Dealing with vulnerability to carbon emission from gas flaring: the roles of transparency and utilisation policies in Nigeria

• Date: 01 December 2020
• DOI: http://doi.org/10.1111/opec.12187
• Published date: 01 December 2020
• Author: Aminu Hassan

Dealing with vulnerability to carbon

emission from gas f‌laring: the roles of

transparency and utilisation policies in

Nigeria

Aminu Hassan

Associate Professor, Department of Accounting, Federal University Dutsin-ma, P.M.B 5001Dutsin-ma,

Katsina State, Nigeria. Email: ahassan2@fudutsinma.edu.ng

Abstract

Gas f‌laring, a practice described as environmentally damaging and f‌inancially wasteful, still

persists on a large scale in the Nigerian oil and gas industry. Firstly, this paper investigates the

vulnerability of the Nigerian economic performance to environmental pollution by estimating and

analysing the relationship between carbon emission from gas f‌laring and Nigeria’s GDP. Secondly,

the study examines how transparency and gas utilisation policies, deployed by the country, are

performing in dealing with vulnerability to carbon emission from gas f‌laring. The paper uses an

autoregressive distributed lag bounds testing approach to cointegration and error-correction-based

Granger causality. The paper establishes that carbon emission from gas f‌laring affects Nigeria’s

GDP negatively in both the short and long run. However, the results show that GDP has started

exhibiting resilience to carbon emission from gas f‌laring in the long run. Findings imply that even

though transparency and gas utilisation policies are doing well in increasing GDP’s long-run

resilience, persistent carbon emission from gas f‌laring continues to cause short-run and long-run

economic vulnerability. The study discusses policy implications meant to be useful to the Nigerian

government and the relevant regulatory authorities in the country’s oil and gas industry.

1. Introduction

Developing countries’vulnerability to carbon emissions and other negative environ-

mental impacts is on an alarming increase as environmentally intensive production

activities are moved to these countries. Pollution-intensive companies locate/move their

operations from developed to developing countries as they see the latter as pollution

havens (Cole and Fredriksson, 2009; Kearsley and Riddel, 2010; Nathaniel et al., 2020).

These movements are made possible by openness particularly through foreign direct

investments (FDI). Lax environmental regulations, ineff‌icient enforcements, corruption

and poverty are the key mechanisms which turn less-developed countries into pollution

©2020 Organization of the Petroleum Exporting Countries. Published by John Wiley & Sons Ltd, 9600 Garsington

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369

havens (Solarin et al., 2017; Sun, et al., 2017; Dou and Han, 2019). Nigerian oil and gas

industry has been opened to FDIs for over 60 decades (Klieman, 2012; Hassan, 2013a),

and the country is still very much open to such investments. Empirical evidence from

several studies reveals that Nigerian environmental regulations are weak (Hassan and

Kouhy, 2013b; Olujobi and Olusola-Olujobi, 2020), corruption thrives in its oil and gas

industry (Klieman, 2012; Ejiogu et al., 2019; Das, 2020), and the country is poor (Evans

and Kelikume, 2019). Although it has to be admitted that Nigeria derives tremendous

benef‌its from the productive activities in its oil and gas industry, mainly carried out by

foreign MNCs, still its economy sustains enormous negative environmental impacts

principally in the form of gas f‌laring and oil spillage.

Like many developing countries that are blessed with oil and gas resources—for

example Russia, Saudi Arabia, Iran, Iraq, Kuwait, Libya, Venezuela, Congo and Algeria

—Nigerian economy depends to a very large extent on its oil and gas resources.

Consequently, the largest portion of its revenue comes from its oil and gas industry

(Uduk and Akpan, 2017). However, the rate at which exploration and production

activities in the Nigerian petroleum industry are bringing about such setbacks as

conf‌licts, corruption, repression and environmental degradations is more than what the

Nigerians have bargained for (Klieman, 2012; Das, 2020). Consistent with this view,

