Energy Transition in Azerbaijan: Advantages of System Value Analysis and Strategic Role of the Global Climate Actors

Year 2024, Volume: 11 Issue: 4, 1349 - 1371, 31.12.2024

Sanem Özer , Atiye Beyhan Akay , Senem Atvur

https://doi.org/10.30798/makuiibf.1450266

Abstract

Azerbaijan, a country with hydrocarbon resources, seeks to restructure its economy and energy system to become more resilient to climate change. The European Union's call for international climate action offers opportunities for a green energy transition in Azerbaijan. However, the economic, social, climatic, and environmental elements driving this transition are understudied. This article follows the example of the World Economic Forum’s System Value Analysis to study how complementary the impact of policies and solutions targeting sustainable development, the environment, climate action, and the green energy transition is in Azerbaijan. For this purpose, we analyze the energy market in Azerbaijan and the potential of renewable energy resources. The main aim is to reveal not only the economic advantages of the energy transition but also its political and strategic contribution to Azerbaijan. We argue that Azerbaijan's strategic engagement with the EU is crucial, as it serves as a means for Europe to bolster energy security and assist Azerbaijan in its political drive and strategy for transitioning to green energy. Additionally, it fulfills Azerbaijan's commitments to global climate initiatives.

Keywords

Azerbaijan, Energy Transition, System Value Analysis, European Union, International Climate Action, Renewable Energy

Ethical Statement

The study does not necessitate Ethics Committee permission. The study has been crafted in adherence to the principles of research and publication ethics. The authors declare that there exists no financial conflict of interest involving any institution, organization, or individual(s) associated with the article. Furthermore, there are no conflicts of interest among the authors themselves. The authors declare that they all equally contributed to all processes of the research.

