Exploring the CO(2) emissions drivers in the Nigerian manufacturing sector through decomposition analysis and the potential of carbon tax (CAT) policy on CO(2) mitigation

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 [Formula: see text] 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.