Why is the COP26 Summit Vital for Investors?
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London (CNN Business) -
Should Nigeria's natural riches stay underground?
Africa's largest economy has 206 million people, endemic poverty and huge energy reserves that could be harnessed to drive development.
But it is receiving enormous pressure from developed countries to move away from fossil fuels and switch to renewables in order to help save the climate.
Nigeria is not the only country facing this dilemma.
At the COP26 climate talks in Glasgow, developing economies in Africa, Asia and Latin America are facing increasing pressure to cut carbon emissions as they are industrializing, a process that fueled the advance of the West and lifted billions of people out of poverty.
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At the same time, many poor countries that have so far contributed very little to global CO2 emissions are especially vulnerable to rising temperatures and increased climate change-related droughts, fires and floods, which threaten security. food and aggravate water shortages.
Lagos, Nigeria's largest city, for example, may become uninhabitable by the end of this century if sea levels continue to rise, according to scientific projections.
Right now he is fighting coastal erosion, which makes the city more vulnerable to flooding.
Africa's most populous city battles floods and rising sea levels.
It may soon be uninhabitable, experts warn
However, the average Nigerian citizen emits less than 0.7 metric tons of carbon dioxide per year, according to the World Bank.
Compared to 6.4 metric tons per capita in the European Union and 15.3 metric tons in North America.
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"The biggest justice problem is that the least developed countries are also the most vulnerable and those with the least capacity to adapt to climate impacts," said Amal-Lee Amin, director of climate change at the CDC Group, a British funding institution for the developing.
Experts say that if poor countries are asked to abandon fossil fuel production, their rich counterparts must spend trillions of dollars to develop solutions that stimulate economic development and protect the planet.
If that doesn't happen, the world's poor may be left behind in the energy transition.
Nigerian President Muhammadu Buhari pledged on Tuesday to achieve net zero emissions by 2060, joining other major energy exporters such as Saudi Arabia.
But he also told COP26 attendees that Nigeria needs "adequate and sustained financial and technical support" to meet its goal.
Lagos on May 13, 2020, shortly after the government relaxed lockdown measures for coronavirus.
(Credit: Adekunle Ajayi / NurPhoto via Getty Images)
Untapped resources
Millions of Nigerians do not have access to electricity.
But the government and the economy of the country depend on energy.
Nigeria is Africa's largest oil producer, and fossil fuels account for 60% of government revenue and 90% of foreign exchange earnings.
The Petroleum Industry Law, which Buhari enacted in August, envisions an even greater role for oil and gas in the country's economy.
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"The intention [of the law] is to really transform the sector in order to attract the necessary investment in oil and gas," explained Adewale Ajayi, a partner at KPMG in Lagos.
This means increasing oil production to 4 million barrels per day, up from 1.6 million today, and taking advantage of the country's approximately 200 trillion cubic feet of gas reserves to supply much-needed electricity.
"We have huge gas reserves in Nigeria and we have to be able to harness those resources to develop the country's economy," Ajayi told CNN Business, adding that, in addition to power generation, gas will also be crucial to developing industries such as petrochemicals and fertilizers.
The law also lays the foundation for the development of oil refining capacity, which would allow Nigeria to stop importing virtually all of its fuel at enormous cost.
Energy Poverty in Africa
Sub-Saharan Africa is home to three-quarters of the 760 million people in the world who do not have access to electricity.
The percentages indicate the number of people who have access to electricity in their homes.
Source: World Bank Credit: Byron Manley, Krystina Shveda, Henrik Petterson, CNN.
Change cannot come fast enough in a country where some 90 million people, or more than 40% of the population, do not have access to electricity and more than 80 million live on less than a dollar a day.
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"Nigeria soon, certainly before 2050, will have a larger population than the United States, but it has less than 1% of the electricity generating capacity of this country," said Todd Moss, Executive Director of Energy for Growth Hub, a non-profit organization dedicated to energy for development based in the city of Washington.
