Azerbaijan’s economy is highly dependent on fossil-fuel exports, making its economic prospects vulnerable to rising emissions-cutting ambition around the world.
As decarbonisation reduces global fossil-fuel demand and prices, the country will not be able to earn as much money from its oil and gas resources.
In a recent study, we looked at the policy solutions Azerbaijan could implement, in order to shift towards cleaner energy and diversify its economy away from fossil fuels to benefit domestic consumers, while remaining competitive in global markets.
Our results suggest that, while being adversely impacted by decarbonisation efforts in countries around the world, it is in Azerbaijan’s self-interest to implement domestic mitigation policies.
With proper sequencing and design of such policies, including a combination of fossil-fuel subsidy reform, a price on carbon post-2030 and use of collected revenue to cut taxes elsewhere, the country could achieve nationally determined contribution (NDC) targets, boost income growth and increase economic diversification.
Moreover, ambitious mitigation efforts towards net-zero by 2060 would yield substantial health co-benefits that could almost fully outweigh the direct economic costs of cutting emissions.
Vulnerability of the status quo
Net fossil-fuel exporting economies, such as Azerbaijan, not only need to implement domestic decarbonisation policies, but also face the consequences of global mitigation efforts if global climate targets are to be met. The latter could substantially impact the country’s future revenue flows from fossil fuel exports.
During the early 2000s, Azerbaijan’s hydrocarbon-fueled economy contributed to rapidly rising incomes and the development of domestic infrastructure. Between 2000 and 2014, per-capita gross domestic product (GDP) in the country increased more than 10-fold, transitioning Azerbaijan from a low-income to an upper-middle-income economy, according to the World Bank.
However, over the past decade, GDP growth has slowed down, while the country’s diversification efforts have not led to major transformations in the structure of the domestic economy, with fossil-fuel activities still playing a central role. Fossil-fuel subsidies in the country remain large and they continue to distort domestic energy markets, according to the International Energy Agency.
Between 2016 and 2021, Azerbaijan ranked 115 out of 133 countries in terms of the “economic complexity” of its exports – a measure of how diverse a country’s export basket is – according to the Growth Lab at Harvard University.
The figure, below left, shows that its export basket is among the least complex in the world – even among oil and mineral exporting comparator countries, only Nigeria ranks lower than Azerbaijan.
In addition, the country is highly vulnerable to the future energy transition, being characterised by both high exposure and low resiliency, as shown in the figure below right.
Azerbaijan has the second least complex export basket in the world, leaving it highly vulnerable to an energy transition
Economic risks
Without pro-active domestic policies, our research suggests that Azerbaijan risks facing major economic losses from the global energy transition.
Mitigation efforts around the world can substantially reduce a country’s “resource rents” through declining global fossil-fuel demand and prices, as shown in the figure below.
Results from our study suggest that if countries around the world implement NDC-consistent climate policies, then GDP in Azerbaijan could decline by up to 3.3% in 2060, relative to a reference scenario, which reflects a continuation of the current trends, policies adopted by 2021 and the energy projects that are already in the pipeline.
Households’ welfare, a measure closely related to changes in real income, as well as their investments, might be impacted even more adversely – by 5.1% and 6.7%, respectively, in 2060.
The country would see significant and growing reductions in export earnings from fossil fuels, as shown in the second figure below. Resources such as labour and capital, freed by declining fossil-fuel extraction activities would be reallocated to cleaner sectors, such as services and manufactured goods, which would see a modest expansion in output and exports. However, this would only partly compensate for the reduction in fossil-fuel export revenues, as shown in the figure below.
Global climate action could significantly hit Azerbaijan’s economy
In our NDC mitigation scenario, most of the reduction in economic activity in Azerbaijan is associated with fossil-fuel extraction sectors, as shown in the lower two figures above. Supporting service activities, such as trade, are also impacted substantially. The construction sector would also see a contraction in value-added and investments, due to reduced volumes of investment in the economy overall.
In terms of the government balance sheet, if the rest of the world implements NDC-consistent mitigation policies, then Azerbaijan would see a decline in tax revenue of up to 4% in 2060.
