Moving from plans to action: Mainstreaming climate action into Nigeria’s budget and economic planning

Summary

Introduction

The research project is designed to assist the Federal Government of Nigeria (FGN) in incorporating climate considerations into national financial and development strategies. It aims to review and enhance government budgeting and economic planning by integrating green growth priorities, assessing the economic costs of inaction on climate change and investigating the incorporation of climate metrics into economic frameworks. The project will also explore existing and potential green finance mechanisms to support climate-related projects and foster alignment and collaboration among governmental bodies, the private sector and development partners to mainstream climate action effectively within national economic planning.

Integrating climate action into budget and economic planning

The need to integrate climate considerations into Nigeria’s national budget and economic planning is critical, given the country’s exposure to climate impacts and its commitment to sustainable development. FMBEP holds a central role in shaping Nigeria’s economic landscape, making it a critical player in mainstreaming climate action. Effective climate integration in budgeting will align the FMBEP’s priorities with those of other Ministries, Departments and Agencies (MDAs), helping to unify efforts toward a resilient and low-carbon economy.

Nigeria’s commitment to international climate agreements, such as the Paris Agreement, underscores the urgency of these efforts. By embedding climate action into budget processes, the government can ensure that economic strategies are resilient to future climate crises. Moreover, aligning budget and planning processes with Sustainable Development Goals (SDGs), especially SDG 13 (Climate Action), will prepare the country for both immediate and long-term climate challenges.

Global developments in climate finance, including advocacy from leaders like Mia Mottley and outcomes from the recent 2023 Paris Financing Summit, signal a shift in climate finance mechanisms, providing new opportunities for countries like Nigeria to access funds and partnerships. The establishment of an African Union ratings agency also highlights the increasing focus on climate-aware financial planning across the continent, which Nigeria can leverage to enhance its climate resilience efforts.

Integrating climate considerations into national budgeting will not only mitigate risks but also foster growth in climate-smart sectors, attract green investments and support the transition to a just and equitable energy future. This strategic approach is essential for securing Nigeria’s economic stability and promoting sustainable development in the face of escalating climate risks.

Analysis of the political economy of Nigeria

In 2023, Nigeria restructured its ministerial roles, separating Planning and Budgeting from the FMF. This change established a new FMBEP, while the Minister of Finance retained the role of Coordinating Minister for the Economy. This administrative shift holds significant implications for Nigeria's political economy, presenting both opportunities and challenges.

The decision to specialize promises a more focused approach to economic planning and fiscal management. Dedicated leadership aims to enhance policy coherence and effectiveness, with the Coordinating Minister ensuring alignment across economic sectors. Such alignment is crucial for addressing infrastructure and development comprehensively.

However, potential pitfalls exist. The creation of a separate ministry risks bureaucratic overlap and inefficiencies without clear role delineation, leading to resource allocation issues. Additionally, the restructuring may face resistance from vested interests, causing political friction and complicating policy implementation. For example, there is an ongoing initiative to mainstream the SDGs into economic policy, and it remains unclear as to how might mainstreaming climate change (SDG #13) relate to this.

Despite these challenges, the restructuring offers opportunities to integrate economic planning with budgeting more effectively. Enhanced transparency and accountability can foster public trust and encourage citizen engagement, leading to informed public discourse and strengthening democracy.

Yet, threats remain. Economic instability could arise if changes are poorly managed, exacerbating fiscal challenges like deficits and debt. Security issues, including terrorism and ethnic conflicts, further threaten national cohesion and complicate policy efforts.

In summary, while the restructuring presents opportunities for improved governance, it also poses challenges requiring careful management. Success depends on effective leadership, clear role delineation and strong inter-ministerial collaboration. By addressing these challenges, Nigeria can enhance economic governance and achieve sustainable development.

From theory to practice

While mainstreaming climate action into national budgeting frameworks offers a compelling theoretical approach to sustainable development, practical challenges must be addressed to make this a reality within Nigeria's unique context. Climate mainstreaming, as a concept, involves embedding climate goals across economic and financial planning, drawing from international best practices. However, translating these theoretical frameworks into actionable strategies often requires adaptations that account for Nigeria’s specific operational and resource constraints.

