Nigeria's plan to raise a $2 billion climate finance facility to support its energy transition has drawn cautious reactions from economists, who warn that increased reliance on green finance loans could deepen the country's debt burden despite strong investor appetite for climate-linked assets.
President Bola Tinubu unveiled the plan on Tuesday at the Abu Dhabi Sustainability Week summit, where he said the Federal Government intends to capitalise the National Climate Change Fund to the tune of $2 billion.
The fund is expected to finance projects that reduce emissions, strengthen climate resilience and support Nigeria's long-term Energy Transition Plan.
In addition, Tinubu announced the launch of Nigeria's Climate Investment Platform, which aims to mobilise $500 million for climate-resilient infrastructure across critical sectors of the economy.
Follow us on WhatsApp | LinkedIn for the latest headlines
He said Nigeria's growing use of green bonds demonstrated confidence by global investors in the country's climate agenda.
To underscore this point, the President cited the oversubscription of Nigeria's sovereign green bond programme. A N50 billion green bond issued in 2025 reportedly attracted subscriptions worth N91 billion, while Lagos State's green bond was oversubscribed by nearly 98 per cent.
The president also disclosed that Nigeria and the United Arab Emirates had signed a Comprehensive Economic Partnership Agreement (CEPA), a deal expected to boost trade and investment in renewable energy, aviation, logistics, agriculture, digital trade and climate-smart infrastructure.
Nigeria's push for green finance comes as the country faces mounting environmental challenges, including gas flaring and methane emissions, while pursuing its Energy Transition Plan, which targets net-zero emissions by 2060 alongside universal access to modern energy.
However, economists say the debt implications of raising climate-linked loans require careful consideration.
Reacting to the announcement, the chief economist at SPM Professionals, Dr Paul Alaje, warned that the cost of issuing bonds -- even under the green finance framework -- could worsen Nigeria's debt burden and expand future budgets.
"The cost of bonds has issues. It has to do with our debt profile. It will creep into our budget and increase our budget size," Alaje said.
While acknowledging the importance of infrastructure development, Alaje stressed that borrowing terms must be highly competitive to avoid placing undue pressure on the economy.
"Infrastructure is important and necessary, but we must properly negotiate the rates so that it does not become a burden on the economy," he said.
Alaje also cautioned that most green bonds are commercial instruments, limiting the government's flexibility in the event of future fiscal stress.
"Most of these bonds are commercial, so hoping to file for cancellation may not be as easy as we think," he noted.
He further warned against excessive exposure to foreign currency loans, citing the naira's long-standing vulnerability to devaluation. According to him, currency depreciation has been a major driver of Nigeria's rising debt stock in recent years.
"Between 2023 and 2025, Nigeria's debt increased largely due to the devaluation of the naira. There were no new loans; it was purely the impact of exchange rate changes," Alaje said.
On the impact of the proposed $2 billion climate finance on Nigeria's external reserves, Alaje said borrowing would provide a temporary boost, but at a cost.
"It will boost our reserves, but borrowing comes at a cost. There are alternatives that strengthen reserves without debt, such as remittances and exports of finished products," he said, referencing overseas sales of fertiliser and cement.
As Nigeria intensifies efforts to finance its energy transition through green instruments, analysts say the challenge for policymakers will be balancing climate ambitions with debt sustainability, currency risks and long-term economic stability.
The director general of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said that Nigeria has significant growth opportunities in sustainability, and green finance can play a transformative role in unlocking them.
According to him, as the country navigates the global energy transition, investments in renewable energy, energy efficiency and climate-responsive infrastructure offer both economic and environmental dividends.
"Renewable energy and energy-efficient solutions are already in high demand across Nigeria, driven by businesses and households seeking more reliable and cost-effective power. These investments lower operating costs, improve productivity and strengthen competitiveness, while advancing national climate objectives."
"A major advantage of green finance is access to cheaper and more flexible funding. Strong global investor interest in sustainability has made green finance more affordable than conventional commercial debt, creating an attractive channel to support climate and energy transition pojects," Yusuf said.
Yusuf disclosed that rather than relying primarily on direct public borrowing, the government should prioritise enabling private-sector access to green finance through well-structured sovereign guarantees.
"Green finance must be deployed within a clear debt sustainability framework. While concessional, excessive borrowing, even for green projects, can increase debt service pressures and constrain fiscal space, limiting the government's ability to fund other critical infrastructure and development priorities.
"A more balanced approach is therefore required. Rather than relying primarily on direct public borrowing, government should prioritise enabling private-sector access to green finance through well-structured sovereign guarantees.
"This would mobilise private capital for renewable energy and climate projects, reduce pressure on the public treasury, and limit direct debt service obligations," he said.
Yusuf pointed out that green finance represents a strategic opportunity for Nigeria's economic diversification and long-term resilience, saying that "to maximise its benefits, it must be pursued with discipline, balance and a strong focus on fiscal sustainability."
On his part, the national chairman of the New Dimension Shareholders Association, Mr Patrick Ajudua, emphasised the significance of green bonds and finance as essential instruments for funding climate-related projects such as renewable energy, clean transportation and sustainable water management.
He acknowledged Nigeria's substantial debt profile but praised investors' commitment to the government's ambitious $2 billion climate fund initiative, saying that this approach aligns with global standards for addressing climate change, which Nigeria has endorsed.
With the decline in energy generation, Ajudua pointed out that "industries are increasingly turning to clean energy sources like solar power to meet their energy requirements.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
This shift, Ajudua said, not only lowers energy costs for both businesses and households but also contributes to a more affordable, reliable and environmentally friendly economy.
"By reducing energy expenses, one of the major components of production costs, companies can enhance their profitability and subsequently provide better dividends to stakeholders. Meanwhile, the government stands to benefit from increased taxation, further bolstering the economy."
Vice-Chancellor of Summit University, Kwara State, Prof. Abiodun Musa, affirmed Nigeria's capability to generate the desired funds to facilitate climate-resilient projects.
Musa, while speaking with our correspondent, stated that Nigeria has significant potential for decarbonisation projects, leveraging its vast renewable energy resources (solar, hydro, biomass), nature-based solutions (forests), and a growing need for modern energy.
He, however, stated that Nigeria will overcome barriers such as high costs and infrastructure deficits, and strengthen policies, with opportunities in renewables, gas transition, efficiency and smart urban technology.
According to the Vice-Chancellor, climate change poses a significant global challenge, with profound consequences for economies, ecosystems and human life.
Nigeria, he noted, is one of Africa's largest oil producers and faces a unique challenge of transitioning to a low-carbon economy while ensuring economic stability and access to energy.
According to him, President Tinubu's move in launching the fund in the UAE further affirms the present administration's strong desire to sustainably drive economic growth by attracting investments in critical areas of the economy.
