FOSSIL FUEL CONSUMPTION, ENVIRONMENTAL POLLUTION AND ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

One of the key policy objectives of any nation is to promote sustainable growth that could improve the standard of living of the people. Although, there are various sources of economic growth, the importance of energy in the growth process, particularly for developing countries, is well documented in the literature. Energy is an inevitable component of growth and it is considered to be one of the important driving forces in all economies. Energy has played an important role in human history from the period of agricultural revolution to the period of industrial revolution. The role of energy becomes more evident in modern economies because of their increasing dependence on energy to ensure sustainable economic growth and development (Sambo, 2011; Tajudeen, 2012). More fundamentally, the role of energy in the industrial sector activities underscores its link with economic development. The importance of energy has specifically gained prominence in the growth and economic development effort of nations, since the first oil price shock in 1973/1974 and 1979/1980 reverberated vigorously with the continuously increasing demand for energy throughout the 2000 decade. However, the rate at which energy consumption has increased closely follows the rate at which economies have expanded globally (Okafor, 2013). Although alternatives exist, fossil fuel has been the major source of energy supply in the world; and we are still in the age of fossil fuel. A large portion of the world’s energy need is met through fossil fuel, the reserve of which is rapidly running out (Ishida, 2012).

Nigeria is one of the leading producers and users of fossil fuel in the world (Aremu, 2014). Nigeria is well endowed with a variety of fossil energy type, such as crude oil, natural gas and coal. Coal as an energy source is considered to be the oldest commercial fossil fuel used in Nigeria. Coal deposits were first discovered in the lower Niger Basin of Nigeria in 1909 and it was first mined in 1916 when the Enugu coal fields were opened. While the country is known to have over 2.5 billion tons of coal reserves, only about 43 per cent of these have been proven (Afaha, 2014). However, since the discovery of crude oil in commercial quantities in Nigeria, coal was given less relevance and became highly neglected (Odularu & Okonkwo, 2009). Crude oil was first discovered in Nigeria in 1956 at Oloibiri in Niger Delta, while the actual production started in 1958. Although, natural gas occurs in associated form with crude oil, Nigerian gas reserves are more than its oil reserves (Onakoya, Onakoya, Jimi – Salami & Odedairo, 2013). Nigeria had a proven reserve estimate of 37.2 billion barrel of oil and 186.9 trillion cubic feet of gas, making Nigeria to be ranked the 10th in the world in terms of oil and 9th in terms of gas (BP Statistical Review, 2011). Approximately, 80 per cent of crude oil, which is a major fossil fuel type in Nigeria, is exported while the remaining is refined for domestic consumption (Atoloye-Kayode, 2014).

The consumption of fossil fuel constitutes the major source of energy for Nigeria and the sole source of energy for the transport sector (Ogundari, Momodu, Famurewa, Akarakiri & Siyanbola, 2011). Fossil fuel provides energy services that power the industrial, transport, household and other sectors of the Nigerian economy. Statistical evidence from the Central Bank of Nigeria Annual Report and Statement of Account for various years shows that the total energy consumption in Nigeria was 7054386 Tonnes of Coal Equivalent (TCE) in 1975 of which 182705 TCE was from coal, 1342859 TCE from hydro power, 618216 TCE from natural gas and 4910606 TCE from petroleum products, representing 2.6 per cent, 19.0 per cent, 8.8 per cent and 69.6 per cent respectively of the total energy consumption. By 1980, total energy consumption rose to 21507081 TCE, constituting 124629 TCE of  coal, 1376776 TCE of hydro power, 2211307 TCE of natural gas and 17794369 TCE of petroleum products, representing 0.6 per cent, 6.4 per cent, 10.3 per cent and 82.7 per cent respectively of the total energy consumption.

Energy consumption in Nigeria, however, fell marginally to 20727797 TCE in 1985 before rising again to 28564942 TCE in 1990, with coal accounting for 55642.5 TCE, hydro power contributing 6646900 TCE, natural gas providing 8511579 TCE, and petroleum products accounting for 13350820.5 TCE, representing 0.2 per cent, 23.3 per cent, 29.8 per cent and 46.7 per cent respectively of the total energy consumption in 1990. Further increases in total energy consumption were recorded between 1991 and 1994 before falling to 24481573.3 TCE in 1995, but rose again to 31908713 TCE in 2000 and further to an all time high of 45547500 TCE in 2001, constituting 9826.2 TCE (0.02%) of coal, 2825071.3 TCE (6.2%) from hydro power, 28184100 TCE (61.8%) from natural gas and 14528503 TCE (31.8%) from petroleum products. The remarkable increase in natural gas consumption in 2001 was attributed to its growing role as an emerging fuel for industrial enterprises and the intensive exploration activities of some oil companies that required large quantities of natural gas (CBN, 2001). By 2005, total energy consumption had fallen to 25294584.8 TCE with coal contributing 8050.7 TCE (0.03%), hydro power accounting for 3046626.7 TCE (12.0%), 1384201.5 TCE (5.4%) accruing from natural gas and 20855705.9 TCE (82.4%) from petroleum products. While in 2011, total energy consumption was 17636718.8 TCE, consisting of 32378.5 TCE (0.18%) from coal, 3305962.9 TCE (18.7%) from natural gas and 12716131.0 TCE (72.1%) from petroleum products.

