In May 2021, a presidential order laid out measures for territories recently restored to Azerbaijani control to be reconstructed as a ‘green zone’ containing more hydropower, wind and solar farms, and energy-efficient housing. Further government announcements indicate that two hydropower plants, with a total capacity of 140 MW, are under construction on the Aras River in the Jabrayil region, while a 100-MW wind power plant in Lachin/Kalbajar (implemented by SOCAR and Masdar) and a 240-MW solar power plant (implemented by BP) in the Zangilan/Jabrayil zone are in planning.
While this top-down approach to energy sector reform could rapidly increase deployment of renewables (albeit from a low base), it is difficult to envisage Azerbaijan successfully scaling up renewable supply and implementing the accompanying sustainability and efficiency measures without deeper market reforms. In this, one can compare the statist industrial model in Azerbaijan with the more liberalized electricity market of Kazakhstan. In Kazakhstan, earlier adoption of targets and scaling of renewables were facilitated by competitive auctions and incentives such as priority grid access and tax breaks, supported by a detailed legislative framework. Like Azerbaijan, Kazakhstan faces governance challenges affecting its ability to attract private capital investment, but the latter’s evolving experience with renewable energy deployment is something that Azerbaijan could learn from.
A regional energy hub
Azerbaijan’s leadership has set out a vision for the country to become a regional energy hub; this vision includes a sustained and growing role for gas, and a growing role for renewable energy. Plans for the latter would include sending renewable-generated electricity into the wider region. Investments in energy efficiency, green infrastructure and renewables are in their early stages in Azerbaijan, but these sectors are receiving high levels of interest and increasing engagement from European and Asian development banks, and from companies in China, Japan, Saudi Arabia and the UAE. Developing electricity trade and shared storage linkages with neighbouring countries could also help with the management of ‘renewable intermittency’ – the fact that wind and solar, for instance, produce less energy on still or cloudy days – and could support regional cooperation.
Recent developments on this front include Azerbaijan’s signature in 2022 of a strategic partnership agreement with Georgia, Romania and Hungary on green energy transmission and development. Baku is also planning a Caspian Sea–Black Sea–Europe energy corridor to carry 4 GW of electricity, and has plans for another 1 GW of green energy to be transported via the Azerbaijani exclave of Nakhchivan and from there via Türkiye to Europe. Kazakhstan and Uzbekistan would also be integrated into this corridor.
Saudi and Emirati companies have won renewable-power projects in Azerbaijan, in part reflecting agendas on the part of Saudi Arabia and the UAE to invest and compete for influence in the South Caucasus. Chinese cooperation with Azerbaijan on renewables is also growing, as seen in a 2023 MoU between Azerbaijan’s Ministry of Energy and China Gezhouba Group Overseas Investment on the implementation of up to 2 GW of renewable-energy projects, including energy storage and integrated smart energy systems.
For Azerbaijan, moving away from Soviet-style infrastructure and governance of the power sector will be fundamental to generating the financial savings and economic diversification opportunities offered by energy efficiency improvements and the shift to renewable energy.
For Azerbaijan, moving away from Soviet-style infrastructure and governance of the power sector will be fundamental to generating the financial savings and economic diversification opportunities offered by energy efficiency improvements and the shift to renewable energy. This does not mean doing away with the state’s role, which is vital for regulation and for procuring for new markets such as retrofitting and efficiency services. It does, however, mean finding the right balance between state control and providing space for other actors such as an independent regulator, private efficiency services and private power generation companies in the energy sector’s development. Incentives need to be developed to create optimum value for citizens now and in future. In this respect, establishment of an independent regulator for the power sector, mandated to serve the interests of current and future consumers while providing value for government, will be critical.
