WB recommends Azerbaijan to start carbon pricing with carbon tax

If the government of Azerbaijan decides to implement a carbon pricing instrument, it is recommended to start with an upstream carbon tax levied on the carbon content of all fuels at the point they enter the economy, utilizing the existing excise duty system, Yasemin Orucu, team lead at the World Bank, said at a workshop on “Carbon Pricing and International Carbon Markets” in collaboration with government of Azerbaijan, Report informs.

"This would cover 60% of all emissions. Over time, Azerbaijan could consider expanding the scope of the tax transitioning to an emissions trading system. An essential component of this approach would be utilizing the revenue to support low-income households in managing any price increases through cash transfers," she noted.

The event brought together representatives from government institutions, local stakeholders, and independent experts. The workshop aimed to support Azerbaijan’s efforts to enhance fiscal sustainability, promote economic diversification, and meet its climate commitments through effective carbon pricing and participation in global carbon markets.

On the first day of the workshop, experts from the World Bank introduced key concepts of carbon pricing mechanisms, including carbon taxes and emissions trading systems, and highlighted global trends and best practices. In further sessions, speakers addressed Azerbaijan’s exposure to international mechanisms such as the EU’s Carbon Border Adjustment Mechanism (CBAM), and the opportunities for using carbon pricing to raise revenue while avoiding the risks of external costs. Examples from developing countries provided valuable lessons for Azerbaijan, as the workshop also delved into practical implementation methods and options for using carbon pricing revenues effectively.

The second day of the workshop focused on international carbon markets, with particular emphasis on evaluating Azerbaijan’s readiness to participate in global frameworks. Facilitators from the World Bank delivered a comprehensive overview of key market mechanisms and provided insights into recent global developments in carbon trading and cooperation. A detailed readiness assessment was delivered, which included a gap analysis of Azerbaijan’s policy, institutional, and infrastructure framework. The team also introduced the Mitigation Action Assessment Protocol and a roadmap using the Decision Tree for Navigating Carbon Markets of the World Bank.