Nigeria, Africa’s largest oil producer, launched a 5% tax on fossil fuel consumption as part of comprehensive tax reforms taking effect in January 2026.
The new regulation mandates that Nigerians pay a “5% surcharge that is chargeable on fossil fuel products provided or produced in Nigeria,” collected directly at the point of sale during each transaction.
The fossil fuel tax strategically excludes clean energy alternatives, household kerosene, cooking gas, and compressed natural gas from the surcharge. This selective approach mirrors international carbon tax models, using percentage-based pricing instead of explicit costs to incentivize consumers toward cleaner energy alternatives.
Nigeria’s approach echoes Sweden’s successful 1990s carbon tax implementation, embedding the fuel surcharge within broader tax reform legislation. This comprehensive framework reduces potential backlash while ensuring policy alignment across government initiatives and regulatory changes.
Following fuel subsidy elimination two years ago and recent electricity tariff increases, Nigeria witnessed explosive solar energy growth in 2024.
The country achieved a 4th-place ranking in African solar adoption, adding 63.5 MWp capacity to reach 385.7 MWp total installed capacity as consumers sought cheaper energy alternatives.
The flat 5% rate raises equity concerns in a country experiencing widening income inequality and a shrinking middle class. Critics argue that progressive surcharge structures, increasing with consumption thresholds, would better serve a nation where millions rely on petrol-powered generators for basic electricity needs.
The 2025 Tax Act provides no clear guidance on fossil fuel surcharge revenue allocation, raising questions about the policy’s environmental versus revenue-generation priorities. Unlike Sweden and British Columbia’s revenue-neutral carbon tax models featuring citizen rebates and tax cuts, Nigeria’s framework offers no direct cushioning mechanisms for taxpayers.
International estimates suggest emerging economies require $2.4 trillion annually by 2030 for climate investments, plus $3 trillion for additional Sustainable Development Goals. Nigeria’s fuel tax revenue could support the National Climate Change Council Secretariat, finance green technology research, and reduce dependence on foreign climate funding.
Denmark’s success with electric vehicle adoption through market-driven price incentives demonstrates the potential effectiveness of Nigeria’s approach. The policy aims to create external market forces that compel transition away from fossil fuel dependence toward sustainable energy alternatives.
Nigeria’s 5% fuel tax represents a pivotal moment in the country’s energy transition journey, potentially serving as the catalyst to end over six decades of fossil fuel dependency. While short-term implementation challenges exist, effective execution could position Nigeria as a regional leader in climate action and sustainable development financing.