Domestic mitigation is a win-win
Transitioning to a “green” economy is listed as one of the key pillars of the 2021 presidential order titled: “Azerbaijan 2030: National priorities for socio-economic development”.
The country has a target of reducing its greenhouse gas (GHG) emissions to 35% below 1990 levels by 2030 and 40% by 2050, based on its updated NDC from 2023. (Its emissions are currently around 5% above 1990 levels.)
At the same time, between 2010 and 2023 GHG emissions in the country have increased by more than 39%, complicating the ability to achieve the mitigation goals.
In addition, Azerbaijan’s 2050 commitment of cutting emissions by 40% relative to the 1990 level is not only conditional on international support, but could be also deemed as substantially less ambitious than the country’s fair contribution towards global climate goals. Recent research, separate from ours, suggests the latter would imply reducing emissions by around 65% by 2050.
Our research suggests that achieving the stated 2030 targets and further strengthening the country’s mitigation ambition in the long-run would bring important economic benefits.
Our estimates suggest that a combination of fossil-fuel subsidies reform, the introduction of a carbon price post-2030 and recycling of the additionally collected revenue via reduced taxes elsewhere – on labour, capital and land, for example – would allow the country to achieve domestic NDC targets while boosting economic growth and investment, as shown in the figure below.
If the country were to implement such policies, Azerbaijan’s GDP could increase by over 1% in 2040 and by over 2% in 2060, relative to the scenario where all countries achieve their NDCs, while Azerbaijan does not implement climate-mitigation policies, i.e. follows the baseline pathway. There would be an even more substantial increase in investment of almost 6% in 2060.
On the policy implementation side, our results suggest that the elimination of two-thirds of fossil-fuel subsidies in Azerbaijan would be sufficient to achieve the 2030 NDC target.
Additional mitigation efforts would be needed to comply with NDC targets post-2030, for example, carbon prices of around $40-$50 per tonne of carbon dioxide (/tCO2 post-2045).
Azerbaijan could boost its GDP through climate action
If additional revenue from energy-subsidy reform and carbon pricing were used to reduce taxes elsewhere, such as taxes on labour, capital and land, this would help to support non-fossil-fuel activities, contributing to the diversification of Azerbaijan’s economy, as shown in the third figure above.
The share of energy-intensive manufacturing in the country’s GDP would decline by around 0.6 percentage points starting from 2035, similar in magnitude to the reduction in the share of carbon-based electricity generation.
These two groups of activities would be primarily substituted by carbon-free electricity and service sectors, reducing Azerbaijan’s exposure to the global energy transition.
Importance of considering a bigger picture
Apart from reducing GHG emissions, domestic mitigation policies would also lead to changes in air pollution levels.
As suggested by earlier studies, reduced air pollution levels could result in lower mortality rates and reduce the overall costs of mitigation.
In addition to air pollution changes under the NDC and net-zero by 2060 mitigation scenarios, in our study we also consider a hypothetical case where, within a net-zero climate policy scenario, households reduce the use of wood biomass for domestic heating and cooking – by 50% and 60% respectively in 2030 and 2060, relative to business as usual. (In the figure below, we refer to this scenario as “NetZero with reduced wood burning by HHs”.)
Our results suggest that the improved air quality observed across mitigation scenarios allows for saving between 120 lives in Azerbaijan in 2030 (NDC scenario) and 1,300 in 2060 (net-zero scenario) lives in Azerbaijan.
When the case of reduced wood-burning by households is considered, the number of saved lives increases to 1,200 (net-zero in 2030) and 3,800 (net-zero in 2060).
When these mortality reductions are translated to monetary equivalents using the “value of statistical life” (VSL), the corresponding health co-benefits reach 0.2%-0.6% of households’ welfare in 2030 and 0.5%-2.2% of welfare in 2060, as shown in the figures below.
Health co-benefits could more than offset the cost of Azerbaijan reaching net-zero
Our findings show that households would be better off under the NDC scenario, with air pollution co-benefits increasing the boost to their welfare already generated by mitigation policies.
While there would be direct mitigation-related economic costs to households in the net-zero scenario, health co-benefits would offset 60% of this in 2030 and 80% in 2060.
