Azerbaijan’s extensive reliance on heavily subsidised fossil-based energy, notably natural gas in the buildings and industry sectors, has made it highly challenging to promote energy efficiency. While a legal framework for energy efficiency has entered into force and Azerbaijan’s draft NEEAP proposes a series of secondary legislation and other measures, the country needs a holistic and comprehensive energy efficiency strategy. Such a strategy should take a long-term view and be deployed in conjunction with Azerbaijan’s wider industrial strategy and decarbonisation commitments under the Paris Agreement.

Energy efficiency policies and measures also need to be mutually reinforcing and deployed in tandem with wider energy sector initiatives, notably market and tariff reforms as well as renewable energy development. The latter is particularly important as the country enlarges electrification and heat pump deployment as part of its shift away from near-total reliance on natural gas for heating and many other purposes.

To aid Azerbaijan’s efforts, this section proposes measures and recommendations to boost energy efficiency across the country’s economy generally and in key sectors specifically, drawing on international best practices in, among other areas, tariff reform; building efficiency improvements; efficient technology promotion (with a focus on heat pumps); energy efficiency financing; and market development. High-quality data collection for key energy efficiency indicators is an important cross-cutting theme in all these recommendations.

The roadmap at the end of this section summarises our headline recommendations and measures to 2040. 

With the Law on the Rational Use of Energy Resources and Energy Efficiency now in force and several important pieces of secondary legislation and other measures either adopted or drafted, Azerbaijan has an opportunity to implement and enhance its emerging legal framework for energy efficiency. The draft NEEAP proposes a range of additional secondary legislation and other measures to promote energy efficiency across the economy and within specific sectors. While a number have been adopted or drafted, the provisions cited in the draft can provide an indication of additional or supporting policy levers and instruments that could support Azerbaijan’s efforts on energy efficiency.

Adopting these and other measures would solidify Azerbaijan’s legal and policy framework for energy efficiency and provide positive signals to market participants, enabling a shift away from gas while stimulating economic growth and offering other benefits. However, success in these efforts will require, among other things, dedicated resources, high-level endorsement and effective co‑ordination across government departments. In parallel, achieving wider energy sector reforms such as increasing competition in the energy sector and rectifying tariffs will have a determining impact on energy efficiency policies and measures. We therefore recommend that the Government of Azerbaijan place energy efficiency reforms at the heart of its wider sector reform efforts.

Targets are an important impetus for energy efficiency progress, as they provide signals to policymakers, investors and market participants such as suppliers of energy-efficient equipment. Examples of targets being deployed or considered by governments include:

• Doubling economy-wide improvement in energy efficiency, based on energy intensity improvements or volumetric reductions in gas usage.
• Full cost recovery for gas and electricity to create incentives for energy efficiency on supply and demand side.
• Tariff increases in specific end-user segments, e.g., households and industry, whereby policy makers need to carefully assess and address social impacts of rising energy costs for consumers.
• Increasing deployment of energy-efficient equipment, such as LED lighting and A or higher rated appliances in buildings, or energy-efficient motors, drives, and transformers in industry.
• Increasing the share of hybrid vehicle and EVs in passenger transport.
• Increasing the portion of electricity use in transport, residential and industrial TFC in line with renewable energy targets and heat pump deployment.

The action plan contained in the Socio-economic Development Strategy of Azerbaijan for 2022-2026 indicates that the Ministry of Energy will perform diagnostics in varies economic sectors, households and energy production and supply chain to determine efficiency potentials and set sector-specific targets.

Building on existing efforts, the public sector has a key role to play in providing exemplary leadership during the pursuit of these targets. Public sector action can help to increase popular support for measures and send signals to markets and investors that energy efficiency is a priority in Azerbaijan. To further boost these efforts, public sector bodies could be required to devote a dedicated portion of their budget to energy efficiency initiatives. 

For Azerbaijan’s emerging policy and other efforts on energy efficiency to be successful, it will be critical to ensure progress towards targets can be tracked and quantified, whereby developing a tracking methodology is recommended already at the preparatory stage of target setting. Relevant stakeholders, notably the State Statistical Committee, should be consulted to confirm whether the existing data collection already produces the necessary information for tracking, or whether additional data collection should be considered. Recent IEA guidance on the design of a national roadmap for energy efficiency indicators can provide an important resource for policy makers in Azerbaijan (IEA, 2023g).