Climate change mitigation in Azerbaijan so far
While climate change poses tangible threats to Azerbaijan’s economy and security, these threats are not being met with serious mitigation plans. When Azerbaijan was confirmed as COP29 host, its climate change mitigation plan – or NDC – was weak by international standards. Moreover, the government had not reported emissions since 2018, despite a requirement to do so every two years under the Paris Agreement. However, even Azerbaijan’s unambitious target of reducing greenhouse gas emissions by 40 per cent from 1990 levels by 2050 – and without a ‘net zero’ goal – would, if implemented, represent a radical change of trajectory. As of 2023, the country’s existing climate policies did not place Azerbaijan on track to meet even its already weak NDC targets.
As with all countries, Azerbaijan’s NDC focuses on carbon emissions within national borders. Emissions associated with extracting, processing and transporting Azerbaijani-produced fossil fuels are therefore counted, but not emissions from the combustion of exported Azerbaijani fuels. Azerbaijan’s NDC and rhetoric both focus on the development of renewable energy supplies for domestic use. The country, however, has been bullish about the fact that the gas saved in this process will be made available for export. While this will increase the revenues coming to Azerbaijan, it also means that the consequent emissions will end up on other countries’ books.
In March 2024, in a gesture apparently intended to encourage robust commitments when countries revise their NDCs, the COP Troika wrote a joint letter to the parties participating in the COP process. In this letter, the three governments pledged to ‘advocate strongly for early submissions of high ambition NDCs’ and ‘demonstrate [their] commitment by submitting 1.5°C-aligned NDCs, guided by the UAE Consensus’. At the time of writing, however, no Troika country NDCs have been forthcoming, and the time in which to show leadership is running short: the deadline for all countries to submit is February 2025. The Troika risks being only as good as its weakest link, and the three countries may quietly be hoping that, alongside sharing the burden of leadership, they are spreading the PR risk should their efforts fail to deliver the necessary commitments from parties.
Committing to a 1.5°C-aligned, transparent, inclusive and high-integrity NDC will prove a challenge for Azerbaijan, which was one of the only countries to have weakened its NDC at the last iteration. But the country can and should take advantage of the ample willingness of external experts to help; many of these experts, whether in the UN system or the scientific climate community, hope that Azerbaijan’s NDC will set the tone for ambitious commitments by other fossil fuel-reliant economies. To achieve this, however, Azerbaijan would need to break with its own conventions by inviting external scrutiny, increasing transparency around its climate strategy, and engaging with an Azerbaijani civil society often chilled into silence on environmental issues and the low-carbon transition (see Chapter 4). Azerbaijan could further show climate leadership by working with its Troika partners to demonstrate how NDC implementation might rapidly be built into national laws, policies and planning.
To be credible in setting the tone for higher ambition by other countries, Azerbaijan’s revised NDC will need to demonstrate how addressing the scientific imperative for urgent ambition is compatible with meeting the practical challenges of implementation in a hydrocarbon-dependent state. Azerbaijan could use its NDC to indicate how the government plans to ensure sustainable diversification of the economy away from oil and gas, reduce emissions from the hydrocarbon sector during the transition, and align the country with the Paris goals in envisaging limits on new oil and gas developments.
At present, many governments plan further expansion in the oil and gas sector, betting on a global market that takes humanity way beyond the ‘well below 2°C’ goal enshrined in the Paris Agreement. This increases the risks of oil- and gas-dependent economies becoming locked into high-emissions trajectories.
In 2021, the IEA published a report charting a pathway to meet the 1.5°C ambition. In spite of significant – some would argue overambitious – assumptions for deployment of carbon capture technologies to help neutralize fossil fuel emissions, the IEA pathway envisaged no new oil and gas field development taking place beyond what had already been committed. Yet at present, many governments plan further expansion in the sector, betting on a global market that takes humanity way beyond the ‘well below 2°C’ goal enshrined in the Paris Agreement. This increases the risks of oil- and gas-dependent economies becoming locked into high-emissions trajectories. The multi-decade nature of oil and gas projects means that countries incur a high risk of investments becoming uncompetitive public liabilities as global trends – particularly towards electrification in transport and the use of renewable energy in the power sector – reduce demand for fossil fuels in major consuming regions.
