GREEN GROWTH OPPORTUNITIES TO OVERCOME DEPENDENCY FROM “BLACK GOLD” SECTOR IN AZERBAIJAN

green-economy

Gunel Jannataly Huseynova

Abstract

Being in transition from post-soviet to classic market system Azerbaijan needs to be pushed to the correct way of sustainable economic development. The main purpose of current research is to identify necessity of economy greening and propose appropriate measures for policy framework and capacity building. Globally, interest to green investments is very high – it is under close attention of both business and state actors, and simultaneously – on agenda of civil society and community organizations as well as media institutions. For the last decades concept of green investments has become of high importance for Azerbaijani realities as well, as lack of it affects life of all citizens and may damage future of our country development.  Some measures have already been taken, however they are mainly related to policy framework advancement. Novel practical tools are main issues described in article, which include encouragement of starting green businesses and innovative mechanisms promoting greening of existing industries. Some practical implications were noted during research due to unavailability and lack of statistical data regarding green investments in Azerbaijan. Research methodology used in this article includes quantitative and qualitative tools used for determination of correlation and developing progress analysis of the particular sphere.

Key words: green economy, green investments, sustainable development, capacity building, policy framework.

Introduction

The main challenge for Azerbaijan Republic over the past two decades of drastic changes in social-administrative system and life conditions brought by market economy has become integration of the country to the global market followed by linkage to the world main production and supply chains and adaptation to the structure and principles of world economy.

Azerbaijan’s national economy follows stable investment practices and invests into balanced and profitable businesses, such as Oil & Gas exploration and production industry. During last 23 years various important state financial and fiscal programs have been implemented, new legislative acts were adopted and new funds were established (such as State Oil Fund, Council of Entrepreneurs, AZPROMO, etc.), and all the activities were directed to the attraction of investments regardless their nature and trends on global market. As a result, volume of foreign direct investment increased and now Azerbaijan is considered as an effective and reliable Oil & Gas sector investee. Other fields have not been analyzed and developed, thus being invested enough; foreign and national investors are not interested to invest into potentially risky and concealed areas of business. So far, the market in Azerbaijan is still poor enough on investments experts who can build longterm investment proposals.

In my opinion, the main challenge for now is that the other fields of economy still suffer from insufficiency of financial resources for capital formation. Measures are being taken, but they are not effective enough to balance our investment market with global market economy.

Dilemma standing in front of the country is very perceptive and every single step in emerging Azerbaijan is very unpredictable because of contradictory factors influencing development in the country.

My attention is attracted by another dangerous challenge. Having extensive potential for green industry development, currently Azerbaijan faces serious environmental challenges – ground air and water pollution. Very little amount of huge development projects budget is allocated for post clean-up and pollution prevention programs and activities. On the other hand, we suffer from deficiency of information and knowledge related to social activities on environment preservation. As a result –ecological and environmental situation in Azerbaijan becomes worse – some animal and fish species in our region have even been announced critically endangered  [List of plants and animals, added to the Red Book of Azerbaijan Republic, First Edition was published in 1989: Plants:Buxus hyrcana; Parrotia; Quércus castaneifólia; Pyrus hyrcana; Gleditsia caspica; Acacia saligna; Álnus cordáta; Danae racemosa; Ruscus hyrcanus;  Pinus eldarica;  Rhododendron caucasicum;  Hedera pastuchowii;  Gentiana lagodechiana;  Cladochaeta candidissima;  Táxus;  Platanus orientalis;  Galanthus caucasicus;  Euonymus velutina;  Astragalus nachitschevanicus;  Quercus suber;  Crocus caspius;  Nymphaéa ;  Parrotia persica

Animals: Pheasant Talysh; black stork; Pelican; the Eagle; Cerna; argali sheep Caucasus; Eagle prairie; falcon; Borodach; Pelican pink; Flamingo; Forest cote; leopard; Transcaucasia mountain sheep; Transcaucasia fauna; Transcaucasia goose; fur animals; steppes ordinary; Southern gophers; Triton ordinary; Triton comb; Caucasus Talha; Mediterranean tortoise; Boom-snake; Turov; argali sheep Caucasus; mountain goat]. This brought me to the interest to socially oriented, or so-called “green investments” – activities, oriented to further build up corporate social responsibility culture and mechanisms here in Azerbaijan.