Azerbaijan’s existing level of data collection and governance presents an important advantage for energy efficiency policy makers going forward. Existing methods can be expanded and used to monitor the impact and effectiveness of policies targeting demand side energy efficiency improvements. Data collection methods can also be expanded to assess the penetration of energy-using technologies, such as appliances, for which little data is currently available.

Expanding data collection to support more detailed energy efficiency analysis (including quantitative energy efficiency indicators) will require dedicated focus and an assessment of whether currently unused information (so called ‘administrative data’) might already exist to support energy efficiency analysis. In addition, close collaboration between the Ministry of Energy and the State Statistical Committee will be critical to extend statistical data collection to cover items not available through any other means. Active coordination between these and other departments will be key to ensure the right data is available for energy efficiency planning and policy decisions. 

While the draft NEEAP proposes that targets be set for renovating public and state-owned buildings and recommends support for municipalities setting energy efficiency targets, the government is still elaborating further details. In addition, Azerbaijan has not proposed or set any economy-wide or sector-specific targets for energy efficiency.

In addition to prioritising building renovations and municipal energy efficiency, the Government of Azerbaijan has a prime opportunity to incentivise energy efficiency in other areas, for example by targeting:

• A doubling of economy-wide energy efficiency, based on energy intensity improvements or volumetric reductions in gas usage, for instance by instituting full cost recovery for gas and electricity to encourage supply- and demand-side energy efficiency, and tariff increases for specific end-user segments (e.g. households and industry), with policymakers carefully assessing and addressing the social impacts of rising energy costs for consumers.
• Wider deployment of energy-efficient equipment, such as LED lighting and appliances rated “A” or higher in buildings, and energy-efficient motors, drives and transformers in industry.
• Larger shares of hybrid vehicles and EVs in passenger transport.
• Greater portions of electricity use in transport, residential and industry TFEC in line with renewable energy targets and heat pump deployment.

The Government of Azerbaijan, in collaboration with all relevant ministries and authorities, will have to decide on an appropriate selection and mixture of targets. While pursuing these targets and building on existing efforts, the public sector should provide exemplary leadership to help raise popular support for the measures and signal to markets and investors that energy efficiency is a priority in Azerbaijan. To reinforce these efforts, public sector bodies could be required to dedicate a portion of their budget to energy efficiency initiatives. 

To guarantee the success of Azerbaijan’s emerging policy and other efforts on energy efficiency, tracking and quantifying any progress made in meeting its targets will be critical. It is therefore recommended that a tracking methodology be developed early, at the preparatory stage of target setting. Relevant stakeholders, notably the State Statistical Committee, should be consulted to confirm whether the existing data collection system already produces the information necessary for tracking, or whether additional data collection should be considered. Recent IEA guidance on designing a national roadmap for energy efficiency indicators could be a very useful resource for the country’s policymakers.

Azerbaijan’s established data collection and governance systems provide important advantages for energy efficiency policymakers. Existing methodologies can be expanded to monitor the impact and effectiveness of policies targeting demand-side energy efficiency improvements. Data collection methods can also be enlarged to assess the penetration of energy-consuming technologies such as appliances, for which little data are currently available.

Expanding data collection to support more detailed energy efficiency analysis (including quantitative energy efficiency indicators) will require dedicated work and an assessment of whether currently unused information (“administrative data”) might already exist to enable energy efficiency analysis. In addition, close collaboration between the Ministry of Energy and the State Statistical Committee will be critical to extend statistical data collection to items not covered through any other means. Active co‑ordination among other departments will also be necessary to ensure the right data are available for energy efficiency planning and policy decisions. 

Azerbaijan’s existing tariff regimes, which are closely tied to energy sector governance and competition issues, have a determining role not only for the success of energy efficiency policies, but also for investments in energy efficiency across sectors. For example, low energy prices discourage building owners and occupants from investing in insulation, efficient lighting and heat pumps. In industry, heavily subsidised gas prices translate into longer payback times and generally less favourable investments for efficient motors, pumps and drives. In transport, very low gasoline and diesel taxation disincentivises vehicle upgrades and EV purchases. 

