Climate Finance Report 2024

Chapter 5 | PROJECTS CONTRIBUTING TO THE OPEC FUND’S CLIMATE FINANCE

Azerbaijan faces significant disaster risks, ranking 38th out of 191 countries on the 2024 INFORM Risk Index, driven largely by its high exposure to natural hazards and conflicts. 26 The country is particularly vulnerable to flooding (including riverine, flash and coastal floods) and has relatively low institutional capacity to manage these risks. Drought poses particularly high risk, with Azerbaijan ranked 35th globally, alongside moderate flood risk and social vulnerability. Climate change exacerbates these risks, impacting Azerbaijan’s exposure component significantly. 27 Changes in temperatures and precipitation in Azerbaijan are projected to worsen, significantly impacting water availability in the agriculture and energy sectors. Climate change will exacerbate droughts and floods, leading to desertification, soil salinity and reduced agricultural pro- ductivity. To mitigate these impacts Azerbaijan must pri- oritize adaptive measures such as improving water man- agement, enhancing flood defenses and adopting resilient agricultural practices to protect vulnerable populations and sustain economic stability.

Azerbaijan is committed to climate action, aligning with the targets of its Nationally Determined Contributions (NDC) and National Adaptation Plan. As a UNFCCC member since 1995 and a Paris Agreement signatory since 2016, it initial- ly aimed to reduce GHG emissions by 35 percent by 2030, later revising this to 40 percent by 2050. The updated NDC submitted in October 2023 targets a 40 percent emissions reduction by 2050 compared to 1990 levels. The Azerbaijan 2030 Strategy and the Strategic Roadmap for 2022-2026 emphasize the country’s green energy transition and re- sponse to global decarbonization challenges. The Absheron-Khizi Wind Power Plant is a key milestone in Azerbaijan’s low-carbon transition, expected to cut carbon emissions by over 400,000 tons annually and generate 893 GWh of clean electricity each year. This project, the first for- eign investment-based wind power initiative structured as a public-private partnership, exemplifies Azerbaijan’s climate goals in action. It plays a crucial role in meeting the 2030 targets, promoting clean energy investments, reducing do- mestic gas consumption and supporting energy exports, while advancing the broader decarbonization agenda with- out harming the economy.

Purpose of the Loan

Expected Outcomes

Investing in decarbonization is vital for Azerbaijan to meet global climate goals, transform its energy systems and gain economic benefits. The country requires an addition- al US$7.9 billion in energy investments from 2022 to 2030 and US$28.1 billion from 2022 to 2060, with significant al- locations to the transport, power, residential and industrial sectors. These investments account for about 1.5 percent of GDP from 2022–2030 and 2.1 percent from 2022–2060.

Extending a loan of up to US$50 million to the Absheron- Khizi wind power project establishes a significant private sector presence in Azerbaijan’s nascent but critical renew- able energy sector. This project, the first of its kind struc- tured as a public-private partnership with foreign direct investment, sets a precedent for increased private sector participation in Azerbaijan’s clean energy initiatives.

24 Government of Azerbaijan 2022a ‘Republic of Azerbaijan Socio-Economic Strategy for 2022-2026’, approved on July 21, 2022 https://static.president.az/upload/ Files/2022/07/22/5478ed13955fb35f0715325d7f76a8ea_3699216.pdf 25 University of Notre Dame (2024). Notre Dame Global Adaptation Initiative. URL: https://gain.nd.edu/our-work/country-index 26 European Commission (2024). INFORM Index for Risk Management. Armenia. URL: https://drmkc.jrc.ec.europa.eu/inform-index 27 The ND-GAIN Index provides an overview of the country’s vulnerability and capacity for resilience improvement, while the INFORM Risk Index identifies specific risks to aid in decisions regarding prevention, preparedness, response and overall risk management.