ADB recommends Azerbaijan to develop roadmap for green financing

The Azerbaijani government should assess the financing gap for green programs and develop a road map for green financing, according to an April Asian Development Outlook (ADO) by the Asian Development Bank (ADB), Report informs.

“Soon after strategic planning under the medium-term fiscal framework is completed it should develop green finance instruments and frameworks for green loans debt swaps a carbon market green bonds and insurance products. Doing so will expand the scale of green projects and focus public finance more on green outlays. By raising funds with sovereign green bonds for example the government can ensure that public investment supports projects with environmental benefits and progress toward achieving carbon targets,” the ADB noted.

“Climate budget tagging is an effective tool to highlight the climate dimension in resource allocation. It involves tagging expenditure items and monitoring their implementation during a reporting year to assess the efficiency of green objectives. The process should continue during budget execution. Moreover, this approach allows tagging other environmental objectives. The process should not be limited to the annual budget cycle but instead govern the whole medium-term expenditure framework given the long-term vision of strategic planning,” reads the report.

“Implementing a green fiscal policy will require a number of measures. These include adopting green fiscal risk management practices and green public procurement principles implementing climate-sensitive public investment management and assessment establishing practices for internal and external control and promoting fiscal transparency. Clear institutional mechanisms should be established since the process entails multiagency integration and collaboration. Harnessing the capacity of government institutions will be crucial to successfully implementing a green fiscal policy. The absence of a well-defined public finance management legal framework will be the main challenge to starting the process.”

“Strong fiscal policies are a key part of the government’s integrated strategies to combat climate change. These policies should be aligned with country’s nationally determined contributions (NDCs) and climate dimensions of its sustainable development goals should be reflected in government strategies and budget allocations.

The fiscal framework must be inclusive and climate-responsive. The green agenda and its concerns should be considered at an early stage of budget planning. Medium-term macro fiscal analyses and forecasts and sector strategic plans should include green priorities and indicators. The strategic framework should reflect the government’s green plan financing needs source of financing carbon goals and targets and related items. Green priorities should also be included in fiscal sustainability analyses along with assessments of the climate implications of budget practices. Reviewing climate concerns during impact assessment and cost and benefit analyses would be useful,” the ADB added in its report.

“Given COP29 in 2024, the government is taking certain measures on its decarbonization goals to reduce carbon emissions. During 2020-2040, average temperatures in Azerbaijan are expected to be 0.5C-1.5C above those during 1971-2000 while precipitation will be 10-20% less mainly in the mountains and foothills and on the Absheron Peninsula.

Azerbaijan signed and ratified the Paris Agreement without committing to a net-zero target. Azerbaijan’s economy remains heavily dependent on hydrocarbons. During the past two decades, petroleum has accounted on average for 40% of GDP and 90% of total export earnings. The latest nationally determined contributions (NDCs) set decarbonization targets of 35% in 2030 and 40% in 2040 which will be hard to achieve under current policies. Transport emissions tripled from 2000 to 2019. Electricity generation is the second-largest source of emissions with methane providing nearly 30% of total emissions. In 2024, the government has joined the Global Methane Pledge.”