• Wednesday, May 29, 2024
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BusinessDay

Nigeria’s energy transition: EVs, CNG vehicles and transportation emission reduction goals

CNG-powered vehicles will save Nigeria $2.5bn yearly- FG

Nigeria has a two-pronged approach to reducing its greenhouse gas (GHG) emissions. The first approach is through the 2021 Nationally Determined Contribution (NDC). The second approach is the 2022 Energy Transition Plan (ETP).

In Nigeria, the final products from crude oil are mainly used for transportation and electricity generation. As a result, the transport sector is responsible for a significant amount of GHG emissions, accounting for 24 percent of Nigeria’s GHG emissions in 2020. The sector needs attention not only for emissions reduction but also for its impact on Nigeria’s economy if it is not handled properly.

The NDC goal is to achieve 25 percent and 80 percent adoption of compressed natural gas (CNG) vehicles in 2030 and 2050, respectively. The ETP aims for 2 percent and 1 percent adoption of electric and hybrid vehicles by 2030, which increases to 60 percent and 20 percent, respectively, in 2050. Hybrid vehicles use both gasoline and electricity as fuel sources. An in-depth analysis of planned and forecasted progress shows that the NDC will result in a 21 percent reduction in GHG emissions in 2050, while the ETP has a target of -92 percent with 2020 as the baseline year for the transport sector. However, relying solely on CNG adoption could be a disadvantage to achieving net-zero emissions.

The presidential initiative to promote CNG vehicles is due to the removal of gasoline subsidies, making gasoline prices approximately 150 percent to 200 percent higher than the fixed CNG price in the fourth quarter of 2023. This is a significant advantage for CNG, compared to only 7 percent in 2013 based on energy performance equivalence to gasoline. This is an opportunity to increase the campaign to achieve the 2007 target of converting vehicles to CNG beyond the current set goals. The gas pipeline network projects nearing completion can be used to increase CNG distribution focal points nationwide.

The progress towards reducing transport emissions according to the NDC target is behind schedule. This requires proactive and timely interventions for the widespread adoption and acceptance of the economically viable CNG. CNG technology is mature, and Egypt is currently leading CNG adoption in Africa, with over 500,000 CNG vehicles in 2023. China has over 5 million CNG vehicles as of 2017.

The consistency of the price of compressed natural gas (CNG) in Nigeria needs attention. Moreover, it is important to consider if the domestic gas price hike in April 2024 will affect the price of CNG and, if so, at what price tier it would fall. It is also important to determine if the current price of CNG is subsidised. These issues need to be addressed in order to attract investors. An example of the impact of gas price hikes can be seen in the long-standing demand for electricity tariff hikes that occurred after gas price increases for power generation. Within a week of the price increase, the electricity tariff increased by over 200 percent for 15 percent of consumers.

In terms of transportation, electric vehicle (EV) use is dependent on an adequate power supply and a sufficient number of charging stations with good distribution. However, the advantage of converting existing vehicles to CNG over purchasing new EVs makes CNG vehicles (CNGV) more attractive than EVs in Nigeria. This is due to the fact that the ratio of new to used cars in Nigeria was 1 to 131, according to an analysis conducted eight years ago. This highlights the purchasing power of Nigerians and the lack of a second-hand market for EVs. Electric buses and cost-effective electric-powered 3-wheelers, “Keke-NAPEP,” may be more preferable for mass transportation.

While CNGV alone cannot take Nigeria to net zero for transport emissions, effective and sustainable EV deployment can lead to a more impactful and greater emission reduction than CNGV. Therefore, a hybrid scheme that implements the Nationally Determined Contributions (NDC) and Energy Transition Plan (ETP) simultaneously or in tandem on a new timeline seems to be the most viable option. This could include hybrid vehicles, biofuel blends, and the widespread adoption of electric 3-wheeler vehicles for intra-city transport.

The inadequate power supply due to demand outstripping supply and the obsolete transmission network also present challenges for EV adoption. Solar-based charging points are the way for developing countries like Nigeria to make the value chain completely emissions-free. It is worth noting that 80 percent of the power supply in Nigeria comes from gas-fired power stations. Hence, the status quo for EV adoption seems far-fetched for net zero.

The government has a crucial role to play in incentivizing the adoption of CNGVs and EVs on a large scale. The success of the CNGV demonstration in Benin City, Edo State, should be replicated, as should the burgeoning drives in Ogun State and the Dangote Cement Plant transportation scheme. The removal of 100 percent VAT from the CNGV value chain is a positive step taken by the government. However, the current economic advantage of CNG over petrol should not be temporary. Consistency and further infrastructure development through joint government-private partnership engagements seem to be the only viable ways to succeed.

Nigeria is at a point in time where it can unleash CNG investment through an efficient carbon pricing mechanism, such as an emissions trading scheme or a carbon tax, or through attractive contracts-for-difference for CNG infrastructure development. Investors are watching and waiting, and it is up to the government to act.