Gas flaring protects oil companies' profits at the cost of farmers' livelihoods. Can enhanced regulation enable economic growth while sustaining agricultural productivity?
Editor's note: You can find other podcasts recorded at STEG Annual Conferences on the STEG website: STEG Podcasts. This episode of VoxDevTalks is also available on Spotify, Apple Podcasts, and YouTube.
In this episode of VoxDevTalks, recorded at the fifth annual Structural Transformation and Economic Growth (STEG) conference, Tim Phillips speaks with Arinze Nwokolo about his research on the far-reaching consequences of gas flaring in Nigeria. His work investigates how the gas flaring associated with oil extraction is devastating agricultural productivity and reshaping local economies.
Understanding gas flaring and its impact
Gas flaring, as Nwokolo explains, is the process of burning natural gas that emerges alongside crude oil during extraction. Companies may opt for this method when the price of gas in the international market is low, making storage or reinjection economically unattractive. However, the environmental toll is significant.
"It puts quite a lot of pollutants in the atmosphere. So, you have carbon dioxide, nitrogen dioxide, black carbon, particulate matter, methane, which is actually causing a lot of climate change in the world now."
Although there are viable alternatives—such as liquefying the gas for sale, reinjecting it to boost oil extraction, or compressing it for energy use in nearby communities—Nwokolo highlights that it "depends on whether the oil companies think it is cost effective or not, if there are the incentives to do so."
Nigeria’s gas flaring problem: Scale and communities at risk
Nigeria leads Africa in gas flaring. Between 2012 and 2020, the country flared between 5.6 and 9.3 billion cubic metres of gas annually.
"A minimum of 2 million people live close to gas flaring sites in Nigeria and the Niger Delta, and that has a huge health impact on the populace."
Nwokolo’s research zeroes in on how this practice affects agricultural productivity in these vulnerable communities. Using detailed data from the World Bank’s Living Standard Measurement Survey between 2010 and 2023, Nwokolo calculates the "real value of agricultural productivity per hectare cultivated by each household within each region or local government area in Nigeria."
The severe reduction in agricultural productivity
The proximity to gas flaring sites has a direct, measurable impact on agricultural yields. "If you are close to about 20 kilometres from the gas flaring sites, agricultural productivity reduces by 61%." Even at distances of up to 60 kilometres, productivity declines, though to a lesser extent.
Through careful econometric analysis, including controls for weather, conflict, and regional differences, Nwokolo shows that this relationship is robust.
"Conditional on controlling for other things that might affect agricultural productivity, by removing flaring, it should be almost the same."
He further validates his findings using placebo tests, ensuring that the observed effects are directly attributable to gas flaring itself.
"When you actually look at it from the perspective of these farmers within this region, within this area where there’s gas flaring, there’s a huge effect."
Multiple damaging mechanisms at play
The study identifies several mechanisms through which gas flaring harms local communities and their agricultural output:
- Air pollution: Nwokolo confirms that gas flaring significantly increases dangerous pollutants like particulate matter (PM2.5), black carbon, and nitrogen dioxide in affected areas.
- Labour reallocation: Farmers exposed to gas flaring "dedicate less time to agriculture when they are exposed to gas flaring and dedicate more time to service sectors". His data shows a 5% reduction in agricultural labour hours and a more than 50% increase in time spent on service-related activities.
- Health impacts: Farmers "tend to fall ill because of gas flaring", further driving them away from agricultural work.
Nwokolo’s research shows that this pattern is unique in its scale:
"Gas flaring in my study reduces productivity by 61%, which is huge."
When compared to other studies, the impact of gas flaring is notably more severe. For instance, gold mining is associated with a 40% productivity reduction, and air pollution in India accounts for only a 0.68% decline in agricultural productivity.
“Flaring is quite significant in reducing agricultural productivity.”
Economic pressures behind the flaring surge
Nwokolo’s research highlights a key economic driver behind gas flaring trends in Nigeria. A significant spike in flaring occurred around 2012, coinciding with a drop in international gas prices and a rise in oil prices. This created a financial incentive for oil companies to focus on oil extraction while neglecting the management of natural gas by-products.
"As the gas prices were going down, oil price was increasing... Because of that increase, gas flaring increased because oil companies had more incentives to produce more oil… but less incentive to store gas and send it to the international market."
Weak regulation enables the problem
The Nigerian government's current gas flaring penalties are far too low to deter the practice.
In Nigeria, oil companies producing less than 10,000 barrels pay US$0.50 for every 28.31 standard cubic feet of gas flared. If they produce more than 10,000 barrels, this increases to US$2 per 28.31 standard cubic feet. Nwokolo stresses that these fees are minimal:
"What that means is that the oil companies are willing to flare gas because the amount they’re going to pay is still very minute.”
Moreover, since the companies self-report flaring volumes, there is ample room for underreporting, which exacerbates the issue.
Nwokolo argues that more stringent regulation and enforcement are critical:
"There needs to be more regulation, especially monitoring. It has to be stringent, and the government needs to increase the amount that oil companies pay."
However, political will is lacking.
"The governments might not be willing to do that because oil is the mainstay of the economy, so they do not want to antagonise the oil companies because that might have a negative effect on their revenue."
A call for decisive action
This episode offers a sobering view of how short-term economic incentives can have long-lasting and devastating impacts on the environment, food security, and rural livelihoods.
Nwokolo’s research on gas flaring, agricultural productivity, and labour reallocation offers an urgent call to policymakers to rethink how the costs of oil extraction are borne by local communities and to reconsider the true price of Nigeria’s fossil fuel wealth.
For further information on this research and the broader work of the STEG initiative, visit steg.cepr.org.