Can Energy Transition Drive Governance Reforms in Azerbaijan?

Oil and gas-rich countries face a double blow. On the one hand, decarbonization targets deprive these economies of their traditional rent income and force them to diversify while, on the other hand, they make the transition to renewable energy more painful than in resource-poor countries. This is due to the fact that it is still very difficult to reform an economy based on relatively cheap energy sources, to put an end to wasteful spending, and to adapt the existing system of governance to new challenges.

Making energy transition and energy efficiency priorities on the political and economic agendas of states is, in a sense, no longer dependent on their own political will, but a commitment under the influence of global processes. Along with technological breakthroughs, political will also plays an important role in accelerating the process, and the need for accelerating the implementation of energy transition in the international arena is no longer in dispute, but revolves around the scale and speed of global demands.

Azerbaijan is also an integral part of these processes. In October 2016, the parliament ratified the Paris Agreement, committing itself to reducing greenhouse gas emissions by 35% from 1990 levels by 2030. Energy transition is not an ordinary issue for Azerbaijan’s economy and politics, but it is crucial enough to decide the country’s fate in the near future. In this sense, energy transition is a guarantee of the sustainability and irreversibility of socio-economic reforms.

Azerbaijan’s position in the international index

For 10 years now, the World Economic Forum (WEF) has been publishing the Fostering Effective Energy Transition Index. In the latest index released in 2021, Azerbaijan ranks 44th out of 115 countries and lags behind only Georgia among post-Soviet countries.

The index contains 2 components — system performance and transition readiness. System performance scores are calculated based on energy security, environmental sustainability, and economic growth indicators. Transition readiness assesses the suitability of the environment, specifically energy system structure, human capital, innovation, governance and institutions, regulation, and investment.

It should be noted that Azerbaijan is ranked relatively high compared to other similar countries largely thanks to system performance. The suitability of the environment is relatively weak compared to system performance. The first lesson from the latest index is that, along with energy potential capable of providing a stable energy system and sustainable economic growth, energy transition is also an important target, and in the face of global change, if governance is not flexible and innovative, the sustainability of energy development remains in question.

Energy map of Azerbaijan

In 2019, energy consumption in Azerbaijan can be broken down as follows: 65% of total energy consumption came from natural gas, 33% from oil, and only 2% from renewable energy, including hydropower (solar, wind, etc.). fall. For comparison, the share of renewable energy in neighboring Georgia is around 9%, although most of it is bioenergy and firewood. In Armenia, the figure is around 6%.

Nevertheless, the renewable energy potential of Azerbaijan is considered very promising. According to the Ministry of Energy, the renewable energy potential is estimated at 26,940 MW, of which 23,040 MW come from solar and 3,000 MW from wind. So, while current production is unsatisfactory, the potential for renewable energy — the backbone of energy transition — is very high, and this fact distracts both politicians and researchers from the main goal.

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