## 1. Climate Disasters ## Source details **Canonical URL:** [1. Climate Disasters](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025097-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025097-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025097-source-pdf.pdf.json) --- ### Executive Summary - Growth Impact - Under the fastest global warming scenario and with slow adaptation, GDP is projected to be 8 percent lower by 2100 than in a hypothetical scenario without global warming. - Faster adaptation can reduce the impact to 3 percent (at a fiscal cost). - Sea level rise is estimated to cost between 0.1 and 0.4 percent of GDP annually due to loss of life and capital from storm surges in coastal areas. - Pursuing Nigeria’s mitigation objectives would take another 0.06 to over 0.4 percentage points off GDP growth, depending on policy design. - Fiscal Impact - Disaster relief needs could reach up to 1½ percent of GDP. - Adaptation investments of 1 percent of GDP are noted; authorities’ estimates of adaptation needs may be up to 3 percent of GDP (which may include other development spending). - If Nigeria proceeds with its 2030 mitigation objectives, associated policy changes could generate 0.2 to 0.6 percent of GDP in additional revenue. - Balance of Payments Impact - Extreme weather events can disrupt agricultural and hydrocarbon exports and raise imports of food and essentials, putting pressure on the exchange rate and reserves and potentially creating external financing needs. - Financial Sector Impact - Extreme weather events and sea level rise would damage physical assets, leading to higher insurance claims, worsening private sector balance sheets, and potential stress on banks’ asset quality. - International Support and Financing Needs - Nigeria’s Energy Transition Plan is estimated to require additional investment of USD 410 billion. - Nigeria pledged an unconditional 20 percent reduction in emissions by 2030 and a conditional 47 percent reduction with international support; long-term objective of net zero emissions by 2060. ### Introduction and Policy Frameworks - Vulnerabilities and aggregate effects - Rising temperatures, more frequent extreme heat days, and increasing high-intensity rainfall have already resulted in frequent and significant flooding, increased public spending for disaster relief, and higher imports. - Projected intensification of heating and precipitations is estimated to reduce GDP by 8 percent by 2100; projected global sea-level rise likely to impose costs from 0.1 and 0.4 percent of GDP annually. - Institutional frameworks - National Adaptation Plan Framework (NAPF) and National Strategy and Plan of Action on Climate Change in Nigeria (NASPA-CCN) established. - 2021 Climate Change Act created National Council on Climate Change (NCC), mandated five-year carbon budgets and action plans aligned with the Paris Agreement. - Nigeria’s international engagement includes the Global Methane Pledge and Coalition of Finance Ministers for Climate Action. ### Adaptation — Climate Trends and Projections - Temperatures - Average annual mean temperature: 27-28 °C. - Observed warming: total increase of 0.7 °C through 2020 relative to the period 1901-1930. - Projected temperature increases (relative to 1985-2014): - 1.2 and 1.6 °C in 2036-2065 (depending on emission scenario). - 1.4 and 3.2 °C in 2071-2100 (depending on emission scenario). - Warming likely to be more intense in the north. - Precipitation - Nation-wide precipitations have remained stable on average since the 1960s, with regional divergence (increase in north-east; modest decline in southeast). - Southern coastal precipitations: 2,000-3,000 mm; central areas: 1,000-1,500 mm; northern regions: around 500-1,000 mm annually on average. - Nation-wide precipitations projected to increase modestly. - Extremes and trends - Increase in “hot” days (maximum daily temperature above 35 °C). - Coastal areas: longer dry periods and larger increases in intense precipitations (annual maximum single-day rainfall). - Most of the country expected to register significant increases in intense rainfall events, contributing to increased flood risks. - Sea-level rise projections and costs - Median projections for Nigeria: - RCP 4.5 (moderate): sea-level increase by 0.71 m by end of century relative to 2000. - RCP 2.6 (Paris-aligned): sea-level increase by 0.60 m. - RCP 8.5 (very high): sea-level increase by 0.90 m. - Staff estimate of average annual cost of SLR without adaptation: about 0.3 percent of GDP for Nigeria between 2020 to 2099 (moderate scenario). - Range of SLR annual costs across projections: between 0.1 and 0.4 percent of GDP annually. - Most cost attributed to loss of life and capital during storm surges in densely populated coastal areas. ### Macro-Economic Implications of Warming and Weather Shocks - Long-run growth impacts - Fastest warming scenario with slow adaptation: GDP projected to decline by up to 8 percent by 2100. - Faster adaptation can lower costs to 3 percent of GDP but requires higher fiscal spending. - Sectoral and transmission channels (bottom-up evidence) - Warming