Mandating Low Carbon Emissions for Oil Licenses: A Step Towards Sustainability

CONTRIBUTOR: CHINWENDU OKOSA

INTRODUCTION

It is no gainsaying that the increased activity of humans on Earth, particularly in the energy sector, has had a ripple effect on the planet, sparking debates about the continued existence of the human species. Reports indicate that without significant intervention, global temperatures could rise beyond 1.5°C, leading to catastrophic consequences by 2070^[1] due to global warming, disruption in the Earth’s ecosystem, and ocean acidification, the direct consequences of human occupation on Earth.^[2] Oil production, a cornerstone of modern economies, is a significant contributor to greenhouse gas emissions.^[3] Various nations of the world have employed methods and mechanisms to ensure the reduction of these greenhouse gas emissions, thereby ensuring that the environment is safe for all to live in.

Nigeria, no doubt, has keyed into this lofty initiative. As a major economy in Africa and a major exporter of oil, which is over 90% of her exports^[4], the country has made great moves to ensure that the oil production activities of her refineries do not contribute to the exacerbated issue of climate change. To that end, the Federal Government of Nigeria, through the Ministry of Petroleum and Interior, has mandated that all companies seeking to engage in oil production activities in the country obtain an oil license from the government, stipulating their commitment towards ensuring the reduction in carbon emissions to the environment.^[5] It reflects Nigeria’s commitment to balancing its economic dependence on oil with environmental responsibilities. It is against this background that this study seeks to analyse and appraise the policy framework behind the issuance of oil licenses to oil companies in Nigeria, its benefits and challenges towards the actualization of this goal. The work seeks to explore the implications of the policy for the oil and gas industry, its alignment with global climate goals, and potential challenges in implementation. It also examines the economic, environmental, and regulatory impacts of integrating sustainability into licensing requirements. It is believed that this study would contribute to the ever-increasing literature on the subject and would proffer viable recommendations for a sustainable environment.

DEFINITION OF TERMS

Carbon Emissions

Carbon emissions, primarily in the form of carbon dioxide (CO₂) and methane (CH₄), are greenhouse gases released into the atmosphere as a result of human activities. These emissions are the leading drivers of global climate change, contributing to rising temperatures, extreme weather events, sea-level rise, and ecosystem disruption.^[6] Sources of carbon emissions are burning of fossil fuels for electricity and heat, emissions from vehicles and planes as well as methane emissions from rice cultivations, livestock digestion and fertilizer use. Globally, carbon emissions have risen sharply since the Industrial Revolution, with 2022 seeing approximately 36.8 billion metric tons of CO₂ emitted from fossil fuels alone, according to the Global Carbon Project.^[7] The consequences of this are profound, which has sparked various international treaties and agreements being carried out to ensure that the effects of these emissions do not pose a more direct threat to human existence.^[8] Although Nigeria’s contribution to carbon emissions globally is relatively low, approximately 0.4% of global CO₂ emissions, or about 120 million metric tons annually, based on data up to 2023^[9], this is expected to rise in the coming years, raising major concerns about her policy stance on climate change.

Oil Licenses

Oil licenses, also known as petroleum licenses or exploration and production licenses, are legal agreements granted by governments to companies, allowing them to explore, develop, and produce oil and gas resources within a specified geographic area. These licenses are critical in the oil and gas industry, as they define the rights, obligations, and operational scope of companies in upstream activities (exploration and production).^[10] Oil licenses are typically awarded through competitive bidding, direct negotiations, or a combination of both, depending on the country’s regulatory framework.

The primary purpose of an oil license is to regulate the extraction of non-renewable resources while ensuring that the host government receives economic benefits, such as royalties, taxes, and production shares. Licenses also impose environmental, safety, and operational standards to minimize ecological damage and ensure sustainable practices.^[11] The inception of the Petroleum Industrial Act 2021 marked a significant reform, aiming to modernize the licensing process, enhance transparency, and attract investment.^[12]

ANALYSING THE BENEFITS OF OIL LICENSES IN NIGERIA’S DRIVE TO CLIMATE SUSTAINABILITY

The issuance of oil licenses in Nigeria can serve as a tool for economic and climate sustainability, particularly when aligned with strategic policies to mitigate carbon emissions. These benefits are:

1. Revenue Generation and Economic Growth: Since oil is the major product exported by Nigeria, issuing oil licenses attracts investment, boosting foreign exchange reserves and funding infrastructure, education, and healthcare. The Petroleum Industry Act (PIA) 2021 reforms aim to enhance transparency and attract investment.
2. Energy Security and Domestic Supply: Licenses ensure continued crude oil and gas production, supporting domestic refineries like the Dangote Refinery, which can produce 650,000 barrels per day. This reduces reliance on imported refined products, saving foreign exchange and stabilizing fuel prices. The Domestic Crude Supply Obligation (DCSO) under the PIA ensures refineries have access to crude, enhancing energy security.
3. Gas Flaring Reduction: The NGFCP and Midstream Gas Flare Regulations 2023 aim to curb gas flaring, which wasted 6.6 billion cubic meters of gas in 2021 (14% of output). Reducing flaring lowers CO2 and methane emissions while improving air quality and public health in the Niger Delta. Nigeria’s commitment to the World Bank’s Zero Routine Flaring by 2030 initiative, reinforced through licensing conditions, supports decarbonization.^[13]
4. Carbon Emission Mitigation through Policy: The Climate Change Act 2021, supported by licensing regulations, mandates carbon taxes and trading, incentivising low-carbon operations.^[14] Ending fuel subsidies in 2023 has reduced daily fuel usage by 30%, conserving an estimated 15 million tonnes of CO2 annually, contributing to Nigeria’s Paris Agreement commitments.^[15]