Much like the project of developing Azerbaijan’s nascent legal framework for energy efficiency, tariff reform efforts will undoubtedly require dedicated resources, time and support from across government. Compensation mechanisms for vulnerable population segments will also need to be incorporated into these efforts, complemented by communication and awareness-raising campaigns to encourage societal buy-in and ensure that the country’s poorest citizens are not disproportionally impacted.

The Government of Azerbaijan is aware of the importance of this issue and has already begun implementing a reform programme. Nevertheless, tariffs remain one of the most complex and challenging socio-economic issues to navigate for policymakers, not only in Azerbaijan but in many other countries. International tariff reform experience and best practices can therefore provide guidance for the Government of Azerbaijan as it deliberates its next steps. In addition to regulatory and institutional reforms, however, significant investments in energy efficiency, renewable energy and other domains will need to be included in a holistic long-term approach to this issue.

The global energy crisis of 2022 and related EU gas shortages offer a poignant example of tariff-system complications. Based on IEA estimates, a total investment of around EUR 100 billion is required to close a gap of 27 bcm of gas demand for the European Union in 2023, whereby cost savings from reduced natural gas imports would allow the European Union to recoup its initial investments within two to three years, with USD 30 billion of savings in 2023 alone. Roughly half of this investment is needed for efficiency improvements, mainly building retrofits; 40% is for renewables; and the remainder is for heat pump installations, biomethane development, and projects to cut flaring and methane emissions. While Azerbaijan is not facing a similar gas shortage, considerable investments are required to ensure a long-term transition from gas. 

Spurred by carbon reduction pledges and technological innovations, global annual investments in clean energy nearly doubled between 2015 and 2023, outpacing annual fossil fuels investments, which decreased by USD 2 billion over the same period. Government stimulus programmes for in key technologies such as heat pumps and EVs have also spurred investments. Globally, annual energy efficiency investment has increased by 45% since 2020.

Efforts by the Government of Azerbaijan to increase investments in energy efficiency would therefore align strongly with global trends, with opportunities available to tap into growing supply chains and markets for energy-efficient technologies. Beyond enacting energy sector and tariff reforms to create favourable conditions for energy efficiency investments, Azerbaijan’s government can also use several sector-specific measures to raise funding for projects such as building renovations, more energy-efficient technology deployment and other objectives.

The creation of the Energy Efficiency Fund is an important pillar for progress in this area, although developing it will take several years, and details of its funding sources and operation are still being defined. A National Renovation Programme, as cited under the Socio-economic Development Strategy of Azerbaijan for 2022-2026, is also under development in collaboration with international partners. The recommendations contained in the draft NEEAP may offer examples to inform further effort regarding financing energy efficiency.

Further recommended financing and investment measures include:

• A dedicated financing instrument for ESCOs, featuring state- or third party-backed guarantee mechanisms to reduce risks associated with, for example, longer payback periods, data collection challenges and project performance monitoring. International experience and best practices in this area are available for Government of Azerbaijan consideration.
• Bulk procurement of efficient technologies, such as energy-efficient appliances or industrial equipment, as discussed in subsections.
• Tax breaks to incentivise consumers (especially in industry) to deploy energy management systems and conduct audits, which could in turn enable the development of investment proposals for energy efficiency improvements.
• In addition to existing tax exemptions, low-interest loans to purchase EVs, along with charging infrastructure investments, to boost electric mobility development in Azerbaijan. Similarly, in agriculture for example, such loans could encourage the uptake of energy-efficient pumps.
  

Most energy efficiency experts consider that building capacity across institutions and markets while creating public awareness and buy-in for energy efficiency are more than just complementary or optional measures. Governments can face significant hurdles – as well as social and political disruptions – if these building blocks are not adequately developed as part of their policy frameworks. We therefore recommend several focus areas for the Government of Azerbaijan to consider for capacity building as it progresses in its energy efficiency efforts.

Institutions

The newly created Department for Energy Efficiency within the Ministry of Energy is one of the most important stakeholders for advancing the country’s energy efficiency agenda. Ensuring this department is sufficiently staffed, resourced and trained will be critical to develop and implement a far-reaching and complex policy programme that cuts across multiple sectors and establishes strong collaboration and co‑ordination with other ministries and departments.

Creating a dedicated energy efficiency agency is recommended to support the department, especially for policy formulation and implementation. Such an agency could work with a range of other government stakeholders (for example to develop standards and technical norms or to write tenders for energy efficiency grants) while engaging with the market participants that provide efficient services and technologies, and the support of an independent energy regulator could further enhance the agency’s work. Although the Azerbaijan Energy Regulatory Agency currently operates under the Ministry of Energy, its independence has been considered in strategic documents.