Orubu (2005) contend that activities in the Nigerian oil and gas industry are notoriously

connected to alarming environmental damages mainly in the form of gas f‌laring and oil

spillage. Gas f‌laring, as the principal focus of this study, may be described as an act of

burning associated natural gas (ANG) while producing crude oil. Aside from carbon

emission, which causes hash climatic conditions, previous studies highlight various

forms of adverse environmental impacts caused by gas f‌laring. For instance, acid rain,

described as one of the lethal results of gas f‌laring, destroys vegetations, pollutes waters

and devastates zinc roofs (Hassan and Kouhy, 2013b). In addition, the blazing f‌ire itself

destroys plants and contaminates air (Akinola, 2018), and its cackling noise drives

inhabitants away from their dwelling points. Furthermore, there are several economic

implications of the negative environmental impacts of gas f‌laring. These include death of

agriculture as a major profession in the Niger Delta, increased unemployment among

local people and disappearance of f‌ishing as a profession, among others. These negative

economic implications exert adverse effect on the Nigerian national income and by

extension its GDP. Evidently, a direct economic implication of gas f‌laring relates to loss

of revenue sustained by both the Nigerian government and the oil companies operating

in the country. For example, the current estimate shows that Nigeria loses an average

sum close to $1 billion dollars in annual revenue due to gas f‌laring (Pricewater-

houseCoopars (PWC) (2019); Olujobi and Olusola-Olujobi, 2020). More specif‌ically,

PWC (2019, p. 11) reports that Nigerian government and the oil and gas companies

operating in the country lost estimated annual revenues in the sum of $985 million

OPEC Energy Review December 2020 ©2020 Organization of the Petroleum Exporting Countries

370 Aminu Hassan

(2014), $794 million (2015), $751 million (2016), $875 million (2017) and $762 million

(2018). Thus, over these f‌ive years, the country had lost an estimated sum of $4.167

billion which could have been used to f‌inance developmental projects on health,

education, roads, provision of electricity and many others. The obvious adverse effects

of these direct revenue losses and other unquantif‌iable negative effects on the Nigeria’s

GDP, caused by the environmental impacts of carbon emission from gas f‌laring, must

have inf‌licted enormous damage on the Nigerian economy over time. Of course, the

government realised this a long time ago and has been putting measures in place in the

form of policies and regulations to end the practice. Regrettably, however, gas f‌laring

described as environmentally damaging and f‌inancially wasteful (Akinola, 2018;

Olujobi, 2020) still persists in Nigeria. Consequently, the purpose of this paper is

twofold. Firstly, the paper investigates vulnerability of the Nigeria’s economic

performance to environmental pollution by estimating and analysing the relationship

between carbon emission from gas f‌laring and the Nigeria’s GDP. Secondly, the paper

empirically examines how transparency and strategic policies deployed by the Nigeria

government are performing in dealing with vulnerability of the country’s GDP to carbon

emission from gas f‌laring.

This study attempts to f‌ill the gap between adverse environmental impacts in less-

developed countries postulated by pollution haven hypothesis (PHH) and economic

vulnerability in these countries. To the best of the author’s knowledge, there is no prior

study which attempts to f‌ill this gap. More specif‌ically, this study is motivated to

investigate the manner in which pollution haven, facilitated by openness via FDIs, leads

to intensive, diff‌icult to control and continuous gas f‌laring which might be hurting the

Nigerian economic performance. Thus, the study suspects that Nigerian economic

performance measured by GDP is vulnerable to carbon emission from gas f‌laring mainly

practised by foreign MNCs who control most oil and gas exploration and production

activities in the country. Of course, their ability to enter and operate in the country,

leading to the undesirable practice, is made possible by directly investing in the open

Nigerian oil and gas industry. Decline in GDP or its insignif‌icant growth is described as

an indication of economic vulnerability (Turvey, 2007; Naud ´

e et al., 2008). Therefore,

this study suspects that gas f‌laring characterised by negative f‌inancial and environmental

implications contributes, at least in part, to economic vulnerability. This paper contributes

to knowledge in two respects. Firstly, the paper provides meaningful empirical link

between PHH and vulnerability literature, and to the best of the author’s knowledge, no

previous study has done this. Secondly, the study provides empirical evidence on the

vulnerability/resilience of the Nigerian GDP to carbon emission from gas f‌laring.

The paper is organised to proceed as follows. The next section presents literature

review, relevant underpinning theories and how relevant hypotheses are derived.

Section 3 is designed to discuss material and methods. Section 4 focuses on the

©2020 Organization of the Petroleum Exporting Countries OPEC Energy Review December 2020

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