The analysis of energy consumption as presented above shows that petroleum products dominate fossil energy consumption mix in Nigeria. Socioeconomic, technological and demographic developments have resulted into increased demand for petroleum products in recent years in Nigeria. Petroleum products account for about 78 per cent of fossil-based fuel consumption in Nigeria (EIA, 2011). The  importance  of  fossil  energy in Nigeria can further be acknowledged  by  the  huge  amount  of  money realised from the sale of  crude oil. For instance, fossil fuel made up 94 per cent of exports from Nigeria in 2006 (Omokaro, 2008). Nigerian economy has over the years been heavily dependent on oil as it accounts for about 80 per cent of government revenues, 90-95 per cent of export earnings and over 90 per cent of foreign exchange earnings (Aguegboh & Madueme, 2014). This over-reliance on oil has, however, made the Nigerian economy a mono-product one and has also displaced interest on other sectors of the economy, with little or nothing coming from most of the other sectors of the economy.

Despite the dismal performance of most of the other sectors of the Nigerian economy, however, the economy has been experiencing growth, particularly in the past few decades; thanks to government various decisive steps towards adopting reform programmes which include among others: financial sector reforms, significant trade liberalization, willingness to allow for unfettered market system and policies more conducive for inflows of direct investment (Bello & Abimbola, 2010). Analysis of data from the World Bank (2014) shows that Nigerian average annual GDP growth rate between 1971 and 1975 was 5.7 per cent before plummeting to a negative growth trajectory in the 1980s. The Nigerian economy however recovered with an average annual GDP growth rate of 2.6 per cent in 1990s and 5.3 per cent in the year 2000. It was later rose again between 2005 and 2013 with an annual GDP growth rate of over 6 per cent.

In spite of this remarkable growth, however, the supply of electricity which is supposed to be the main source of energy in Nigeria is fitful. This has forced many households and firms operating in the country to shift to alternative sources of power which require the burning of fossil fuel (Shuaibu & Oyinlola, 2014).  There has also been increase in the demand for fossil fuel, as a result of increase in economic activities and the high rate of population growth. Much of the development in energy demand in the country has in indeed been accompanied by increases in oil demand and consumption of fossil fuel (Olanrewaju, 2014).

The consumption of fossil fuel in Nigeria has, however, not come without a cost. Even though fossil fuel is an essential input for economic growth, its consumption has contributed significantly in altering the environment in Nigeria. These environmental alterations have not always been good (Ogundari et al., 2011). Acid rain and global warming are two of the most serious environmental issues related to large-scale fossil fuel combustion. The observed changes in weather patterns and the depletion of the ozone layer, caused mainly by fossil fuel combustion, have continued to be a source of apprehension among policy makers in Nigeria and all over the world. Many electric power plants burn coal, oil or natural gas in order to generate electricity for energy needs. While burning of fossil fuel produces a readily available and instantaneous supply of electricity, it also generates air pollutants (Osigwe & Adebayo, 2014).

Studies carried out by the Federal Environmental Protection Agency (FEPA) revealed a moderate-to-high concentration of pollutants in the atmosphere, the majority of which come from dangerous fumes emitted from industries, electricity generating sets and automobiles in Nigeria. Poor mass transport system has forced Nigerians to depend on automobiles for transportation (Sambo, 2011). Currently, most transport and industrial related emissions are concentrated in urban areas in which the transport sector accounts for the largest share of on-road transports energy consumption. Transportation in Nigeria relies on fossil fuel burning, primarily oil, and it is now the fastest-growing source of greenhouse gas emissions (Etuonovbe, 2008).   With the increasing urban population and a creation of a large class of blue collar workers, there is an increasing demand for second-hand vehicles in Nigeria, thereby causing increased air pollution around the city. Most of the vehicles in Nigeria have very low energy efficiencies, mainly because they are imported into the country when quite old (Afaha & Omojolaibi, 2014).

Therefore, environmental pollution resulting from fossil fuel consumption has become a major concern both to environmentalists and economists in Nigeria. This is because of the link and feedback effect among fossil fuel consumption, environmental pollution and economic growth. It is always believed that hardly can an economy exist, let alone grow without considerably tangible level of energy consumption (Olanrewaju, 2012). Conversely, ever-increasing output may generate an ever-increasing stock of pollution that will bring growth to a halt (Romer, 2006). This link and feedback according to Grossman and Krueger (1995) follow an inverted U-shaped pattern, referred to as the Environmental Kuznets Curve (EKC) hypothesis. The concept behind the EKC hypothesis is that as a country develops, certain levels of environmental degradation are inevitable. Environmental degradation continues until it reaches a peak and then begins to fall (Maduekwe, 2012). This tends to suggest that instead of being a treat to the environment, economic growth could be compatible with environmental improvements in the long run (Akpa & Chuwu, 2012). 

