‘Fuel subsidy removal advances climate-resilient development, energy transition reforms’

Leaders in environmental sustainability have revealed that fossil fuel subsidy removal by the Federal Government holds the potential to contribute substantively to climate-resilient development and advance the nascent energy transition agenda in the country.

They spoke as guests of honour at the workshop jointly organised by the Centre for Climate Change and Development, Alex Ekwueme Federal University (CCCD, AE-FUNAI) and the Overseas Development Institute (ODI) in London to present findings from a recent report conducted on Nigeria’s subsidy reform and its energy transition agenda, held virtually with stakeholders from across the globe.

The CCCD and ODI reports provided rigorous and evidence-analysis of the fuel subsidy removal that was introduced by President Bola Tinubu on the day he took office on May 29, 2023, and made several recommendations on policies and reforms needed to make the reform more progressive and climate friendly.

The report stated that the subsidy removal would release finance for low-carbon and sustainable development imperatives, but noted that policies need to be put in place to ensure that the gains made from the subsidy are channelled to advancing energy transition objectives.

The report also called for more aggressive policies to cushion the adverse distributional impacts, especially on the most economically vulnerable groups. The report finds that rural and lowest-income households are the worst affected and that lower-income households are vulnerable to an increase in the price of goods.

On the gender disaggregated analysis of the welfare effects, female-headed households are disproportionately affected by energy reforms, and this is consistent both in urban and rural areas.

Vice President (Africa) of the of the Global Legislators Organisation for a Balanced Environment (GLOBE) and sponsor of Nigeria’s Climate Change Act, 2021, Sam Onuigbo, while speaking at the workshop, said Bola Tinubu government deserve commendation for being bold and courageous enough to remove the fuel subsidy.

He acknowledged the current negative economic impact on citizens, particularly those in the lower class of the economy, but insisted that the subsidy was a big weight that needed to be removed to avoid the debt spiral and the collapse of the economy. It will be recalled that, according to figures from the NNPC, Nigeria spent N4.39 trillion ($9.7 billion) on a petrol subsidy in 2022.

Onuigbo noted that allocations to states have significantly increased following the removal of fuel subsidies and argued that it is imperative that those entrusted with the responsibilities of governance at the state level apply these extra resources in a well-focused manner to drive sustainable development goals, including those of energy transition.

He said this should be possible because the Nigerian President also signed the electricity Act into law a few days after assuming office, which removed electricity from the exclusive list and put it on the concurrent list to enable other tiers of government to get involved in the process of energy provision and transitioning away from fossil fuels.

He reiterated the importance of a balanced energy mix in Nigeria’s energy portfolio and the need for effective engagement of the private sector to mobilise the much-needed resources to advance Nigeria on a sustainable path to development.

On his own part, Solomon Maren, recalled that the Nigerian economy was almost grounded when it became difficult to meet its borrowing obligations amidst a porous border, which aided in the smuggling of Premium Motor Spirit (PMS) into neighbouring countries and, of course, corruption.

Maren said that continuous payment of subsidies was a contradiction of the country’s commitment to achieve net zero by 2060. He said several steps can be taken to make the subsidy reform support energy transition and climate action in Nigeria.

He advocated for the introduction of clean cooking at the rural level, including solar-powered stoves, as part of efforts to reduce emissions. He also decried the distribution of buses running on PMS for transportation across the states as part of the strategic plan to alleviate the subsidy effects and called on governments at all levels to embrace electric buses with installed solar panels to recharge their batteries.

Maren further highlighted the need to industrialise Nigeria to reduce the effect of foreign exchange fluctuations on the economy. He celebrated the recently commissioned power project in Aba, Abia State as a shining example of policies that will assist the country in driving effective change through infrastructure development.

In his intervention, the Director, CCCD, Prof Chukwumerije Okereke, said that given that the exploration, production, and consumption of fossil fuels are main sources of greenhouse gas (GHG) emissions in Nigeria, the removal of the subsidy last year could be a major step in reducing fossil fuel-based emissions that are adding to the climate change impact on Nigeria.

He, however, noted that several years of experience from around the world have indicated that while it is important to reform fossil fuel regime subsidies, it is also necessary to do that in a way that is consistent with the broader objective of sustainable development and equity and fairness to ensure that the economically disadvantaged pollutions are not made worse off.