Ugo Aliogo in this report examines the implications of the proposed Economic Community of West African States fuel grade and vehicle emission policy on the Nigeria economy
In 2018, the Economic Community West African States (ECOWAS) inaugurated a study for the development of a regional framework for the harmonisation of fuel grade and vehicle emissions standards in the ECOWAS Region.
The study was awarded to CITAC Africa limited, a UK-based, independent consultancy company focusing on the downstream African Energy market. CITAC is the primary consultant. ECOWAS later brought in a Non-Government Organisation (NGO) on environmental studies known as the International Council on Clean Transportation (ICCT), to jointly offer the necessary expertise to undertake the study.
CITAC submitted its initial report early last year, but ICCT intervened and allegedly pressured CITAC to change the study recommendations.
This allegedly became a dispute which CITAC added in the Appendix 7 (pages 199-200) to the study’s final report, which describes the dispute.
In the appendix, CITAC proposed a formation of an expert group to further review the recommendations (which never happened) and the rationale for their final recommendations.
According to the recommendations of the report, there is need for adoption of more stringent diesel and petrol fuel specifications for all imported and domestically fuels commencing January 1, 2021, “for all imported fuels, and January 1, 2024 for all domestically produced fuels.”
The recommendation further stated: “Imposition of a requirement that all imported vehicles meet Euro 4 vehicle emission standards commencing January 1, 2021, as well as a restriction that all imported passenger vehicles be no more than 5 years old with no more than 100,000 kilometers (km) of operation and that all imported heavy duty vehicles be no more than 10 years old with no more than 500,000 km of operation.
“Implementation of Euro 3 vehicle emission standards for all in-use motor vehicles in the ECOWAS region commencing January 1, 2024; and Implementation by the ECOWAS Commission of a range of programs that will ensure proper enforcement of the adopted fuel and vehicle emission requirements (such as, vehicle inspection and maintenance programmes, vehicle registration requirements, fuel testing requirements, and others.
Adoption OF Final Report
On February 6, a joint meeting of ECOWAS Ministers in charge of hydrocarbons and those in charge of the environment was held in Burkina Faso to consider adoption of the final report and its recommendations.
At the meeting, the ministers in attendance, oblivious of the conflict in the submitted report by the consultants CITAC and the environmental NGO ICCT, and also the implication of the implementation on the economy and citizens of their respective countries, adopted the final report and issued decisions approving some, but not all, of the recommendations from the final report.
As reflected in the proceedings of the 2020 Burkina Faso meeting summarised in a final report entitled, “Joint Meeting of ECOWAS Ministers in Charge of Hydrocarbons and Those in Charge of Environment,” the Ministers opted not to adopt the Euro 3 in-use recommendation and opted to defer the five-10 year age requirement for imported passenger cars and heavy duty vehicles, respectively, for a 10-year transition period.
The Burkina Faso Report contains little or no explanation for either of the decisions. The next step will be issuance by the ECOWAS Commission of a Directive for final approval and implementation to the member states, including Nigeria, within the next few months.
Major Concerns for Nigeria
The ECOWAS Ministers’ recommendations from the Burkina Faso meeting if implemented as proposed, will likely have minimal short-term benefit on air pollution reduction and will result in several unintended negative impacts. The largest sources of mobile source air pollution in Nigeria namely, older, poorly maintained, high polluting diesel engines will not be addressed.
It was also learnt that for unknown reasons, the ministers at the Burkina Faso meeting chose not to implement the recommendations from the final report for application of Euro 3 emission standards for all in-use vehicles commencing January 1, 2024.
Another concern was that Nigerian consumers will confront both substantial increases in the cost of automobiles and fuel prices during a time of significant economic uncertainty.
It was learnt that commencing January 1, 2021, it will be illegal for Nigerian businesses and consumers to purchase any imported vehicles older than the 2005 model year.
“Even with delayed implementation, the five-10year vehicle age importation restriction will inevitably have a very substantial upward impact on the cost of motor vehicles for Nigerian’s citizens. Within the next few months, the ECOWAS Commission is expected to issue a Directive for final approval and implementation to the member states, including Nigeria, to take effect from January 1, 2021.
“If approved and implemented as proposed, the regulations will likely have significant negative economic consequences for Nigerian consumers and the economy and will likely have minimal environmental and health benefits for many years to come.
