Climate change presents a global crisis that disproportionately impacts developing countries, such as Nigeria. Less than a year ago, large areas of the country faced critical humanitarian challenges, leading to multiple deaths, widespread public health issues, food shortages, and significant internal displacement. Those unfamiliar with Nigeria might mistakenly believe that these problems stemmed from internal conflict. In reality, they were caused by devastating floods in several states. Benue, Borno, and Jigawa states suffered significant flooding, worsened by climate change, which claimed lives and destroyed properties.
Although state and federal emergency response teams managed to alleviate some immediate effects of the disaster, the long-term socio-economic damage and the need for preventive measures often go overlooked. The state, hindered by inadequate financial resources and a reduction in productive output caused by the disaster, struggles to afford the capital needed to develop the infrastructure required to prevent future occurrences. Although there are global efforts to secure international financing to address these issues, the process can take time. In the interim, local communities endure the daily consequences of climate change and do not have the luxury of time to wait for international support.
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As a nation highly vulnerable to the impacts of climate change, Nigeria faces a pressing need for substantial financial resources to implement effective mitigation and adaptation measures. While international climate finance is essential, it is often subject to bureaucratic hurdles, conditionalities, and political fluctuations (as is evident with the recent withdrawal of funding from USAID and similar entities). Moreover, relying solely on external aid can foster dependency and hinder the development of indigenous solutions. Therefore, it is imperative that Nigeria starts to look inwards to harness domestic resources for climate action. However, it must be stressed that the purpose of this article is not to diminish the importance of foreign funding, as this is critical in meeting the country’s climate ambitions, but rather to highlight the importance of creating the right domestic environment to help scale climate finance mobilisation.
Why Domestic Climate Financing Matters
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I recently completed a UN course on scaling climate finance and attended the Finance in Common Summit held in Cape Town, South Africa and the consensus was that domestic financing is the cornerstone of sustainable climate action. Think of it metaphorically as the solid foundation needed for a construction project. Domestic financing can help to catalyse funding from international sources. For example, if the government is seen to be spending part of its budgetary allocation on climate adaptation projects such as coastal defences or flood prevention, it provides signals to international funders as to areas that the government is prioritising and may help to crowd in more investments either through private investments, multilateral funding or public-private partnerships (PPPs). If the latter model is used, government funds could act as a “de-risking” tool by providing first loss guarantees to private investors or by funding the riskier aspects of the venture such as exploration and feasibility studies or other upstream development aspects of a potential project. This will provide greater comfort to private and external investors, make projects more bankable and aid the mobilisation of funding.
Domestic financing reduces dependency on volatile external funding, fosters local ownership of climate initiatives, and strengthens the resilience of national institutions. The Renewed Hope agenda of President Bola Ahmed Tinubu’s administration has seen the country take bold steps in stabilising the exchange rate and managing a ballooning foreign debt profile inherited from the previous government. To maintain this trajectory, there is a need to harness domestic sources of funding that do not further expose the country to foreign currency (FX) risk. The complexities of accessing global climate finance, coupled with stringent conditions and bureaucratic bottlenecks, make it essential to prioritize local solutions.
Moreover, investing in climate resilience has economic benefits. Studies show that every dollar spent on adaptation can yield up to ten dollars in avoided costs, such as disaster recovery and economic losses. Mobilising domestic funding ensures that Nigeria not only mitigates the effects of climate change but also reaps the dividends of a greener economy. It stimulates the local economy through job creation and increased local innovation. Nigerians have some of the brightest minds that have shown remarkable talent in creating local solutions.
