1. INTRODUCTION

The current gas projects now face strict carbon regulations which make their operations more complex than their original hydrocarbon work. Natural gas which used to function as a “bridge fuel” for the global energy transition because of its lower carbon emissions compared to coal and oil now faces increased examination. The combination of climate research requirements from investors and demands from regulatory bodies now requires organizations to demonstrate their accountability.

The new rule has transformed carbon compliance from a minor environmental matter into a comprehensive set of legally binding obligations which exist in laws and secondary legislation and licensing terms and contracts and disclosure requirements. The responsibilities demand gas project sponsors to evaluate their greenhouse gas emissions while documenting their findings and implementing measures to reduce and partially control their emissions. The legal system establishes distinct penalties for failure to meet obligations.

The legal frameworks for carbon compliance create links between emissions control requirements and ESG reporting obligations and climate risk lawsuits which particularly affect Nigerian gas companies. The article analyzes how contemporary law establishes regulations for emissions control and ESG requirements and climate risk management in gas operations while citing Nigeria’s Petroleum Industry Act (PIA) 2021 and Climate Change Act 2021 and new carbon market regulations as examples. The research demonstrates that Nigeria established a comprehensive carbon compliance legal system. The effectiveness of these pathways is restricted because statutory language lacks clarity and institutional functions are divided and enforcement systems are weak which creates legal uncertainty for gas project sponsors. The analysis of these pathways, shows the existing strengths and weaknesses together with potential opportunities and threats which exist in the current legal system. The legal framework establishes the operational rules for gas projects which determine how responsibilities emerge and violations are assessed and accountability is distributed between parties.

2. THE RISE OF CARBON COMPLIANCE AS A LEGAL CONSTRUCT

Carbon compliance has become a fundamental legal requirement which exists under both national and international legal frameworks. Companies must follow binding regulations which require them to monitor their greenhouse gas emissions and implement measures for continuous emission reduction according to the rules which originate from laws and contracts and licenses. Organizations must follow binding legal obligations according to the strict legal definition of carbon compliance. Organizations use multiple factors to establish their emission reduction programs which result from their carbon compliance obligations.[1] Gas projects require companies to reduce all types of gas emissions through their flaring and venting operations while they must use cleaner technologies and report their emissions according to established monitoring reporting and verification systems.[2] The obligations which have been defined for this work extend beyond regular operational requirements because they consist of duties that require legal enforcement. The violation of these duties can lead to administrative penalties which include fines and the implementation of more severe license conditions and regulatory actions and in certain situations civil liability.

The current climate change laws in Nigeria, which include the Climate Change Act 2021, implement the country’s Nationally Determined Contributions (NDCs) from the Paris Agreement as binding domestic legal standards which transform political commitments into nationally enforced obligations. The legislative process establishes international duties as binding domestic standards which governments must use to measure their progress and evaluate the actions of private organizations. The Gas Flare, Venting, and Methane Prevention of Waste and Pollution Regulations 2023 together with NUPRC’s guidelines on methane emissions control create operational targets through their requirements of technical and legal compliance from gas producers and transporters.

The output creates a carbon compliance cascade which operates through five levels that include global climate commitments, national laws, sector specific regulations, licence conditions, and contractual project arrangements.[3] The cascade process establishes different legal responsibilities at each stage while various regulatory bodies take charge of enforcing the rules and the process establishes particular compliance requirements. For gas project sponsors, carbon compliance is not a one off regulatory checkpoint. The process requires continuous collaboration between different legal frameworks because any failure during the process can result in enforcement actions or contractual penalties.

