Carbon credit and carbon tax: Other sources of Revenue for Nigeria

Emissions that aren’t with the production of industrial and consumer goods should be taxed.

A carbon tax is one of the tool government used to check climate change. The two is emission and offset trading system (that encourage carbon credit). Government intervention is a tool to fight climate change. The government uses two methods as discussed below to put climate change in a check (Carbon Emission Accounting and Economic Growth in Nigeria).

1). QUANTITY-BASED

The Quantity-based measures depend on regulations to check climate change. The quantity-based measures are called emission and offset trading systems or cap and trade. Quantity-based measures are the most common interventions by any government.

In quantity-based believes that each country/company is assigned a fixed amount of carbon emissions which is a cap/limit by the government, measured in carbon credits. When a company emits less than permitted emissions, it can sell the rest to companies that are unable to reduce their emissions level.  This method can earn companies that are meeting up with a cap limit by the government, huge revenue.

Government through the agency(NESREA ) reduces the emission caps each year to set a new pollution target and allocate new emission limits to industries. This way, companies are forced to seek other ways to meet their energy needs, thereby embracing green technology. The carbon credits of a company are rights for emission. Each unit gives the right to emit one metric tonne of CO2.

A carbon credit is a permit that allows the company that holds it to emit a certain amount of carbon dioxide or other greenhouse gases. On the 9th June 2021,  at the 2021 Nigeria International Petroleum Summit (NIPS) held in Abuja, it was reported that Nigeria recorded its first proceed from carbon from the partnership of Nigerian National Petroleum Corporation and TotalEnergies.

2). PRICE-BASED

Price-based talk about carbon taxes. A carbon tax is a levy on the carbon content of fuels used. Carbon tax a tax paid on the emission of carbon (CO2) into the atmosphere by any organisation. It is a form of carbon pricing that offers a double dividend. By double dividend, it means revenue generation and behavioural change. The double dividend in the sense that as government generate revenue at the same time bring about behavioural change among the polluters. 

Carbon is present in every hydrocarbon fuel (coal, petroleum and natural gas) and is released as carbon dioxide (CO2) when they are burnt. Hydrocarbons are released into the air when volatile fuels evaporate from storage tanks. They are also found in the exhaust of motor vehicles when fuel is burnt incompletely. If not control they can cause cancer and lead to the formation of photochemical smog (otherwise called Soot “black soot” as we currently experienced around Port Harcourt, Nigeria and its environs). In contrast, non-combustion energy sources—wind, sunlight, hydropower, and nuclear—do not convert hydrocarbons to CO2. CO2 is a heat-trapping “greenhouse” gas. 

The reason carbon tax is overdue in Nigeria is that it will internalize the externality. What this means is that the final price of the good should include the social cost and not just the private cost. It is similar to the ‘polluter pays principle. 

The ‘polluter pays principle is the commonly accepted practise that those who produce pollution should bear the costs of managing it to prevent damage to human health or the environment. The polluter-pays principle was incorporated into international law at the 1992 Rio Summit. 

A number of countries have implemented carbon taxes or energy taxes that are related to carbon content but Nigeria is still lacking behind. South Africa for example has developed a robust carbon tax system since 2016. The aim is to reduce greenhouse gas (GHG) emissions from key sectors such as mining, transportation and agriculture and to achieve sustainable development. Sadly, other African countries have failed in this regard. If a carbon tax is to be successful in your country, then one must embrace the efficiency that follows. 

Some countries that have implemented carbon tax or energy tax are: 

  • South Africa; 
  • Columbia;
  • Denmark;
  • Japan; 
  • Mexico; 
  • Finland;
  • Germany; 
  • Chile; 
  • France; 
  • Canada;
  • Iceland;
  • Costa Rica; 
  • Ireland;
  • Italy;
  • The Netherland; 
  • Norway;
  • Slovenia; 
  • Sweden;
  • Switzerland, and the 
  • United Kingdom etc

DIFFERENCE BETWEEN CARBON TAX AND CARBON CREDIT (CAP & TRADE SYSTEM)

Carbon tax does not guarantee decreased carbon emissions but focuses on revenue generation, while carbon credit (cap and trade) system helps to sets emission limits.

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