The installed power generation capacity in Nigeria is about 13 gigawatts, but only about 4-5 gigawatts reach end users due to transmission and distribution breakdowns.
By comparison, the United States has more than 1,000 gigawatts of commercial-scale power generation capacity.
"Nigeria needs a lot more energy," Moss added.
They can't afford to wait
Nigeria's energy ambitions face a global campaign by banks, pension funds and development finance institutions to limit or completely stop investments in fossil fuels, in line with net zero emissions targets.
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"They are prioritizing global emissions over Africa's development needs," Moss said.
Across sub-Saharan Africa, natural gas projects are "increasingly threatened by a lack of development finance," according to Nigerian Vice President Yemi Osinbajo.
"Efforts to restrict fossil fuel investments in Africa are even harder to digest because many of the rich countries that back them, including Japan, the United Kingdom and the United States, include natural gas in their own multi-decade plans to the transition to clean energy, "Osinbajo wrote recently in Foreign Affairs.
The European Investment Bank will stop financing fossil fuel energy projects from the end of this year, with some exceptions for gas-fired power plants, while the World Bank, the largest provider of climate finance for developing countries, is moving toward restricting its investments in fossil fuels, according to Reuters.
The CDC Group will stop investing in most of the coal, oil and gas industries, based on its recent policy on fossil fuels.
CDC Group will consider investing in gas power when there are "large unmet energy needs" and if these are consistent with a path to net zero energy, according to Amin.
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The measures of these institutions to restrict the financing of fossil fuels come despite the fact that the United Kingdom depends on gas for around two-thirds of its electricity, while the European Union currently has gas projects worth € 87 billion ($ 102 billion), according to a report by the Global Energy Monitor.
In the United States, natural gas accounts for 40% of utility-scale electricity generation, while coal, nuclear power, and renewables contribute about 20% each, according to the US Energy Information Administration. States (EIA).
Solar panels on the roof of a boutique in Lagos, Nigeria.
Like the United States, Europe and the United Kingdom, Nigeria considers renewable energy to play a prominent role, despite its investments in gas power.
The government aims to generate 32 gigawatts of power on the grid by 2030, with 43% renewable energy and 41% gas.
If off-grid capacity is included, gas and renewables will each contribute approximately 30% to the projected 45-gigawatt power generation capacity.
"In Nigeria, clean energy is central to our government's plan for the transition to net zero emissions," continued Osinbajo, the vice president.
"But our citizens cannot be forced to wait for battery prices to drop or to create new technologies to have reliable energy and live a modern and dignified life."
Sub-Saharan Africa is home to three-quarters of the 760 million people who lack access to electricity worldwide, according to the World Bank, which expects that number to rise as a result of the pandemic.
Less than half of the population has access to electricity in their homes.
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In Nigeria, energy poverty is itself a major emissions driver, according to Olu Verheijen, founder of the Lagos-based energy advisory firm Latimer Energy.
Given the scarcity and unreliability of the existing supply, many households and businesses depend on diesel generators for their backup power supply, while the lack of access to modern cooking technologies is a major driver of deforestation.
"If you have huge gas reserves that have already been commercialized, it makes sense to expand that existing infrastructure to meet energy needs, diversify the economy and lift citizens out of poverty," Verheijen said.
Young people work on generators in a workshop in Maiduguri, in northeastern Nigeria.
The potential of renewable energy in Africa
The Nigerian government's Solar Power Naija initiative, which aims to roll out 5 million new solar-powered connections by 2023, highlights how difficult it is to rapidly scale up renewable solutions.
The program will expand access to energy to 25 million people, providing energy to just 28% of Nigerians who currently do not have access.
And while it is a step in the right direction, rooftop solar panels are not necessarily suitable for powering large industrial companies, which require much more electricity than is necessary to power a light bulb or charge a phone.
However, renewable technology is developing rapidly and this can only be beneficial for Africa.
Mark Carrato, who coordinates the United States Agency for International Development (USAID) Power Africa program, sees enormous potential to supply electricity to Africa in a climate-smart way.