reduces agricultural yields, lowers animal welfare, increases desertification. - Higher temperatures lower labor productivity across sectors, particularly outdoor activities. - Weather extremes and short-run impacts - Empirical analysis using big data and machine learning finds prolonged consecutive dry days, extremely wet conditions, and intense precipitation events reduce GDP growth by 1 to 2.5 percentage points for each standard deviation above normal levels. - Sea-level rise and financial sector effects - Losses largely from storm-surge events amplified by higher sea-levels, increasing damages and insurance claims. - Adaptation (beach nourishment, coastal dunes, dykes) can substantially reduce costs but requires investment. - Planned retreat (allowing slow depreciation of capital, no new coastal construction, gradual relocation) reduces costs without heavy physical protection investment but needs long-term planning and management of distributional impacts. ### Adaptation Strategies, Costs, and Financing Implications - Adaptation policy focus and programs - Climate-Smart Agriculture: seed improvement, hybridization, sustainable land management. - Ecosystem expansion and conservation to maintain ecological structure. - Local community adaptation projects: sustainable agriculture, water management, disaster risk reduction. - Capacity building through training programs and workshops. - Estimated adaptation and related spending needs - Authorities’ estimates of adaptation needs: - $3.6 billion per year for agriculture and water. - $3.6 billion per year for health. - $6.5 billion per year for transportation. - Rising to $24.3 billion per year by 2050, totaling about 3 percent of 2020 GDP. - Implementing adaptation at this scale would increase fiscal financing needs and import demand, generating additional external financing needs. - IMF staff estimate for reinforcing new infrastructure exposed to floods: 0.02 percent of GDP annually. - Fiscal space, revenue, and external financing - Climate-related spending pressures come atop needs to strengthen revenue mobilization for priority spending. - Climate adaptation and infrastructure spending could widen external current deficits and require low-cost external climate funding; well-designed project proposals are needed to tap such financing. - Private financing and PPPs are expected to be key elements of the financing strategy. - Institutional priorities - Mainstreaming the 2021 Climate Change Act, enhancing agency cohesion, improving stakeholder participation, and setting realistic targets. - Development of robust monitoring and evaluation systems is crucial for implementation and for accessing external finance. ### Integration of adaptation into development planning - Adaptation is most effective when integrated into development planning and when priority is given to policies with positive externalities. - Removing market inefficiencies and promoting reforms such as improving access to credit and agricultural extension services can facilitate private adaptation. - The government enabling local communities to plan for climate impacts and set adaptation goals aligned with the National Adaptation Plan (NAP) is essential. - Nigeria’s National Adaptation Plan highlights adaptation as a cross-cutting developmental issue and sets a foundation for mainstreaming adaptation. - Agricultural adaptation progress: - Diversifying crops, changing planting dates, and implementing management strategies that reduce heat stress. - Identified need: enhancing irrigation facilities to offset natural rainfall variability. ### Cost-benefit analysis (CBA) for adaptation decision-making - CBA can help decision makers consistently collect, aggregate, and compare information on public adaptation projects despite limitations. - The NAP recognizes trade-offs between development and adaptation and the need to manage adaptation to prevent unintended consequences. - Example trade-off: stronger infrastructure reduces flood damages but subtracts resources from other development goals. - Recommendation: Apply CBA to adaptation and all other development programs consistently; align with the NAP principle of evidence-based climate change adaptation. ### Mitigation — background, emissions profile, and opportunities - Emissions profile and sources - Nigeria accounts for 0.9 percent of global emissions. - About half of Nigeria’s emissions are from fossil fuel extraction and agriculture; the other half from power generation, transport, buildings, land-use, land-use change, forestry (LULUCF), and waste. - Methane and flaring-intensity of oil and gas production are above that of many other hydrocarbon producing countries. - Opportunities for low-carbon growth - Reducing gas flaring, venting, and leaks reduces emissions intensity of fossil fuel production and strengthens gas supply reliability and quantity. - Improved electricity access and reduced reliance on off-grid generators would improve reliability and costs, promote growth, boost fiscal revenues and exports, and reduce greenhouse gas and local pollutants. - Supporting cleaner cookstoves would reduce deforestation