3. EMISSIONS REGULATION AND GAS‑PROJECT LICENSING

Gas projects are especially sensitive to emissions-based regulations because natural gas produces less carbon emissions than coal yet still generates CO₂ and methane emissions. Methane leakage and gas flaring now serve as primary compliance concerns for regulators instead of being treated as minor environmental disturbances. The ongoing gas flaring in the Niger Delta region of Nigeria has resulted in permanent legal examination because courts and regulators have identified breaches of both the Flare Gas (Prevention of Waste and Pollution) Regulations and the Environmental Impact Assessment (EIA) Act.[4]

Licensing authorities now require emissions control conditions to be included in petroleum rights and gas processing licences for carbon compliance purposes. The Nigeria Upstream Petroleum Regulatory Commission (NUPRC) has the authority to grant or revoke licences according to the PIA 2021 when operators do not achieve their commitments to reduce gas flaring and fugitive emissions.[5] The Gas Flare Regulations establish a principle of “Zero Routine Flaring” which requires financial penalties and license sanctions to enforce compliance. The same trend exists in all other countries because Canada’s Oil and Gas Sector Greenhouse Gas Emissions Cap establishes an emissions limit which regulates specific parties who must report their emissions and participate in allowance trading.[6]

Gas projects require a complete carbon compliance system which acts as their primary requirement for both project development and financial backing. Legal pathways here include:

a). Condition setting in licences and leases (e.g., flaring caps, methane reduction targets, gas utilisation commitments).

b). Inspection and enforcement powers (site audits, remote sensing, third party verification).

c). Financial disincentives (emission-related fines, waste of gas penalties) and potential linkage to carbon pricing mechanisms.

The regulatory tools demonstrate strong capabilities yet their actual implementation remains inconsistent which particularly affects their ability to control ongoing gas flaring activities. This situation makes it difficult to use emissions regulations as a valid method for carbon compliance in Nigeria.

4. ESG OBLIGATIONS AS A PARALLEL REGIME

Environmental Social and Governance obligations function as parallel regulations which track emissions control laws. The gas project risk assessment process now uses formal environmental breach criteria to evaluate project dangers. Investor expectations and stock exchange listing requirements currently drive primary development of ESG frameworks. The Task Force on Climate-Related Financial Disclosures and International Sustainability Standards Board act as international standards which drive additional requirements. The ESG requirements for gas focused companies exist as three separate obligation groups:[7]

i). Environmental due diligence and impact management.

Gas projects need to prove they addressed all environmental impacts in their project assessment process. The evaluation process needs to consider air emissions and water consumption and biodiversity impact and total environmental impacts on local communities. The EIA Act in Nigeria mandates developers to perform environmental impact assessments for projects that have the potential to create major environmental damage. ESG-conscious investors and lenders now demand more extensive environmental-risk evaluations which include methane-intensity standards and “no backsliding” provisions in addition to formal EIAs.[8]

ii). Social‑licence‑to‑operate considerations.

The gas operators must resolve community relations problems and land use conflicts and revenue-sharing agreements because ESG pressures force them to do so. In Nigeria gas flaring together with its pollution effects has created health hazards and agricultural destruction and social economic unrest in the Niger Delta. The situation has resulted in both legal battles and damage to the industry’s public image. [9] The legal pathway available in this situation include three specific methods which involve negotiated community development agreements and environmental justice litigation and national human rights plus business and human rights compliance.

iii). Governance and climate‑risk oversight.

Environmental governance has gained mainstream acceptance because Corporate Governance has become essential for environmental management. Gas company boards now face increased obligations to address climate risk as a matter of corporate governance instead of treating it as a technical or environmental issue. The recent legal decision ClientEarth v Shell establishes a new legal precedent as a case which provides essential guidance on this emerging legal issue.[10] The lawsuit claims that oil and gas directors violated their fiduciary responsibilities because they did not properly control known climate hazards which included regulatory and market and physical hazards that affected their fossil fuel investments. The English High Court dismissed the case because of a specific procedural requirement. The court case has initiated a wider discussion about how much climate transition planning directors must include in their corporate strategies.[11]

The current requirements establish a regulatory framework which combines elements of soft law with elements of hard law. ESG expectations come in form contractual conditions like loan covenants offtake agreements project finance terms and legal requirements which include disclosure-based regimes and mandatory climate-risk reporting.[12] This hybrid nature of ESG obligations establishes a unique type of legal uncertainty which stems from its combination. Now gas project sponsors need to handle obligations which exist outside statutory law but still create binding commitments through three different methods.

