The 29th Conference of the Parties to the UN Framework Convention on Climate Change (COP29) is fast approaching. Next week, world leaders will gather in Baku, Azerbaijan to expand on climate progress made last year at COP28.
With a population of just over ten million, the former Soviet Republic joins the United Arab Emirates (UAE) and Qatar in a select group of small nations that have hosted the conference, dwarfed by recent hosts such as Egypt, the UK and Spain.
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Azerbaijan’s hosting duties reflect a major point of debate at COP28: the role of smaller developing nations in climate change and their level of responsibility relative to global superpowers such as the US and China.
Since Azerbaijan was announced as the host of COP29 in January, the country has been proactive in attempting to demonstrate it is more than a compact and effective petrostate: the government has a target for renewables to account for 30% of the nation’s total installed capacity by 2030.
However, critics are concerned that with the country being so dependent on oil and gas revenues for its growth, we could be heading for a repeat of the controversy surrounding last year’s conference in Dubai, where the fossil fuel industry dominated climate agreements.
COP29 president-designate Mukhtar Babayev is the Minister of Ecology and Natural Resources – and also served as a vice-president at the State Oil Company of Azerbaijan (SOCAR).
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By GlobalDataAzerbaijan has also yet to address phasing out fossil fuels in any of its pre-conference schemes, signalling that the country’s high renewable energy potential may not be fulfilled beyond what it has called a “peace COP”.
Fossil fuels in the ‘Land of Fire’
As the birthplace of industrial oil, Azerbaijan is deeply imbedded in fossil fuel production. The nation’s inaugural oilfield was drilled in 1846, and it is home to the world’s first paraffin oil factory and offshore oilfield and platform, the Neft Dashlari in the Caspian Sea.
The International Energy Agency (IEA) has estimated that oil and natural gas can bring in approximately 90% of Azerbaijan’s export revenues, finance 60% of the government budget and supply a colossal 98% of its primary energy.
Fossil fuel resources have allowed the nation to develop its economy and greatly improve its living standards, powered by one of the highest energy self-sufficiency rates across the globe, producing four times its consumption levels.
This prolific oil and gas production has impacted Azerbaijani society and culture to the point that the country is known as the Land of Fire.
Murad Sadikhov, country manager at Masdar Azerbaijan, the regional affiliate of the UAE’s green energy provider, emphasises the attractive investment prospects of the nation and its energy industry.
“There is a stable economy, high labour capability and a strong history of foreign direct investment. As a UAE-based company, Masdar is keen to invest in Azerbaijan given our bilateral relations and shared religion,” he added.
Indeed, major markets have sustained demand for Azerbaijan’s oil and gas, aided by Russia’s ongoing invasion of Ukraine and the limitations many nations have placed on Russian hydrocarbon imports. According to the World Economic Bank, EU countries account for more than 45% of the nation’s oil and gas exports.
However, while Azerbaijan has reaped the profits of immense oil and gas production for several decades (likely to continue for several more years), the IEA estimates that the country’s oil reserves, which have been declining since 2010, will only last another 25 years, compounding the need for alternative energy sources.
Azerbaijan’s renewables potential
Azerbaijan has identified the global spotlight of COP29 as an opportunity to advance – and publicise – its renewable energy industry, a stance that has resulted in accusations of greenwashing.
Speaking to Power Technology, James Watson, renewable energy partner at global law firm Osborne Clarke, confirms that hosting COP can aid the development of a country’s energy industry. “The convening power of the host nation is significant,” he said, and “for previous hosts such as the UK, COP brought corporate, government and intermediaries together to real collaborative effect”.
“But how an oil and gas extraction-led economy such as Azerbaijan articulates its role in decarbonising will not be easy,” he added.
Azerbaijan’s Action Agenda for COP29 includes a pledge to increase global energy storage capacity sixfold to 1.5TW by 2030 and introduces the Declaration on Reducing Methane from Organic Waste.
Crucially however, there was no reference made to the transition away from fossil fuels, combined with the absence of a national net-zero target.
Nevertheless, the Agenda letter written by Babayev highlights Azerbaijan as “a source of solutions and opportunities” where its “abundant wind and solar potential can play an important role in the renewable energy landscape”, and that the nation is “determined to lead by example”.