A primary challenge will lie in the practical implementation of climate mainstreaming tools. These tools demand reliable data, yet Nigeria faces significant gaps in data infrastructure, which hinders the effective MRV systems essential for tracking climate-related expenditures, activities, outputs and outcomes. Additionally, limited institutional capacity in key areas may affect the deployment of these frameworks, particularly when it comes to aligning various MDAs around a unified climate agenda.

Moreover, funding constraints further complicate the path from theory to practice. While frameworks may be theoretically robust, they depend on securing sufficient financing. With Nigeria’s limited fiscal space and heavy reliance on external funding, achieving the necessary scale for effective climate action will present a considerable challenge. Potential avenues for funding do exist; however, accessing these resources requires Nigeria to establish a comprehensive and nationwide action plan.

To bridge the gap between theory and practice, Nigeria must adapt these climate mainstreaming strategies to fit its existing capacities. This could involve incremental steps, such as piloting proposed techniques and technologies in key sectors before expanding nationwide or leveraging partnerships to strengthen national MRV capabilities. Practicality will demand a phased approach, tailored to align theoretical frameworks with Nigeria’s operational realities, while steadily building the necessary infrastructure to support full-scale implementation over time.

About the Federal Ministry of Budget and Economic Planning

FMBEP originated as the National Planning Commission (NPC) in 1992 (Decree No. 12 – later amended by Act 71 of 1993). It was responsible for national development planning and economic management. In recent times, the FMBEP was merged with the FMF but operates now as a standalone ministry. By its originating Act, the FMBEP is empowered to provide policy advice to the President and Nigeria, set national priorities and evaluate the country's resources. Additionally, the Act tasks the Ministry with formulating and coordinating development plans at all government levels, monitoring plan implementation and conducting research to enhance national capabilities.

Amongst the agencies that the FMBEP oversees are:

Due to its statutory coordinating role, the FMBEP is a member, the Secretary, or sometimes the Chair of various national councils, committees and commissions, for example:

Currently, the FMBEP is focusing on improving the “Planning-Budgeting-and-Financing” of the activities and ambitions of the FGN by enforcing a tighter integration between national plans and agency budgets for financing by FMF. The FMBEP intends to redesign the planning and budgeting processes to be significantly more objective. For example, the Ministerial Department of Planning would use “Statistical Data from NBS” and “Research Data from NISER” to verify and align plans from MDAs with budgets. This will impact existing and future development initiatives and has direct implications for any implementation of National Climate Action Plans (NCAPs) such as Nigeria’s 2025 Nationally Determined Contributions (NDC 3.0) and 2030 targets.

“In all respects, your NDCs 3.0 will be the most important climate documents produced so far this century in securing the safety and prosperity of your peoples.”
– Simon Stiell (UNFCCC, 2024)

Climate-resilient & green budgeting for developing countries

Introduction

The escalating impacts of climate change, particularly in developing countries, necessitate integrating climate considerations into public financial management (PFM). Climate-resilient budgeting (CRB) and green budgeting (GB) are emerging as crucial tools in this endeavor. CRB focuses on allocating resources to adapt to climate change's adverse effects and build resilience, while GB encompasses broader environmental considerations, including mitigation, into budget frameworks (Mogelgaard et al., 2018; OECD, 2023). This literature review examines the conceptual frameworks, methodologies and applications of CRB and GB, emphasizing their relevance for developing countries (See Appendix 1).

Climate-resilient budgeting

Conceptual framework

CRB aims to allocate resources to adapt to climate change's adverse effects and build resilience in vulnerable sectors and communities (Bellon & Massetti, 2022; Mogelgaard et al., 2018). Governments’ Ministry of Finance (MoF) play a pivotal role in driving climate action through their influence on economic strategy, fiscal policy and financial regulation (Coalition of Finance Ministers for Climate Action, 2023). Integrating climate change into the budget cycle involves strategic planning, budget preparation and approval, execution and accounting, monitoring and evaluation and policy review (UNDP, 2021).

Tools and methodologies

Several tools and methodologies facilitate CRB:

Applications in developing countries

Case studies from Africa demonstrate diverse approaches to integrating climate resilience into budgets (Allan & Nicholson, 2021). Ethiopia's Climate Resilient Green Economy (CRGE) Facility – detailed later - is a notable example (Bhandary, 2024). Challenges include limited capacity, data availability and institutional coordination (Bhandary, 2024). However, successful cases highlight CRB's potential to enhance adaptation and protect development gains.

