Nathan Reynoso 
By Dr. Gubad Ibadoghlu, Visiting Senior Fellow at London School of Economics and Political Science (LSE) and a senior policy analyst at the Economic Research Center (ERC), Baku, Azerbaijan
12 March 2025
Azerbaijan’s oil and gas sector contributes 87.36% of the country’s export earnings, 30.6% of its GDP, and 49.38% of budget revenues. Rather than phasing out fossil fuels, the country is doubling down on hydrocarbon investments—expanding the oil sector to counter production decline while increasing gas exports to the EU. Azerbaijan is set to increase its gas production by a third, from 37 billion cubic meters (bcm) in 2024 to 49 bcm in 2033, according to Rystad data. According to Global Witness, in total, fossil fuel companies are forecast to extract 411 bcm of Azerbaijani gas over the next 10 years. This would emit 781 million tons of carbon dioxide – more than two times the annual carbon emissions of the UK.
Greenhouse Gas Emissions and Climate Commitments
Azerbaijan produced 0.12% of global greenhouse gas emissions in 2021 (the latest date with complete emissions data). This amounted to 56.5m metric tons of carbon dioxide equivalent, or MtCO₂e. These emissions represented an increase from 2020 by 5%. In 2021, Azerbaijan was the world’s 72nd largest producer of greenhouse gas emissions, placing the country 79th out of 191 on emissions produced per capita. The Notre Dame Global Adaptation Initiative (ND-GAIN), ranked Azerbaijan in the upper-middle tier, scoring 51.8 out of 100 and placing 77th out of 181 countries. The country’s readiness score was 0.444 (80th place), while its vulnerability score stood at 0.409 (84th place). The difference of 0.035 between readiness and vulnerability is minimal. Meanwhile, Azerbaijan’s climate commitments under the Paris Agreement remain unambitious, aiming for only a 40% reduction in greenhouse gas (GHG) emissions by 2050, with no net-zero target.
The Environmental Impact of Fossil Fuel Production
Fossil fuels, particularly oil and gas, remain the country’s largest source of emissions. As of the latest available data from 2017, emissions were 38% below 1990 levels, with the energy sector accounting for 75% of total GHG emissions. The State Oil Company of Azerbaijan (SOCAR) is a major GHG emitter in Azerbaijan. The main greenhouse gasses emitted in Azerbaijan are carbon dioxide (CO2) and methane (CH4).
According to a policy report published by the Joint Research Centre (JRC), the European Commission’s science and knowledge service, titled “GHG Emissions of All World Countries,” rather than decreasing as the climate crisis grows, GHG emissions in Azerbaijan’s fuel exploitation sector increased by 54% in 2023 compared to 1990, 37% compared to 2005, and 5% compared to 2022.
Fossil CO2 and CH₄, a potent GHG linked to the energy sector, is being released at increasing levels due to gas flaring. A Global Witness investigation, released on January 9, 2025, confirmed that Sangachal – BP’s largest terminal. in Azerbaijan—flared a record-breaking amount of gas in 2024, flaring an estimated 50.8 million cubic meters of gas between January and September. In just nine months, the terminal recorded its highest annual flaring volume since data collection began in 2012. The majority of this flaring occurred in March (16.4 million cubic meters) and April 2024 (24.3 million cubic meters).
Limited Spending for Environmental Protection
Burning fossil fuels has made the earth warmer by about 1.1°C since the industrial revolution. Despite significant oil and gas revenues and the energy sector’s harmful impact on the environment, only a small portion is allocated to energy transition and environmental protection.
The allocation of funds under Azerbaijan’s Socio-Economic Development Strategy (2022–2026) reveals a significant disparity in spending across the Five National Priorities. As of 2024, only $67.82 million (1.63%) of the $4.17 billion in implemented funds have been directed toward the 5th national priority: “A Clean Environment and a Country of Green Growth.”
This represents the lowest expenditure among all Five National Priorities, underscoring the government’s limited financial commitment to environmental sustainability. The first two years of strategy implementation suggest that environmental protection and green growth remain a low priority for Azerbaijan’s leadership.
According to the State Statistics Committee, Azerbaijan’s expenditures on environmental protection increased 2.9 times in 2023 compared to the previous year, reaching 677.4 million AZN (US$398.5 million)—equivalent to just 0.6% of GDP. Of this:
- 595 million AZN (US$350 million) was directed toward fixed capital investments for environmental protection and the efficient use of natural resources.