References

• Ackerman, F. (2008). Critique of Cost-Benefit Analysis, and Alternative Approaches to Decision-Making. Friends of the Earth, England, Wales and Northern Ireland. http://frankackerman.com/publications/costbenefit/Critique_Cost_Benefit_Analysis.pdf
• Ahmadov, I. (2021). Can energy transition drive governance reforms in Azerbaijan?, Baku Research Institute. https://bakuresearchinstitute.org/en/can-energy-transition-drive-governancereforms-in-azerbaijan/
• Aldersey-Williams, J. & Rubert, T. (2019). Levelised cost of energy - A theoretical justification and critical assessment. Energy Policy, (124), 169-179. https://doi.org/10.1016/j.enpol.2018.10.004
• Al-Saidi, M. (2022). Energy transition in Saudi Arabia: Giant leap or necessary adjustment for a large carbon economy?. Energy Reports, (8), 312-318. https://doi.org/10.1016/j.egyr.2022.01.015
• Aliyev. F. (2013). Azerbaijan national report on the project enhancing synergies in CIS national programmes on energy efficiency and energy saving for greater energy security. UNECE. https://unece.org/fileadmin/DAM/energy/se/pdfs/ee21/EE21_Subregional_projects/AzerbaijanAliyev-05.pdf
• ADB (2005). Country environmental analysis: Azerbaijan. Asian Development Bank. https://www.adb.org/sites/default/files/institutional-document/32178/aze-cea.pdf
• ADB (2021). Climate risk country profile: Azerbaijan. Asian Development Bank. https://climateknowledgeportal.worldbank.org/sites/default/files/2021-06/15835-Azerbaijan%20Country%20Profile-WEB.pdf
• ADB (n.d.). Development concept ‘Azerbaijan - 2020: Outlook for the future’. Asian Development Bank. https://www.adb.org/sites/default/files/linked-documents/cps-aze-2014-2018-sd-06.pdf
• Astariz, S., Vazquez, A., & Iglesias, G. (2015). Evaluation and comparison of the levelized cost of tidal, wave, and offshore wind energy. Journal of Renewable and Sustainable Energy, 7(5), 053112. https://doi.org/10.1063/1.4932154
• Aydin, U. (2019). Energy insecurity and renewable energy sources: Prospects and challenges for Azerbaijan. Asian Development Bank Institute Working Paper 992. https://www.adb.org/publications/energy-insecurity-renewable-energy-sources-challenges-azerbaijan
• Azerbaijan Portal (n.d.). State programs for regional developments. https://azerbaijan.az/en/related-information/276
• Azerbaijan Renewable Energy Agency under the Ministry of the Republic of Azerbaijan (n.d.). Potential of RE. https://area.gov.az/en/page/yasil-texnologiyalar/boem-potensiali
• Bayramov, Agha (2021). Azerbaijan’s renewable energy policy: Opportunities, drivers and challenges. Caucasus Analytical Digest 120. https://css.ethz.ch/content/dam/ethz/special-interest/gess/cis/center-for-securitiesstudies/pdfs/CAD120.pdf
• Bayulgen, O. (2005) Foreign investment, oil curse, and democratization: A comparison of Azerbaijan and Russia. Business and Politics, 7(1), 1-37. https://doi:10.2202/1469-3569.1099
• British Petroleum (2018). BP statistical review of world energy. https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf
• Center for Economic and Social Development (CESD) (2015). Devaluation of Azerbaijani national currency; causes and consequences. https://cesd.az/new/wp-content/uploads/2011/05/Azerbaijan_National_Currency__Devaluation4.pdf
• Central Bank of the Republic of Azerbaijan (n.d.). Macroeconomic statistics. https://www.cbar.az/page-41/macroeconomic-indicators
• Cholewa, M., Mammadov, F. & Nowaczek, A. (2022). The obstacles and challenges of transition towards a renewable and sustainable energy system in Azerbaijan and Poland. Miner Econ, (35), 155-169. https://doi.org/10.1007/s13563-021-00288-x
• Ciarreta, A. & Nasirov, S. (2012). Development trends in the Azerbaijan oil and gas sector: Achievements and challenges. Energy Policy, (40), 282-292. https://doi.org/10.1016/j.enpol.2011.10.002
• CCLW (2003). National program on environmentally sustainable socio-economic development for 2003-2010. https://www.climate-laws.org/geographies/azerbaijan/policies/national-program-on-environmentally-sustainable-socio-economic-development-for-2003-2010
• CCLW (2008). State program on poverty reduction and sustainable development in the Republic of Azerbaijan for 2008-2015. https://www.climate-laws.org/geographies/azerbaijan/policies/state-program-on-poverty-reduction-and-sustainable-development-in-the-republic-of-azerbaijan-for-2008-2015
• Council of the EU (2022). EU climate action: Provisional agreement reached on Carbon Border Adjustment Mechanism (CBAM). https://www.consilium.europa.eu/en/press/press-releases/2022/12/13/eu-climate-action-provisional-agreement-reached-on-carbon-border-adjustment-mechanism-cbam/
