Theoretical and Empirical Contributions to the Design of Efficient Carbon Markets Using Operations Research in the Nigerian Context

Nigeria's commitment to reducing greenhouse gas emissions through its Nationally Determined Contributions under the Paris Agreement, combined with the provisions of the Climate Change Act 2021 for market-based mitigation instruments, creates a pressing need for rigorous operations research analysis of carbon market design that accounts for the unique structural features of Nigeria's economy and emissions profile. This dissertation makes theoretical and empirical contributions to the design of efficient carbon markets using operations research methodology, with the Nigerian context providing both the motivating application and the primary empirical grounding. A mathematical treatment of carbon market mechanism design is developed using mechanism design theory, auction theory, and equilibrium programming, generalizing existing permit auction models to incorporate heterogeneous abatement cost structures across Nigeria's key emitting sectors, including oil and gas, cement, power generation, and agriculture. Original game-theoretic results characterize the equilibrium bidding behaviour of Nigerian firms in sealed-bid and clock auction formats, revealing systematic overbidding under information asymmetry. A bi-level optimization model of the regulator's optimal permit supply and auction design problem is formulated, with the lower level representing firm bidding equilibrium. Original solution algorithms exploiting the model's structure are developed. Empirical application uses abatement cost data from 42 major industrial emitters estimated through engineering and econometric methods. The optimal carbon market design generates aggregate abatement at 31 percent lower total cost than command-and-control baseline, while satisfying sectoral equity constraints. The dissertation contributes original theory to carbon market design and establishes a rigorous analytical foundation for Nigeria's emerging carbon pricing system. Keywords: carbon market design, mechanism design, emissions trading, Nigeria, bi-level optimization