Since its launch in 2013, Power Africa has supplied electricity to more than 118 million people on the continent, connecting 25 million homes and businesses to on-grid and off-grid energy solutions.
More than three-quarters of the operations it has closed are based on renewable technologies.
"In almost all cases, project by project you see a renewables solution that is cheaper," he told CNN Business.
Carrato argues that fossil fuels can offer short-term solutions to energy needs, but could end up being a burden on poorer countries in the long term due to rising financing costs and the problem of "stranded assets", in those that infrastructures become obsolete as they are replaced by cleaner and cheaper renewable technologies.
"The cost of capital for fossil fuel production is only going to increase," Carrato said.
On the other hand, the cost of renewable technologies is falling rapidly.
According to the International Renewable Energy Agency, the cost of large utility-scale solar projects decreased 82% between 2010 and 2019, while the cost of onshore wind energy decreased 40%.
The cost of electricity storage technologies, which will be crucial to facilitating "deep decarbonization", even in sectors such as transportation and construction, is also expected to decline considerably between now and 2030.
Africa is well positioned to benefit from this.
The continent's estimated potential to generate renewable energy from existing technologies is 1,000 times greater than its projected electricity demand by 2040, according to IRENA.
"Renewable energies, including green hydrogen, could replace African exports of coal, oil and gas," he said in a recent report with German development banks KFW and GIZ.
But to harness the potential of renewable energy, the average annual investment in the African energy system must double by 2030 to approximately $ 65 billion.
While there is good reason to be optimistic about the potential for Africa to ditch fossil fuel technologies in favor of cleaner energy sources, the kind of renewable technology that can rapidly fuel industrial development, to power factories. , fueling transportation and logistics networks and enabling the digital economy to flourish, is not yet commercially available at scale.
Meanwhile, some analysts say that Africa needs reliable and affordable energy.
"It is absolutely indefensible to hold the position that African countries and the African population should wait until storage costs [for batteries] come down. It seems immoral and a bit outrageous," said Moss of the Center for Energy for Growth.
The Dangote Industries oil refinery and fertilizer plant under construction outside Lagos, Nigeria.
Credits: Tom Saater / Bloomberg
Existing power grids in Africa are also fundamentally different from those in more advanced developed markets, which can absorb a significant amount of intermittent power.
This means that in some cases, certainly in the case of energy production in Nigeria, gas plays an important role.
"Off-grid solar is fine, but it is not enough for industry, for big cities and it is definitely not going to boost the job creation that Nigeria also needs," Moss added.
"When we talk about energy poverty in Africa, we mean getting the poor to have a light bulb at home," he continued.
"That is the first step on the energy ladder, that is not modern energy. The energy for growth is the energy that is needed in the economy in general, used outside the home, that can drive higher income, but above all the creation of employment ".
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A just transition
For the world to be in a position to reach net zero emissions by mid-century, the International Energy Agency estimates that annual investment in clean energy in emerging and developing economies must multiply by more than seven to reach one trillion. dollars annually in 2030.
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Today, these economies account for only a fifth of global investment in clean energy and pay interest rates to obtain loans that are up to seven times higher than in the United States or Europe.
Developed countries also fell within $ 20 billion of meeting the commitment to channel $ 100 billion a year by 2020 to help developing countries cope with climate change.
"In many emerging and developing economies, emissions are on the rise as investments in clean energy falter, creating a dangerous rift in global efforts to achieve sustainable energy and climate goals," said the executive director of the IEA, Fatih Birol, in a recent report.
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"Countries are not starting this journey from the same place: many do not have access to the funds they need to make a rapid transition to a healthier and more prosperous energy future, and the damaging effects of the covid-19 crisis are lasting longer. in many parts of the developing world, "he added.
In the race to solve the climate crisis, there is a clear risk that the development needs of poor countries will be sacrificed in pursuit of global emissions targets.
Nigeria could be the testing ground.
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