WB lists factors to reduce risks of transition to low-carbon mode in Azerbaijan

The introduction of policies in Azerbaijan to support climate resilience in sectors such as renewable energy, the green economy, water management, and tourism will reduce the risks of a low-carbon transition and pave the way for diversification, Report informs, referring to Azerbaijan Systematic Country Diagnostic (SCD) report for 2022, conducted by the World Bank Group (WB).

Due to its geographical location, the Caspian Sea, and the diverse plain and mountain landscape, Azerbaijan has significant sources of renewable energy, the report says.

The highest technical potential belongs to solar (23 GW) and wind (3 GW), but the country also has good potential for small hydro (0.5 GW) and solar (0.4 GW) power stations. Offshore wind power also represents a significant opportunity for the country's energy diversification strategy, the report notes.

The WB believes that investment in the transport sector, including electrification and railways, can also be critical to decarbonization and reduce environmental impact, as the sector accounted for almost a quarter of total air pollutant emissions in 2018.

According to the study, digital services can also reduce the consumption of energy and materials, which will significantly reduce emissions. Investing in untapped resources, such as a green economy, can also increase the resilience of Azerbaijan during the transition to a green economy by increasing opportunities for the labor market.

There is great potential to invest in low-carbon hydrogen to decarbonize hard-to-reduce sectors (such as the manufacturing and transport sectors) and expand renewable energy innovation through the production of green hydrogen and its derivatives, such as green ammonia for fertilizers, which can help decarbonize agricultural value chains.

As the transition to a low-carbon economy presents significant investment opportunities, the financial sector has an important role to play by ensuring that financial sector policies are aligned with incentives to achieve climate and environmental goals and by monitoring and assessing climate-related risks related to investment decisions.

The current tariff system, which includes cross-subsidies between consumers and energy carriers and direct subsidies from the state budget, needs to be reformed to encourage residential and industrial consumers to use energy more efficiently, the information says.