CHALLENGES TO THE ACTUALIZATION OF NIGERIA’S SUSTAINABILITY PLAN

Nigeria’s plan to mandate low-carbon emissions for oil licenses, as part of its broader climate change strategy, is a critical step toward sustainability. However, these futuristic plans are met with various obstacles aimed at potentially affecting the implementation and enforcement of these goals. These challenges are:

1. Incompetent Regulatory and Institutional Compliance: The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and other agencies tasked with enforcing low-carbon mandates often lack the technical expertise, funding, and manpower to monitor compliance across numerous oil fields. For instance, while over 70% of operators have submitted greenhouse gas (GHG) emissions plans, verifying and enforcing these plans is resource-intensive.
2. High Cost of Compliance: Mandating low-carbon standards increases operational costs, which could deter international oil companies (IOCs) from bidding on licenses. Countries with less stringent regulations may attract more investment, reducing Nigeria’s competitiveness in the global oil market. Also, while global financial institutions are shifting toward sustainable investments, Nigerian operators face challenges accessing affordable green loans or carbon credits due to high country risk ratings and bureaucratic hurdles.
3. Lack of Infrastructural Development to Cater for Developmental Needs: The seeming lack of development in the Nigerian Infrastructural and technological space, coupled with Nigeria’s lacklustre pace in ensuring it engages in noteworthy developmental plans, has its effects on the implementation and enforcement of Nigeria’s sustainability plan.

CONCLUSION

The Nigerian 2060 Sustainability Plan is an achievable one, with increasing benefits for the Nigerian economy as it plays a major role in ensuring that carbon and industrial waste, which constitute greenhouse gases, do not adversely affect the Earth’s atmosphere. An increase in Nigerian economic growth and better energy supply are the benefits Nigeria stands to reap if it ensures the implementation of this policy. However, these benefits and their reach to Nigeria are further compounded by some clogs, which hamper Nigeria’s economic growth. It is recommended that active steps be taken to ensure the implementation and enforcement of this policy, and relevant stakeholders should be carried along in a bid to guarantee the continued existence of this policy. This way, the future of the Nigerian Sustainability Plan is strengthened, promising better prospects for the Nigerian economy and the world at large.

REFERENCE

1. M Huang, ‘Achieving Paris Agreement Temperature Goals requires Carbon Neutrality by Middle Century with far-reaching Transitions in the Whole Society’ <http://sciencedirect.com/science/article/pii/S1674927821000435> accessed 23 April 2025. ↑

2. Kangyin Dorg, ‘Determinants of the global and regional CO₂ emissions: What causes what and where?’, [2019] (51) Journal of Applied Economics, 22. ↑

3. Ibid. ↑

4. National Bureau of Statistics, ‘Foreign Trade in Goods Statistics (Q1 2024)’, <https://www.nigerianstat.gov.ng/elibrary/read/1241511#:~:text=Exports%20trade%20in%20the%20first,778.85%20billion%20or%209.28%25%20of> accessed 23 April 2025. ↑

5. Part II of the Petroleum Industry Act 2021. ↑

6. United Nations, ‘Caused and Effects of Climate Change’, <https://www.un.org/en/climatechange/science/causes-effects-climate-change#:~:text=As%20greenhouse%20gas%20emissions%20blanket,the%20usual%20balance%20of%20nature> accessed 23 April 2025. ↑

7. IEA, ‘CO2 Emissions in 2022’, <https://www.iea.org/reports/co2-emissions-in-2022> accessed 23 April 2025. ↑

8. IEA, ‘CO2 Emissions in 2022’, https://www.iea.org/reports/co2-emissions-in-2022 accessed 23 April 2025. ↑

9. The World Bank, ‘Assessing Low-Carbon Development in Nigeria: An Analysis of Four Sectors’, <https://documents1.worldbank.org/curated/en/333931468332952975/pdf/Assessing-low-carbon-development-in-Nigeria-an-analysis-of-four-sectors.pdf> accessed 23 April 2025.. ↑

10. KW Dam, ‘Oil and Gas Licensing and the North Sea’, [1965] (8) The University of Chicago Press Journals, 137. ↑

11. Ibid. ↑

12. Part I, Section 2 of the Petroleum Industry Act 2021. ↑

13. World Bank, ‘Zero Routine Flaring (ZRF) by 2030 Initiative’, <https://www.worldbank.org/en/programs/zero-routine-flaring-by-2030/about> accessed 23 April 2025. ↑

14. Part VI, Section 24 of the Act. ↑

15. SN Okoroafor, ‘Fuel Subsidy Removal: Implications on the Nigerian Economy’, <https://link.springer.com/chapter/10.1007/978-3-031-83165-2_5#citeas> accessed 23 April 2025. ↑