commercial vehicle oguz
Geopolitics

How the Global Pandemic Could Hinder Azerbaijan’s Efforts to Clean Up the Environment

By | Peter Nayland Kust

Editor/Media Founder | A Voice of Liberty

Pictured above, a commerical vehicle in Oguz, Azerbaijan photographed in 2019. COVID-19 has put at risk the nation’s industrial-dependent economy, and pursuits of evironmental security. CC-BY-SA 4.0 Matti Blume

The global spread of the novel coronavirus SARS-COV-2, also known simply as “coronavirus” or “COVID-19” has had equally global impacts, with virtually every nation experiencing significant economic disruption regardless of the severity of the disease within their borders. The World Bank forecast a global economic contraction of 5.2% in 2020 as a result of the pandemic, the worst global recession since WW2.

Europe and Central Asia fare only slightly better, with an expected regional contraction of 4.7%, and recessions experienced in all countries. For countries with heavy reliance on fossil fuel extraction, such as Azerbaijan, the economic pain could be long lasting, as the pandemic has triggered a broad and significant reduction in the price of oil and natural gas.

For Azerbaijan, the impacts are likely to be not merely economic but also environmental, as economic setback seems likely to impede ongoing efforts to remediate long standing environmental issues.

Azerbaijan Has Numerous Environmental Challenges

As is common among the countries which emerged from the former Soviet Union, Azerbaijan has more than its share of environmental concerns, most of them arising from the Soviet Union’s notoriously cavalier approach to the environment when developing heavy industries. 

Ironically, the economic turmoil that followed independence from collapsing Soviet State initially helped alleviate the worst of the pollution, as declining industrial activity resulted in reduced pollution and greenhouse gas (GHG) emissions, according to the government’s “Second National Communication to the United Nations Framework Convention on Climate Change” in 2010:

Due to the decline in industrial activities since 1990, the level of greenhouse gasses released into the atmosphere from stationary and mobile sources has reduced. While the level of pollution equated to 71.1 million tons of CO2 in 1990, in 2008 this figure accounted for 50.6 million tons of CO2. 

However, the late-2000’s oil boom and development of Azerbaijan’s petroleum resources, along with a revival of the country’s chemical industry, represented something of an environmental setback, as with renewed industrial activity came renewed pollution. Sumgayit, a city 30 kilometers northwest of the capital Baku, in 2007 received the dubious distinction of being ranked one of the 10 most polluted cities in the world, according to the environmental NGO Blacksmith Institute, with a significant number of health impacts, including a high percentage of birth defects, arising from the environmental degradation:

As many as 275,000 people have potentially been affected by heavy metal and chemical contamination in the city, once one of the jewels of Soviet heavy industry.

As late as 2019, industrial pollution has also threatened the ecological balance of the Caspian Sea, which Azerbaijan shares with Russia, Kazakhstan, Turkmenistan, and Iran. The Caspian is the world’s largest inland body of water and home to a number of species, including a once thriving population of beluga sturgeon. The sturgeon population has declined by over 90% in recent decades, endangering production of beluga caviar. Oil exploration and development, and the resulting pollution, are blamed for much of the decline.

Aligaidar Mammedov, a former hydro-geologist and fisherman turned environmental activist, said that oil exploration methods either kill or chase away the sturgeon. “They set off seismic explosions in the sea,” he said, adding: “The seabed is destroyed as a result, and sturgeons are seabed fish.”

Azerbaijan’s environmental challenges are compounded by the fact that fruits, nuts, and vegetables are the second and third largest economic exports after oil and other mineral fuels—oil accounted for 90.7% of total exports in 2019, fruits and nuts accounted for 1.8%, and vegetables accounted for 1.2%. Agriculture is also the fastest-growing non-oil sector of the economy as of this year. In 2019, agriculture accounted for 5.72% of GDP. Agriculture creates its own environmental challenges, particularly water pollution from the use of pesticides and chemical fertilizers as well as soil salinization from inefficient and improper irrigation methods.

Azerbaijan’s Uneven Cleanup Efforts

Azerbaijan’s government is not unaware of these challenges, and has had environmental cleanup programs in place for years, although the country’s level of commitment to those programs has been somewhat uneven. 