• Energy Charter (2020). In-depth review of the energy efficiency policy of the Republic of Azerbaijan. https://www.energycharter.org/fileadmin/DocumentsMedia/IDEER/IDEERAzerbaijan_2020.pdf
• EU-Azerbaijan Business Forum (2021). EU business mission visits Alat Free Economic Zone. https://euazbusinessforum.az/events-inner?id=4
• EU4Business (2021). EU business climate report Azerbaijan 2020. https://eu4business.az/uploads/21/03/10/cde3601e803810054106ce95632a1c9a.pdf
• European Commission (2018). Partnership priorities between the EU and Azerbaijan reinforce the bilateral agenda. https://neighbourhood-enlargement.ec.europa.eu/news/partnership-priorities-between-eu-and-azerbaijan-reinforce-bilateral-agenda-2018-07-11_en
• European Commission (2021). Joint staff working document: Recovery, resilience, and reform: Post 2020 Eastern Partnership priorities. https://www.eeas.europa.eu/sites/default/files/swd_2021_186_f1_joint_staff_working_paper_en_v2_p1_1356457_0.pdf
• European Commission (2022). EU, and Azerbaijan enhance bilateral relations including energy cooperation. https://ec.europa.eu/commission/presscorner/detail/en/ip_22_4550
• European Council (2022a). Eastern Partnership policy beyond 2020. https://www.consilium.europa.eu/en/policies/eastern-partnership/eastern-partnership-policy-beyond-2020/
• European Council (2022b). European Green Deal. https://www.consilium.europa.eu/en/policies/green-deal/
• European Parliament (n.d.). Memorandum of understanding on a strategic partnership between the European Union and the Republic of Azerbaijan in the field of energy. https://www.europarl.europa.eu/meetdocs/2009_2014/documents/dsca/dv/dsca_20130321_14/dsca_20130321_14en.pdf
• EU4Environment (2022). Towards a green economy with EU4Environment in Azerbaijan, Achievements in 2021-2022. https://www.eu4environment.org/app/uploads/2022/08/Azerbaijan-profile-2022.pdf
• EU4Climate (2023). EU4Environment, Azerbaijan, description. https://www.eu4environment.org/where-we-work/azerbaijan/
• EU4Climate (n.d.). Azerbaijan. https://eu4climate.eu/azerbaijan/
• EU NeighboursEast. (2021). Azerbaijan adopts law on energy efficiency with EU4Energy support. https://euneighbourseast.eu/news/latest-news/azerbaijan-adopts-law-on-energy-efficiency-with-eu4energy-support/
• Farajullayeva, N. (2019). Long-term capacity expansion planning with a high share of renewables in Azerbaijan Republic. Ministry of Energy of Azerbaijan. https://tinyurl.com/yckzx4sh
• Farzalieva, S. V.  (2021). Food security in Azerbaijan: Trends, problems and prospects. In A. Aleksic, V. Ruzic & Z. Baracskai (Eds.), Economic and Social Development: Book of Proceedings (pp. 61-66). Varazdin Development and Entrepreneurship Agency. https://www.esd-conference.com/upload/book_of_proceedings/Book_of_Proceedings_esdFebruary2021_Online.pdf
• FAO (2014). Decree of the President of the Republic of Azerbaijan: On the approval of ‘State Program on the development of industry in the Republic of Azerbaijan in 2015-2020’. FAOLEX Database. https://faolex.fao.org/docs/pdf/aze175121.pdf
• FAO (2023). Azerbaijan. LEX-FAOC176989. FAOLEX Database. https://www.fao.org/faolex/results/details/en/c/LEX-FAOC176989/
• GFW (n.d.). Azerbaijan. https://www.globalforestwatch.org/dashboards/country/AZE/
• Grant Thornton (2019). Consolidated extractive industries transparency report-2018. https://www.resourcedata.org/dataset/355c0e34-449b-4f3c-9576-a7c5318ec536/resource/d759868c-d4cb-43a6-b55e-c680431b37cf/download/file2f3c48d337bb.pdf
• Guliyev, F. (2021). Azerbaijan's social policy response to COVID-19. Caucasus Analytical Digest, 119, 10-17. https://doi.org/10.3929/ethz-b-000468546
• Hanna, R., & Victor, D. G. (2021). Marking the decarbonization revolutions. Nature Energy, 6(6), 568–571.
• Hasanov, F. J., Mukhtarov, S., & Suleymanov,E. (2023). The role of renewable energy and total factor productivity in reducing CO2 emissions in Azerbaijan: Fresh insights from a new theoretical framework coupled with Autometrics. Energy Strategy Reviews, (47), 101079. https://doi.org/10.1016/j.esr.2023.101079
• Herranz-Surraléz, A. & Natorski M. (2012). The European energy policy towards eastern neighbors: rebalancing priorities or changing paradigms?. In F. Morata & S. I. Sandoval (Eds), European Energy Policy: Environmental Approach (pp. 132-154). Edward Elgar.
• Hoffman, D. I. (1999). Oil and development in post-Soviet Azerbaijan. NBR ANALYSIS, 10(3), 87-110.