Supply chains

Market actors all along the energy efficiency supply chain (e.g. energy auditors, equipment manufacturers, installers and service providers) are not only central to improving energy efficiency in Azerbaijan but are also focal points for job creation and economic growth. The dedicated training and certification programmes are therefore important capacity-building measures.

Financial institutions

Banks and other financial institutions are also key links in the energy efficiency value chain. Increasing awareness and understanding of lending and investment opportunities for energy efficiency is critical to develop dedicated financial instruments such as preferential loans and grants, which are often deployed in markets through collaboration with lenders. Consumers and businesses need access to such instruments to purchase more energy-efficient technologies, retrofit homes and commercial buildings, improve the energy performance of industrial facilities and implement many other efficiency-related projects.

Public and market awareness

Across the abovementioned and other focal areas for capacity building, awareness-raising activities are important to inform both the public and market participants about the benefits of energy efficiency. Educational campaigns in schools and universities, posters and television advertisements, and national awareness days or weeks featuring thematic events can raise understanding considerably across a range of population and market segments. Events such as the Baku Energy Week, for example, provide important models.

Combined with robust energy efficiency performance, electrifying end-use energy in buildings, enabled by greater renewable energy production and storage capacity in power systems, is considered by most experts the most sustainable way to reduce carbon emissions from the buildings sector. To enable this kind of decarbonisation, making the building stock more energy efficient is critical not only for heat pump deployment (as discussed in this section) but also to support more rational grid electricity usage.

In adopting minimum energy efficiency norms for buildings (by Resolution No. 287 of 26 August 2023 of the Cabinet of Ministers of the Republic of Azerbaijan), Azerbaijan has taken its first steps towards making the building stock more energy efficient. Although significant work remains to develop a more comprehensive policy framework for energy efficiency in buildings, the draft NEEAP proposes several measures. 

To ensure the timely adoption and successful implementation of these and/or other types of measures, the Government of Azerbaijan will need to deploy significant technical resources to institute standards and norms, along with supporting mechanisms. A national renovation programme or similar effort, backed by binding targets (for renovations or new low-carbon buildings), would be a major enabler.

Communication, awareness raising, and capacity building are also essential to ensure effective implementation and end-user buy-in. Pilots and demonstration projects are crucial to showcase not only the effectiveness of energy efficiency improvements, but also the potential for buildings to “interact” with the energy system.

In commercial and public buildings, for example, controls, automation and analytics (software) can be used not only to improve energy efficiency and operational control but to enable demand-response services that power down building systems at peak electricity generation times. This can reduce excess power generation and improve system integration of renewables. Furthermore, the integration of EV charging, distributed renewable energy technologies (e.g. solar PV) and storage (batteries), particularly in new constructions, can transform buildings from end users of energy to critical nodes or “prosumers” in the energy system – i.e. generators of on-site renewable power and aggregators of demand services, power storage and load-balancing assets. Funding and launching pilots that demonstrate the potential of these technologies could generate strong market interest in the sector and stimulate demand for these services.

Additionally, the government could introduce technology-specific targets (e.g. percentage increases in numbers of buildings insulated, heat pumps deployed, EV charging points connected at the building level, etc.) to amplify the effects of pilots and demonstration projects.

At the same time, wider energy sector issues have a potent impact on energy efficiency in buildings and need to be addressed through robust inter-ministerial co‑ordination with high-level endorsement. For example, gas subsidies disincentivise investments in energy efficiency since they invalidate the business case for equipment upgrades and retrofits, creating a significant barrier for ESCOs. The way TSOs and distribution system operators (DSOs) are remunerated or encouraged to deploy distributed renewable energy sources can also have an important impact on how much renewable energy is used to, for instance, power heat pumps in homes.

Transforming heating

Azerbaijan risks becoming locked into gas dependency for its buildings sector heating needs as the population increases and more new heating systems come online. If growing energy demand for space heating continues to be met by individual boilers that burn subsidised gas, and if the buildings sector is characterised by low levels of energy efficiency, policymakers will find it increasingly challenging to decarbonise space heating. There are, however, efficient, cost-effective low-carbon alternatives the Government of Azerbaijan can explore, such as modern district heating and cooling (DHC) systems, heat pumps, waste heat use and thermal storage, combined with more efficient electricity generation.