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Potential Domestic Sources of Climate Finance
With funding needed in other critical development sectors of the country such as healthcare, education and social welfare, and the constrained fiscal environment, it begs the question, where is this domestic funding going to come from? However, there are several options:
- Public Sector Budget Allocations
The annual budget is one of the most critical tools of government that signals of intent and direction for the year. Currently, budgetary allocations for environmental and climate-related activities remain insufficient and as a nation, there needs to be more priority to funding climate action in annual budgets. In the recently signed 2025 Appropriation Act, the Ministry of Environment (and its various agencies) were allocated a budget of N164 billion (USD$109 million approx.). Considering that Nigeria needs a minimum of USD$20 billion (N30 trillion approx.) annually to tackle climate change, increasing funding for ministries, departments, and agencies (MDAs) responsible for climate action, such as the Federal Ministry of Environment, is critical. States and local governments should also dedicate portions of their budgets to address region-specific climate challenges. This may seem misaligned due to several socio-economic factors faced in the country, but spending on climate change has multiple, cross-cutting benefits to the country and could help boost foreign direct investment (FDI) and gross domestic product (GDP). On the other hand, there are MDAs that are currently spending on climate-related activities, but these are not being adequately captured to show the true picture of domestic spending on climate-related activities. The solution to this would be budget tagging of climate-related expenditure, with green taxonomies expressly stated in the medium-term expenditure framework (MTEF).
- Sovereign Green Bonds
Nigeria’s issuance of sovereign green bonds in 2017 and 2019 demonstrates its potential to raise climate-focused funds domestically. These bonds, which finance environmentally friendly and climate change related projects, have been successful in mobilizing resources for renewable energy, afforestation, and other initiatives. Although, it must be mentioned that both green bonds previously issued, generated losses for the government largely due to inadequate project pipelines. However, expanding the scale and frequency of green bond issuances can provide a steady stream of funding for climate projects. Last year, the Honourable Minister of Environment announced plans for Nigeria to issue USD$250 million (N375 billion approx.) sovereign green bonds. The potential downside is that it adds to the country’s debt obligations and without the right projects lined up to absorb the funding, the country takes the financial hit for non-performance of the bond proceeds.
- Sovereign Wealth Fund (SWF) Investments
The Nigeria Sovereign Investment Authority (NSIA) can allocate a portion of its funds to climate-related investments, promoting sustainable development and generating long-term returns. Both the Infrastructure Fund and Future Generations Fund are primed for investments in climate action given their mandates and investment objectives.
- Taxation and Levies
This is an option that will not be too popular, but introducing or reforming climate-related taxes and levies can generate significant revenue. Taxes and levies have never been popular even from biblical times! However, they are one of the ways that government can raise revenue. For example:
- Carbon Tax: Implementing a carbon tax on industries with high greenhouse gas emissions can incentivise cleaner production methods while generating funds for climate action projects. There have been some efforts at addressing this via the Nigerian Carbon Market Activation Plan (NCMAP), where I serve as Secretary.
- Plastic Waste Levy: A levy on single-use plastics can reduce pollution and fund waste management and recycling programs. These levies could easily be implemented at local government level and whilst it may not eradicate its use, it may lead to a significant reduction in use or greater use of alternative and more sustainable products.
- Fuel Taxes: Revising fuel taxes to reflect the environmental cost of fossil fuels can encourage the adoption of cleaner energy sources, although may not be the most politically friendly decision given the current situation in the country and not long after the removal of fuel subsidies.
Moving swiftly on…
- Public-Private Partnerships (PPPs)
Engaging the private sector is crucial for scaling up climate finance. PPPs can be leveraged to fund renewable energy projects, build climate-resilient infrastructure, and support sustainable agriculture. The government can create incentives such as tax breaks, guarantees, grants, and concessional loans to encourage private sector participation.
- Financial Institutions
Nigeria’s banking and financial sector has a role to play in driving climate finance. Policies mandating commercial banks to allocate a percentage of their loan portfolios to green projects can stimulate investments in renewable energy, energy efficiency, and climate-smart agriculture. Additionally, specialised financial instruments, such as green loans and climate insurance, can be developed to support vulnerable communities and businesses. The Securities and Exchange Commission (SEC) could promote greener and sustainability funds by lowering the capital requirements and waiving certain fees. It could also mandate a percentage allocation of funds towards sustainability linked securities.
