Exploring the CO2 emissions drivers in the Nigerian manufacturing sector through decomposition analysis and the potential of carbon tax (CAT) policy on CO2 mitigation

Abstract

The CO 2 emissions trend and their reduction potential in the Nigerian manufacturing sector from 2010 to 2020 were studied. The Logarithmic Mean Divisia Index was applied to decompose the change in CO 2 emissions into pre-set factors: carbon intensity effects, firm energy intensity effects, cost structure effects, asset-turnover effect, asset-to-equity effect, equity-funded production effect and productive capacity utilization. The results show that the change in emissions increased by $$1668\times {10}^{12}$$ 1668 × 10 12 GJ between 2010 and 2020. Energy intensity and equity-funded production were the leading drivers of increased emissions, while productive capacity utilization reduced emissions. The CO 2 emissions increased throughout the study, except for a few periods. Without a carbon tax policy, the results show that firm-level drivers increased CO 2 emissions in the business-as-usual scenario. However, under the 5% carbon tax (CAT) policy scenario on energy consumption, there was a reduction in CO 2 emissions between 2010 and 2020. Furthermore, a CAT policy of 5% on energy consumption reduced CO 2 emissions by 22%. A further implication of CAT policy, given its interaction with firm-level drivers, resulted in lowering CO 2 emissions in the interactional scenario. The findings indicate productive capacity utilization, equity-funded production, and CAT impacted CO 2 emissions variation.