Green budgeting

Conceptual framework

GB integrates climate and environmental considerations into budget frameworks and policies (OECD, 2023). The OECD GB Framework offers a comprehensive approach, encompassing institutional arrangements, methods and tools, accountability and transparency and an enabling environment (OECD, 2023).

Tools and methodologies

GB utilizes various tools:

Applications in developing countries

Despite significant challenges, several developing countries are making notable strides in adopting GB practices. Ethiopia (Dagne et al., 2022) has integrated climate goals into its long-term development plans, ensuring that budget allocations reflect its commitment to sustainable growth. South Africa (Allan & Nicholson, 2021) is in the process of developing climate budget tagging systems while incorporating climate risk assessments into its budget guidelines, signaling a shift toward mainstreaming climate considerations. Uganda (Allan & Nicholson, 2021; CoFMfCA, 2023) has adapted its performance-based budgeting framework to address climate concerns, leveraging existing systems to achieve better climate outcomes. Similarly, Rwanda (Allan & Nicholson, 2021) has focused on embedding climate resilience into its agricultural sector planning, prioritizing adaptation measures in its strategic approach. Together, these examples illustrate how developing nations are using GB as a tool to build climate resilience and sustainability, despite limited resources and capacity constraints.

Case studies of mainstreaming climate action

Climate change poses significant challenges to developing countries, necessitating the integration of climate considerations into national planning, budgeting and financing processes. This document examines how four countries - Uganda, Kenya, Ethiopia and Nepal - are mainstreaming climate action into their governance systems, with a focus on whether they employ GB or CRB techniques.

Nepal

Nepal's vulnerability to climate-induced water hazards led to integrating climate adaptation into its development. The National Adaptation Plan of Action (NAPA) and Local Adaptation Plans of Action (LAPAs) mainstream climate resilience locally (Mogelgaard et al., 2018). Nepal's 2010 NAPA identified priority climate adaptation actions, leading to the 2011 LAPAs, which translate national priorities into local actions. LAPAs are implemented in 90 villages and 7 municipalities, embedding adaptation in local plans. The 2011 Climate Change Policy mandates 80% of the budget for local initiatives, further supported by a 2013 budget code. In 2015, Nepal initiated their National Adaptation Plan process to address medium and long-term adaptation needs, aiming to integrate climate adaptation into broader policies. The Nepal Climate Change Support Program facilitates capacity building and coordination. Challenges include data availability and monitoring effectiveness.

Ethiopia

Ethiopia established the CRGE Facility in 2013 within the MoF to manage international climate finance flows across all sectors. The CRGE Facility was created to support the implementation of Ethiopia's CRGE strategy, which aims to achieve middle-income status by 2025 while addressing climate change. The government's goal in establishing the CRGE Facility was to mainstream climate action through national climate funds that engage with sectoral ministries. Ethiopia's CRGE strategy integrates climate action into national development (Dagne et al., 2022). The CRGE influences plans like the Growth and Transformation Plans and NDCs. Challenges include institutional capacity, technical expertise and data constraints, particularly in monitoring and evaluation (FDRE, 2020).

Kenya

Kenya's vulnerability to climate shocks led to climate budget tagging and a Disaster Risk Financing Strategy (Allan & Nicholson, 2021). Challenges include institutional coordination and funding sustainability.

Uganda

Uganda integrates climate change into PFM through budget call circulars, performance-based budgeting and environmental taxes/exemptions (Allan & Nicholson, 2021). Challenges include fiscal constraints and the need for broader government ownership.

Summary & Conclusion

All four countries have made significant strides in mainstreaming climate action into their planning, budgeting and financing functions. They have developed national climate change policies and strategies, implemented climate budget tagging systems and established dedicated climate funds. However, the degree of implementation and the specific approaches vary:

While all four countries are moving towards CRB techniques, full implementation of GB or CRB has not yet been achieved in any of them. Common challenges include limited financial resources, capacity constraints and the need for improved coordination across government agencies and levels. To further advance climate mainstreaming efforts, these countries should focus on:

By addressing these areas, Uganda, Kenya, Ethiopia, and Nepal can continue to improve their climate mainstreaming efforts and build more resilient, low-carbon economies.

