Domestic sources of funding for climate action in Nigeria, By Ibrahim A. Shelleng

Local weather change presents a worldwide disaster that disproportionately impacts growing international locations, akin to Nigeria. Lower than a 12 months in the past, giant areas of Nigeria confronted crucial humanitarian challenges, resulting in a number of deaths, widespread public well being points, meals shortages, and vital inner displacement. These unfamiliar with Nigeria may mistakenly consider that these issues stemmed from inner battle. In actuality, they had been attributable to devastating floods in a number of states. Benue, Borno, and Jigawa states suffered vital flooding, worsened by local weather change, which claimed lives and destroyed properties.

Though state and federal emergency response groups managed to alleviate some rapid results of the catastrophe, the long-term socio-economic injury and the necessity for preventive measures typically go neglected. The state, hindered by insufficient monetary assets and a discount in productive output attributable to the catastrophe, struggles to afford the capital wanted to develop the infrastructure required to stop future occurrences. Though there are world efforts to safe worldwide financing to deal with these points, the method can take time. Within the interim, native communities endure the every day penalties of local weather change and shouldn’t have the luxurious of time to attend for worldwide assist.

As a nation extremely weak to the impacts of local weather change, Nigeria faces a urgent want for substantial monetary assets to implement efficient mitigation and adaptation measures. Whereas worldwide local weather finance is crucial, it’s typically topic to bureaucratic hurdles, conditionalities, and political fluctuations (as is obvious with the current withdrawal of funding from USAID and comparable entities). Furthermore, relying solely on exterior help can foster dependency and hinder the event of indigenous options. Due to this fact, it’s crucial that Nigeria begins to look inwards to harness home assets for local weather motion. Nonetheless, it have to be harassed that the aim of this text is to not diminish the significance of international funding, as that is crucial in assembly the nation’s local weather ambitions, however somewhat to focus on the significance of making the suitable home setting to assist scale local weather finance mobilisation.

Why Home Local weather Financing Issues

I just lately accomplished a UN course on scaling local weather finance and attended the Finance in Frequent Summit held in Cape City, South Africa and the consensus was that home financing is the cornerstone of sustainable local weather motion. Consider it metaphorically because the stable basis wanted for a building challenge. Home financing will help to catalyse funding from worldwide sources. For instance, if the federal government is seen to be spending a part of its budgetary allocation on local weather adaptation tasks akin to coastal defences or flood prevention, it supplies alerts to worldwide funders as to areas that the federal government is prioritising and will assist to crowd in additional investments both by means of non-public investments, multilateral funding or public-private partnerships (PPPs). If the latter mannequin is used, authorities funds might act as a “de-risking” software by offering first loss ensures to personal buyers or by funding the riskier features of the enterprise akin to exploration and feasibility research or different upstream improvement features of a possible challenge. It will present better consolation to personal and exterior buyers, make tasks extra bankable and help the mobilisation of funding.

Home financing reduces dependency on risky exterior funding, fosters native possession of local weather initiatives, and strengthens the resilience of nationwide establishments. The Renewed Hope agenda of President Bola Ahmed Tinubu’s administration has seen the nation take daring steps in stabilising the alternate price and managing a ballooning international debt profile inherited from the earlier authorities. To keep up this trajectory, there’s a have to harness home sources of funding that don’t additional expose the nation to international foreign money (FX) danger. The complexities of accessing world local weather finance, coupled with stringent circumstances and bureaucratic bottlenecks, make it important to prioritize native options.

Furthermore, investing in local weather resilience has financial advantages. Research present that each greenback spent on adaptation can yield as much as ten {dollars} in averted prices, akin to catastrophe restoration and financial losses. Mobilising home funding ensures that Nigeria not solely mitigates the results of local weather change but in addition reaps the dividends of a greener financial system. It stimulates the native financial system by means of job creation and elevated native innovation. Nigerians have a number of the brightest minds which have proven exceptional expertise in creating native options.