“The final report concludes, ‘the results in net benefits to society are valued at $107bn in the period 2018-2050. Nearly all of these benefits are attributed to cleaner diesel engines enabled by the transition to 50ppm diesel and Euro 4/IV diesel vehicles.’
“A preliminary independent analysis has concluded the $107billion net benefit presented in the Final Report is incorrect and has further determined the recommendations in the Final Report will have a net cost of $78.1 billion, with approximately two thirds of the net cost impacting Nigeria.
“The ECOWAS Ministers were apparently unaware of this major flaw when they approved the Final Report at a February 2020 meeting in Burkina Faso. These errors must be addressed to ensure the success of this
important ECOWAS initiative and to prevent a potentially costly multi-billion-dollar failure,” it stated.
Reacting to the issue, an expert, Emeke Obi said the policy, if implemented as proposed would not be in the best interest of Nigeria.
He stated that Nigeria’s economy is heavily dependent on road transportation and logistics in moving goods and services, adding that other means of transportation such as rail; sea and air are not optimal yet, undeveloped, or too costly.
He noted that fairly used cars provide the most affordable means of transportation for goods and services within the country.
He further explained that placing an import ban on cars from five years old is akin to obliterating Nigeria’s transportation economy, which road transport plays a major role, “this will further lump a great number of Nigeria’s population who are dependent on road transportation in their daily life into poverty.”
Obi expressed confidence that while the stated objective of the policy is to reduce pollution caused by automobile, it is instructive to note that the greatest culprits of environmental pollution in Nigeria are older and poorly maintained diesel cars, as well as industries, and not fuel cars, stating that the policy does not even address its stated goal of reducing air pollution, and is not very useful to the country at this point.
According to him, “I believe that the key issue from what I read in the media is the issue of environmental pollution and socio-economic benefits to sub-region and Nigeria in particular. However, ECOWAS and its consultant appear to have either misled the Ministers and Heads of States and Governments of member countries with miscalculations or errors in arriving at the so-called benefits.
“From media reports, I understand that instead of benefits as claimed by the promoters of the regulations, that they are substantial costs running into $79 billion. So, Nigerian government needs to reassess the proposed regulations to avoid a faulty implementation that will hurt the economy and Nigerians the more.
“The implications of the regulation on the economy will be negative. We need to first develop other forms of transportation, reduce poverty and boost purchasing power before thinking about banning fairly used cars.
“Only a minority percentage of the population, less than five per cent can afford new cars. The rest of the population, who constitute the most productive group depend on fairly used cars in transporting their goods and services. A move to implement the ECOWAS fuel grade and vehicle standard regulation will lead to a halt of productive activities, which the country needs in generating income. This will seriously affect the GDP of the economy, lead to unemployment and increase poverty rate.
“The regulation would have been very welcomed if Nigeria possessed high purchasing power parity, as well as the finances to cover the incremental technology cost and incremental operating cost that goes with manufacturing and importing new vintage automobiles, which could cost the country over $100 billion.
“More so, the continued viability of domestic refineries will be put at risk, with attendant job losses.”
He added: “It is recommended that before finalising the ECOWAS regulations, Nigeria government should independently review the apparent errors in the regulation and address them. There must be accurate assessment of the multi-billion-dollar costs and benefits, especially in light of the current financial stress emanating from COVID-19 and oil market instability.
“In addition, government needs to develop a realistic implementation and funding plan for the costs to avoid a disappointing failure later in achieving the targeted environmental goals.
“I think the problem is not about the government not being concerned, but about the FG not being fully briefed or aware about the key issues in the proposed regulations. I doubt it, could it be possible only the Minister of Petroleum might be the only one aware of the proposed regulations, since the decision was taken by ECOWAS Ministers?
“There are key stakeholders involved in the issue directly and tangentially. I think that national stakeholders should be carried along since the regulation will have impact across various sectors of the economy. If it has not been done, the Federal Executive Council needs to be fully briefed about the inherent constrains in implementing this regulation on the Nigerian economy and Nigerians.
“Government as a matter of urgency has to conduct an independent review to ascertain the accuracy and sufficiency of the basis ECOWAS and its consultant used in arriving at the so-called socio-economic benefits, when it appears that the government will have some huge costs to bear towards implementing the proposed regulations.
“My recommendation will be for FG to request for a suspension of the January 1st 2021 implementation date; constitute a national stakeholder review committee or group to look into the pros and cons of the proposed regulation and independently reassess the costs/benefits analysis of the whole package.”