• Natural Resources for Sustainable Development in Eurasia.


Can COVID-19 boost energy transitions (“green recovery”) in resource-dependent countries of Eurasia?

18 JUN, 2021 625

Eurasia Hub held a webinar on socio-economic impacts of the COVID-19 pandemic in Eurasia’s oil and mineral-rich countries on May 26, 2021.

Summary :

The outbreak of COVID-19 last spring shook the world, but resource-dependent economies suffered the most due to the fall in commodity prices. In April 2020, the average oil price dropped to $21 barrel. Moreover, since the adoption of the Paris Climate Agreement in 2015, many countries (as well as Big Oil) set out ambitious plans to cut carbon emissions – e.g. the EU, UK set net-zero emissions targets by 2050. In April 22, 2021, US President Biden announced a national goal of cutting greenhouse gas emissions by up to 52% by 2030.

 

Some argue that the coronavirus pandemic might present an opportunity for a green recovery. International Energy Agency [IEA] stated in 2021 that “the growth of renewable power is accelerating, with solar and wind on track for their largest annual rise in history”. It also posited that costs of wind and solar technology have declined over the past decade, and stronger support for Covid stimulus packages can help  clean technologies reach the cost competitive scale.

 

Are there any signs of “green recovery” in Eurasian oil and mineral-dependent economies?

 

New research by Eurasia Hub looked at COVID-19 impacts and responses – including possible green plans in fiscal stimulus packages adopted by governments in three countries, Azerbaijan, Kazakhstan, and Kyrgyzstan.

 

Among the three countries, Kazakhstan adopted the most generous anti-crisis package worth USD 10bn, funded through the increase of transfers from the National Oil Fund (NFRK) – with total reserves of USD 56 billion (as of October 2020) -- to compensate for losses in non-oil tax collection and support fiscal measures including measures to support SMEs and cash transfers. In May 2013, renewable energy generation targets for solar and wind were set at 3% by 2020, 10% by 2030, and 50% by 2050. As of May 2020, its 19 new renewable energy projects were worth $1.1 billion. In November 2020, the government approved the Zhanatas Wind Project worth US$95.3 million to support the construction of a new wind farm in southern Kazakhstan.

 

Despite an elaborate policy framework, renewables development was slow. Kazakhstan energy mix: fossil fuels (81.6%); hydropower (10%), gas turbine (10.2%), renewable energy (solar and wind) comes in at just 0.5 percent.

 

In the Kyrgyz Republic, the pandemic’s impacts were amplified by the border closure with China, and the fall in remittances from Russia (Kyrgyzstan has one of the world’s most remittance-dependent economies). The government’s first emergency relief plan was just $15 million (0.2 percent of GDP) while a second and third packages of economic measures amounted to $540 million (7 percent of GDP) (IMF 2021). However, the government relied heavily on donor money: The first, IMF emergency relief assistance package was provided in the amount of $121 million (in March 2020), followed by the second IMF Board emergency assistance worth $121 million (in May 2020).  ADB provided $50 million in budget assistance (June 2020), and the World Bank allocated a total of $88 million to aid poor and vulnerable families (April, 2021).

 

Kyrgyzstan is less reliant on fossil fuels for energy consumption. Renewables (mostly hydroelectricity) account for 27% (2018) of Kyrgyzstan’s energy mix, with one of the highest shares of renewable electricity in the world (IEA April 2020). However, there are no wind or solar power stations. And much of the existing infrastructure is outdated and there is an insufficient investment for its renovation. As the government struggled to keep fiscal balance (largely funded by donor support), there has been little talk of a green recovery.

 

Finally, in Azerbaijan, where 40–55% of the state budget consists of transfers from the state oil fund (SOFAZ), the shortfall in oil revenue caused a fiscal deficit. State Oil Fund (SOFAZ) worth USD 43 billion provided strong fiscal buffers enabling the government to adopt the April 4 aid package worth AZN 3.3 billion (USD 2 billion or 4% of GDP). In January, 2020, Azerbaijan signed an agreement with Abu-Dhabi’s Masdar to develop a 230-Megawatt utility-scale solar photovoltaic project . Saudi energy company ACWA Power was approved to develop Azerbaijan’s first wind power / $300 million worth of renewable energy projects. Azerbaijan announced that it sets a target to increase the share of renewables to 30% by 2030 and 50% of energy consumption from renewable sources by 2050. In April 2021, International Finance Corporation (IFC) and Azerbaijan’s Ministry of Energy have signed a memorandum of understanding to co-operate on the development of offshore wind energy. At the same time, vested interests – notably, the state oil company SOCAR – seem to have been reluctant to invest in renewables.

 

Conclusion

 

In sum, resource dependence amplified COVID-19 impacts in Azerbaijan, Kazakhstan and Kyrgyzstan.  However, strong fiscal buffers in the form of state oil funds in Azerbaijan and Kazakhstan enabled a more ambitious fiscal stimulus package. In all three countries policy response consisted of support for SMEs and cash transfers, albeit much less generous in Kyrgyzstan. While Azerbaijan and Kazakhstan tapped into their SWFs, Kyrgyzstan relied on foreign aid.

 

Signs of green recovery”?

 

The coronavirus pandemic triggered some measures – and importantly, the stimulus for policy discourse -- towards renewables development in Azerbaijan and Kazakhstan, but not in Kyrgyzstan. Kazakhstan has adopted perhaps the most ambitious renewables energy program. Though less ambitious than Kazakhstan’s plan, Azerbaijan made modest steps to acquire wind and solar technologies.

 

However, despite the adoption of a policy framework, even in Kazakhstan progress has been slow. In both Azerbaijan and Kazakhstan, the share of low-carbon sources is very small: at 2-3 percent of the country’s energy mix (see Graph 1). An important factor is the prior development of renewables: in Kyrgyzstan, most electricity is generated by large hydropower and thermals, therefore there has been little incentive to shift to wind or solar. Renewable technology is expensive, requiring huge capital investment, and Kyrgyzstan simply lacks funds. Another obstacle seems to be sunk costs in existing infrastructure which normally impede the shift to renewables (carbon lock-in effect). Finally, low-carbon transitions need advocates – i.e. renewable firms and environmental groups who will benefit from such a shift -- which are either lacking or weak in all three countries.

 

Graph 1. Share of primary energy from low-carbon sources: Kazakhstan and Azerbaijan, 2012-2019

 

  

Farid Guliyev, PhD, is a policy expert and trainer with Eurasia Hub where he developed and delivered training modules in the political economy of natural resource management covering the issues of sustainable development and energy transitions in post-communist Eurasia.

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