and lower premature deaths from air pollution. ### Current policies and projections - Recent reforms and policy context - 2023 Electricity Act: regulatory reforms to improve investment environment (investor protections, bilateral PPAs, expanded feed-in tariffs). - Implicit fuel subsidies were eliminated in September/October of 2024, although all fossil fuels remain free of VAT. - National Climate Change Policy, LT-LEDS, and the 2021 Climate Change Act provide direction for future policies, including introduction of a carbon tax and carbon credits via voluntary and Article 6 markets. - Government issued guidelines and regulations in 2022-23 to target zero routine flaring and a 60 percent reduction in methane emissions. - Efforts to develop transparent markets for captured natural gas and align domestic gas prices with export-parity levels. - Baseline and policy-adjusted projections (using IMF-WB CPAT) - Baseline emissions: projected to increase by around 2 percent per year and reach 515 mt of CO2e in 2030. - Under current policies, emissions are 10 percent below the baseline (mostly due to oil and gas sector emissions regulations and fossil fuel price increases). - Implication: a further 10 percent reduction in emissions would be needed to achieve the NDC. ### Mitigation costs, fiscal and price impacts, and policy trade-offs - Policy design and economic costs - Emissions pricing: minimizes economic costs and raises fiscal revenue but can affect competitiveness and equity through higher prices; revenues can be used progressively to benefit the poor. - Emissions-intensity pricing: taxes dirtier firms and capital and subsidizes cleaner ones; higher economic costs but smaller price impacts. - Subsidies: fiscally costly and economically inefficient. - Regulatory approaches: more costly than pricing and likely do not significantly increase end-user prices; in practice, regulatory policies can be more costly than idealized emissions-intensity design. - A sector-specific policy mix is likely preferred to balance economic, social, and environmental goals. - Costs to achieve Nigeria’s emissions reduction target - Range from 0.06 to at least 0.40 percent of GDP annually depending on policy design. - Meeting Nigeria’s NDC through broad-based emissions pricing: marginal economic costs of 0.06 percent of GDP per year and requires an emissions price of $10 per ton of CO2e. - Excluding forestry and agricultural emissions pricing doubles the cost to around 0.13 percent of GDP and requires an emissions price in other sectors of $36 per ton. - Exempting LPG has minimal fiscal and economic impact; combining emissions pricing with emissions-intensity pricing for internationally traded/competitiveness-sensitive sectors also has minimal impact. - Alternative cost statement in summary: broad-based emissions pricing allows Nigeria to achieve its NDC with a cost of 0.05 percent of GDP (contextualized alongside other estimates). - Fiscal impacts - Emissions pricing substantially improves Nigeria’s fiscal position; emissions-intensity pricing results in a small revenue loss. - Revenues under emissions pricing are highest from charges on gasoline and natural gas and range from 0.2 to 0.6 percent of GDP depending on covered sectors. - Revenues estimates exclude receipts from agriculture, waste, and forestry sectors to avoid inflating revenue estimates given administrative difficulty. - Price and competitiveness impacts - A $20 per ton emissions price increases: - Oil product prices by 3 percent. - Electricity by 5 percent. - Natural gas by 25 percent. - Production costs in emissions-intensive sectors estimated to rise by 2 to 10 percent, potentially affecting competitiveness for traded products like oil, gas, cement, and fertilizers. - Price increases are especially large for livestock (above 20 percent) due to high emissions-intensity in that sector. - Emissions-intensity and well-designed regulatory policies result in much smaller price increases (for example, oil and gas production costs increase by four times less under emissions-intensity pricing than under emissions pricing), improving acceptability. - Administrative and sectoral feasibility - Pricing is straightforward for energy use sectors (applied as a tax on fuel quantity based on carbon content). - Non-energy emissions (process emissions, leaks, forestry) require more sophisticated monitoring systems; pricing may not be feasible in forestry and agriculture near term except at limited scope (large farms, specific land parcels). - Emissions-intensity pricing and non-pricing instruments could be introduced as preliminary steps prior to broad emissions pricing because they likely do not require social protection support. ### Policy package to support fiscal revenue, exports, and growth (sequencing and design) - Sequencing and complementary measures - Preparation steps: detailed policy analysis, complementary measures to protect vulnerable households, enhanced accessibility to alternatives to fossil fuels, and promotion of financial flows. - Role of IMF: support authorities through training on analytical tools (such as CPAT) and dedicated