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Uzbekistan’s Transition to a Green Economy: Challenges and Opportunities

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Uzbekistan’s Transition to a Green Economy: Challenges and Opportunities

Tashkent recognizes the need to enhance its economic transformation with a green approach.

Uzbekistan’s Transition to a Green Economy: Challenges and Opportunities
Credit: World Bank

Uzbekistan has been making significant strides to incorporate sustainable practices into its overall economic planning. The country began transitioning from a planned economy to a market economy in 2016. It has recognized the need to enhance its economic transformation with a green approach. The government has committed to building a more sustainable economic model. 

Namely, a presidential decree signed in December 2022 outlines certain reforms the authorities will need to implement in this area. It adopted the Plan of Action for Transitioning to a Green Economy and Ensuring Green Growth until 2030, which includes measures addressing the current environmental and economic challenges to achieve green, resilient, and inclusive development.    

А recent World Bank report, which was produced in collaboration with the Ministry of Economic Development and Poverty Reduction and other government agencies of Uzbekistan, analyzes challenges and opportunities for the country’s transition to a green economy. It identifies the most urgent environmental and other risks, as well as recommends policy changes and actions — some of which, like energy efficiency measures and landscape restoration programs, benefit the economy and the environment at the same time. This article summarizes some findings of the report.

Charting the Green Course

Uzbekistan will have to improve resource management. The country’s resource efficiency is much lower than that of the European Union and other upper-middle-income countries. Water use in Uzbekistan is particularly inefficient, while the country’s energy use per unit of GDP is about three times higher than the average for the Europe and Central Asia region and two times that of neighboring Kazakhstan.   

Meanwhile, particulate air pollution from urban and industrial sources is aggravated by windblown sand and dust from degraded land. A significant share of the population is regularly exposed to air quality deemed unhealthy. Land degradation has been especially costly to the economy and is driven by these interlinking environmental issues.

To meet its green ambitions, Uzbekistan will have to address these and other challenges that break down along three timeframes: the urgent, the near term, and the longer term. Given the country’s agriculture-focused economy and the gradual deterioration of air in population-dense areas, its most pressing green priorities will be improvements in air quality and sustainable use of land and water. These can be achieved through landscape restoration, efficient water management, and air pollution reduction measures.

Sustainable land use is a critical practice that needs to be expanded in Uzbekistan. Climate-smart agricultural practices will advance land use sustainability further. Longer term, the country would do well to enable the transition from agriculture to higher-value, better-paid sectors. Doing so will require a reskilling of parts of the agricultural labor force – in particular, the most vulnerable women and youth.

Improving water use efficiency through water pricing and irrigation investments should be the greatest priority, with certain limits to water use being part of these new priorities. A sound low-carbon policy will provide the necessary incentives for the shift to low-carbon energy and energy efficiency in Uzbekistan.

Analysis from the International Monetary Fund-World Bank carbon pricing assessment tool shows that, in Uzbekistan’s case, carbon pricing could deliver up to 5 percent of GDP in additional fiscal revenue, which could fund green projects or be used to mitigate the economic impact on households most affected by the green transition.

Additionally, job creation and resource redeployment strategies can help mitigate some of the social costs of the green transition. The global green transition presents significant opportunities for job creation and environmental sustainability, and Uzbekistan is well-positioned to take advantage of these opportunities. 

Sectors that optimize both jobs and environmental outcomes include healthcare, education, finance, and climate-smart mining. Agriculture, which is already the largest employment sector in the country, has the potential to provide even more green jobs and improve livelihoods by shifting to higher-value industries and optimizing land use with the help of ecosystem services. In addition, a longer list of sectors that build on renewable energy and other innovative technologies with similar green potential deserve further analysis.

To ensure the success of a green transition, engaging the public sector and green finance is crucial. Policy measures need to address the financing gap while reducing social costs by creating new jobs in greener sectors. Furthermore, policies must allow for reskilling, redeployment, and social support for those who are most affected. These measures could be part of a Long-Term Decarbonization Strategy, which is currently being developed by the Uzbek authorities with support from the World Bank.

Staying the Green Course: From Challenges to Opportunities

As the world moves toward a more sustainable future, Uzbekistan faces significant challenges in meeting global energy metrics, particularly in terms of high energy and carbon intensity. These conditions make the country vulnerable to external trade policies and carbon border adjustment taxes. However, Uzbekistan can turn this challenge into an opportunity by embracing the global green transition and strengthening environmental and climate policies.

As more countries adopt low-carbon policies to combat climate change, global demand for carbon-intensive products is projected to decrease in the medium to long term. This is likely to have a negative impact on Uzbekistan’s carbon-intensive exports, affecting the country’s GDP and welfare. Under different policy scenarios, not only Uzbekistan’s natural gas and petroleum, but also carbon-intensive commodity exports could be affected by 2050, including those that will face border taxes for carbon-intensive products.

To avoid being locked into technology and systems that will be much more costly to divest from later, Uzbekistan must begin the process of greening its economy right away. Prioritizing green goals should be an integral part of ongoing efforts in the larger transition to a market economy. Other green measures, like improving resource efficiency and developing green employment and finance, can also bring near-term benefits to Uzbekistan.

However, the country must also consider the impact of the green transition on society. Supporting green sectors and turning away from carbon- and resource-intensive activities will alter the pattern of investment and job creation, creating winners and losers. It is essential to provide support to communities that are the worst affected. These values stand at the center of efforts toward a just transition.

The World Bank is committed to supporting Uzbekistan’s efforts to realize green and inclusive growth. By adopting the right mix of environmental policies and reforms, the country can reap the rewards of a future that is green, resilient, and inclusive. With the global green transition offering numerous opportunities for economic growth and development, Uzbekistan must embrace sustainable policies to secure its future.