5. CLIMATE‑RISK EXPOSURE AND LITIGATION FRONTIERS

Gas projects encounter three main types of climate-related threats which include transition dangers and physical dangers and liability dangers. Transition risks emerge from policy changes which include carbon pricing and flaring bans and phase out timelines and from technological advancements which include renewables and carbon capture and from market trends which decrease fossil fuel asset values. Extreme weather events and flooding and sea level rise present physical dangers to gas infrastructure situated in offshore and coastal areas. Liability risks arise from allegations that companies have caused climate change through their operations or that they have failed to prepare for climate impacts which they should have anticipated.[13]

Legal pathways for managing these risks are still evolving. In Nigeria, the Climate Change Act 2021 establishes a national framework for climate adaptation and mitigation. This does not yet include explicit “climate‑liability” provisions targeting specific gas project operators. Elsewhere, however, climate‑litigation has begun to test corporate and governmental liability. Cases such as Urgenda Foundation v Netherlands[14] and recent shareholder derivative suits against major oil and gas companies signal a growing willingness to use tort, tort-like, and company law doctrines to compel climate ambition.[15]

For gas‑project sponsors, the key legal‑risk‑management responses include:

a). Scenario‑based risk‑mapping. Integrating climate‑scenario analysis into environmental‑impact assessments and project‑finance models to demonstrate “reasonable” foresight.

b). Disclosure sufficiency. Structuring ESG and climate‑risk disclosures to satisfy both voluntary frameworks (TCFD, ISSB) and emerging mandatory regimes can reduce the risk of facing accusations of greenwashing or concealment.[16]

c). Defensive contractual drafting. Using force majeure, hardship, and regulatory change clauses to allocate climate policy shocks among sponsors, lenders, governments, and off-takers. These are plausible legal-risk-management responses.

In Nigeria, the absence of clearly articulated statutory pathways for climate liability means that this area remains largely anticipatory. This thereby reinforces the broader pattern of a legal framework that is evolving but not yet fully definitive in its allocation of risk and responsibility.

6. CARBON MARKETS AND RIGHTS‑BASED PATHWAYS

A critical legal pathway for carbon compliance in gas projects is the development of carbon credit and carbon market mechanisms. By capturing, utilising, or destroying associated gas and methane, gas projects can generate emission‑reduction or removal units that are monetised in domestic or international carbon markets.[17] In Nigeria, policymakers and regulators have begun to frame carbon market development as a means to both reduce gas flaring. This specifically position the country as a supplier of carbon credits under Article 6 of the Paris Agreement.

The legal structure of such pathways must address several core questions:

a). Who owns the carbon benefit? Does it reside with the gas‑producer, the host government, landowners, or communities? The current literature stresses that unclear ownership of carbon rights can undermine project bankability and invite disputes over benefit sharing.[18]

b). What is the Measurement, Reporting, and Verification (MRV) regime? Enforcement of carbon compliance depends on credible systems for monitoring, reporting, and verifying emissions reductions. Nigeria’s Climate Change Act and related guidelines contemplate MRV frameworks,[19] but analysts note gaps in institutional coordination and technical capacity.

c). How are carbon credits treated in law? Are they financial instruments, environmental assets, or contractual obligations? Proposals for a dedicated “Carbon Market Act” in Nigeria suggest that carbon credits should be expressly defined, their trading should be regulated, and fraudulent crediting should be penalised.[20]

From a project‑finance perspective, these questions translate into:

a). Carbon‑rights clauses in farm‑in and joint‑venture agreements.

b). Offsets and credits registry‑linkage provisions.

c). Representations and warranties on emission‑reduction baselines and additionality.

Gas project developers that proactively structure these rights-based pathways can convert compliance costs into revenue streams while enhancing their ESG profile.

However, the absence of clear statutory rules on carbon rights ownership and carbon credit classification in Nigeria continues to create legal ambiguity, potentially undermining the bankability and enforceability of such market-based compliance mechanisms.