capacity development. - Emissions pricing considerations and recommendations - Generates substantial fiscal benefits with limited economic impacts, but given recent energy price increases, it is a medium-term priority. - Requires decisions on pricing level, sectoral and fuel coverage, and social protection response based on granular understanding of affected firms, households, and regions. - Recommended implementation approach: - Introduce at a time of strong macroeconomic conditions and low international fuel prices. - Start with a low price that gradually increases. - Strengthen social protection targeting and delivery, improve non-energy emissions measurement, and increase availability of low-carbon alternatives (reliable on-grid electricity and off-grid solutions). - Public communication strategies on reform rationale, stakeholder engagement, and transparent use of revenue (including targeted compensation). - Emissions-intensity pricing and non-pricing instruments can serve as interim measures before full emissions pricing implementation. ### Emissions-intensity pricing and sectoral measures - Suitability and rationale - Emissions-intensity pricing or partial exemptions may be more appropriate for emissions-intensive sectors that compete against foreign producers (examples: oil, gas, and fertilizers) to mitigate competitiveness and balance-of-payments impacts. - Jurisdictions cited using emissions-intensity pricing or partial exemptions: Australia, Canada (emissions-intensity pricing); the EU, South Africa (partial exemptions). - Emissions pricing exists in some comparable cases: Mauritania, Ghana, Chile. - Near-term policy options by sector - Apply emissions-intensity pricing where administration is feasible (vehicles, power generation). - Agriculture and forestry: mix of policies including finalization of carbon credits legislation, a tax on unsustainably produced timber, strengthened enforcement of forest protection, promotion of climate smart agricultural practices, and continuation of tax expenditures (and emissions-pricing exemption) on LPG to support clean cooking fuels. - Waste sector: implement packaging and bottle deposit-refund systems to divert waste to formal landfills. - Power sector: deploy initial competitive tenders for renewable energy coupled with guarantees and land tenure arrangements to reduce offtake, land, and foreign exchange risk and thereby increase renewable energy investment. - Financing, incentives, and complementary policies - Facilitate private and concessional financing to reduce the cost of emissions reductions and promote green growth. - Complementary policies needed: high-quality climate data (green taxonomies), improvements in macroeconomic conditions and domestic credit markets, blended finance to derisk investment, and well-designed auctions to grant power purchase agreements. - Public spending priorities: public goods, mitigating impacts for vulnerable households, projects with high developmental co-benefits (electricity access and clean cooking fuels). - Emissions pricing revenue should largely remain available for general development spending after funding prioritized climate-related public goods. *Source: Excerpt from "MACROECONOMIC IMPLICATIONS OF CLIMATE CHALLENGES", Nigeria, Selected Issues paper (May 29, 2025).* ### 1. Climate Disasters ______________________________________________________________________ 3 ### 1. Climate Disasters ### Executive Summary - Growth Impact - Under the fastest global warming scenario and with slow adaptation, GDP is projected to be 8 percent lower by 2100 than in a hypothetical scenario without global warming. - Faster adaptation can reduce the impact to 3 percent (at a fiscal cost). - Sea level rise is estimated to cost between 0.1 and 0.4 percent of GDP annually due to loss of life and capital from storm surges in coastal areas. - Pursuing Nigeria’s mitigation objectives would take another 0.06 to over 0.4 percentage points off GDP growth, depending on policy design. - Fiscal Impact - Disaster relief needs could reach up to 1½ percent of GDP. - Adaptation investments of 1 percent of GDP are noted; authorities’ estimates of adaptation needs may be up to 3 percent of GDP (which may include other development spending). - If Nigeria proceeds with its 2030 mitigation objectives, associated policy changes could generate 0.2 to 0.6 percent of GDP in additional revenue. - Balance of Payments Impact - Extreme weather events can disrupt agricultural and hydrocarbon exports and raise imports of food and essentials, putting pressure on the exchange rate and reserves and potentially creating external financing needs. - Financial Sector Impact - Extreme weather events and sea level rise would damage physical assets, leading to higher insurance claims, worsening private sector balance sheets, and potential stress on banks’ asset quality. - International Support and Financing Needs - Nigeria’s Energy Transition Plan is estimated to require additional investment of USD 410 billion. - Nigeria pledged an unconditional 20 percent reduction in emissions by 2030 and a conditional 47 percent reduction with