- 56.3 million AZN (US$33.1 million) covered ongoing environmental protection expenditures.
- 26.1 million AZN (US$15.3 million) was allocated for maintaining forests, reserves, national parks, and wildlife conservation efforts.
However, these figures do not include spending on mitigating the impacts of climate change.
In 2024, state budget revenues from the oil and gas sector are projected to total 17 969.6 million AZN (US $10,570.3 million), with only 361.9 million AZN (US $212.8 million) allocated to environmental protection. This means that for every dollar earned from oil and gas export, just 2 cents are spent on environmental protection—even less than the 1 cent specifically designated for climate change mitigation under the environmental protection budget for 2024.
Climate Finance and GNG Emissions
Access to information on environmental damage compensation from mining companies operating in Azerbaijan has significantly deteriorated since 2017. Following Azerbaijan’s withdrawal from the Extractive Industries Transparency Initiative (EITI) on March 9, 2017, transparency in this sector has declined, limiting public access to corporate environmental data.
Climate finance from public and private sources also remains insufficient. Large portions of the investment budget—primarily funded by oil and gas revenues—are allocated to major road repairs and beautification projects in Baku, rather than addressing environmental challenges.
According to the Emissions Database for Global Atmospheric Research (EDGAR) data, Azerbaijan’s GHG Total Emissions and GDP share have deteriorated since 2000. (See Table 1.)
| 1990 | 2000 | 2005 | 2010 | 2015 | 2020 | 2022 | 2023 | |
| GNG Total emission, Mton CO2eq | 67.84 | 39.86 | 44.83 | – | 53.36 | 54.72 | 59.03 | 62.55 |
| GNG per GDP emission, t CO2eq/1k$ | 0.89 | 0.89 | 0.54 | 0.25 | 0.27 | 0.28 | 0.28 | 0.29 |
| GNG per capita emission, t CO2eq/cap | 9.37 | 4.91 | 5.25 | 4.98 | 5.55 | 5.42 | 5.76 | 6.06 |
Despite the significant oil and gas revenues that Azerbaijan has enjoyed since 2001, there has been a missed opportunity to make substantial investments in accelerating the energy transition and reducing GHG emissions. From 2001 to 2025, the State Oil Fund of Azerbaijan (SOFAZ) received US $182.467 billion from the sale of oil and condensate from the ACG field, and from 2007 to 2025, SOFAZ received US $7.744 billion from the sale of gas and condensate from the Shah Deniz field. This amounts to a total of US $190.211 billion in oil and gas revenues by 2025, yet SOFAZ has not financed a single project aimed at energy transition.
Renewable Energy Transition
Despite possessing oil reserves projected to last 25–30 years, Azerbaijan recognizes the necessity of transitioning to renewable energy. To facilitate this, the government has implemented several policies and initiatives, including the State Program on the Use of Alternative and Renewable Energy Sources (2004) and the establishment of the State Agency for Renewable Energy Sources (2020). Additionally, the Renewable Energy Law (2021) and the Azerbaijan 2030: National Priorities for Socio-Economic Development Strategy underscore the country’s commitment to green energy, aiming to increase renewables’ share in electricity generation to 24% by 2026 and 30% by 2030.
Green Energy Zone Initiative
On May 3, 2021, Azerbaijani President Ilham Aliyev approved an Action Plan for a “Green Energy Zone” in the Karabakh and East Zangezur economic regions. This initiative, aims to harness the region’s vast renewable energy potential. To support the project, an international consulting company collaborated with Japan’s TEPSCO to develop a concept document, which outlines strategies for deploying environmentally friendly and energy-efficient technologies in the area.
Renewable Energy Potential: Preliminary studies highlight the region’s significant renewable energy capacity:
- Solar energy: Over 7,200 MW in Gubadli, Zangilan, Jabrayil, and Fuzuli.
- Wind energy: Around 2,000 MW in the mountainous areas of Lachin and Kalbajar.
- Hydropower: Considerable power tributaries of the Terterchay and Hakari Rivers.
Major Renewable Energy Projects
- Hydropower: Azerbaijan and Iran signed an agreement in 2016 for the joint operation of the Khudaferin(200 MW) and Giz Galasi(80 MW) hydroelectric plants on the Aras River. Azerbaijan’s share of these projects is expected to generate 358 million kWh of electricity annually.
