WB: Central Bank of Azerbaijan developed plan to include climate risks in financing mechanisms

The Central Bank of Azerbaijan (CBA) has developed an action plan focused on embedding sustainability and climate risk into public and private financing mechanisms, Report informs referring to the World Bank website.

Public finance is adapting to the changing conditions, underscoring the central importance financial institutions have in low-carbon development.

“Azerbaijan is striving toward a greener growth model, but faces many challenges. Azerbaijan has joined the global pursuit for sustainable development by making a strategic choice to invest in a clean environment and reduce its greenhouse gas (GHG) emissions. The country is charting new directions to overcome the current limits of its fossil fuel-driven economy. Azerbaijan’s new macro-economic policy framework includes a change in the economy’s medium- and long-term ‘driving forces’ toward sustainability and diversification,” reads the report.

The macroeconomic framework will also support the implementation of emerging priorities for meeting the national commitments to the United Nations’ 2030 Agenda for Sustainable Development, as well as the ambitious targets of the Nationally Determined Contributions to the Paris Agreement.

“Azerbaijan’s most recent strategic development plans take the global low-carbon development trends into consideration as well as long-term challenges for oil economies. Azerbaijan’s transition away from a high dependence on fossil fuels needs a plan for a gradual phaseout. While the share of exports and GDP from extractives industry (crude and refined oil, gas, and other petroleum-derivative products) was rising, in the timeframe from the late 1990s to the 2000s, agriculture as a share of GDP fell from 25% to 6.5%, the share of manufacturing was halved, and services dropped from 50% to less than 33% of total GDP.

In 2018, the oil and gas sector accounted for over 50% of the country’s exports and 30% of its GDP (World Bank, 2021). This established form of economic growth could be drastically affected when oil reserves eventually run out.

The International Energy Agency (IEA) estimates that the country’s oil reserves will last another 25 years, while production from onshore fields (the oldest fields in the Absheron Peninsula) will slow down to just 3% of the total current output (IEA 2021).

“Meanwhile, the country’s renewable natural resources have yet to be fully developed. The share of renewable natural capital, including forests and cropland, has not increased substantially over time, although the renewable natural capital could potentially provide greater ecosystem services and rent capture. Another untapped opportunity that can be leveraged to help offset some of the transitional green growth constraints is the offshore marine renewable energy in the Caspian Sea.”