COP29 – The state of net zero and sustainability efforts in Azerbaijan and Central Asia

Overview

As the host country of COP29, Azerbaijan’s commitment to the green energy transition is under scrutiny. Indeed, both Azerbaijan and the neighbouring Central Asia region are at a critical juncture in their journey towards sustainability and net zero emissions. While fossil fuels, particularly oil and gas, are significant contributors to their economies and are likely to remain so for many years to come, governments in the region are also trying to take steps to embrace a greener, more sustainable future. This presents significant investment opportunities in the region, but has also led to questions about whether the actions being taken are sufficient. 

Legislative and other developments in Azerbaijan

Fossil fuels account for a significant portion of Azerbaijan's GDP and its exports.¹ Despite environmental challenges faced by Azerbaijan, such as land degradation, desertification, and overgrazing,² the country has taken steps towards enhanced economic sustainability.

For example, in 2017 in collaboration with the United Nations Development Programme (UNDP) Azerbaijan launched its National Adaptation Plan to improve climate resilience in key sectors such as water, agriculture, and coastal areas. This project, funded by the Green Climate Fund aims to strengthen institutional and technical capacities to integrate climate adaptation into national development planning.³

Green energy transition is a key priority goal as set out in 'Azerbaijan 2030: National Priorities for Socio-Economic Development',⁴ whereas the 2022-2026 Social and Economic Development Strategy of Azerbaijan lists 'clean environment' and 'green growth' among the country's national priorities.⁵

In addition, the Azerbaijan government has recently announced a launch of a Climate Finance Action Fund (CFAF), seeking initial fundraising of at least USD 1 billion.⁶ This will be designed to assist developing countries to cope with the effects of climate change and catalyse private sector investment. It is hoped that contributions will come from fossil-fuel-producing countries and companies to invest in green projects, in particular those that reduce greenhouse gas (GHG) emissions and build resilience against the impacts of extreme weather. 

In the same vein, several major renewable projects have recently broken ground in Azerbaijan, including the 445 MW Bilasuvar solar project⁷, the 315 MW Bank solar project⁸, and the 240 MW Absheron-Khizi wind project.⁹ Indeed, Azerbaijan appears to have a significant potential for further development of renewable energy sources, including wind (estimated at around 3,000 MW), solar (estimated at around 23,000 MW), geothermal (estimated at around 800 MW), biomass (estimated at around 380 MW), and small hydro (estimated at around 520 MW).¹⁰

Nevertheless, Azerbaijan's climate reduction plans have been described as "critically insufficient".¹¹ In particular, although it has committed to reduce GHG emissions by 40% by 2050 compared to 1990 levels, Azerbaijan has been criticized for abandoning its earlier target to reduce GHG emissions by 35% by 2030.¹² It has also yet to submit a net zero target.¹³ In this regard, Azerbaijan has been urged to "substantially upgrade its policies" to reverse the present emission trend.  Whether Azerbaijan does so remains to be seen. What is clear, however, is that meeting Azerbaijan's decarbonisation and resilience needs will require significant investment. For example, the World Bank Group estimates it at roughly USD 44.1 billion until 2060.¹⁴

Notable Central Asia initiatives 

Azerbaijan appears to have recently pivoted its focus towards the neighbouring Central Asia region, and its green energy developments mirror those in that region. Indeed, as discussed in one of our recent articles, many of the Central Asian states are investing in the green energy transition. For example, even though Central Asia is still heavily dependent on fossil fuels for energy, Kazakhstan aims to reach carbon neutrality by 2060 and generate 50% of its electricity from renewable sources by 2050.¹⁵ Uzbekistan is also investing in solar and wind energy projects to diversify its energy mix and reduce its carbon footprint, aiming for carbon neutrality in its power sector by 2050.¹⁶ Major renewable projects in these two countries include the Tashkent Solar PV and BESS in Uzbekistan¹⁷ and the Total Eren Access M-KAT Solar Power Project¹⁸ and the Baikonyr Solar Power Project¹⁹ in Kazakhstan.

Conclusion

Azerbaijan and the neighbouring Central Asian region are taking positive steps to embrace energy transition. Even though this process will continue to face challenges, the region presents fascinating green energy investment prospects, and investors should embrace responsible due diligence, meticulous contractual drafting and prudent investment structuring to mitigate inherent investment risks.

The authors would like to thank George Maxwell and Siddhant Ahuja for their contribution.

1. Word Bank, Azerbaijan, Country Climate and Development Report, November 2023, page 1. Link.

2. Ibid, page 14.

3. United Nations Development Programme 2024, National Adaptation Plan (NAP) support project for adaptation planning and implementation in Azerbaijan. Link.

4. Order of the President of the Republic of Azerbaijan on approval of "Azerbaijan 2030: National Priorities for Socio-Economic Development", 2 February 2021. Link.

5. The 2022-2026 Social and Economic Development Strategy of Azerbaijan (unofficial translation), page 19. Link.  

6. COP29, Azerbaijan Launches Climate Finance Action Fund in Package of Initiatives for COP29, 19 July, 2024. Link.

7. European Bank for Reconstruction and Development (EBRD), Bilasuvar Solar. Link.  

8. EBRD, Banka Solar. Link.

9. EBRD, Azerbaijan Absheron-Khizi WPP. Link.  

10. IEA, Azerbaijan energy profile, Energy system transformation. Link.  

11. Climate Action Tracker, COP29 host Azerbaijan climate action "Critically insufficient", September 2024,  page i. Link.

12. Ibid, page 2.

13. Ibid, page iv.

14. Word Bank, Azerbaijan, Country Climate and Development Report, November 2023, page 8. Link.

15. IEA, Kazakhstan has set out ambitious and welcome clean energy transition plans but must overcome historical reliance on fossil fuels, IEA review says, 30 June 2022. Link. Climate & Clean Air Coalition, Kazakhstan. Link.  

16. IEA, Solar Energy Policy in Uzbekistan: A Roadmap: Context of renewable energy in Uzbekistan. Link.

17. EBRD, Tashkent Solar PV and BESS. Link.

18. Asian Development Bank (ADB), Total Eren Access M-KAT Solar Power Project. Link.

19. ADB, Baikonyr Solar Power Project. Link.