Our country is very attractive for foreign investors, but mostly in the oil field and gas sector, although it has sufficient potential in other areas of the economy, including alternative energy, as well as agriculture and tourism, which account for great share of small and medium-sized enterprise development. However, lack of green investment-oriented projects affects interestof potential investors and attractivenessof the relevant industries, thus, prevents future sustainable development of the country.

We have reached the line when we have to think about negative results of oil and gas exhaust which probably will happen in recent future. First priority issues should be aimed on analysis of expected outcomes and initiatives to prevent negative impact of growing economics to our ecosystems. Azerbaijan republic has very wide opportunities for green energy production development; however this opportunity is not used for maximal capacity and Azerbaijan remains using environmentally hazardous technologies.

So, the main problems with green investment destitution in Azerbaijan, are related to:

1. Underprivileged statutory basis of fiscal green investment policy

2. Poorly diversified economy and investment portfolio, which include mainly oil and gas sector

3. Lack of educational background in the subject field and, therefore, small amount of specialists, able to attract and manage investment flow to green industry.

The problem is aggravated by insufficient number of experts in the area of investment, and this limits support for development and investment market and ensuring long-term investment tenders and projects.

Lack of financial investments allocated for the development of capital markets in non-associated with of oil and gas exploration sectors of the economy, remains the major challenge for Azerbaijan nowadays. Measures, even though applied, have not been sufficiently effective to stabilize and balance investment market and deepening integration of the country into the global market economy. It should be particularly noted that commercial banks will undoubtedly take an important role in attracting financial resources as they accumulate the greatest share of freely circulated money mass in the country.

Govern policies, institutional frameworks, interconnection between different participants of economy on horizontal as well as vertical level, implementation of industry led initiatives and of course support of innovative resource-efficient technologies described in this essay can be beneficial for reaching environmental sustainability in Azerbaijan, which is one of the key millennium development goals.

From Economic Crisis to Economic Growth

Over past two decades Azeri economy came across with stressful changes – administrative soviet system has been replaced by free market. With unclear instructions and underprivileged legislative support, life conditions significantly reduced. Disproportionally spread income brought to very high share of poorness in society. Having rich resource base and extendable development prospects, market participants didn’t know the ways of their effective management. Lack of knowledge, non-transparent system, unreliable governance structures and totally destroyed nation psychology led to crash of the economic system and long-lasting economic recession.

As the major industry of Azerbaijan since 1950s oil and gas production was central in our economy (Dutch Disease) and formed inflow of financial resources by attracting foreign investors. Nevertheless, we still faced difficulties in effective share of profit gained from oil trade among state projects. Azerbaijan had significant economic growth since 1994; but now the issue was that whether this economic growth was followed by environmental protection.

First steps on environmental security were implemented back to 1995, when first national environmental action plan was issued and developed. It was mainly addressed to reduction of pollution and preservation of natural resources in Azerbaijan; however more decisive actions were required for advanced resource use. One of the biggest projects created with this purpose was IDEA, which supports green production and prioritize closed loop production.

Development of appropriate energy-efficient functions and establishment of relevant institutions started due to integration of Azerbaijan to the global communities. So far, Azerbaijan ratified to Energy Charter Treaty and other treaties negotiated by UNECE, co-operated with OSCE and ENVSEC initiatives and signed protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) in 1997. Policies for efficient energy improvement and reduction of negative environmental impact have been prepared and implemented in accordance with international standards and using best global practices in this field. These actions were fundamental and unavoidable, yet specific actions should be implemented to get visible positive outcome.

The major step towards defining prospects and measuring status and opportunities for greening energy industry was foundation of State Agency of Alternative and Renewable Energy Sources (SAARES, or in Azeri – ABEMDA) in 2009. Efforts and emphasis have now been redirected from nature reservation to sustainable technology use and green economy development. Main objectives of AMEBDA are to attract national and foreign direct investments to green energy industry here in Azerbaijan.