• Huseynli, B. (2023). Renewable solar energy resources potential and strategy in Azerbaijan. International Journal of Energy Economics and Policy, 13(1), 31-38. https://doi.org/10.32479/ijeep.13796
• IEA (2021). The state program on use of alternative and renewable energy sources. https://www.iea.org/policies/5337-the-state-program-on-use-of-alternative-and-renewable-energy-sources
• IEA (2022). Implementing a long-term energy policy planning process for Azerbaijan: A roadmap. https://iea.blob.core.windows.net/assets/7f78cf4e-fac0-425c-944f-a70201e0fac1/ImplementingaLong-TermEnergyPolicyPlanningProcessforAzerbaijan_ARoadmap.pdf
• International Renewable Energy Agency (2022). Renewable energy statistics 2022. https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jul/IRENA_Renewable_energy_statistics_2022.pdf?rev=8e3c22a36f964fa2ad8a50e0b4437870
• Ipek, P. (2009). Azerbaijan's foreign policy and challenges for energy security. Middle East Journal, 63(2), 227-239.
• Karatayev, M., Lisiakiewicz, R., Gródek-Szostak, Z., Kotulewicz-Wisińska, K., & Nizamova, M. (2021). The promotion of renewable energy technologies in the former Soviet Bloc: Why, how, and with what prospects?. Energy Reports, (7), 6983-6994. https://doi.org/10.1016/j.egyr.2021.10.068
• Karimov, R. (2015). Development of non-oil sector in Azerbaijan: Tendencies and opportunities. Journal of Business & Economic Policy, 2(2), 39-52.
• Kubicek, P. (2013). Energy politics and geopolitical competition in the Caspian Basin. Journal of Eurasian Studies, 4(2), 171-180. https://doi.org/10.1016/j.euras.2013.03.007
• Lindberg, M. B., Markard, J., & Andersen, A. D. (2019). Policies, actors and sustainability transition pathways. Research Policy, 48(10), 103668. https://doi.org/10.1016/j.respol.2018.09.003
• Makhmudov, R. N. (2016). Regional climate changes and river runoff in Azerbaijan. Russian Meteorology and Hydrology, 41, 635–639.
• Mammadov, S., Gasimov E., Kurdova-Mintcheva R., & Wongsrichanalai C. (2016). Elimination of Plasmodium vivax Malaria in Azerbaijan. The American Journal of Tropical Medicine and Hygiene, 95(6), 78-86. https://doi.org/10.4269/ajtmh.16-0173
• Ministry of Ecology and Natural Resources Republic of Azerbaijan (2015). Third national communication to the United Nations framework convention on climate change Republic of Azerbaijan. https://unfccc.int/resource/docs/natc/azenc3.pdf
• Ministry of Energy of Azerbaijan (2020a). The use of renewable energy sources in Azerbaijan. https://minenergy.gov.az/az/alternativ-ve-berpa-olunan-enerji/azerbaycanda-berpaolunan-enerji-menbelerinden-istifade
• Ministry of Energy of Azerbaijan (2020b). Implementation agreements of pilot projects on renewable energy were signed with ‘ACWA Power’ and ‘Masdar’. https://minenergy.gov.az/en/xeberler-arxivi/acwa-power-ve-masdar-sirketleri-ile-berpaolunan-enerji-uzre-pilot-layihelerin-heyata-kecirilmesi-ile-bagli-icra-muqavileleri-imzalanib
• Ministry of Energy of Azerbaijan (2021). Minister of energy of Azerbaijan: A fair energy transition can be possible not by decommissioning traditional energy sources, but together with it. https://minenergy.gov.az/en/xeberler-arxivi/azerbaycanin-energetikanaziri-edaletli-enerji-kecidi-enenevi-enerji-menbelerinin-istifadeden-cixarilmasi-ile-deyilonunla-birge-mumkun-ola-biler
• Mishan E. J., & Quah E. (2021). Cost benefit analysis (6th ed). Routledge.
• Mustafayev, F., Kulawczuk, P., & Orobello, C. (2022). Renewable energy status in Azerbaijan: Solar and wind potentials for future development. Energies, 15(2), 401. https://doi.org/10.3390/en15020401
• Najman, B., Pomfret, R., & Raballand, G. (Eds.). (2007). The economics and politics of oil in the Caspian Basin: The redistribution of oil revenues in Azerbaijan and Central Asia (Vol. 3). Routledge.
• Nasibov, M. (2021). Energy governance in Azerbaijan. In M. Knodt, & J. Kemmerzell (Eds.), Handbook of energy governance in Europe (pp.1-27). Springer.
• Newell, P., & Mulvaney, D. (2013). The political economy of the ‘just transition’. The Geographical Journal, 179(2), 132-140.
• OECD (2007). Policies for a better environment: Progress in Eastern Europe, Caucasus and Central Asia, 2007. https://www.oecd.org/env/outreach/39283973.pdf
• Rasoulinezhad, E., & Taghizadeh-Hesary, F. (2022). Role of green finance in improving energy efficiency and renewable energy development. Energy Efficiency, (15), 14. https://doi.org/10.1007/s12053-022-10021-4
• Sabyrbekov, R., & Ukueva, N. (2019). Transitions from dirty to clean energy in low-income countries: Insights from Kyrgyzstan. Central Asian Survey, 38(2), 255-274. https://doi.org/10.1080/02634937.2019.1605976