international support; long-term objective of net zero emissions by 2060. ### Introduction and Policy Frameworks - Vulnerabilities and aggregate effects - Rising temperatures, more frequent extreme heat days, and increasing high-intensity rainfall have already resulted in frequent and significant flooding, increased public spending for disaster relief, and higher imports. - Projected intensification of heating and precipitations is estimated to reduce GDP by 8 percent by 2100; projected global sea-level rise likely to impose costs from 0.1 and 0.4 percent of GDP annually. - Institutional frameworks - Nigeria has established the National Adaptation Plan Framework (NAPF) and the National Strategy and Plan of Action on Climate Change in Nigeria (NASPA-CCN). - The 2021 Climate Change Act created a coordinating National Council on Climate Change (NCC), mandated five-year carbon budgets and action plans aligned with the Paris Agreement. - Nigeria has engaged internationally (Global Methane Pledge, Coalition of Finance Ministers for Climate Action). ### Adaptation — Climate Trends and Projections - Temperatures - Average annual mean temperature: 27-28 °C. - Observed warming: total increase of 0.7 °C through 2020 relative to the period 1901-1930. - Projected temperature increases (relative to 1985-2014): - 1.2 and 1.6 °C in 2036-2065 (depending on emission scenario). - 1.4 and 3.2 °C in 2071-2100 (depending on emission scenario). - Warming likely to be more intense in the north. - Precipitation - Nation-wide precipitations have remained stable on average since the 1960s, with regional divergence (increase in north-east; modest decline in southeast). - Southern coastal precipitations: 2,000-3,000 mm; central areas: 1,000-1,500 mm; northern regions: around 500-1,000 mm annually on average. - Nation-wide precipitations projected to increase modestly. - Extremes and trends - Increase in “hot” days (maximum daily temperature above 35 °C). - Coastal areas: longer dry periods and larger increases in intense precipitations (annual maximum single-day rainfall). - Most of the country expected to register significant increases in intense rainfall events, contributing to increased flood risks. - Sea-level rise projections and costs - Median projections for Nigeria: - RCP 4.5 (moderate): sea-level increase by 0.71 m by end of century relative to 2000. - RCP 2.6 (Paris-aligned): sea-level increase by 0.60 m. - RCP 8.5 (very high): sea-level increase by 0.90 m. - Staff estimate of average annual cost of SLR without adaptation: about 0.3 percent of GDP for Nigeria between 2020 to 2099 (moderate scenario). - Range of SLR annual costs across projections: between 0.1 and 0.4 percent of GDP annually. - Most cost attributed to loss of life and capital during storm surges in densely populated coastal areas. ### Macro-Economic Implications of Warming and Weather Shocks - Long-run growth impacts - Fastest warming scenario with slow adaptation: GDP projected to decline by up to 8 percent by 2100. - Faster adaptation can lower costs to 3 percent of GDP but requires higher fiscal spending. - Sectoral and transmission channels (bottom-up evidence) - Warming reduces agricultural yields, lowers animal welfare, increases desertification. - Higher temperatures lower labor productivity across sectors, particularly outdoor activities. - Weather extremes and short-run impacts - Empirical analysis using big data and machine learning finds prolonged consecutive dry days, extremely wet conditions, and intense precipitation events reduce GDP growth by 1 to 2.5 percentage points for each standard deviation above normal levels. - Sea-level rise and financial sector effects - Losses largely from storm-surge events amplified by higher sea-levels, increasing damages and insurance claims. - Adaptation (beach nourishment, coastal dunes, dykes) can substantially reduce costs but requires investment. - Planned retreat (allowing slow depreciation of capital, no new coastal construction, gradual relocation) reduces costs without heavy physical protection investment but needs long-term planning and management of distributional impacts. ### Adaptation Strategies, Costs, and Financing Implications - Adaptation policy focus and programs - Climate-Smart Agriculture: seed improvement, hybridization, sustainable land management. - Ecosystem expansion and conservation to maintain ecological structure. - Local community adaptation projects: sustainable agriculture, water management, disaster risk reduction. - Capacity building through training programs and workshops. - Estimated adaptation and related spending needs - Authorities’ estimates of adaptation needs: - $3.6 billion per year for agriculture and water. - $3.6 billion per year for health. - $6.5 billion per year for transportation. - Rising to $24.3 billion per year by 2050, totaling about 3 percent of 2020 GDP. - Implementing adaptation at this scale would increase fiscal financing needs and import demand, generating additional external financing needs. - IMF staff estimate for reinforcing new infrastructure exposed to floods: 0.02 percent of GDP annually. - Fiscal