For district heating, which currently covers less than 5% of the country’s heating needs, the Government of Azerbaijan could consider replacing all Soviet-era DH systems with smaller compact heating units for residential apartment buildings while piloting the use of large-scale heat pumps. The draft NEEAP suggests implementing a district heating roadmap or optimisation plan as part of a wider development strategy; this strategy is currently being developed by the Government of Azerbaijan.

Beyond district heating, a national strategy for the entire heating sector is recommended to enable the Government of Azerbaijan to deploy more direct measures such as bans or phaseouts of fossil fuel technologies to stimulate a shift towards greater energy efficiency. For example, in conjunction with aggressive renovation of existing buildings and future-proofing of new ones, energy efficiency could be boosted by banning gas connections in new residential buildings from mid-2030.

To provide sustainable and reliable heating in Azerbaijan’s buildings as gas-burning technologies are phased out, the government would have to prioritise aggressive, wide-scale heat pump deployment. Given the very modest uptake of this technology to date, robust support measures would be required to enact such a major expansion. Although its heat pump imports have more than doubled since 2018, the country brought in less than 150 units in 2022.

Low heat pump market penetration is clearly an important challenge for Azerbaijani policymakers. However, strong growth in heat pump sales globally – especially in Europe – could be fortuitous for the country: by leveraging global and regional best practices to “leapfrog” over other nations’ missteps in heat pump deployment, Azerbaijan could achieve rapid market growth. 

Leveraging data from metering

Data obtained from metering can support energy efficiency progress in Azerbaijan by helping policymakers track the impacts and gauge the success of policies and measures. Smart meter data can also promote optimal energy use by enabling the application of time-of-use tariffs and giving consumers a clear picture of their energy consumption (including consumption trends, e.g. peaks). The draft NEEAP’s recommendations in this area include conducting a consumer survey to monitor behavioural changes as new metering and related billing practices are introduced; it also suggests that billing be aligned with metering.

Not only would implementing these and other metering-related measures support policy implementation: they would also create the data points that market participants and investors require when seeking energy service and technology deployment opportunities.

According to IEA member country experiences, MEPS are among the world’s most effective and economical energy efficiency policy instruments. In Azerbaijan, where MEPS have never been used, there is significant potential for energy efficiency gains through more efficient technologies, notably lighting and residential refrigeration. Combined with efficiency gains in other sectors, deploying energy-efficient technologies could deliver annual electricity savings of over 1.2 TWh by 2040 – worth more than USD 60 million – while reducing CO₂ emissions by the equivalent of nearly 500 000 passenger cars annually.

In the absence of an established MEPS and labelling framework for appliances and equipment, additional regulatory and incentive mechanisms will likely be required to generate momentum in this area among consumers and market participants. Measures used in other countries include bans on imports of inefficient appliances, financial support for replacements, and tax incentives for equipment manufacturers.1

Fortunately, Azerbaijan has the advantage of being able to leverage global best practices in these areas. In Ghana, for example, used-refrigerator imports were banned in the early 2010s and the government, with international donor support, implemented a replacement scheme whereby private citizens could trade in their old refrigerators for vouchers to purchase new, efficient models. Ten thousand refrigerators were replaced under this programme, reducing electricity use by approximately 400 GWh and saving households an estimated USD 140 on average per year. Other countries have deployed similar incentives, including rebate schemes in Switzerland and appliance-swap projects in Malta, Bulgaria and Hungary.

Incandescent lamps are another inefficient technology for which Azerbaijan should ban imports. Other countries where they have remained in circulation have taken this measure: for instance, Kazakhstan phased out 25‑W incandescent lamps in January 2014, and Uzbekistan banned 40‑W and stronger incandescent lamps in January 2017. To guarantee consumers access to more efficient alternatives (e.g. LED lamps), the Government of Azerbaijan could consider bulk procurement and innovative financing mechanisms to deploy LED lighting at scale. In India, for example, consumers can purchase LED lamps at one-fifth their market cost through the UJALA lighting programme and pay back the difference through instalments on their electricity bills.