Potential Home Sources of Local weather Finance

With funding wanted in different crucial improvement sectors of the nation akin to healthcare, training and social welfare, and the constrained fiscal setting, it begs the query, the place is that this home funding going to return from? Nonetheless, there are a number of choices:

Public Sector Finances Allocations

The annual finances is among the most important instruments of presidency that alerts of intent and course for the 12 months. At the moment, budgetary allocations for environmental and climate-related actions stay inadequate and as a nation, there must be extra precedence to funding local weather motion in annual budgets. Within the just lately signed 2025 Appropriation Act, the Ministry of Setting (and its numerous companies) had been allotted a finances of N164 billion (USD$109 million approx.). Contemplating that Nigeria wants a minimal of USD$20 billion (N30 trillion approx.) yearly to deal with local weather change, growing funding for ministries, departments, and companies (MDAs) accountable for local weather motion, such because the Federal Ministry of Setting, is crucial. States and native governments also needs to dedicate parts of their budgets to deal with region-specific local weather challenges. This will likely appear misaligned because of a number of socio-economic components confronted within the nation, however spending on local weather change has a number of, cross-cutting advantages to the nation and will assist enhance international direct funding (FDI) and gross home product (GDP). Alternatively, there are MDAs which are at the moment spending on climate-related actions, however these should not being adequately captured to point out the true image of home spending on climate-related actions. The answer to this could be finances tagging of climate-related expenditure, with inexperienced taxonomies expressly acknowledged within the medium-term expenditure framework (MTEF).

Sovereign Inexperienced Bonds

Nigeria’s issuance of sovereign inexperienced bonds in 2017 and 2019 demonstrates its potential to lift climate-focused funds domestically. These bonds, which finance environmentally pleasant and local weather change associated tasks, have been profitable in mobilizing assets for renewable vitality, afforestation, and different initiatives. Though, it have to be talked about that each inexperienced bonds beforehand issued, generated losses for the federal government largely because of insufficient challenge pipelines. Nonetheless, increasing the dimensions and frequency of inexperienced bond issuances can present a gradual stream of funding for local weather tasks. Final 12 months, the Honourable Minister of Setting introduced plans for Nigeria to subject USD$250 million (N375 billion approx.) sovereign inexperienced bonds. The potential draw back is that it provides to the nation’s debt obligations and with out the suitable tasks lined as much as take up the funding, the nation takes the monetary hit for non-performance of the bond proceeds.

Sovereign Wealth Fund (SWF) Investments

The Nigeria Sovereign Funding Authority (NSIA) can allocate a portion of its funds to climate-related investments, selling sustainable improvement and producing long-term returns. Each the Infrastructure Fund and Future Generations Fund are primed for investments in local weather motion given their mandates and funding targets.

Taxation and Levies

That is an possibility that won’t be too fashionable, however introducing or reforming climate-related taxes and levies can generate vital income. Taxes and levies have by no means been fashionable even from biblical instances! Nonetheless, they’re one of many ways in which authorities can elevate income. For instance:

Carbon Tax: Implementing a carbon tax on industries with excessive greenhouse gasoline emissions can incentivise cleaner manufacturing strategies whereas producing funds for local weather motion tasks. There have been some efforts at addressing this through the Nigerian Carbon Market Activation Plan (NCMAP), the place I function Secretary.
Plastic Waste Levy: A levy on single-use plastics can cut back air pollution and fund waste administration and recycling packages. These levies might simply be carried out at native authorities degree and while it could not eradicate its use, it could result in a major discount in use or better use of other and extra sustainable merchandise.
Gas Taxes: Revising gasoline taxes to mirror the environmental value of fossil fuels can encourage the adoption of cleaner vitality sources, though might not be probably the most politically pleasant resolution given the present scenario within the nation and never lengthy after the elimination of gasoline subsidies.

Shifting swiftly on…

Public-Non-public Partnerships (PPPs)

Partaking the non-public sector is essential for scaling up local weather finance. PPPs might be leveraged to fund renewable vitality tasks, construct climate-resilient infrastructure, and assist sustainable agriculture. The federal government can create incentives akin to tax breaks, ensures, grants, and concessional loans to encourage non-public sector participation.

Monetary Establishments

Nigeria’s banking and monetary sector has a job to play in driving local weather finance. Insurance policies mandating business banks to allocate a share of their mortgage portfolios to inexperienced tasks can stimulate investments in renewable vitality, vitality effectivity, and climate-smart agriculture. Moreover, specialised monetary devices, akin to inexperienced loans and local weather insurance coverage, might be developed to assist weak communities and companies. The Securities and Trade Fee (SEC) might promote greener and sustainability funds by reducing the capital necessities and waiving sure charges. It might additionally mandate a share allocation of funds in direction of sustainability linked securities.