space, revenue, and external financing - Climate-related spending pressures come atop needs to strengthen revenue mobilization for priority spending. - Climate adaptation and infrastructure spending could widen external current deficits and require low-cost external climate funding; well-designed project proposals are needed to tap such financing. - Private financing and PPPs are expected to be key elements of the financing strategy. - Institutional priorities - Mainstreaming the 2021 Climate Change Act, enhancing agency cohesion, improving stakeholder participation, and setting realistic targets. - Development of robust monitoring and evaluation systems is crucial for implementation and for accessing external finance. *Source: Excerpt from "MACROECONOMIC IMPLICATIONS OF CLIMATE CHALLENGES", Nigeria, Selected Issues paper (May 29, 2025).* ### 18. Adaptation is most effective when integrated into development planning, and priority ### 18. Adaptation is most effective when integrated into development planning, and priority ### Integration of adaptation into development planning - Adaptation is most effective when integrated into development planning and when priority is given to policies with positive externalities. - Removing market inefficiencies and promoting reforms such as improving access to credit and agricultural extension services can facilitate private adaptation (examples cited from Nigeria: Haider, 2019; Oluwole et al., 2016; Federal Ministry of Environment, 2014). - By addressing market inefficiencies, the government enables local communities to plan for climate impacts and set adaptation goals aligned with the National Adaptation Plan (NAP). - Nigeria’s National Adaptation Plan highlights adaptation as a cross-cutting developmental issue and sets a foundation for mainstreaming adaptation. - Agricultural adaptation progress: - Diversifying crops, changing planting dates, and implementing management strategies that reduce heat stress (Ifeanyi-obi and Nnadi, 2014). - Identified need: enhancing irrigation facilities to offset natural rainfall variability (Haider, 2019). ### Cost-benefit analysis (CBA) for adaptation decision-making - Despite limitations, CBA can help decision makers consistently collect, aggregate, and compare information on public adaptation projects. - The NAP recognizes trade-offs between development and adaptation and the need to manage adaptation to prevent unintended consequences (NAP, p. 19). - Example trade-off: stronger infrastructure reduces flood damages but subtracts resources from other development goals. - CBA, complemented by analysis and correction of distributional impacts, can help decision makers maximize overall social welfare and avoid wasting scarce resources. - Recommendation: Apply CBA to adaptation and all other development programs consistently (Bellon and Massetti, 2022a); aligns with the NAP principle of evidence-based climate change adaptation (FME, 2020, p. 20). ### Mitigation — background, emissions profile, and opportunities - Nigeria accounts for 0.9 percent of global emissions. - Emissions per-capita and per unit of GDP broadly in line with neighboring and other lower middle-income countries. - About half of Nigeria’s emissions are from fossil fuel extraction and agriculture; the other half from power generation, transport, buildings, land-use, land-use change, forestry (LULUCF), and waste. - Methane and flaring-intensity of oil and gas production are above that of many other hydrocarbon producing countries. - Opportunities for low-carbon growth: - Reducing gas flaring, venting, and leaks reduces emissions intensity of fossil fuel production and strengthens gas supply reliability and quantity. - Improved electricity access and reduced reliance on off-grid generators would improve reliability and costs, promote growth, boost fiscal revenues and exports, and reduce greenhouse gas and local pollutants. - Supporting cleaner cookstoves would reduce deforestation and lower premature deaths from air pollution. ### Current policies and projections - Recent reforms and policy context: - 2023 Electricity Act: regulatory reforms to improve investment environment (investor protections, bilateral PPAs, expanded feed-in tariffs). - Implicit fuel subsidies were eliminated in September/October of 2024, although all fossil fuels remain free of VAT. - National Climate Change Policy, LT-LEDS, and the 2021 Climate Change Act provide direction for future policies, including introduction of a carbon tax and carbon credits via voluntary and Article 6 markets. - Government issued guidelines and regulations in 2022-23 to target zero routine flaring and a 60 percent reduction in methane emissions. - Efforts to develop transparent markets for captured natural gas and align domestic gas prices with export-parity levels. - Baseline and policy-adjusted projections (using IMF-WB CPAT): - Baseline emissions: projected to increase by around 2 percent per year and reach 515 mt of CO2e in 2030. - Under current policies, emissions are 10 percent below the baseline (mostly due to oil and gas sector emissions regulations and fossil fuel price