7. NIGERIA AS A CRITICAL CASE STUDY

Nigeria offers a compelling case study of the interplay among emissions regulation, ESG obligations, and climate risk exposure in gas projects. The PIA 2021 and the Climate Change Act 2021 together create a multicentric regime in which the NUPRC, the Department of Petroleum Resources (now NUPRC), the National Oil Spill Detection and Response Agency (NOSDRA), and the Federal Ministry of Environment share overlapping mandates. At the same time, Nigeria’s commitment to reducing gas flaring and building a domestic carbon market underpins a growing emphasis on “gas‑to‑value” and “gas‑to‑climate‑benefit” strategies.[21]

Legally, Nigeria’s main challenge is convergence: aligning sector-specific emissions rules (Gas Flare Regulations, fugitive-methane guidelines), overarching climate-change legislation, and ESG-driven investor expectations into a coherent, enforceable framework. Recent scholarship highlights that while the Climate Change Act lays out a broad mandate, it lacks detailed provisions on carbon credit ownership, MRV compliance, and enforcement mechanisms for corporate-level climate risks.[22] This lacuna creates uncertainty for gas‑project sponsors who must navigate competing interpretations of their obligations.[23]

Moreover, Nigeria’s experience with gas flaring illustrates how weak enforcement can corrode the effectiveness of otherwise strong legal pathways. Even where flaring is prohibited or capped by regulation, chronic non‑compliance in the Niger Delta has resulted in continued environmental degradation, litigation, and reputational damage for operators. Legal‑systemic reforms required here include:[24]

a). Strengthening prosecutorial and administrative‑enforcement capacity.

b). Establishing specialised environmental‑courts or panels with technical expertise in emissions and climate‑risk assessment.

c). Enhancing transparency in emissions reporting and licensing decisions.

In this context, ESG compliance frameworks can serve as a bridge between formal law and actual practice, channelling investor pressure and disclosure requirements into tangible improvements in gas project governance.

Nevertheless, reliance on ESG mechanisms to compensate for gaps in statutory enforcement further underscores the structural weakness of the formal legal framework, rather than resolving it.

8. TOWARDS A THREE‑DIMENSIONAL LEGAL‑PATHWAY MODEL

A nuanced understanding of carbon compliance in gas projects requires moving beyond siloed thinking about emissions, ESG, and climate risk. Recent scholarship proposes a “three‑dimensional” model that links:

a). Technological capability (e.g., methane‑detection systems, carbon capture and utilisation, flaring‑reduction technologies).

b). Legal obligation (hard law on emissions, disclosure, and director‑duty obligations).

c). Institutional flexibility (how regulators and courts adapt to evolving science and market design).[25]

Under this model, legal pathways are not static lines in the sand but dynamic interfaces where:

a). Courts clarify the extent of directors’ duties to manage climate risk.

b). Regulators refine emissions caps and MRV protocols in response to new data.

c). Legislators update carbon‑market and ESG‑disclosure laws to close loopholes and align with international standards.

For gas project sponsors, this implies that legal strategy must be adaptable. Static compliance with today’s emissions limits may not suffice if courts and regulators later interpret “reasonable” risk management more stringently. Thus, forward‑looking legal pathways should include:

i). Regular “climate‑risk” audits of project portfolios.

ii). Scenario testing of flaring and methane‑leak trajectories under various policy scenarios.

iii). Engagement with standard‑setting bodies (TCFD, ISSB, etc.) to shape, rather than passively respond to, emerging norms.


9. SWOT ANALYSIS OF LEGAL PATHWAYS FOR CARBON COMPLIANCE IN GAS PROJECTS

The strengths of the current legal pathways for carbon compliance in gas projects come from the increasing alignment of international and national frameworks. Agreements like the Paris Agreement and the European Union’s Emissions Trading System (ETS) send a clear message: managing emissions is now a requirement, not a choice. Nigeria’s Climate Change Act 2021 supports this by setting carbon budgets and creating a National Council on Climate Change, which makes emissions reduction part of the law. These frameworks establish a level of accountability that gas operators need to follow. Investor demands also boost these strengths, as financing linked to sustainability and shareholder activism make compliance a necessary condition for accessing capital. This legal environment is becoming a strong force for innovation and accountability, pushing gas projects to incorporate carbon compliance into their operations.