Philanthropy and Neighborhood Contributions

Nigerian philanthropists and community-based organisations can contribute to local weather finance. Rich people, company foundations, and diaspora networks can channel funds towards adaptation initiatives, akin to water conservation, reforestation, and catastrophe preparedness.

Success Tales and Alternatives

Nigeria already has examples of profitable home local weather financing initiatives. The Inexperienced Bond Program funded tasks like photo voltaic mini-grids and reforestation, demonstrating the potential of modern financing mechanisms. Entry Corp issued the primary company inexperienced bond in Nigeria, which was used to fund vitality effectivity, flood defence, and renewable vitality. Different corporates additionally floated inexperienced bonds together with North South Energy Firm Ltd (Issued a N8.5 billion, 15-year, 15.60 per cent Collection One Assured Mounted Charge Senior Inexperienced Infrastructure Bond in 2019), and OnewattSolar, which issued a seven-year $25 million inexperienced bond/Sukuk programme.

There are quite a few alternatives in sectors like renewable vitality, the place Nigeria has immense untapped potential. By creating beneficial funding circumstances, the nation can entice home buyers to develop photo voltaic farms, wind tasks, and hydropower vegetation. Agriculture, one other crucial sector, can profit from funding for climate-smart practices, akin to agroforestry and improved irrigation programs. Waste-to-energy programs, marine and blue financial system, healthcare and business are all sectors that might faucet into local weather finance.

Challenges and Mitigation Measures

Whereas the potential for home local weather finance is critical, a number of challenges have to be addressed:

Restricted Fiscal Area: As talked about earlier, competing priorities and income constraints hinder budgetary allocations for local weather motion, therefore the overreliance on exterior funding. Nonetheless, increasing the tax base, curbing leakages and catalysing extra non-public sector participation can improve accessible assets, while encouraging elevated allocation of public spending in direction of local weather motion.

Lack of Consciousness: Many stakeholders are unaware of the advantages of local weather finance (therefore my motivation for writing the current articles). There must be a paradigm shift in understanding local weather finance. It isn’t merely an environmental subject however an financial one and local weather finance might be utilised to diversify the financial system, create jobs, while additionally addressing crucial infrastructure challenges. This duty doesn’t solely relaxation on authorities but in addition non-government actors.

Institutional Capability: Strengthening the capability of presidency companies and monetary establishments is crucial for efficient fund utilisation. There have been a sequence of capability constructing workshops hosted by the Nationwide Council on Local weather Change (NCCC) secretariat in addition to different authorities MDAs and improvement companies. Nonetheless, these are largely focused on the Federal degree actors. Extra is required at sub-national degree, to strengthen challenge pipeline technology.

Time to Look Inwards

Nigeria’s local weather resilience hinges on its skill to mobilise home and worldwide assets to construct a sustainable future. Home funding sources present the stable basis that the nation must scale its local weather financing ambitions. By embracing modern financing mechanisms, fostering non-public sector engagement, and empowering native communities, Nigeria can successfully deal with the challenges of local weather change and mobilise better worldwide funding.

It’s crucial for all stakeholders – authorities, non-public sector, civil society, and people – to work collectively to unlock the potential of home funding and construct a climate-resilient Nigeria. This requires a collective dedication to:

Prioritise local weather motion in nationwide improvement plans and budgets.
Promote transparency and accountability within the administration of local weather funds.
Put money into capability constructing and data sharing.
Foster innovation and entrepreneurship in climate-friendly applied sciences and options.
Improve Public consciousness and participation.

By trying inwards and harnessing its home assets, Nigeria can set the tempo for better mobilisation of local weather funding and create a sustainable mannequin for the nation’s improvement.

Ibrahim A. Shelleng is senior particular assistant to the President on Local weather Finance and Stakeholder Engagement. He’s additionally the secretary of the Intergovernmental Committee on Nationwide Carbon Market Activation Plan (NCMAP) and serves as a member of the Presidential Committee on Local weather Motion and Inexperienced Financial Options, in addition to the Presidential Steering Committee on Undertaking Evergreen.