Economic costs of inaction on climate change in Nigeria

Nigeria's National Policy on Climate Change (2012, 2021) identifies agriculture, water resources, public health and coastal regions as highly vulnerable. The economic costs of inaction include reduced agricultural yields, infrastructure damage and increased disease burden amongst other issues. The agricultural sector, employing a significant population and contributing to GDP, is particularly vulnerable to droughts and floods. Coastal regions face risks from sea-level rise, erosion and flooding, threatening communities and economic activity. The 2021 revision of this policy suggests that climate change could cost Nigeria between 6% and 30% of its GDP by 2050 if no concrete adaptation action is taken (FGN, 2021). Despite the development of a national adaptation plan framework and project, the finalization of a national adaptation plan is urgently required.

The future of climate budgeting

The future of climate budgeting lies in a more integrated, comprehensive and transformative approach, including enhanced integration into PFM, strengthened governance, innovative financing, capacity building and international cooperation. Climate-resilient and green budgeting are essential for integrating climate change into PFM. While green budget tagging is valuable, advanced tools like macro-fiscal modeling and risk assessments are needed. Again, the economic costs of inaction, especially in agriculture and infrastructure, underscore the urgency of implementing these tools in developing countries. By learning from others and adapting best practices, policymakers can mainstream climate action into budgets, driving sustainable development.

Policy analysis

Recent Nigerian policy documents, including National Integrated Infrastructure Master Plan 20204, National Development Plan (2021 – 2025) CMOC⁵, National Climate Change Policy 2021-2030CMOC⁶, Investing in Nigeria’s Energy Transition OpportunityCMOC⁷ and NDC 2021, reflect a unified effort to incorporate climate considerations into national and sectoral strategies. These documents underscore the importance of mainstreaming climate change across sectors such as energy, agriculture and infrastructure, with the goal of establishing a climate-resilient economy and integrating climate resilience into infrastructure planning. Key themes, including Renewable Energy & Energy Efficiency, Climate Smart Agriculture and Disaster Risk Reduction, are consistently highlighted, alongside the necessity for international cooperation and private sector involvement.

However, these documents also reveal certain gaps. While they set ambitious targets and strategies, details on implementation mechanisms and financial sources are sparse. Despite the emphasis on data and monitoring, there is a lack of detail on addressing current gaps for effective planning and evaluation. The focus on adaptation and social impacts is limited and there is a need for better coordination among policies and MDAs in other economic sectors, such as Trade and Industry, to address the comprehensive challenge of climate action.

Existing mechanisms & processes

The Medium-Term Expenditure Framework (MTEF) serves as a strategic planning tool, outlining the government's medium-term spending priorities, including allocations for national initiatives. It emphasizes a forward-looking approach, considering both current and emerging needs and aligning expenditures with national objectives. However, the effectiveness of the MTEF is contingent upon accurate revenue forecasting, fiscal discipline and robust monitoring and evaluation mechanisms.

In addition, Nigeria is implementing its Integrated National Financing Framework (INFF 2022)CMOC⁸, The INFF 2022 highlights the importance of integrating SDGs into budgetary planning and execution and suggests several mechanisms such as "SDG-informed MTEF/MTRF, data collection on SDG financing, participatory budgeting, parliamentary oversight on SDG alignment, SDG-aligned budget performance reports, SDG tagging, SDG audits, etc." These mechanisms aim to ensure that budget allocation and execution are in line with the country's SDG commitments. CRB/ GB type methodologies, such as SDG tagging, are present in the INFF. As SDG 13, climate change is identified in section 7.2.2. of INFF 2022 as a crosscutting theme.

Consequently, given the ongoing implementation of the INFF, a decision will need to be made as to whether climate change should be mainstreamed independently or as one of the SDGs within the INFF.

Outside of budgetary appropriation, the primary mechanism for allocating climate or green funds has been the Nigerian Sovereign Green Bond Program (NSGBP). A continental first, the NSGBP started in 2017. It grew via favorable regulations and issuer diversification, this catalyzed funding for renewable energy, energy efficiency and climate resilience projects. However, the market faces critical challenges such as: a) the lack of standardized impact measurement and reporting frameworks, b) transparency and accountability issues due to the lack of independent verification and c) limited accessibility and awareness among the investment public. Addressing these challenges will be crucial for the sustainable growth and effectiveness of the NSGBP.

