Representatives of Uzbekistan and the World Bank have sealed an agreement in Marrakesh, Morocco, on the sidelines of the Annual Meetings of the World Bank Group and the International Monetary Fund. The pact involves $46.25mn in financing to implement the Innovative Carbon Finance for the Transformation of Uzbekistan's Energy Sector (iCRAFT) project.
This initiative, supported by the World Bank's Transformational Carbon Asset Facility (TCAF), marks the bank's inaugural global endeavour to foster energy sector reforms by incentivizing greenhouse gas emissions reductions via performance-based payments.
The overarching objective of iCRAFT is to promote clean energy production, bolster energy efficiency, and reform energy subsidies, thus enabling Uzbekistan to fulfil its international climate change obligations while optimizing energy resource usage. The project is also anticipated to serve as a model for analogous endeavours worldwide in the future.
Uzbekistan currently contends with elevated energy intensity and greenhouse gas emissions. This is attributed to substantial subsidies in energy generation and transmission, which result in low tariffs for electricity and gas. Consequently, energy enterprises receive insufficient revenue to cover production and delivery expenses.
The confluence of low tariffs and these conditions impedes the adoption of energy-efficient technologies and conservation practices in households and the private sector. It also limits utilities in providing high-quality services to their users. Uzbekistan's authorities have embarked on energy tariff reforms designed to align rates with production costs to rectify this situation incrementally.
The government intends to allocate some funds secured through the iCRAFT project to safeguard vulnerable households from tariff adjustments. The initiative will contribute to implementing the state's "green" economy transition program and other energy sector reform measures.
Tatyana Proskuryakova, Central Asia's World Bank Regional Director, lauded Uzbekistan's commitment to energy sector reforms and developing a green economy. She emphasized that the project represents the initial phase in gradually eliminating energy subsidies, a move expected to bolster the nation's economy while substantially reducing greenhouse gas emissions. The iCRAFT project constitutes a landmark international endeavour in Central Asia, financing emissions reduction initiatives through market-based mechanisms under the Paris Agreement. This international treaty aims to limit global temperature increases by curbing emissions.
As part of the project's scope through 2027, efforts will be directed toward purchasing emissions attributed to the more efficient utilization of energy resources and energy subsidy reform. Furthermore, the project will facilitate Uzbekistan's entry into international carbon markets via a pilot international agreement for trading "carbon credits," propelling the country's transition to a green economy.
Uzbekistan's Deputy Prime Minister and Governor of the World Bank Group, Jamshid Kuchkarov, expressed enthusiasm about the innovative project's implementation. He anticipates a potential reduction of approximately 60 mn tons of carbon dioxide emissions. Roughly 2-2.5 mn tons of these reduced emissions are devoted for purchase through the project, with the remaining carbon units slated for sale on international carbon markets utilizing systems, infrastructure, and mechanisms developed and tested during the project.
The World Bank and TCAF are actively assisting developing nations in meeting their international commitments to reduce emissions and adapt to climate change's repercussions. Uzbekistan's new project offers an exemplar for other World Bank member countries with similar interests and aspirations.
The governments of Canada, Germany, Norway, Spain, Sweden, Switzerland, the United Kingdom, and the Climate Cent Foundation in Switzerland have provided financial support for TCAF activities. This collaboration underscores a concerted global effort to tackle climate change through innovative financial mechanisms and environmentally conscious reforms.
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