To address ongoing environmental concerns, Azerbaijani President Ilham Aliyev issued in 2006 a decree to resolve the environmental problems of the Absheron Peninsula, the center of the country’s oil production and the location of the capital city of Baku. In response, the state oil company SOCAR formulated a plan of action that involved commitments to spend $652 million from 2006 through 2010

This and SOCAR’s subsequent plans are in addition to commitments made to the United Nations Framework Convention on Climate Change in the country’s second and third communications documents. Azerbaijan has ratified both the UNCCC as well as the Kyoto Protocols, although no formal strategies are in place to address climate change.

Overall, since 2010, environmental spending has amounted to between 2% and 3% of GDP, with the bulk of the funds coming from increased oil revenues. However, the majority of environmental spending since the early 2010’s has been in the form of the State Oil Fund (SOFAZ) investing in the Samur-Absheron irrigation rehabilitation project and building the Gabala-Baku water pipeline. Initial spending on these projects was AZN 200-300 million per year, and the 2020 budgets for these projects have risen to AZN1.469 Billion and AZN779.6 million respectively.

However, while SOFAZ had $38.988 Billion in February of 2019, only 0.06% of the 2019 SOFAZ budget was directed towards environmental protection. An examination of the current SOFAZ allocations indicates no special spending on environmental protection. Although some environmental protection may be contained within the individual allocations themselves, this is not clear from the SOFAZ budget itself.

Additionally, studies have been put forward on ways to tackle soil erosion, although no clear commitments have been made to implementing the proposed solutions.

Economic Contraction Has Likely Environmental Consequences

In the first half of 2020, Azerbaijan’s economy contracted an estimated 2.7% year-on-year, after expanding 1.1% in the first quarter. FocusEconomics estimates the full year economic contraction for 2020 to be 3.5%–better than the projected regional estimate of 4.7%, but a significant slump nevertheless.

However, for Azerbaijan, the contraction hits its oil and gas sector especially hard. The pandemic and resultant government responses have caused a significant drop in crude oil prices, which has outsized effect on energy-exporting countries such as Azerbaijan. It bears repeating that oil revenues have funded the bulk of Azerbaijan’s environmental remediation efforts to date.

Falling oil revenues is forcing the Azerbaijani government to undertake significant public sector reform, and is even considering privatization of at least some state-owned firms. On August 7, at the direction of President Aliyev, a new holding company was created to manage “all state owned companies” including SOCAR. This company, Azerbaijan Investment Holding, was chartered with initial capital of $59 million, with a mandate to speed up liberalization of the economy by privatizing state-owned companies once they have achieved profitability. While it has not been explicitly stated that profitability will be achieved by curtailing expenditures in environmental protection, it is difficult to see how any streamlining of state-owned companies would be achieved without the sort of cost-cutting efforts that would result in curtailing such expenditures.

Additionally, the global recession has put renewed emphasis on Azerbaijan’s programs of economic diversification, particularly in agriculture. In April, President Aliyev allocated $17 million to the Agency for Agricultural Lending and Development for use in providing collateral-free loans to farmers. Further emphasis is being put on increasing cotton production as well as tobacco, sugar beets, melons, potatoes, and various vegetable crops. In announcing these initiatives, no mention has been made of addressing the ecological aspects of increasing agricultural production.

Also uncertain at the present time is how much the global economic recession will affect Foreign Direct Investment (FDI) in Azerbaijan. As Shahriyar Mukhtarov asserts in his 2019 presentation on sustainable development, FDI is positively correlated with improved environmental outcomes—more FDI equates to less environmental degradation. With virtually all the leading world economies facing contraction, the availability of funds for FDI is likely to be constrained at the very least.

Economic budget priority values detracted by COVID-19 pandemic

Economic budgeting has not appeared to be the top priority of capital spending as of of recent years. While the Azerbaijani government has not formally repudiated prior environmental commitments, neither is it giving them any mention or any outward emphasis. Such silence likely indicates an unofficial lowering of government commitment towards the environment in the face of an immediate and severe economic crisis.

In some regards, this is to be expected. Economic adversity causes a reordering of government priorities, with issues such as jobs and stimulating the production of goods and services moving to the fore, while direct spending on environmental concerns being pushed down. Regardless of the wisdom or unwisdom of such reactions, they are an established political norm.

The final costs of the COVID-19 pandemic, as well as those of government responses to it, will for many countries include a measure of environmental damage in addition to jobs and lives lost.