• Sanili Aydin, U., & Uste, A. N. (2022). Review of new political risks for the multinational energy corporations in the Caspian basin: A study for Azerbaijan. Transnational Corporations Review, 14(3), 323-332. https://doi.org/10.1080/19186444.2022.2076495
• Shadrina, E. (2020). Non-hydropower renewable energy in Central Asia: Assessment of deployment status and analysis of underlying factors. Energies, 13(11), 2963. https://doi.org/10.3390/en13112963
• Simpson, B. (2023, June 31). Norway is planning to profit from climate change. Foreign Policy. https://foreignpolicy.com/2023/01/31/norway-is-planning-to-profit-from-climate-change/
• Skalamera, M. (2022). Steppe-ing’ out of Russia’s shadow: Russia’s changing ‘energy power’ in Post-Soviet Eurasia. Europe-Asia Studies, 74(9), 1640-1656. https://doi.org/10.1080/09668136.2022.2126440 The Ministry of Energy of the Republic of Azerbaijan (n.d.). Electricity generation by type of power plants in the Republic in 2008-2021. https://minenergy.gov.az/uploads/energetika/Statistika/istehsal%202008-2021%20eng.png
• The Ministry of Energy of the Republic of Azerbaijan (2020). State program of social and economic development of the regions of the Republic of Azerbaijan in 2009-2013. https://minenergy.gov.az/uploads/Proqramlar/reg2009-2013/6.pdf
• The Ministry of Energy of the Republic of Azerbaijan (2022). The use of renewable energy resources in Azerbaijan. https://minenergy.gov.az/en/alternativ-ve-berpa-olunan-enerji/azerbaycanda-berpa-olunan-enerji-menbelerinden-istifade.National
• The Republic of Azerbaijan (2023). Updated document on Nationally Determined Contributions (NDC). https://unfccc.int/sites/default/files/NDC/2023-10/Second%20NDC_Azerbaijan_ENG_Final%20%281%29.pdf
• The State Statistical Committee of the Republic of Azerbaijan. (2022). Energy of Azerbaijan. https://www.stat.gov.az/source/balance_fuel/?lang=en
• The State Statistical Committee of the Republic of Azerbaijan (2023). System of national accounts and balance of payments. https://www.stat.gov.az/source/system_nat_accounts/?lang=en
• UN Climate Change (2022). Azerbaijan – High-level segment statement COP 27. https://unfccc.int/documents/623828
• UN Climate Change (2021). Azerbaijan – High-level segment statement COP 26. https://unfccc.int/documents/310805
• UN Development Programme (2023). Azerbaijan – EU4Climate. https://www.undp.org/azerbaijan/projects/eu4climate
• UNFCCC (n.d.-a). Parties and observers, United Nations Framework Convention on Climate Change, https://unfccc.int/parties-observers
• UNFCCC (n.d.-b). Azerbaijan First NDC, United Nations Framework Convention on Climate Change, https://unfccc.int/sites/default/files/NDC/2022-06/INDC%20Azerbaijan.pdf
• UNFCCC (2014). Handbook on measurement, reporting, and verification for developing country parties. https://unfccc.int/files/national_reports/annex_i_natcom_/application/pdf/non-annex_i_mrv_handbook.pdf
• van Gils, E. (2018). From ‘unilateral’ to ‘dialogical’: Determinants of EU–Azerbaijan negotiations. Europe-Asia Studies, 70(10), 1572-1596. https://doi.org/10.1080/09668136.2018.1546828
• Vidadili, N., Suleymanov, E., Bulut, C. & Mahmudlu, C. (2017). Transition to renewable energy and sustainable energy development in Azerbaijan. Renewable and Sustainable Energy Reviews, (80), 1153-1161. https://doi.org/10.1016/j.rser.2017.05.168
• World Bank (2021). Azerbaijan. https://www.worldbank.org/en/country/azerbaijan/
• World Bank (2022). Offshore wind roadmap for Azerbaijan. https://documents1.worldbank.org/curated/en/099125006022242537/pdf/P1757160c9ba20078097880a6781b95d5eb.pdf
• WEF (n.d.). System Value. https://www.weforum.org/projects/system-value
• WEF (2020a). Fostering effective energy transition. https://www.weforum.org/publications/fostering-effective-energy-transition-2020/
• WEF (2020b). Shaping the future of energy and materials, system value framework and analysis summary October 2020. https://www3.weforum.org/docs/WEF_Overview_Path_to_Maximise_System_Value_2020.pdf
• Yesevi, C. G., & Tiftikcigil, B. Y (2015). Turkey-Azerbaijan energy relations: A political and economic analysis. International Journal of Energy Economics and Policy, 5(1), 27-44.
• Yusifov, C. (2018). Overview of the renewable energy developments in Azerbaijan. International Renewable Energy Agency. https://www.irena.org/-/media/Files/IRENA/Agency/Presentations/Regional-focus/2018/May/Azerbaijan-RRA-Workshop-2--Mr-Jabir-Yusifov-SAARES--Overview-of-the-energy-sector-and-renewa.pdf