Moreover, reaching net-zero in 2060 while reducing wood burning by households would bring additional health benefits, with substantially greater economic value than the costs of mitigation.
Policy implications
Several important policy insights follow from our analysis.
First, while being exposed to the declining global fossil-fuel demand and prices that are expected to accompany decarbonisation efforts in countries around the world, our research suggests it is in Azerbaijan’s self-interest to implement domestic mitigation policies.
Our findings support earlier studies that suggest lower risks of “stranded fossil-fuel assets” and overall economic costs for those that move to diversify their economy early, compared to latecomer countries in the context of climate mitigation.
Second, electricity and gas prices are currently well below their economic costs, due to the presence of implicit subsidies. Considering the current windfall earnings from energy sector revenues, Azerbaijan is well-positioned to proceed with the subsidies’ phase-out, as international experience shows that successful pricing reforms are often implemented when fiscal pressures are low.
Our research suggests that a gradual but steady phaseout of fossil-fuel subsidies by 2030, followed by the introduction of economy-wide carbon pricing of at least $25/tCO2 by 2035 is the economically most efficient path to incentivise a clean-energy transition and improve energy efficiency.
From the policy perspective, such a transition would entail a gradual deregulation of gas, electricity and fuel prices, as well as a strengthening of regulators and market mechanisms in price setting – areas where Azerbaijan has achieved limited progress in recent years.
Third, our results support the important role of decisions on the use of revenues collected during the implementation of mitigation policies, either through the elimination of fossil-fuel subsidies or carbon-pricing.
We find that recycling revenue through a reduction in other taxes, rather than direct transfers to households or subsidies to renewable energy, is more economically efficient.
Finally, our results suggest that broader environmental impacts and co-benefits from decarbonisation are an important part of the equation when weighing the economic impact of mitigation policies. This includes reductions in air pollutant emissions, which further lead to improved air quality and declining mortality.
When properly accounted for, such co-benefits could substantially reduce the overall cost of mitigation and even result in net welfare gains in Azerbaijan. Complementary policies on the reduction of wood-burning in the country could result in even more substantial health co-benefits.
The post Guest post: How COP29 host Azerbaijan could boost growth through climate action appeared first on Carbon Brief.
Guest post: How COP29 host Azerbaijan could boost growth through climate action
Drought and heatwaves occurring together – known as “compound” events – have “surged” across the world since the early 2000s, a new study shows.
Compound drought and heat events (CDHEs) can have devastating effects, creating the ideal conditions for intense wildfires, such as Australia’s “Black Summer” of 2019-20 where bushfires burned 24m hectares and killed 33 people.
The research, published in Science Advances, finds that the increase in CDHEs is predominantly being driven by events that start with a heatwave.
The global area affected by such “heatwave-led” compound events has more than doubled between 1980-2001 and 2002-23, the study says.
The rapid increase in these events over the last 23 years cannot be explained solely by global warming, the authors note.
Since the late 1990s, feedbacks between the land and the atmosphere have become stronger, making heatwaves more likely to trigger drought conditions, they explain.
One of the study authors tells Carbon Brief that societies must pay greater attention to compound events, which can “cause severe impacts on ecosystems, agriculture and society”.
Compound events
CDHEs are extreme weather events where drought and heatwave conditions occur simultaneously – or shortly after each other – in the same region.
These events are often triggered by large-scale weather patterns, such as “blocking” highs, which can produce “prolonged” hot and dry conditions, according to the study.
Prof Sang-Wook Yeh is one of the study authors and a professor at the Ewha Womans University in South Korea. He tells Carbon Brief:
“When heatwaves and droughts occur together, the two hazards reinforce each other through land-atmosphere interactions. This amplifies surface heating and soil moisture deficits, making compound events more intense and damaging than single hazards.”
CDHEs can begin with either a heatwave or a drought.
The sequence of these extremes is important, the study says, as they have different drivers and impacts.
For example, in a CDHE where the heatwave was the precursor, increased direct sunshine causes more moisture loss from soils and plants, leading to a drought.