FMBEP Role in national climate policy, legislation and action

Most national climate policy, legislation and action documents were developed before 2023 and may not make explicit reference to National Planning as a separate Ministry but may refer to it implicitly as a role, or as the National Planning Commission, or via actions of the Budget Office.

The Climate Change Act, 2021 (CCA, 2021) of Nigeria establishes a framework for addressing climate change, with specific mentions of national planning entities. The Act explicitly states that the Federal Ministry of Environment (FMEnv) shall consult with the “Federal Ministry responsible for National Planning” in setting carbon budgets for Nigeria.

While the CCA (2021) does not extensively detail the broader role of the “Ministry responsible for National Planning” in climate change mitigation and adaptation, it implies significant involvement. The emphasis of the CCA (2021) on mainstreaming climate action across various sectors suggests that the “Ministry responsible for National Planning” would play a crucial role in integrating climate objectives into national development plans and economic strategies. This includes aligning climate action with national economic priorities and ensuring budgetary support for climate initiatives.

The CCA (2021) mandates the formulation of a National Climate Change Action Plan, which should guide mitigation and adaptation efforts. The FMBEP, responsible for broader national development strategies, would be instrumental in integrating this Action Plan's objectives into overarching national development frameworks. Additionally, FMBEP’s role in formulating and coordinating development plans at all government levels, positions it as a key player in ensuring climate considerations are embedded across various sectors and levels of governance.

However, the CCA (2021) could benefit from more explicit provisions outlining the FMBEP’s responsibilities in mainstreaming climate change beyond carbon budgeting. Strengthening inter-ministerial coordination mechanisms, particularly between the NCCC and the FMEnv and the FMBEP, would enhance the effectiveness of Nigeria's climate action. Clarifying and reinforcing the role of national planning entities would be crucial for effectively integrating climate action into Nigeria's broader development and economic planning processes.

This oversight resulted in FMBEP not being provided with a separate and distinct membership of the NCCC to the FMF.

Carbon Budgeting and the Role of FMBEP

The CCA (2021) delineates the responsibilities for carbon budgeting among key MDAs, establishing a framework that ensures systematic planning and accountability in addressing climate change. Central to this structure is the FMEnv, which collaborates with the Federal Ministry of National Planning (now FMBEP) to set the carbon budget. This collaborative effort underpins the nation’s climate policy, reflecting a concerted governmental focus on sustainability.

FMEnv holds the primary responsibility for proposing and submitting the carbon budget to the Federal Executive Council (FEC) for approval. This task is cyclical, with a new budget required every twelve months, along with provisions for revisions, if necessary. Such periodic reviews guarantee that Nigeria's carbon targets remain responsive to evolving climate realities. Furthermore, the Ministry publishes climate vulnerability assessments at multiple levels, offering a crucial basis for adaptation strategies within the broader climate action framework. It may also issue guidelines to refine emissions measurement and reporting, thereby informing future budgets with precision.

The Secretariat of the NCCC is tasked with monitoring and reporting on the alignment of national emissions within the set budget. This role is critical to ensuring that the country adheres to its emissions targets, reinforcing accountability at the national or sovereign level in line with its international commitments. As an intermediary, the NCCC further acts as a conduit for the carbon budget’s journey to the FEC, adding a layer of review and potential recommendations.

In summary, the responsibilities are distributed to ensure a cohesive approach, with the FMEnv at the helm, supported by a network of oversight and collaboration from key governmental institutions. With its experience in socio-economic data, research and information via NBS and NISER, the FMBEP can provide the technical capacity in the development of the MRV strategy and implementation plans that will form the basis of a National Carbon Accounting Framework.

Stakeholder perspectives: Challenges & opportunities

From discussions with stakeholders, there were two overriding themes around a) obtaining funding given the current domestic and international economies, and b) coordinating efforts among parties to achieve impact.

Recommendations

The following are the immediate recommendations from this brief analysis.

References

Endnotes

About the author

Ebipere K. Clark

Ebipere Clark is a senior investment professional and policy advisor with over three decades of experience at the intersection of finance, infrastructure, and sustainable development. His work spans capital markets, public-private partnerships, and strategic advisory for governments, multilateral institutions, and philanthropic organisations.