increases). - Implication: a further 10 percent reduction in emissions would be needed to achieve the NDC. ### Mitigation costs, fiscal and price impacts, and policy trade-offs - Design of mitigation policies matters for economic costs, distribution, social acceptability, and fiscal outcomes: - Emissions pricing: minimizes economic costs and raises fiscal revenue but can affect competitiveness and equity through higher prices; revenue can be used progressively to benefit the poor. - Emissions-intensity pricing: taxes dirtier firms and capital and subsidizes cleaner ones; higher economic costs but smaller price impacts. - Subsidies: fiscally costly and economically inefficient. - Regulatory approaches: more costly than pricing and likely do not significantly increase end-user prices; in practice, regulatory policies can be more costly than idealized emissions-intensity design. - A sector-specific policy mix is likely preferred to balance economic, social, and environmental goals. - Costs to achieve Nigeria’s emissions reduction target: - Range from 0.06 to at least 0.40 percent of GDP annually depending on policy design. - Meeting Nigeria’s NDC through broad-based emissions pricing: marginal economic costs of 0.06 percent of GDP per year and requires an emissions price of $10 per ton of CO2e. - Excluding forestry and agricultural emissions pricing doubles the cost to around 0.13 percent of GDP and requires an emissions price in other sectors of $36 per ton. - Exempting LPG has minimal fiscal and economic impact; combining emissions pricing with emissions-intensity pricing for internationally traded/competitiveness-sensitive sectors also has minimal impact. - Alternative cost statement in summary: broad-based emissions pricing allows Nigeria to achieve its NDC with a cost of 0.05 percent of GDP (contextualized alongside other estimates of costs by policy design). - Fiscal impacts: - Emissions pricing substantially improves Nigeria’s fiscal position; emissions-intensity pricing results in a small revenue loss. - Revenues under emissions pricing are highest from charges on gasoline and natural gas and range from 0.2 to 0.6 percent of GDP depending on covered sectors. - Revenues estimates exclude receipts from agriculture, waste, and forestry sectors to avoid inflating revenue estimates given administrative difficulty. - Price and competitiveness impacts: - A $20 per ton emissions price increases: - Oil product prices by 3 percent. - Electricity by 5 percent. - Natural gas by 25 percent. - Production costs in emissions-intensive sectors estimated to rise by 2 to 10 percent, potentially affecting competitiveness for traded products like oil, gas, cement, and fertilizers. - Price increases are especially large for livestock (above 20 percent) due to high emissions-intensity in that sector. - Emissions-intensity and well-designed regulatory policies result in much smaller price increases (for example, oil and gas production costs increase by four times less under emissions-intensity pricing than under emissions pricing), improving acceptability. - Administrative and sectoral feasibility: - Pricing is straightforward for energy use sectors (applied as a tax on fuel quantity based on carbon content). - Non-energy emissions (process emissions, leaks, forestry) require more sophisticated monitoring systems; pricing may not be feasible in forestry and agriculture near term except at limited scope (large farms, specific land parcels). - Emissions-intensity pricing and non-pricing instruments could be introduced as preliminary steps prior to broad emissions pricing because they likely do not require social protection support. ### Policy package to support fiscal revenue, exports, and growth (sequencing and design) - A well-sequenced and carefully designed policy package is needed to promote durable, effective, and equitable reforms with limited or positive macroeconomic impacts. - Preparation steps include detailed policy analysis, complementary measures to protect vulnerable households, enhanced accessibility to alternatives to fossil fuels, and promotion of financial flows. - Role of IMF: available to support authorities through training on analytical tools (such as CPAT) and dedicated capacity development. - Emissions pricing considerations: - Generates substantial fiscal benefits with limited economic impacts, but given recent energy price increases, it is a medium-term priority. - Requires decisions on pricing level, sectoral and fuel coverage, and social protection response based on granular understanding of affected firms, households, and regions. - Recommended implementation approach: - Introduce at a time of strong macroeconomic conditions and low international fuel prices. - Start with a low price that gradually increases. - Strengthen social protection targeting and delivery, improve non-energy emissions measurement, and increase availability of low-carbon alternatives (reliable on-grid electricity and off-grid solutions). - Public communication strategies on reform rationale, stakeholder engagement, and transparent use of revenue (including targeted compensation). - Emissions-intensity pricing and non-pricing instruments can serve as interim measures before full emissions pricing implementation. *Source: Extracted from the IMF chapter titled "18. Adaptation is most effective when integrated into development planning, and priority" (selected-issues paper).