- Wind Power: A 240 MW wind power plant in Khizi and Absheron, developed by Saudi Arabia’s ACWA Power, will produce 1 billion kWh annually, reduce 400,000 tons of CO₂ emissions, and save 220 million cubic meters of natural gas per year.
- Solar Power: The UAE’s Masdar is investing in a 230 MW solar power plant, expected to cut 600,000 tons of CO₂ emissions annually. The total investment for the ACWA Power and Masdar projects is estimated at $500 million. Moreover, on June 3, 2021, an Executive Agreement was signed between the Ministry of Energy of the Republic of Azerbaijan and bp on the evaluation and implementation of the 240 MW solar power plant construction project in the Zangilan and Jabrayil zones.
COP29 and Green Energy Actions
During COP29 in Baku, Azerbaijan secured key agreements to expand renewable energy:
- Partnerships with China: Deals with China Energy Overseas Investment Co. Ltd. to develop solar projects.
- Offshore Wind Development: MoUs with Masdar and ACWA Power for up to 3.5 GW of offshore wind capacity in the Caspian Sea.
- Regional Green Energy Collaboration: Azerbaijan, Kazakhstan, and Uzbekistan agreed to build a clean energy cable under the Caspian Sea to supply European markets.
- Green Energy Auction: Azerbaijan’s first renewable energy auction, backed by the European Bank for Reconstruction and Development (EBRD), awarded a 100 MW solar power plant in Garadagh to Universal International Holding Limited, with a record-low tariff of 3.54 cents per kWh.
Future Renewable Energy Investments and Future Plans
Financing from international institutions: The European Bank for Reconstruction and Development (EBRD), Asian Development Bank (ADB), and Asian Infrastructure Investment Bank (AIIB) have agreed to finance two solar power projects in Azerbaijan. These projects have a combined capacity of 760 MW (Bilasuvar (445 MW) and Neftchala (315 MW) Solar Plants). They represent a US $670 million investment, set to generate 1.7 billion kWh annually, saving 380 million cubic meters of natural gas and reducing 830,000 tons of CO₂ emissions per year.
Green Corridor Initiative: Under a strategic agreement with Georgia, Romania, and Hungary, Azerbaijan is developing a 1,200 km, 1 GW high-voltage transmission cable linking the Caspian and Black Seas to export green energy to Europe. The “Green Corridor” will be the best new route for renewable energy, including offshore wind energy, emerging outside the region.
Conclusion
Azerbaijan has taken steps toward expanding renewable energy through policy reforms, international partnerships, and strategic investments. However, these efforts remain limited compared to the country’s overwhelming reliance on fossil fuels. The slow transition reflects both economic and political realities, where short-term gains from oil and gas continue to outweigh long-term sustainability goals.
The government’s approach to renewable energy appears to be driven more by international commitments than domestic urgency. This is evident in agreements signed during COP29, signaling an outward commitment to green energy while domestic policies still prioritize hydrocarbons. Azerbaijan’s reluctance to fully embrace renewables is also influenced by global trends, such as the US withdrawal from the Paris Agreement, oil industry lobbying, and the hesitation of major energy companies like Shell, BP, and Equinor to maintain large-scale renewable investments.
OPEC leaders continue to push for what they refer to as a “balanced approach,” arguing that the world cannot function without oil. Meanwhile, Norwegian energy companies have scaled back their green investments, and SOCAR follows a similar path. This signals that Azerbaijan, like many oil-rich nations, remains cautious about fully committing to an energy transition, especially in an era where fossil fuel profits remain high.
Despite these challenges, the long-term reality is clear: fossil fuel reserves are finite. Octopus Energy estimates that at the current rate of consumption, global fossil fuel reserves could be depleted by 2060, with new discoveries potentially extending this timeline slightly. Azerbaijan, with proven oil reserves of 7 billion barrels as of 2016 (just 0.42% of the world’s total), faces a future where oil production will continue to decline.
This makes the shift to renewables not just an environmental necessity but an economic imperative. However, the cost of renewable technologies and fluctuating global energy prices still influence Azerbaijan’s energy policy. While high oil prices may keep alternative energy investments in consideration, Azerbaijan has yet to demonstrate a comprehensive, long-term strategy to make renewables a true priority.