In the future, for consumer segments that can afford it, deploying digitally controlled appliances could help transform Azerbaijan’s buildings sector from an end user of energy to an interactive “participant” in the energy system. Smart devices can act as flexible-load sources that help improve energy security while optimising energy management and system efficiency. In contrast, a large increase in traditional appliance usage resulting from economic growth and rising living standards would raise both average power consumption and peak loads.

Along with these and other measures, targeted awareness-raising campaigns will be critical to ensure consumers understand the need and urgency to shift to more efficient equipment and are made aware of affordable and/or digitally controlled alternatives.

Standards – especially for fuel economy – are a policy foundation in transport, used by many countries globally to reduce CO₂ and particulate emissions and improve energy efficiency in the sector. The Government of Azerbaijan introduced Euro-4 standards in 2014, and ongoing modernisation of the Heydar Aliyev Oil Refinery, which supplies almost all the country’s transport fuel, will enable the production of high-quality Euro‑5 diesel and gasoline. While additional research and data are needed to develop baselines for fuel efficiency standards and related fiscal policies, transitioning to the Euro 5 (and eventually Euro 6) standard should be a cornerstone objective of Azerbaijan’s future transport policy efforts.

In addition, while the country already has a regime in place to prevent the import of vehicles more than ten years old, we recommend that it ensure rigorous enforcement – and eventual tightening – of vehicle import controls. Introducing mandatory vehicle inspections that include testing the functionality of emissions control technologies and verifying odometer readings and roadworthiness would further ensure that the most polluting vehicles are taken out of circulation.

In parallel, increasing the share of EVs in Azerbaijan’s vehicle fleet will require targeted efforts, including to expand EV charging infrastructure. A presidential decree signed in March 2024 to encourage EV use therefore tasks the Cabinet of Ministers with proposing enhancements to secondary legislation to promote both EVs and the deployment of more charging points, among other measures. Azerenergy, which is responsible for developing EV infrastructure, and Azerishig have been appointed to determine how much state budget funding will be necessary to meet the decree’s objectives.

While developing mechanisms as part of this decree, the government could offer dedicated incentives for the private sector to increase investments for new charging points in both urban centres (e.g. Baku) and surrounding areas. Wider access to charging infrastructure would be an important catalyst for EV uptake, especially among upper- and middle-income segments of the population.

Greater procurement of EVs for public sector use (e.g. for public bus fleets) would also stimulate electric mobility uptake, and intensive utilisation and lower charging costs would help ensure quicker amortisation of the higher capital costs associated with EVs. The Government of Azerbaijan has already launched an electric bus programme in the city of Baku and, as part of the Decree 34 of the Cabinet of Ministers of the Republic of Azerbaijan (January 2024), steps are being taken to ensure the use of electric buses in public transport and renewal of the bus fleet through local production. Similarly, requirements and incentives for EV adoption in private fleets, for instance aimed at car rental agencies, taxi operators and ride-sharing companies, could initially target groups with lower capital constraints that could pay the higher purchase price of EVs more easily.

Very similar to heat pumps, Azerbaijan is starting from a relatively low base of less than 600 EVs currently in use. Nevertheless, growing momentum in EV uptake across the globe means that by leveraging lessons learned in other parts of the world, the country could deploy this technology at a rapid pace.

Building on tightening fuel economy and import standards, adopting targets for road and rail electrification could signal to manufacturers, investors and consumers that Azerbaijan is serious about transitioning to EVs soon. In parallel, indicating to suppliers that the country’s existing gasoline- and diesel-powered vehicle fleet is nearing the end of its lifetime would help shift investments towards electric mobility (fleet renewal programmes such as “cash for clunkers” are a valuable initiative in this respect).

In fact, setting targets for banning such vehicles is already under way or completed in many countries, with the European Union recently voting to adopt its ban for 2035. Furthermore, as infrastructure expansion is critical to enact these measures, target setting (e.g. deployment of at least 100 000 charging points by 2030) is also recommended to spur investments in this area.

Once initial policy actions have raised EV visibility on Azerbaijan’s roads, their increased presence could send strong market signals and create favourable circumstances for economic growth and employment. In upcoming decades, Azerbaijan’s policymakers would be able to exploit opportunities to ensure their country is not left behind in the global transition to electric mobility. Fuel tax increases, accompanied by compensation mechanisms (e.g. tax revenue reallocation) for vulnerable population segments, would boost these efforts.