There have also been issued and executed several national plans and programs aimed on reduction of negative impact of oil and gas energy production on environment and action on preservation of national reservoirs in near future, such as “National Strategy for the Development of Alternative and Renewable Energy Sources in 2012-2020”, “State Program for the Development of Fuel and Energy Sector in 2005-2015”. These strategies incorporated main sustainable consumption and production principles, and their main objectives included detailed proposals of consequent replacing of oil exploitation and switching to renewables energy production in mentioned time frames. According to the national program, Azerbaijan has significant amount of renewable energy resources, such as sun, wind, bio energy, water. For example, as per statistics, sun is shining from 250 to 280 days per year, which comprises 2400-3200 hours sunshine for this period; 250 days of year are windy and average speed of wind is 5-7 meters per second, which means that wind energy may generate 2.4 billion kWh annually. Forecasts promise increase of renewable energy production up to 20 per cent by 2020, however currently renewable energy production accounts for only 10 % of total energy production; most of renewable energy is produced by hydro energy. The programs are aimed to increase the number of business units producing alternative energy as well. The first company in Azerbaijan established with this purpose is Caspian Technology Company, engaged to alternative energy projects in means of wind and solar power pilot projects. This company is concentrated on wind turbines and solar panels manufacturing which is very important for setting up green industry development base, however scale of actions taken are still not great enough to make visible influence on economic structure of Azerbaijan.

Very important act in development of alternative energy sector was establishment of the State Company on Alternative and Renewable Energy Sources (State Company AREA), which collaborates with UNDP, the European Commission and the Government of Norway, to promote the development of sustainable energy in our country.

So, appropriate acts have been prepared, assessed and executed in Azerbaijan, however re-assessment, monitoring evaluation, technical and financial reporting show that there are still some gaps and chances to improve current situation with regard to sustainable development.

First actions towards Sustainable Development in Azerbaijan

Considering generally, despite strong commitment of Azerbaijan state to international sustainable development strategies, main efforts currently are concentrated on remediation and abatement technologies on reduction of pollution from toxic and greenhouse gas emissions. Companies operating in field of oil and gas mining and production are using water, sewage and soil treatment systems, but such equipment is quite expensive. Oil and gas production and export have been traditionally main sectors of Azeri industry and the country is still following this route for economic development. However, as research shows, we are not far away from exhaust of oil and gas reserves. From now on sustainable technologies are required to be applied and alternative energy production should replace traditional oil industry in Azerbaijan.

To achieve resource efficiency by well-organized production and consumption, policy streams including industry, environmental and regional development policies encompassing technology development, resource conservation measures and provision of efficient local infrastructures, should be implemented. Appropriate research development, energy education and workforce are also important for achieving long-term sustainable development strategies.

As mentioned previously, several policy steps in sustainable energy development have already been executed and legislative basis supports and encourages the green industry to flourish. Nevertheless, some specific tools promoting green production and consumption yet to be adopted.

Opportunities and challenges for Green Growth

Taking into account best examples of resource-efficient production a lot of financial, environmental and social tools can and should be used in Azeri economy. These include technology instruments, such as pollution control, waste and recycling management, cleaner production strategies, creation of Environmental Management Systems (EMSs), Green Supply Chain Management, life-cycle thinking and closed-loop production, synergies through Environmental Partnerships and eco-industrial parks; economical tools, including market-based instruments, taxes, eco-labelling, green subsidies and investments and use of other financial tools, support of green research programs and implementation of innovative resource efficient technologies for new green industries and greening existing business units and other privileges to “green” producers and consumers.

As mentioned above, only approximately 10% [Please refer to the Table 1 (Appendix1) for statistical data on Energy Consumption and Production by Energy Sources in Azerbaijan.] of the overall energy production in the country relates to alternative energy, however this number could be increased at least by 2.

One of the key solutions is recycling and controlling product life-cycle by closed loop production. For example, waste water and sand during oil and gas production can be used by the company for other production purposes.

Second major solution can be reduction of domestic energy consumption. As per statistics, 50 per cent of total energy is spent on warming (heating) and cooling systems, which, if managed in appropriate way (correct town planning and architecture) can be significantly decreased. Carrying out social programs and promotional movements is as important in order to increase green awareness and encourage end-user eco-consumption.

Not less important is forming workforce for sustainable production and training “green” skills and further use of these skills for “green” jobs at workforce market.

Practice shows that despite of targets of ABEMDA to increase alternative energy production up to 20 per cent and share of renewable energy consumption to 9.7% from 2012 to 2020, in April 2014 we are still far from set point and actual figures haven’t reached planned ones. Not being proponent of severe actions, however I see solution of environmental conservation programs effectiveness in adopting restrictions and constraints related to unfriendly used energy sources. In addition to strategic goals, there should be implemented tactic measures to achieve short-term goals in sustainable development. Periodic review and monitoring can identify how far we are from prognoses.