- Philanthropy and Community Contributions
Nigerian philanthropists and community-based organisations can contribute to climate finance. Wealthy individuals, corporate foundations, and diaspora networks can channel funds toward adaptation initiatives, such as water conservation, reforestation, and disaster preparedness.
Success Stories and Opportunities
Nigeria already has examples of successful domestic climate financing initiatives. The Green Bond Program funded projects like solar mini-grids and reforestation, demonstrating the potential of innovative financing mechanisms. Access Corp issued the first corporate green bond in Nigeria, which was used to fund energy efficiency, flood defence, and renewable energy. Other corporates also floated green bonds including North South Power Company Ltd (Issued a N8.5 billion, 15-year, 15.60 per cent Series One Guaranteed Fixed Rate Senior Green Infrastructure Bond in 2019), and OnewattSolar, which issued a seven-year $25 million green bond/Sukuk programme.
There are numerous opportunities in sectors like renewable energy, where Nigeria has immense untapped potential. By creating favourable investment conditions, the country can attract domestic investors to develop solar farms, wind projects, and hydropower plants. Agriculture, another critical sector, can benefit from funding for climate-smart practices, such as agroforestry and improved irrigation systems. Waste-to-energy systems, marine and blue economy, healthcare and industry are all sectors that could tap into climate finance.
Challenges and Mitigation Measures
While the potential for domestic climate finance is significant, several challenges must be addressed:
Limited Fiscal Space: As mentioned earlier, competing priorities and revenue constraints hinder budgetary allocations for climate action, hence the overreliance on external funding. However, expanding the tax base, curbing leakages and catalysing more private sector participation can increase available resources, whilst encouraging increased allocation of public spending towards climate action.
Lack of Awareness: Many stakeholders are unaware of the benefits of climate finance (hence my motivation for writing the recent articles). There needs to be a paradigm shift in understanding climate finance. It is not simply an environmental issue but an economic one and climate finance can be utilised to diversify the economy, create jobs, whilst also addressing critical infrastructure challenges. This responsibility does not solely rest on government but also non-government actors.
Institutional Capacity: Strengthening the capacity of government agencies and financial institutions is critical for effective fund utilisation. There have been a series of capacity building workshops hosted by the National Council on Climate Change (NCCC) secretariat as well as other government MDAs and development agencies. However, these are largely concentrated on the Federal level actors. More is needed at sub-national level, to strengthen project pipeline generation.
Time to Look Inwards
Nigeria’s climate resilience hinges on its ability to mobilise domestic and international resources to build a sustainable future. Domestic funding sources provide the solid foundation that the country needs to scale its climate financing ambitions. By embracing innovative financing mechanisms, fostering private sector engagement, and empowering local communities, Nigeria can effectively address the challenges of climate change and mobilise greater international funding.
It is imperative for all stakeholders – government, private sector, civil society, and individuals – to work together to unlock the potential of domestic funding and build a climate-resilient Nigeria. This requires a collective commitment to:
- Prioritise climate action in national development plans and budgets.
- Promote transparency and accountability in the management of climate funds.
- Invest in capacity building and knowledge sharing.
- Foster innovation and entrepreneurship in climate-friendly technologies and solutions.
- Increase Public awareness and participation.
By looking inwards and harnessing its domestic resources, Nigeria can set the pace for greater mobilisation of climate funding and create a sustainable model for the country’s development.
Ibrahim A. Shelleng is senior special assistant to the President on Climate Finance and Stakeholder Engagement. He is also the secretary of the Intergovernmental Committee on National Carbon Market Activation Plan (NCMAP) and serves as a member of the Presidential Committee on Climate Action and Green Economic Solutions, as well as the Presidential Steering Committee on Project Evergreen.
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