World Bank supports Azerbaijan’s climate transition with carbon market roadmap

By Nazrin Abdul

As climate change intensifies and global carbon emissions continue to rise, the urgency for coordinated international action has reached a critical point. While sustainable development remains a universal aspiration, it also poses challenges that transcend borders. Effectively addressing the climate crisis now depends not only on policy ambition but also on strategic alignment and global solidarity.

Azerbaijan, traditionally viewed through the lens of its oil and gas wealth, is increasingly repositioning itself as a proactive player in the global climate agenda. Despite its hydrocarbon legacy, the country is aligning national development goals with climate mitigation strategies - an approach that underscores the complexity of transitioning to a green economy while maintaining energy security.

This balancing act was on full display when Azerbaijan hosted the 29th session of the Conference of the Parties to the UN Framework Convention on Climate Change (COP29) in November 2024 - one of the most significant climate diplomacy events of the year. The choice of Azerbaijan as host was not only symbolic but strategic, reinforcing its role as a bridge between fossil fuel-dependent economies and the global push for decarbonization.

Domestically, the designation of 2024 as the “Year of Solidarity for a Green World” reflects the country’s political will to integrate environmental sustainability into national policy discourse. However, symbolism must be matched with structural change - especially in a carbon-intensive economy.

The workshop also tackled a less visible but increasingly influential aspect of climate governance - international carbon markets and border adjustment mechanisms. With the European Union's Carbon Border Adjustment Mechanism (CBAM) set to reshape global trade dynamics, Azerbaijan faces both opportunities and risks. On one hand, failure to adapt could subject exports to costly tariffs; on the other, strategic alignment with carbon market frameworks could unlock new revenue streams and investments opportunities.

During the second day of workshop, participants conducted a readiness assessment of Azerbaijan's infrastructure and policy environment for engaging in global carbon markets. Utilizing tools like the Mitigation Action Assessment Protocol and the World Bank’s Decision Tree for Navigating Carbon Markets, experts offered Azerbaijan a tailored roadmap for market entry and cooperation.

The dialogue also revealed significant institutional engagement. Representatives from key ministries and state-owned enterprises - including SOCAR, Azerenerji, and the Ministry of Energy - highlighted the multi-sectoral nature of the carbon transition. However, this diversity also underscores the governance challenge ahead: coordinating climate action across fragmented bureaucracies and vested interests.

Azerbaijan’s current trajectory offers important insights for other fossil fuel-dependent economies exploring climate action without undermining economic stability. The country’s dual strategy - embracing clean energy narratives while maintaining traditional energy partnerships - may appear contradictory, but it reflects the practical complexities of the global energy transition.

Ultimately, carbon pricing is not just about taxing pollution; it’s about redefining value in a low-carbon world. For Azerbaijan, the path forward will require more than political declarations and international workshops. It will demand a sustained institutional transformation - grounded in economic realism, environmental integrity, and social fairness.

If the momentum from COP29 and the World Bank workshop translates into concrete policy instruments, Azerbaijan could emerge not only as a regional climate leader but also as a model for transitional economies grappling with the dual imperatives of development and decarbonization.