Petrol price increase and reduced consumption in Nigeria: Implications for GHG emissions

Introduction

Nigeria has made some commitments in the international discussions on reducing global emissions. For instance, with the Nationally Determined Contribution (NDC) to emission reduction, the country committed to reducing emissions by 20% without support, and 47% with support.

However, since May 29, 2023, Nigeria increased pump prices of Petroleum Motor Spirit (PMS) also called petrol. This is the commonest source of energy for vehicles in the country. The idea is to stop the subsidisation of PMS. Since then, the president of Nigeria has stated that money has been saved.

There are however several things that may not yet be known. For instance, the possible reduction in emissions because of the reduction in volume of PMS consumed. There may also be areas of possible other sources of energy that may have increased because of the fuel price increase. In addition, there may externalities arising as a result of the increase in fuel prices.

The objective of this paper is to address the above identified areas lacking in clarity of knowledge. Most importantly however, is to establish the likely effect the changed prices of PMS prices may have on emissions of Greenhouse Gases (GHG).

To be able to do this, a very short-term appraisal has been done. Dat for tis were sourced from what is commonly available in the public space. These have been subjected to simple analysis using existing knowledge on relationship between PMS and emission implications.

Task

Estimate the GHG/emission reduction implication of reduced petrol consumption due to fuel price increase in the last two months.

Solution

• Reuters: Nigeria’s average daily petrol consumption has fallen by 28% since President Bola Tinubu scrapped a popular but costly subsidy on the fuel at the end of May, as per data from the industry regulator. https://www.reuters.com/world/africa/nigerias-petrol-use-down-28-after-subsidy-scrapped-regulator-says-2023-07-06/
• Sahara Reporters: Another source mentions that the fuel consumption in Nigeria fell from 67 million to 48 million litres daily after the subsidy removal. https://saharareporters.com/2023/07/10/fuel-consumption-nigeria-falls-67million-48million-litres-daily-after-subsidy-removal

Using this data, let’s calculate the GHG emission reduction:

1. Determine the Reduction in Petrol Consumption:
   • Before the subsidy removal: 67 million litres/day
   • After the subsidy removal: 48 million litres/day
   • Reduction: 19 million litres/day
2. Calculate GHG Emissions from Petrol Consumption:
   • GHG emission reduction per day = 19 million litres x 2.31 kg CO2/litre = 43.89 million kg CO2/day
   • For two months (assuming 60 days): 43.89 million kg/day x 60 days = 2,633.4 million kg CO2 or 2.63 million tonnes CO2
3. Sensitivity Analysis:
   • If we assume a range of reduction in consumption due to price increase, say between 20% to 35% (with 28% being the observed value), we can calculate the potential emission reduction for these scenarios as well.
4. Possible Sources of Increases in Emissionsand Externalities remain the same as mentioned in the previous response.

Sensitivity Analysis

Baseline Data

• Before the subsidy removal: 67 million litres/day
• GHG emission factor for petrol: 2.31 kg CO2/litre

Scenarios

1. 20% reduction in consumption
2. 25% reduction in consumption
3. 28% reduction in consumption (observed value)
4. 30% reduction in consumption
5. 35% reduction in consumption

Summary

• 20% reduction leads to 1.86 million tonnes CO2 reduction over two months.
• 25% reduction leads to 2.32 million tonnes CO2 reduction over two months.
• 28% reduction (observed) leads to 2.63 million tonnes CO2 reduction over two months.
• 30% reduction leads to 2.79 million tonnes CO2 reduction over two months.
• 35% reduction leads to 3.25 million tonnes CO2 reduction over two months.

1. Money Saved by the Government: The removal of fuel subsidies means the government no longer has to bear the cost difference between the market price and the subsidised price of petrol. This can lead to significant savings, especially in a country like Nigeria where fuel subsidies have historically been a major expenditure. The exact amount saved would depend on the previous subsidy amount per litre and the reduction in consumption. If the government reallocates these savings towards sustainable infrastructure, renewable energy projects, or public transportation, it could further reduce GHG emissions in the long run. However, if the savings are not used efficiently, the environmental benefits might be minimal.

Fuel Subsidy in Nigeria:

• The fuel subsidy has been in place since the 1970s, with the government selling petrol to Nigerians at below cost to minimise the impact of global oil prices.
• In the past eight years (2015-2023), subsidy payments amounted to about N11.4 trillion.
• In the 2023 budget, the Nigerian government budgeted N3.6 trillion for petrol subsidy for six months ending in June, translating to roughly N560 billion every month.

Removal of Subsidy

• President Tinubu announced the total removal of the fuel subsidy, leading to a more than 200% increase in the pump price of petrol from N189 per litre to between N480 and N570 per litre.
• The government plans to re-channel the funds into better investment in public infrastructure, education, healthcare, and jobs.

Calculation of Money Saved

• Using the budgeted amount for 2023, the government was spending N560 billion every month on petrol subsidy.
• With the removal of the subsidy, the savings for the last two months would be:
  • N560 billion/month x 2 months = N1.12 trillion (approximately $2.8 billion)

2. Possible Sources of Increases in Emissions:
   • Alternative Fuels: There’s a possibility that people might switch to other fuels that might be dirtier or less efficient than petrol, especially if they are cheaper or more readily available.
   • Increased Energy Demand: If electricity becomes unreliable due to increased demand (as people might use more electric appliances to compensate for reduced mobility), there might be an increased use of diesel generators, leading to more emissions.
   • Transportation: If public transportation isn’t robust or becomes more expensive due to the fuel price increase, people might rely more on personal vehicles, leading to increased emissions.
3. Externalities as a Result of the Increase in Fuel Prices:
   • Economic Impact: The removal of fuel subsidies can lead to inflation, affecting the cost of goods and services. This can have a cascading effect on the economy, leading to increased prices for essential goods, transportation, and services.
   • Social Impact: There might be public unrest or protests if the removal of the subsidy is perceived negatively, especially if it leads to a significant increase in the cost of living.
   • Transportation: As mentioned, increased fuel prices can lead to higher transportation costs, which can affect the cost of goods and services.
   • Alternative Energy: On the positive side, the removal of subsidies might push more people to consider alternative and renewable energy sources. This could lead to increased investments in solar, wind, and other renewable sources, which would be a positive externality in the long run.

By Chinedum Nwajiuba, Nigerian Environment Study Action Team (NEST), Ibadan, Nigeria (chnwajiuba@yahoo.de) and Chukwuemeka Emenekwe, Department of Economics, Alex Ekwueme Federal University Ndufu-Alike, Ebonyi State (emenekwe.c@gmail.com)