Conversely, in an event where the drought was the precursor, the lack of soil moisture means that less of the sun’s energy goes into evaporation and more goes into warming the Earth’s surface. This produces favourable conditions for heatwaves.
The study shows that the majority of CDHEs globally start out as a drought.
In recent years, there has been increasing focus on these events due to the devastating impact they have on agriculture, ecosystems and public health.
In Russia in the summer of 2010, a compound drought-heatwave event – and the associated wildfires – caused the death of nearly 55,000 people, the study notes.
The record-breaking Pacific north-west “heat dome” in 2021 triggered extreme drought conditions that caused “significant declines” in wheat yields, as well as in barley, canola and fruit production in British Columbia and Alberta, Canada, says the study.
Increasing events
To assess how CDHEs are changing, the researchers use daily reanalysis data to identify droughts and heatwaves events. (Reanalysis data combines past observations with climate models to create a historical climate record.) Then, using an algorithm, they analyse how these events overlap in both time and space.
The study covers the period from 1980 to 2023 and the world’s land surface, excluding polar regions where CDHEs are rare.
The research finds that the area of land affected by CDHEs has “increased substantially” since the early 2000s.
Heatwave-led events have been the main contributor to this increase, the study says, with their spatial extent rising 110% between 1980-2001 and 2002-23, compared to a 59% increase for drought-led events.
The map below shows the global distribution of CDHEs over 1980-2023. The charts show the percentage of the land surface affected by a heatwave-led CDHE (red) or a drought-led CDHE (yellow) in a given year (left) and relative increase in each CDHE type (right).
The study finds that CDHEs have occurred most frequently in northern South America, the southern US, eastern Europe, central Africa and south Asia.
Threshold passed
The authors explain that the increase in heatwave-led CDHEs is related to rising global temperatures, but that this does not tell the whole story.
In the earlier 22-year period of 1980-2001, the study finds that the spatial extent of heatwave-led CDHEs rises by 1.6% per 1C of global temperature rise. For the more-recent period of 2022-23, this increases “nearly eightfold” to 13.1%.
The change suggests that the rapid increase in the heatwave-led CDHEs occurred after the global average temperature “surpasse[d] a certain temperature threshold”, the paper says.
This threshold is an absolute global average temperature of 14.3C, the authors estimate (based on an 11-year average), which the world passed around the year 2000.
Investigating the recent surge in heatwave-leading CDHEs further, the researchers find a “regime shift” in land-atmosphere dynamics “toward a persistently intensified state after the late 1990s”.
In other words, the way that drier soils drive higher surface temperatures, and vice versa, is becoming stronger, resulting in more heatwave-led compound events.
Daily data
The research has some advantages over other previous studies, Yeh says. For instance, the new work uses daily estimations of CDHEs, compared to monthly data used in past research. This is “important for capturing the detailed occurrence” of these events, says Yeh.
He adds that another advantage of their study is that it distinguishes the sequence of droughts and heatwaves, which allows them to “better understand the differences” in the characteristics of CDHEs.
Dr Meryem Tanarhte is a climate scientist at the University Hassan II in Morocco, and Dr Ruth Cerezo Mota is a climatologist and a researcher at the National Autonomous University of Mexico. Both scientists, who were not involved in the study, agree that the daily estimations give a clearer picture of how CDHEs are changing.
Cerezo-Mota adds that another major contribution of the study is its global focus. She tells Carbon Brief that in some regions, such as Mexico and Africa, there is a lack of studies on CDHEs:
“Not because the events do not occur, but perhaps because [these regions] do not have all the data or the expertise to do so.”
However, she notes that the reanalysis data used by the study does have limitations with how it represents rainfall in some parts of the world.
Compound impacts
The study notes that if CDHEs continue to intensify – particularly events where heatwaves are the precursors – they could drive declining crop productivity, increased wildfire frequency and severe public health crises.
These impacts could be “much more rapid and severe as global warming continues”, Yeh tells Carbon Brief.
Tanarhte notes that these events can be forecasted up to 10 days ahead in many regions. Furthermore, she says, the strongest impacts can be prevented “through preparedness and adaptation”, including through “water management for agriculture, heatwave mitigation measures and wildfire mitigation”.
