Azerbaijan's New Draft Law On Carbon Tax Ahead Of COP29

(MENAFN- AzerNews)

Ulviyya Shahin Read more

A draft law concerning the implementation of a carbon tax iscurrently being prepared by Azerbaijan, as stated by MukhtarBabayev, the President of COP29 and the nation's Minister ofEcology and Natural Resources, during the "Raising Ambition,Enabling Action: COP29 Sustainable Business Forum" event lastweek.

Babayev mentioned this while discussing the drafting of severallaws aimed at addressing emerging climate-related challenges. Heemphasized that in developed nations, a carbon emission tax isalready in effect, and Azerbaijan is in the final stages ofpreparing similar legislation.

Additionally, he highlighted that the European Union plans tolevy this tax on products originating from carbon-intensiveindustries, which Azerbaijani exporters of certain products shouldtake into consideration.

Babayev expressed openness to suggestions from the privatesector on aligning business practices and Azerbaijani laws with theglobal climate agenda. He also pledged to collaborate withlegislators to swiftly review and approve the necessary laws.

Several questions arise: How do you forecast the potentialimpacts, both positive and negative, of this carbon tax onbusinesses and the economy?

Are there any precedents or examples from other countriesregarding the effectiveness of implementing a carbon tax that couldprovide insights?

In addition to implementing a carbon tax, what strategies ormeasures should the government consider to ensure a transition to alow-carbon economy and reduce potential negative impacts onsensitive industries or sectors?

Azerbaijani economist Rashad Hasanov stated Azernews that the purpose of the carbon tax ispart of a conceptual framework aimed at reducing carbon emissionsand combating climate change measures.

“One objective is to decrease the efficiency of carbon emissionactivities on one hand and to increase the inclination towardsother renewable energy sources by encouraging investments in thisdirection. Another goal involves the formulation of certain budgetsto neutralize and balance the effects created for the generalcommunity, and in this context, it reflects the aspect of punishingdetrimental actors, carbon-emitting individuals, and businessentities, while rewarding others to some extent by mitigating theincurred damage. Such a perspective initially increases expensesfor entrepreneurs, especially those who consume more coal, oil, orgas. This, in turn, may weaken their competitiveness compared toother alternatives. However, it depends on the elasticity of thisdirection of activity. In sectors with weak elasticity,conditioning price increases may form economic foundations foranother drawback, namely inflation.”

According to him, one of the main objectives faced bygovernments is also the neutralization of corresponding negativeeffects through programs funded by revenues collected from thecarbon tax.

“In other words, these funds can be utilized to compensate foreffects arising from price increases in this or other manners. Thepositive aspects of this are numerous. Azerbaijan is one of thecountries most affected by climate change, which prioritizes therespective issue for Azerbaijan, and the overall societal benefitsof these measures are greater in this process.”

The economist added that this type of tax is implemented invarious forms in many countries.

“For example, Canada can be cited as an example. The majority ofEuropean Union countries, and the United States, regulate thisaspect through various tax types, and state policies are managed inthis aspect. Naturally, there are also different variants of this issuance of licenses for carbon emissions and the formation ofthe carbon license market itself reduce interest in the field inone way or another by increasing carbon license costs in themarket, causing price increases, and creating more favorableopportunities for the development of alternative energy sources andexpansion of the market.”

“It is highly likely that Azerbaijan will embark on thetransition path in this direction. Because there are objectivefactors here that indicate that the country's economy is dependenton fiscal revenues, and hydrocarbon resources, which are largelysources of carbon emissions. Therefore, despite the attempts toprioritize it in policy, we will see the opposite during itsimplementation. Azerbaijan will participate more slowly ininitiatives like this. But as I said, this is also a very seriouschallenge for Azerbaijan,” R.Hasanov noted.

“I do not think there will be serious difficulties in theimplementation of the carbon tax. Because this is a tax imposed onconsumers. Although the relatively widespread prevalence ofinformal economic activities in Azerbaijan may pose certainchallenges, I think that if models injected more into prices areapplied, meaning that consumers using gas, oil, or coal face thecorresponding tax within prices, then it is possible to implementthe program, prevent emissions, and manage maneuvers to some extentin a fairer manner. For example, gasoline users pay two qepiks(coin) per liter of gasoline specifically in this direction. Thatis, the more fuel the citizen uses, the more tax they pay,conversely, fewer users pay less tax. By implementing similarapproaches, this process can be managed,” the expert concluded.

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