However, weaknesses are still present. A major issue is the lack of consistency across different areas. The EU has established detailed compliance mechanisms, including mandatory ESG disclosures under the Corporate Sustainability Reporting Directive (CSRD), while many developing countries are still building their enforcement capabilities. For example, Nigeria’s Petroleum Industry Act (PIA) 2021 includes rules for environmental management and community development, but enforcement is inconsistent. This inconsistency results in a mixed set of obligations that make compliance harder for multinational operators and opens opportunities for regulatory loopholes. Gaps in enforcement worsen the situation, as laws lacking strong monitoring and penalties end up being more symbolic than effective. This leads to a divided reality: strict obligations in advanced economies and weaker enforcement in emerging ones, weakening the overall impact of carbon compliance and exposing gas projects to reputational risks.

On the bright side, opportunities are abundant. Gas projects can take advantage of carbon finance methods, like carbon credits and voluntary markets, to offset emissions and create new revenue sources. Nigeria’s Climate Change Act specifically encourages the growth of carbon markets, allowing operators to profit from reductions and diversify their income. Legal frameworks increasingly promote technological advancements, especially in carbon capture and storage (CCS) and methane leak detection. These innovations not only lower compliance costs but also position gas operators as leaders in the energy transition. Additionally, incorporating ESG responsibilities into corporate governance allows companies to stand out as responsible players, which can enhance their reputation and build investor trust. In areas where ESG disclosure is required, like under the EU CSRD, proactive compliance can provide a competitive edge, attracting investment from sustainability-minded investors.

On the flip side, there are significant threats. Increasing climate litigation poses a serious risk, as courts are holding companies responsible for emissions that go beyond legal requirements. The important case of Milieudefensie v. Shell[26] in the Netherlands shows that legal risks now include broader societal expectations, not just regulatory violations. Nigerian operators might face similar challenges as civil society groups test the limits of the Climate Change Act and PIA in local courts. Uncertainty in regulations adds to this threat, as changes in policies, like sudden bans on gas infrastructure or new disclosure rules, make compliance more complex and riskier for investors. For gas projects, the risks are not just financial; they could also be existential. Stranded assets and reputational damage could undermine their role in the energy transition. Insurance markets are also becoming stricter, with more exclusions for climate-related damages, increasing liability risks.

The SWOT analysis, so far indicates that gas projects encounter both opportunities and risks, requiring careful planning to balance innovation with legal and sustainability requirements. Nigeria’s main challenge lies in enforcing frameworks such as the Climate Change Act 2021 and the PIA 2021, ensuring projects contribute to national growth while meeting global climate goals.

10. CONCLUSION

Carbon compliance in gas projects is quickly taking shape as a complex mix of emissions rules, ESG duties, and climate‑related liabilities. For operators, environmental compliance can no longer sit at the margins; it must be built into project design, financing, and governance. In Nigeria and similar settings, the overlap of the PIA 2021, the Climate Change Act 2021, and emerging carbon market frameworks brings both challenges and opportunities. Thus, stricter caps and disclosure duties on one hand, and on the other, the chance to monetise avoided flaring and reduced methane emissions.

For practitioners, the critical task is to chart these overlapping legal pathways – national climate law, sector‑specific emissions rules, ESG‑linked lending conditions, and emergent climate‑risk‑litigation trends; into coherent transaction‑design and compliance strategies.

Nigeria’s framework shows that having many legal pathways is not enough; they must be coherent, clear, and enforceable to truly regulate emissions and manage climate risk. Done well, this reduces legal exposure and helps gas projects stand as credible players in the energy transition.

Footnotes

[1] ‘Oil and Gas Sector Greenhouse Gas Pollution Cap’ (Government of Canada, 2022) view link – accessed 7 April 2026; Esavwede, E and Oyibodoro, O, ‘Gas Flaring in Nigeria’s Niger Delta: Legal Challenges and Lessons’ (2025) Journal of Energy and Environmental Law and Policy view link accessed 7 April 2026.

[2] ‘ESG Compliance: Key Regulations, Challenges, and Best Practices’ (EcoVadis Glossary, 11 June 2025) view link  accessed 7 April 2026.

[3] Esavwede, E and Oyibodoro, O, ‘Gas Flaring in Nigeria’s Niger Delta: Legal Challenges and Lessons’ (2025) Journal of Energy and Environmental Law and Policy view link  accessed 7 April 2026.