The study recommends reassessing current risk management strategies for these compound events. It also suggests incorporating the sequences of drought and heatwaves into compound event analysis frameworks “to enhance climate risk management”.
Cerezo-Mota says that it is clear that the world needs to be prepared for the increased occurrence of these events. She tells Carbon Brief:
“These [risk assessments and strategies] need to be carried out at the local level to understand the complexities of each region.”
The post Heatwaves driving recent ‘surge’ in compound drought and heat extremes appeared first on Carbon Brief.
Heatwaves driving recent ‘surge’ in compound drought and heat extremes
Greenhouse Gases
DeBriefed 6 March 2026: Iran energy crisis | China climate plan | Bristol’s ‘pioneering’ wind turbine
Welcome to Carbon Brief’s DeBriefed.
An essential guide to the week’s key developments relating to climate change.
This week
Energy crisis
ENERGY SPIKE: US-Israeli attacks on Iran and subsequent counterattacks across the Middle East have sent energy prices “soaring”, according to Reuters. The newswire reported that the region “accounts for just under a third of global oil production and almost a fifth of gas”. The Guardian noted that shipping traffic through the strait of Hormuz, which normally ferries 20% of the world’s oil, “all but ground to a halt”. The Financial Times reported that attacks by Iran on Middle East energy facilities – notably in Qatar – triggered the “biggest rise in gas prices since Russia’s full-scale invasion of Ukraine”.
‘RISK’ AND ‘BENEFITS’: Bloomberg reported on increases in diesel prices in Europe and the US, speculating that rising fuel costs could be “a risk for president Donald Trump”. US gas producers are “poised to benefit from the big disruption in global supply”, according to CNBC. Indian government sources told the Economic Times that Russia is prepared to “fulfil India’s energy demands”. China Daily quoted experts who said “China’s energy security remains fundamentally unshaken”, thanks to “emergency stockpiles and a wide array of import channels”.
‘ESSENTIAL’ RENEWABLES: Energy analysts said governments should cut their fossil-fuel reliance by investing in renewables, “rather than just seeking non-Gulf oil and gas suppliers”, reported Climate Home News. This message was echoed by UK business secretary Peter Kyle, who said “doubling down on renewables” was “essential” amid “regional instability”, according to the Daily Telegraph.
China’s climate plan
PEAK COAL?: China has set out its next “five-year plan” at the annual “two sessions” meeting of the National People’s Congress, including its climate strategy out to 2030, according to the Hong Kong-based South China Morning Post. The plan called for China to cut its carbon emissions per unit of gross domestic product (GDP) by 17% from 2026 to 2030, which “may allow for continued increase in emissions given the rate of GDP growth”, reported Reuters. The newswire added that the plan also had targets to reach peak coal in the next five years and replace 30m tonnes per year of coal with renewables.
ACTIVE YET PRUDENT: Bloomberg described the new plan as “cautious”, stating that it “frustrat[es] hopes for tighter policy that would drive the nation to peak carbon emissions well before president Xi Jinping’s 2030 deadline”. Carbon Brief has just published an in-depth analysis of the plan. China Daily reported that the strategy “highlights measures to promote the climate targets of peaking carbon dioxide emissions before 2030”, which China said it would work towards “actively yet prudently”.
Around the world
- EU RULES: The European Commission has proposed new “made in Europe” rules to support domestic low-carbon industries, “against fierce competition from China”, reported Agence France-Presse. Carbon Brief examined what it means for climate efforts.
- RECORD HEAT: The US National Oceanic and Atmospheric Administration has said there is a 50-60% chance that the El Niño weather pattern could return this year, amplifying the effect of global warming and potentially driving temperatures to “record highs”, according to Euronews.
- FLAGSHIP FUND: The African Development Bank’s “flagship clean energy fund” plans to more than double its financing to $2.5bn for African renewables over the next two years, reported the Associated Press.
- NO WITHDRAWAL: Vanuatu has defied US efforts to force the Pacific-island nation to drop a UN draft resolution calling on the world to implement a landmark International Court of Justice (ICJ) ruling on climate, according to the Guardian.