Global carbon markets are attracting increasing institutional capital as investors seek new avenues for diversification and sustainable returns. In Nigeria, recent climate policy initiatives and efforts to develop a domestic carbon market have positioned the country as a potential hub for carbon trading in Africa. As carbon credits gain commercial value, they are increasingly viewed not merely as environmental instruments, but as an emerging asset class with investment potential.
Why Institutional Investors Are Interested
Global investment in carbon-credit activities reached about US$43.4 billion between 2021 and Q3 2024, showing the scale of capital entering the market. Carbon markets provide access to an asset with different drivers from traditional equities and fixed-income instruments, while giving investors exposure to the transition toward a lower-carbon economy.
ESG and sustainability mandates also influence demand. Pension funds, insurers and other asset owners face growing pressure to manage climate risks and align portfolios with net-zero commitments. Investors can gain carbon-market exposure through financing carbon projects, investment funds, forward offtake agreements or direct purchases of credits. Investment funds also spread exposure across projects, reducing reliance on the performance of a single project. In Nigeria, this interest aligns with a developing domestic market and a carbon-finance opportunity estimated at US$2.5 billion.
Key Nigerian Tax Considerations
Nigeria’s tax treatment of carbon credits sits at the intersection of established tax rules and an asset class that the current Nigerian legal landscape does not expressly define. The Nigeria Tax Act 2025 (the “NTA”), effective from 1 January 2026, treats all forms of property as chargeable assets, including rights, digital or virtual assets and incorporeal property. This approach provides a basis for taxing gains from carbon-credit disposals but leaves questions over the precise legal character of carbon credits.
Nevertheless, for institutional investors, the disposal of credits carries a potentially significant corporate tax consideration. Under the new regime, capital gains form part of the corporate tax computation rather than attracting the former standalone 10% capital gains tax. For companies, taxable gains therefore face the applicable corporate income tax rate at 30%. The treatment also depends on whether credits are held as investment assets or as trading inventory, making the investor’s purpose and accounting treatment important.
On the Value Added Tax (the “VAT”) spectrum, Section 146 of the NTA brings certain incorporeal rights within the Nigerian VAT nexus where, among other tests, the right is assigned to or acquired by a person in Nigeria. Taxable supplies generally attract VAT at 7.5%. A transaction involving carbon credits therefore has a strong basis for VAT exposure, although the Act does not expressly identify carbon credits or prescribe their treatment.
For Cross-border transactions, payments to foreign counterparties might trigger withholding tax where the underlying arrangement involves royalties, commissions or specified services, but a straightforward purchase of a carbon credit should not automatically be treated as a taxable service. The central issue is therefore not the absence of tax rules, but the absence of carbon-credit-specific guidance. As market volumes increase, clear guidance from the Nigerian tax authority on classification, valuation, WHT and cross-border treatment will reduce uncertainty and improve investment certainty.
It is however worth adding, pending the issuance of clear guidance that this class of assets may obtain a favorable tax treatment, considering that the Nigerian government has adopted a policy that seeks to encourage the adoption of cleaner energy sources. Therefore, while clear and precise guidance is necessary at this time, the potentially positive impact of this class of assets must be kept in view in the drafting of such tax guidelines.
Regulatory Developments
Notably, Nigeria has moved from policy development toward an operational carbon-market framework. President Ahmed Tinubu approved the National Carbon Market Framework in January 2026, with the National Council on Climate Change serving as the central institutional authority. The framework covers project approval, credit issuance, recording, authorization and trading, including participation under Article 6 of the Paris Agreement.
The framework also connects Nigeria’s voluntary carbon market with the Paris Agreement’s Article 6 mechanisms, creating a basis for internationally transferred carbon credits and corresponding authorizations. In March 2026, Nigeria authorized the international transfer of 5.2 million carbon credits by a clean cooking company to the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), marking a move from policy design toward implementation.
Conclusion
Carbon credits are emerging as a distinct investment asset, supported by growing institutional interest and Nigeria’s developing carbon-market architecture. Importantly, considerations for the regulation of this asset class must take into account the potentially positive impact of this asset class. Therefore, clearer tax rules, ownership rights and market regulations, issued promptly, will be essential to reduce uncertainty, strengthen investor confidence and support sustainable market growth and adoption.