Against this background, therefore, it is imperative to examine the interrelationship among fossil fuel consumption, environmental pollution and economic growth in Nigeria. Examining such interrelationship is germane to designing appropriate energy policy and developing sustainable green economy for the country. One object of research in this area is to determine whether the economic benefit from high fossil fuel consumption in Nigeria can neutralize the consequent negative externalities inflicted on the society or not. If the marginal benefit of growth is greater than the marginal cost of environmental impact, then, it is worthwhile to increase fossil fuel consumption to improve economic growth. In the same vein, if fossil fuel use cannot improve economic growth, a reduction in fossil fuel energy intensity is needed in order to avoid its negative impact on the economy (Aguegboh & Madueme, 2014).

1. STATEMENT OF THE PROBLEM

The Integrated Assessment Models (IAM) of the Intergovernmental Panel on Climate Change (IPCC) considered population, along with economic growth and technological change, as one of the root causes of greenhouse gas emissions. Although, the effect of environmental pollution is still under debate, studies in the past decade have shown the mechanisms and complexity of pollution and climate interactions. Researchers have shown that rapid increase in pollution generates substantial effects on greenhouse gases.

However, fossil fuel has been noted as one of the major contributors to greenhouse gases that lead to global warming (Maji & Habibullaha, 2015). The greenhouse effect according to the United Nation Environmental Report (1993) has the potential to mitigate agricultural production, raises sea levels in coastal cities and disrupts national economies. Therefore, there have been concerns on how to safeguard the environment while meeting fossil fuel demand in Nigeria. The concern is how to control fossil fuel emissions.

Emissions fromfossil fuel in Nigeria according to the data from Carbon Dioxide Information Analysis Centre (2015),rose steadily from 8803 thousand metric tons in 1971 to 17987 thousand metric tons in 1981 and to 22730 thousand metric tons in 2001, before rising to 24005 thousand metric tons in 2011. At the same time, the number of trees necessary to absorb this carbon emission has been greatly depleted through deforestation; hence carbon dioxide is being released to the atmosphere much faster than the earth’s natural processes can remove it. Unfortunately, CO₂ can remain in the atmosphere for a century or more before nature can dispose of it (Ogundari et al., 2011).

In spite of the danger associated with the burning of fossil fuel, however, Nigeria still depends on fossil fuel to meet her energy needs. The country’s energy consumption profile reveals that petroleum products still take a large share of energy consumed in the country. Such dominance of fossil fuel in energy consumption pattern, coupled with worsening trend in carbon emissions from fossil fuel in Nigeria is a clear indication that environmental quality will remain a concern in Nigeria. The concern about environmental quality in Nigeria is not just a matter of aesthetics or quality of life, but rather, a more serious issue that may involve the diminishing of economic productivity and the acceleration of social dislocation (Akinsola & Adeoye, 2014).

Although, Nigerian government has taken measures to address these environmental problems through the creation of the Federal Environmental Protection Agency (FEPA) in 1988 which was later merged with the Federal Ministry of Environment in 2000, and the creation of the National Environmental Standards and Regulations Enforcement Agency (NESREA) in 2007; there have been little impacts, if any of the activities of these agencies on the environment in Nigeria. The rates of non-compliance with environmental laws in Nigeria remain disturbingly high. In fact, the increased rate at which the environment is continually polluted has called to question the various regulations that have been made by the Nigerian Government to ensure a cleaner and safer environment (Edo, 2012). Nigeria could therefore face environmental and economic catastrophes if urgent and pragmatic steps are not taken to address the situation. For instance, carbon emission induces global warming, which may in turn affect output through its impact on sea levels and weather patterns or the loss of workdays due to workers’ health challenges.

Despite the potential impacts of fossil fuel consumption, however, most studies on energy consumption-environment-economic growth nexus in Nigeria have mainly concentrated on total energy consumption.  Although,  it  is  beyond  the  scope  of  this  study  to  re-examine  the  validity  of  each  study  in greater details, what  is  clear  is  that  it  is may not be appropriate  to  examine  the  impact of fossil fuel  base on the results of  studies on energy-environment-growth nexus, since in the total consumption of energy, both fossil energy and non-fossil energy are usually mixed without distinction. If  non-fossil  energy  had  essentially  the  same  properties  as  fossil  fuel, both could be treated as the same. But, imperfect substitutability between fossil fuel and non-fossil energy reinforces the need for distinguishing between fossil fuel and non-fossil energy. Since fossil fuel energy use is the main source of global warming, incorporating fossil fuel consumption and other growth determining factors in this study will enhance our understanding of the role of fossil fuel consumption in the Nigerian economy.

Furthermore, the empirical evidence on the existence of the EKC in Nigeria is at best mixed. Many studies on the validity of EKC hypothesis in Nigeria have come up with different results, which may lead to conflicting results for policy formulation. It is therefore imperative to test the validity of the EKC hypothesis in Nigeria. Testing the validity of the EKC hypothesis in Nigeria is very important, as this will enable policy makers to know whether economic growth will eventually lead to environmental improvement in Nigeria as suggested by the hypothesis.

1.3   RESEARCH QUESTIONS