A new World Bank grant will help the Government of Uzbekistan to reduce greenhouse gas (GHG) emissions, promote the efficient use of energy resources, and gain access to international carbon markets.
The Innovative Carbon Resource Application for Energy Transition Project for Uzbekistan (iCRAFT) is the World Bank’s first “policy crediting” program. Through a $46.25 million grant, iCRAFT aims to create incentives for energy subsidy reforms that will result in lower energy consumption and GHG emissions. The program will assign value to, and credit for, the implementation and enforcement of policies that foster emission reductions in the energy sector.
Specifically, the grant will help to generate carbon emission reduction credits that can be sold in international carbon markets. iCRAFT will also be the first international carbon market initiative in Uzbekistan and Central Asia under the Paris Agreement, an international treaty that aims to limit global temperature increases by lowering global GHG emissions.
While the country’s contribution to global carbon emissions is not large, Uzbekistan is one of the most energy- and emissions-intensive countries in the world. High subsidies keep electricity and gas prices low, which means that the revenue generated from energy is insufficient to cover the costs of production and delivery. Low prices discourage households and businesses from pursuing energy efficiency and conservation efforts, and they limit the capacity of the sector to improve service delivery.
The Government is taking steps to create appropriate incentives toward energy conservation and to make the energy sector more financially sustainable. While these measures will incrementally increase energy tariffs, the reforms will be accompanied by strong social protection measures to support Uzbekistan’s most vulnerable consumers, as well as awareness campaigns to help people understand the need for such reforms.
This project will help Uzbekistan to meet its Paris Agreement commitments on GHG emissions and participation in international carbon markets.
“The iCRAFT Project has enormous potential to reduce carbon emissions in Uzbekistan’s energy sector and contribute to the country’s green energy transition. It will also invest in developing and testing appropriate infrastructure, systems, and processes, as well as human and institutional capacity to effectively participate in international carbon market transactions under the Paris Agreement. These actions will prepare the country to roll out similar initiatives in the future,” noted Marco Mantovanelli, World Bank Country Manager for Uzbekistan.
Until 2028, iCRAFT will disburse grant funds annually to reward energy subsidy reforms that achieve specific emissions reductions. Projections suggest that Uzbekistan could reduce around 60 million metric tons of CO2 over the life cycle of iCRAFT, of which the project will make payment for approximately 2-2.5 million metric tons of CO2. Uzbekistan will be able to sell the remaining emissions reductions in international carbon markets using the systems and processes developed and tested under the project.
iCRAFT is the first operation supported by the World Bank’s Transformative Carbon Asset Facility (TCAF), which assists developing countries to meet their Paris Agreement commitments of reducing national emissions and adapting to the impacts of climate change. iCRAFT will inform other World Bank and TCAF beneficiaries in the future. TCAF benefits from the financial support provided by the governments of Canada, Germany, Norway, Spain, Sweden, Switzerland, and the United Kingdom, as well as the Climate Cent Foundation (Switzerland).
The World Bank’s country program in Uzbekistan is among the largest in the Europe and Central Asia region. It consists of 29 projects, with net commitments totaling around $6 billion. They support reforms and modernization in key sectors, improving the well-being of people, and contributing to the country’s economic growth.