As Azerbaijan seemingly turns its attention to renewables, it looks to retain its position as an energy export hub for eastern and central Europe and achieve 5GW of solar and wind energy by 2030.
In March, the EU signed a memorandum of understanding (MOU) with Azerbaijan on offshore and onshore wind energy cooperation between the Azeri Renewable Energy Agency and European industry association WindEurope.
This agreement is part of a wider strategy for Azerbaijan to export a large proportion of its energy to Europe via a Caspian-EU Green Energy Corridor, initiated through an MOU with Georgia, Romania and Hungary for a 1GW subsea cable under the Black Sea.
This year has also seen the launch of the country’s inaugural renewable energy auction for a 100MW solar plant project in Garadagh, with the results to be announced during COP29. The solar project is the first to be built in Azerbaijan with foreign investment, led by the European Bank for Reconstruction and Development. This is in addition to Masdar’s 230MW solar plant, the largest in the Garadagh region.
Hydro power is another crucial energy source for the nation, accounting for approximately 10% of domestic annual electricity generation. Operations are concentrated in the Karabakh and East Zangazur regions, designated Green Energy Zones featuring a 424MW hydropower plant.
Such developments will boost Azerbaijan’s grid stability and national renewable generation capacity, which the Ministry of Energy reported to oversee 66.4MW of wind power from eight stations, 281.9MW of solar power from 13 projects and 1.3GW of hydropower from 35 stations.
Sadikhov told Power Technology that Masdar is “inspired by the government of Azerbaijan to continue activity on the energy transition in the country”.
“Reforms in the energy sector, such as the unbundling of the energy sector and plans for liberalising distribution, would unlock massive investment opportunities,” he added.
However, despite the status that comes with being the host, Azerbaijan may struggle to overcome its relative inconspicuousness against the global superpowers and fossil fuel giants at COP.
According to reports, the country is expected to be caught between nations that fully support the fossil fuel phase-out and those (such as Russia, Saudi Arabia and Bolivia) that want to slow progress and effectively use hydrocarbons as an intermediary power source while renewables are being developed.
A Chatham House report proffers that as host, Azerbaijan has the potential to “engage other hydrocarbon-rich nations in constructive and explicit debate on the dilemmas of transition away from fossil fuels – in a way never before achieved at the COP”. However, the think tank maintains that the rallying of fellow fossil fuel producers is “more likely” to occur.
Watson concurs: “Diverting some of its petro-dollars into worthwhile energy transition, net-zero and sustainability initiatives will take real bravery by the governing regime and diplomacy from European governments that rely heavily on Azerbaijani gas in the wake of the Ukrainian war. The jury is out.”
The outlook for Azerbaijan post-COP
It is increasingly clear that renewables are needed to improve Azerbaijan’s economic and energy diversification, thereby reducing revenue dependence on oil and gas and the impacts of market volatility.
Sadikhov is optimistic about Azerbaijan’s energy progress. “The Caucasus has recently become important for global logistics and trade routes due to the situations in Russia and Iran. We have signed a 10GW pipeline with Azerbaijan, which we plan to implement by 2040, that will provide opportunity for domestic consumption and enable green energy exports.”
However, Watson is uncertain about the future of renewables in the nation. “It is not clear what Azerbaijan will see as an incentive to decarbonise its economy when it will have a huge cost compared to freely available gas reserves.”
In September, the Climate Action Tracker identified Azerbaijan’s climate action as “critically insufficient”, citing weak climate policies and suggesting that the country builds “offshore wind in the Caspian to make green hydrogen for export to European markets, where there is expected to be growing demand in the coming decade”.
Continuing to leverage its relationship with Europe as a major export market and investment partner will be key for Azerbaijan to make its transition, providing a potential success story for other petrostates.
The nation is aware of its need for international support, stipulating this as a condition of its Nationally Determined Contribution under the Paris Agreement. This was updated in 2023 “to reduce greenhouse gas emissions by 40% compared to 1990 (base year) level by 2050 if international support is provided through financing, technology transfer and capacity building”.
“Azerbaijan’s legacy would be to show that a country so dependent economically on oil and gas can decarbonise and deliver its emission reduction goals,” Watson concludes. “Time will tell.”
