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Azerbaijan’s transition to a green economy

March 28, 2024 at 11:24 am

A zoomed in view of the waterfront promenade running along the shores of the Caspian Sea, Baku, Azerbaijan. [Photo via Getty Images]

In a world focused increasingly on sustainability, Azerbaijan is taking significant steps to transform its economy. Known for its rich oil and gas reserves, the country is now shifting towards a greener and more sustainable future. Situated at the crossroads of Eastern Europe and Western Asia, Azerbaijan is uniquely positioned to harness its diverse natural resources for this green transformation. It is embracing renewable energy, innovative urban planning and sustainable transportation, setting itself apart in the global move towards environmentally conscious development.

Azerbaijan’s GDP has shown a consistent upward trajectory, reaching $78.7 billion in 2022, reflecting a 4.6 per cent growth over the previous year. In 2022, oil and gas production contributed to approximately 47.8 per cent of the country’s GDP and 92.5 per cent of export revenue. The International Trade Administration reports a 9.1 per cent increase in non-oil GDP and a 2.7 per cent decrease in oil GDP between 2021 and 2022. The government has been striving consistently to enhance Azerbaijan’s renewable energy industry and reduce its reliance on oil. It aims to achieve a target of installing 1,500 MW of renewable energy capacity by 2030 to promote green energy and raise the proportion of renewable energy in electricity generation by 30 per cent.

During the early years after gaining independence in 1991, Azerbaijan’s economy was dependent on its oil sector.

This reliance was due primarily to the nation’s extensive oil reserves, which appeared to be a quick and dependable means of achieving economic prosperity and stability. From 1991 to the early 2000s, the country saw a significant increase in foreign investment in its oil industry, which contributed greatly to its GDP growth. Nevertheless, this period also underlined some drawbacks linked to a mono-commodity economy, specifically its sensitivity to global oil price fluctuations.

Understanding these challenges, the Azerbaijani government initiated strategic policies in the mid-2000s to decrease its reliance on oil and shift towards a diversified and sustainable economy. This change was supported by a number of important initiatives. A crucial development occurred in 1999 with the establishment of the State Oil Fund of Azerbaijan (SOFAZ). Its purpose was to promote macroeconomic stability and secure the future by managing and investing oil revenues prudently.

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Starting in 2005, Azerbaijan began to prioritise the development of renewable energy sources. The government implemented measures to promote the adoption of alternative energy sources, including wind, solar, and hydroelectric power. Important events during this time included the creation of the State Agency on Alternative and Renewable Energy Sources in 2009 and the initiation of several environmentally friendly energy projects in partnership with international organisations.

Moreover, the decade from 2010 to 2020 was a noteworthy period in Azerbaijan’s shift towards sustainability. Throughout this period, the government made significant efforts to encourage and support energy efficiency and sustainability practices. Emphasis was placed on investments in green technologies, alongside legislative reforms aimed at supporting sustainable development. The expansion of the economy was strengthened further by promoting development in areas like agriculture, tourism and information technology.

Another impressive endeavour involved partnering with ACWA Power (Saudi Arabia) and Masdar (UAE) to build a wind farm and a solar power plant, boasting a total capacity of 470 MW. These projects, in addition to initiatives such as the collaboration with BP to build a solar power plant in the Zangilan-Jabrayil zone, showcased Azerbaijan’s commitment to integrating renewable energy into its national energy strategy.

Aligned with these advancements, the “Azerbaijan 2030: National Priorities for Socio-Economic Development” decree was released, highlighting the importance of a pristine environment and sustainable growth. This policy highlights Azerbaijan’s dedication to the expansion of renewable energy sources. It sets ambitious targets, including a goal to raise the proportion of renewable electricity in the overall installed capacity to 30 per cent by 2030.

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Furthermore, with Azerbaijan gearing up to host the 29th Conference of the Parties (COP29), the event will represent a crucial step in the nation’s progress towards sustainable development. COP29 is vital for the worldwide climate change discussion, and presents a valuable opportunity for Azerbaijan to demonstrate dedication to environmental stewardship and speed up the transition to a sustainable economy. By hosting COP29, Azerbaijan reaffirms its dedication to global environmental objectives and establishes itself as a frontrunner in promoting renewable energy in the Caspian region. This decision is essential for attracting international investment and expanding its economy beyond the oil industry.

Azerbaijan’s progress towards a green economy exemplifies successful environmental advancements. This transition not only has positive effects on Azerbaijan’s natural environment, but also establishes the country as a significant participant in the global effort towards sustainable energy. Azerbaijan’s current success indicates a bright future where economic development and environmental responsibility are balanced. Maintaining an optimal balance is essential for a future that is prosperous and sustainable.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.