Global cooperation is the key principle to be followed to achieve sustainable development. Being oil exporter and part of UN, World Bank and other international organizations, Azerbaijan is very dependent on international market as well as itself forms a ring of international trade chain, consequently actions in Azerbaijan and worldwide should be aimed on reaching common goals and targets.

Taking into account all above-mentioned, there is a very strong need in establishment of non-governmental organizations (NGO), independently created at the territory of Azerbaijan and accountable for control and monitoring of alternative energy development in Azerbaijan. The key objectives should include sustainable energy awareness and development of green workforce, as well as support of eco-innovations in Azerbaijan.

Conclusion

To conclude, Azerbaijan is a country with immense energy resources, however up to date oil and gas have been used for 97% of total energy production for internal consumption and export to international markets. Due to inappropriate technology use while oil mining processes ecological situation worsened a lot. Even though, there are still broad perspectives for Azerbaijan to overcome these environmental problems and become less dependent on oil and gas production by using renewable energy. This action is double beneficial for the economy and helps to reach two main goals: first, decrease dependency of Azeri economy from oil and gas production and trading and give opportunity for other sectors to develop, and on the other hand, helps to save few reservoirs untouched and improve environmental situation in Caspian ecosystem.

In order to increase the effectiveness of development and implementation of green-oriented fiscal policy, much attention should be brought to govern support and encouragement of green investments by using economic, social, environmental, institutional measures and mechanisms. These tools and levers should include both direct state financial-loan support programs for social proprietors, and the establishment of a regulatory and legal acts controlling creation of new and transformation of existing sectors to “green”, monitoring of the constants of pollution into the environment, the application of the different financial instruments for the promotion and maintenance of the “green” production and consumption, support for technological and scientific research activities in favor of greening sectors of the economy, the dissemination and the encouragement of the appropriate learning for the various segments of the population, personnel qualifications, skill improvement and increase of working capital, involved in the production of “green” products and the performance of “green” services.

There are several main goals to be achieved in the subject issue. In short-term outlook green investment system formation and development in Azerbaijan should be inspired with further perspectives of foundation and teaching this subject at higher educational centers & institutions. Short-term aims include mainly scientific and market research and participation in communities for gathering, collecting, collaborating and sharing data and information in subject field. First of all, this include scientific activity (research) and teaching experience, as well as voluntary work with NGO doing business in the related field, involvement into different green projects at loan establishments and other national and international societies and acknowledgement on main “green” challenges.

In terms of extended period goals relevant NGOs should be founded, and these would mainly be involved into green investment market management system, legislation basis and support for development, by using different encouraging tools for loan organizations and business structures. At the same time, the NGO should play a very significant part in state and global reporting system on green investments in Azerbaijan. It should be linked to the related global organizations, dealing with similar issues in order to get and share experience and add Azerbaijan to the global investment market. Part of NGO activities should include report to relevant people and, I would like to specially mention, arrangement of trainings (through interconnection and negotiations with financial formations and educational centers, universities, sciences academy etc.) for advising sides of interest about green investment policy, tactics and strategy updates and affirming current status for Azerbaijan.

Work on increasing green investments could be performed by several ways:

1. Attracting free financial resources to green industry

2. Redirecting financial resources from other production fields to green industry by using different trainings, legislative acts and other encouraging tools.

Innovative techniques in face of economic and legislative tools can and should be implemented for these purposes. All of these require specialists, specially formed and developed organizations and prepared materials, collected on basis of global experience in green economy. This requires global & domestic situation analysis, review of global challenges and investigation of possibility of their successful implementation in our republic.

Above mentioned actions can and should be performed by duly formed non-governmental organization(s), supporting green invest issues and developing mechanisms for qualified increase of green investment market here in Azerbaijan.

Despite partial policy development and initial regulatory initiatives, important preparation and actions are required for making this transformation and improve future economic and ecological situation in Azerbaijan, and consequently, increase life quality of people. These actions include building and developing institutional background, industry-led initiatives, supporting eco-innovations and technological research, providing “green” awareness and education and direct influence on energy producers and consumers by using different economic, technological and social tools.

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