Beyond specific measures targeting electric mobility, this is a prime opportunity for the Government of Azerbaijan to deploy a suite of urban planning projects such as bicycle lane development and public transport expansion (along with incentives to use it). These measures could be guided by the Avoid-Shift-Improve (A-S-I) framework, which has become an internationally recognised standard for sustainable mobility policy approaches.

Under the A-S-I framework, the “avoid” aspect recommends holistic transport system improvements, whereby planners aim to reduce the need for motorised transport and enable greater use of walking and cycling, for example by ensuring that residential, work and leisure districts are near one another. The “shift” component promotes instruments to encourage modal shifts from polluting forms of transport (e.g. internal combustion engine cars) to cycling or public transit. Under “improve”, policymakers target higher overall efficiency of private and public motorised transport. Because automated data collection and software tools allow policymakers to better design and monitor the impact of transport policies, all A‑S‑I pillars and measures can be enabled and enhanced by digital technologies and analytics.   

Azerbaijan’s industry sector has considerable energy efficiency potential, as natural gas and electricity subsidies have strongly disincentivised energy efficiency investments for some time. Furthermore, a lack of MEPS for motors or pumps has resulted in widespread reliance on inefficient machines across all industry subsectors. Deploying more efficient industrial motors could therefore reduce electricity consumption by as much as 1.5 TWh and save Azerbaijan USD 70 million by 2040. Such significant savings are particularly important given the country’s strong increase in industrial electricity usage in recent decades.

Nearly 60 countries currently have MEPS in place for industrial motors: 45 mandate some of the most efficient options available (IE3), and in 2023 the European Union, Norway, Republic of Türkiye, Switzerland and the United Kingdom stipulated the highest-efficiency technologies (IE4) for certain motor types. Like Türkiye and India, what could benefit Azerbaijan’s industry sector significantly is a targeted campaign featuring bulk procurement and deployment of energy-efficient motors, combined with an ESCO model that allows investments to be recuperated through energy savings. 

There are also opportunities for Azerbaijan to improve energy management within industry – especially in high-energy-consuming sectors such as manufacturing, chemicals and petroleum – through voluntary (i.e. incentive-backed) or mandatory energy audits, neither of which have been used before in the country. Among a range of other measures, the draft NEEAP proposes provisions for audits. If deployed, details such as types of enterprise affected, audit frequency, etc., would need to be defined. Establishing an industrial energy efficiency improvement target could also strengthen audit uptake and the implementation of prescribed measures. 

A further recommendation to consider would be to track progress against eventual industrial efficiency targets, with measurement and data collection at the process level (e.g. kWh per tonne of production in key sectors). This would also permit comparison and benchmarking with best available technology (BAT) options and performance ranking of industries and operators with respect to energy efficiency and GHG emissions, for example. Such efforts could be applied initially to the highest-consuming subsectors (i.e. manufacturing, chemicals and refining) as priority and/or pilot areas. Plus, economies of scale could be realised for purchasing and deploying standard technologies if several similar industries were targeted together as part of one single efficiency programme. This tactical approach, which would require dedicated co‑ordination and capacity, could then be replicated in other subsectors.

Automation and software, including artificial intelligence (AI) applications, can be used to optimise processes and improve the efficiency of a wide range of industries, with a rapidly growing scope of solutions available, including to support efforts being assessed by the Government of Azerbaijan’s to modernise modular power plants and other sources of generation. These technologies could be implemented affordably while delivering significant measurable reductions in operational costs, CO₂ emissions and energy use, in addition to other benefits. We therefore recommend that Azerbaijan research and develop suitable software and AI options – as well as other emerging technologies such as robotics – for use in the industry and other sectors.

Much like in the industry sector, subsidised natural gas prices have strongly disincentivised investments in energy-efficient agricultural equipment such as motors and pumps, which account for a significant share of the sector’s energy demand and energy efficiency potential. Collecting data on the numbers and types of motors and pumps currently in use in the sector would be an important first step to identify opportunities for energy efficiency improvements. In parallel, bulk procurement programmes and targeted information campaigns for farmers would provide options and raise awareness about the benefits of adopting more efficient devices to not only save energy but improve agricultural yields.

While we cannot explore this topic in depth in this roadmap, we do recommend that the Ministry of Energy and the Ministry of Agriculture work together to gather data and develop strategies to identify options for improvements in the sector.