[4] ‘Climate Risks in the Oil and Gas Sector’ (UNEP Finance Initiative, 2023) view link accessed 7 April 2026.

[5] Petroleum Industry Act, 2021, section 8.

[6] ‘Oil and Gas Sector Greenhouse Gas Pollution Cap’ (Government of Canada, 2022) view link accessed 7 April 2026.

[7] ‘ESG Compliance: Key Regulations, Challenges, and Best Practices’ (EcoVadis Glossary, 11 June 2025) view link accessed 7 April 2026.

[8] Uzoka and Others, ‘Legal Frameworks for Addressing the Impacts of Climate Change on Development Planning’ (Nnamdi Azikiwe University Journal of Public and Private Law) view link accessed 7 April 2026.

[9] ‘Environmental Social and Governance (ESG) Risks in Oil and Gas Operations’ (Sterling Partners, 22 October 2023) view link accessed 7 April 2026.

[10] EWHC 1137 [2023].

[11] ‘ClientEarth v Shell plc: Case Analysis – Directors’ Duties, Derivative Claims and Climate Related Litigation’ (Dorsey & Whitney, 20 September 2023) view link accessed 7 April 2026.

[12] ‘Essential Insights for Achieving Full ESG Compliance’ (Bentley, 5 May 2025) view link accessed 7 April 2026.

[13] C Hicks, S Nakkasunchi, A Neild and O Heidrich, ‘Carbon accounting: review and case study on the development of a carbon baseline for military infrastructure’ (2026) 227 Renewable and Sustainable Energy Reviews 116511.

[14] ECLI:NL: HR: 2019:2007.

[15] ‘Building Nigeria’s Carbon Market: Policy Framework for Domestic and International Carbon Credit Trading’ (RSIS International Journal on Research in Social Sciences and Humanities, 2025) view link accessed 7 April 2026.

[16]  ‘ESG in the Oil & Gas Sector: Trends, Challenges and Opportunities’ (Kaizen, 2 October 2025) view link accessed 7 April 2026.

[17] ‘Harnessing Carbon Credits: A Sustainable Path for Nigeria’s Gas Sector’ (Mondaq, 17 June 2024) view link accessed 7 April 2026.

[18] ‘Structuring Successful Carbon Projects: Legal and Contractual Issues’ (LinkedIn, 3 September 2024) view link accessed 7 April 2026.

[19] ‘COP28: NUPRC Unveils Regulatory Framework for Energy Transition’ (Nigeria Upstream Petroleum Regulatory Commission, 5 July 2015, but containing current framework) view link accessed 7 April 2026.

[20] ‘Building Nigeria’s Carbon Market: Policy Framework for Domestic and International Carbon Credit Trading’ (RSIS International Journal on Research in Social Sciences and Humanities, 2025) view link accessed 7 April 2026.

[21] Esavwede, E and Oyibodoro, O, ‘Gas Flaring in Nigeria’s Niger Delta: Legal Challenges and Lessons’ (2025) Journal of Energy and Environmental Law and Policy view link accessed 7 April 2026.

[22] Uzoka and Others, ‘Legal Frameworks for Addressing the Impacts of Climate Change on Development Planning’ (Nnamdi Azikiwe University Journal of Public and Private Law) view link accessed 7 April 2026.

[23] Uzoka and Others, ‘Legal Frameworks for Addressing the Impacts of Climate Change on Development Planning’ (Nnamdi Azikiwe University Journal of Public and Private Law) view link accessed 7 April 2026.

[24] ‘Environmental Social and Governance (ESG) Risks in Oil and Gas Operations’ (Sterling Partners, 22 October 2023) view link accessed 7 April 2026.

[25] Yaqi Wang, ‘A Legal Study on Carbon Compliance in Corporate ESG: A Study of the Legal Routes for Accomplishing Corporate Environmental Governance’ (Atlantis Press Journals) view link accessed 7 April 2026.

[26] District Court of The Hague, 26 May 2021; Court of Appeal of The Hague, 12 November 2024.