Addressing environmental damage to enhance agricultural livelihoods and improve the well-being of local communities: the case of crude oil pollution in Nigeria

Since crude oil was discovered in the Niger Delta Region of Nigeria in 1956, there has been numerous cases of oil spills. Nigeria's National Oil Spill Detection and Response Agency records over 10,000 oil spill incidents from 2012 to 2022, totalling more than 466,000 barrels of oil spilled into the environment. The resulting environmental damage has had a direct impact on the livelihood of farmers and fishers through losses in agricultural production, leading to poverty and forced displacement. The damage has also led to food insecurity, myriad of health issues, and armed conflict which is an international concern.

This thesis addresses the environmental and related economic issues stemming from crude oil pollution in the Niger Delta Region of Nigeria. We study three related themes that enhance our understanding of how to deal with the negative externalities. To do this, we undertake three research tasks which constitute the three independent chapters/papers of the thesis.

We begin in Chapter 1, by briefly motivating and outlining the research presented in the thesis. We explain how the research presented in the thesis is in part motivated by the legal framework that is in place to deal with oil production and the associated negative externalities from production.

In Chapter 2, we apply a Bayesian mechanism design approach to revisit the Coasian bargaining framework for addressing a negative externality. This framework considers how bargaining for compensation payments between a polluter and a pollutee (i.e., pollution victim) can effectively address an environmental externality. The theoretical model developed allows for private information plus allowing for different levels of bargaining power between both agents. The framework is designed to capture the key aspects of the pollution problem in the study area, especially the implicit bargaining power of the parties involved. In so doing, the model provides important insights to appropriate policy responses and informs our empirical research that follows in Chapters 3 and 4. The model results illustrate the importance of property rights enforcement (via compensation payment to whom it is due) in internalizing the negative externalities associated with oil production. The results also show that there are social welfare gains from reducing the bargaining power of the polluter during the compensation settlement process. This specific insight emerges from examining changes in relative bargaining power for the polluter (petroleum companies) and the pollutee (local populations living in the Niger Delta Region).

In Chapter 3, we present our first piece of empirical research. Specifically, we conduct an in-field hypothetical choice experiment in petroleum host communities (communities directly affected by oil production pollution) in the Niger Delta Region of Nigeria to examine households' willingness to accept compensation for environmental damage due to oil pollution. The reason for estimating household willingness to accept compensation follows from the examination of property rights in Chapter 2. With our survey data, we find that although households are willing to trade-off environmental damage for compensation, they simultaneously demand high environmental quality. Our results reveal negative preferences towards environmental loss and positive preferences for financial and non-financial compensations. These findings can enable the development of compensatory schemes that can hold oil polluters responsible for making payments for the damage they cause, while recommending the implementation of other measures that control pollution.

In Chapter 4, we conduct a second in-field hypothetical choice experiment. In this case, it was implemented in non-petroleum host communities to elicit individuals' willingness to pay for environmental restoration in oil polluting host communities. This choice experiment was designed to examine non-use values for environmental restoration following a pollution event in a developing country context. We find that a majority of individuals are willing to pay, in the form of a donation, to support environmental remediation following a severe oil spill. The results reveal that protecting the environment in host communities has additional benefits beyond those that accrue to the residents of these communities. As such, we lend further support for environmental consideration in host communities.

Finally, in Chapter 5, we conclude with a summary of the thesis and its key findings, the resulting policy implications, limitations of the current research and suggestions for further research. We believe incorporating the environmental values of residents of the Niger Delta Region into oil pollution response is crucial to addressing the pollution problem.