socialised among, and subsequently implemented by, relevant stakeholders. The National Action Plan on Gender and Climate Change provides concrete objectives and timelines for integrating gender-responsive climate finance across priority sectors. Actors must work to ensure the Plan becomes embedded across all climate action taking place within the country, ensuring gender-sensitive criteria is an integral component of accessing finance.
• Develop a national strategy for technology transfer. The Government has already recognised the need for technology transfer if it is to deliver on its conditional NDC. A national strategy could be designed to operationalise this agenda, detailing the support needed and potential partners for engagement.

Finance 

• Scale-up climate-resilient infrastructure. Bridging the large and growing infrastructure gap in Nigeria provides a strategic entry point for both public and private actors to work in partnership, delivering climate-resilient infrastructure that can withstand prospective climate risks. Socialising climate-resilient infrastructure possibilities and tools among sub-national actors and governance structures is a crucial component for generating buy-in and creating the necessary capacity.
• Ensure targeted, strategic use of public finance to mobilise private action at scale. It is widely acknowledged that filling the climate finance gap in Nigeria can only be achieved with the participation of the private sector. Limited public finance should be used strategically via targeted instruments – for example, guarantees, first-loss investments or insurance – that can help de-risk projects and crowd-in the much-needed private capital. Additionally, development finance should particularly seek to invest in underserved, ‘hard-to-abate’ sectors – in Nigeria, Industrial Processes & Product Use; and Waste – using concessional finance to kick-start otherwise expensive climate action.
• Scale-up finance for (on- and off-grid) solar technologies to achieve energy access goals and climate objectives simultaneously.Current investment in solar energy in Nigeria is not enough to bridge the energy access gap and falls short of the country’s potential for solar given its positioning in a high sunshine belt. With an emphasis on solar mini-grids and off-grid solar, actors should capitalise on this window of opportunity for achieving energy access, climate, and health goals simultaneously.
• Focus on deploying (public) climate finance in ‘nexus solutions,’ predicated on better coordination between relevant actors.‘Nexus solutions,’ for example, nature-based solutions, or joined-up action on air quality & climate, promise to maximise the efficacy of limited resources, delivering climate finance with a host of other development benefits. Nexus solutions are especially relevant in the adaptation context as Nigeria works to ensure climate-resilient development objectives are met and the country can respond to the inevitable and irreversible effects of climate change.

Summary

Nigeria is at a critical juncture in its development trajectory, faced with several overlapping and in some cases conflicting challenges: mitigating emissions; adapting to the immediate and inevitable effects of climate change; addressing widespread energy poverty; coping with high debt exposure; and adjusting to a rapidly expanding population fuelling mass urbanization.

All of this is set in the context of a country that derives 80% of its foreign exchange earnings from oil and gas.

Which development path Nigeria can feasibly take – business-as-usual or sustainable development – will depend on the availability of climate finance moving forward.