During the 2023 World Bank Group and International Monetary Fund Annual Meetings in Marrakech, Morocco, the government of Uzbekistan and the World Bank signed an agreement to allocate $46.25 million for financing the Innovative Carbon Resource Application for Energy Transition Project (iCRAFT). These funds will help implement a project supporting the country’s clean energy transition, energy efficiency, and energy subsidy reforms.
The iCRAFT Project, funded by the World Bank’s Transformative Carbon Asset Facility (TCAF), is the Bank’s first initiative globally to support policy reforms through payments for emission reductions. It expands the focus of carbon finance operations to fundamental reform measures that will help Uzbekistan achieve its international climate commitments and improve the efficient use of energy resources. Thus, the project will serve as a model for similar future operations across the globe.
Uzbekistan is one of the most energy and emissions-intensive countries in the world. High subsidies keep electricity and natural gas prices low resulting in low revenue generation that is insufficient for recovering its 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. To change the situation in the sector, the government has launched energy subsidy reforms, which gradually adjust tariffs to bring prices in line with costs.
The government has committed to use a portion of the project funds to protect vulnerable households from energy tariff adjustments. The project funds will also further finance the national green transition agenda and broader energy sector reform initiatives.
The iCRAFT Project, is the first climate and carbon finance transaction in Central Asia, under the Paris Agreement, an international treaty that aims to limit global temperature increases by lowering global greenhouse gas emissions. It will purchase – annually until 2027 – emission reductions achieved through efficient use of energy resources and incentivized by energy subsidy reforms.
The project will also help Uzbekistan access international carbon markets through the pilot international carbon trade transaction, providing further incentives for the country to pursue its green transition.
The World Bank and TCAF assist developing countries in meeting their international commitments to reduce emissions and adapt to the effects of climate change. The project implemented in Uzbekistan will potentially serve as a proof-of-concept for other member countries of the World Bank in the future.
The governments of Canada, Germany, Norway, Spain, Sweden, Switzerland, and the United Kingdom, as well as the Climate Cent Foundation (Switzerland), provided the necessary financial assistance for the activities of TCAF.