* ### 31. Emissions-intensity pricing and standards may be most appropriate for select sectors ### 31. Emissions-intensity pricing and standards may be most appropriate for select sectors ### Suitability of emissions-intensity pricing versus broad emissions pricing - Emissions-intensity pricing or partial exemptions may be more appropriate for emissions-intensive sectors that compete against foreign producers (examples given: oil, gas, and fertilizers) because cost increases under emissions pricing can lead to a loss in competitiveness and worsen the balance of payments in the absence of international coordination. - Jurisdictions using emissions-intensity pricing or partial exemptions cited in the text: Australia, Canada (emissions-intensity pricing); the EU, South Africa (partial exemptions). - Emissions pricing is present in some comparable cases: Mauritania, Ghana, Chile. - In some sectors (unspecified), emissions-intensity pricing could be implemented in the near term; in other sectors such as forestry, agriculture, oil, and gas, preliminary measures would be required to improve property rights, enforcement, and measurement. - The case for pricing policies is weaker in the waste sector given a lack of variation in abatement activities across the sector (example activities: collection and flaring of methane or waste to power). - Emissions-intensity pricing can also be a long-term complement to emissions pricing (examples: China, Ghana, the EU) if political acceptability and competitiveness concerns limit the stringency of emissions pricing. - Efficiency note (footnote 13): The efficiency benefits of emissions pricing increase when the cost and specific activities to reduce emissions vary across firms/households in a sector since emissions pricing allows emitters to choose the composition and amount of mitigation activities, while regulatory policies force emitters to take specific actions. ### Near-term policy options and sectoral measures - Apply emissions-intensity pricing where administration is feasible (vehicles, power generation). - Agriculture and forestry: a mix of policies could partially address emissions, including - finalization of carbon credits legislation, - a tax on unsustainably produced timber, - strengthened enforcement of forest protection, - promotion of climate smart agricultural practices, - continuation of tax expenditures (and emissions-pricing exemption) on LPG to support clean cooking fuels. - Waste sector: implement packaging and bottle deposit-refund systems to divert waste to formal landfills (see Matheson 2019 referenced in the source). - Power sector: deploy initial competitive tenders for renewable energy coupled with guarantees and land tenure arrangements to reduce offtake, land, and foreign exchange risk and thereby increase renewable energy investment. ### Financing, incentives, and complementary policies - Facilitating both private and concessional financing is crucial to reduce the cost of emissions reductions and promote green growth. - Emissions and emissions-intensity pricing provide price signals to direct private capital to low carbon activities, but complementary policies are needed: - High-quality climate data, such as green taxonomies, to help investors make informed decisions and increase green bond issuance. - General improvements in macroeconomic conditions and deepening of domestic credit markets to reduce capital costs, which is important given the relatively high upfront cost of green technologies. - Power sector-specific barriers (examples): electricity purchasers with poor credit and long payback periods—responses include blended finance to help derisk investment, well-designed auctions to grant power purchase agreements, and additional measures. - Public spending priorities for reducing emissions: - Generally limited to public goods (example: associated infrastructure), - mitigating impacts for vulnerable households, - projects with high developmental co-benefits (examples: electricity access and clean cooking fuels). - Emissions pricing revenue should largely remain available for general development spending after funding the above priorities. ### Cross-cutting implementation considerations - Administrative feasibility determines where emissions-intensity pricing is practical in the near term (explicitly noted: vehicles, power generation). - For sectors requiring preliminary institutional work (forestry, agriculture, oil, and gas), focus on property rights, enforcement, and measurement improvements before full pricing approaches. - Use of guarantees, tenure clarity, and tender design to reduce specific investment risks (offtake, land, foreign exchange) in renewable energy deployment. *Source: International Monetary Fund — Nigeria chapter (provided content).* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025097-source-pdf.pdf_