A year ago, the NDC (Nationally Determined Contribution) Climate Finance Plan was approved. It is estimated that Tajikistan will need about $1 billion per year by 2030 to achieve its emission reduction and climate change adaptation targets. Where can we get it and what should we do?
We read the Plan and spoke to experts.
Background
In 2021, Tajikistan submitted its updated NDC (Nationally Determined Contribution) and then prepared an implementation plan, which was approved by the government in 2022.
These documents define priorities and goals in the area of adaptation and mitigation of climate change in key sectors of the economy that require special attention, given their importance for the development of the republic.
The list included energy, water resources, agriculture and forestry, transport and infrastructure, industry and construction.
“In simple terms, an NDC or Nationally Determined Contribution is an action plan to reduce emissions and adapt to climate change. Each party to the Paris Agreement (Tajikistan ratified it in March 2017) must develop an NDC and update it every five years. The new version of the document should be presented in 2025,” says Anton Timoshenko, executive director of the environmental organization Little Earth.
The NDC Implementation Plan proposes about 80 different measures to achieve national climate goals. According to the Deputy Chairman of the Committee on Environmental Protection, Mr. Abdukodir Mavlodod, an amount equivalent to 7% of Tajikistan’s GDP will be required to (annually – Ed.) finance all the goals of the NDC Implementation Plan.
It should be recalled that the NDC currently provides for an unconditional target of not exceeding 60-70% of the 1990 emissions level and a conditional target of an emissions limit of 50-60% of the 1990 emissions level, subject to sufficient international financial and technical assistance.
Climate Finance Plan
It is estimated that the country will need $8.41 billion between now and 2030, or about $1 billion annually, to meet its national emissions reduction and climate adaptation targets. This is a significant amount, given the significant gap between what is required and the country’s current climate investment levels.
In this regard, the Committee on Environmental Protection, with the support of the Asian Development Bank (ADB), developed the NDC Climate Finance Plan, which was approved by the order of the Chairman of the Committee on Environmental Protection dated January 20, 2024. The official presentation of the document to the general public took place in July 2024.
The plan provides a roadmap for identifying and raising the necessary climate finance. It includes an analysis of NDC costs, possible sources of finance, and proposes financial instruments and structural reforms that should help create an enabling environment for attracting climate finance.
“One of the challenges that experts faced in developing the Plan was the need to address various gaps in knowledge, policy, and regulation to stimulate investment in climate projects.
“A key challenge was obtaining quality data. The process itself required significant coordination and collaboration with various stakeholders, including government agencies, private sector representatives and development partners,” says Mr. Samet Bulut, ADB climate change expert.
How much money is needed and what is missing
The bulk of the $8 billion needed to meet the country’s climate commitments, according to the analysis, is in the energy sector, with about $5 billion of the requested funds going to the Rogun hydroelectric power station project.
The Plan notes that “excluding this project, the largest funding needs are in the agricultural sector (61%), followed by energy (24%), energy efficiency and emission reduction in the waste management sector (approximately 5% each).
Agriculture and energy also dominate in projects to achieve the unconditional goal (their total cost is estimated at $2,412 million). The experts estimated the fulfillment of conditional obligations under the NDC (excluding Rogun) at $653 million. Of these, expenditures on the agricultural sector account for 70%, and on energy efficiency and forestry 20% and 8%, respectively.
“At the time of the Plan’s approval in January 2024, the funding gap for projects to meet unconditional NDC commitments was about $1,650 million (corresponding to 32% of the total estimated emissions – Ed.), while almost all proposed measures for conditional commitments were also not provided with the necessary funds in the amount of $5,636 million,” explains Samet Bulut.
In addition to the Rogun HPP, critical shortages were observed in the agricultural sector: 86% of the project value with unconfirmed funding. The second largest shortages were identified in energy and forestry – 60% and 40% of the estimated project value, respectively.
The capital investment analysis presented in the Plan suggests that approximately 29% of total investment flows could be attributed to NDCs. However, this was dominated by expenditures related to the Rogun HPP, which accounted for 41% of all domestic capital investment in 2021.
Recall that at the end of this year, the World Bank approved the first grant of $350 million to complete the first stage of construction of the Rogun HPP (the total funding will be $650 million). The Asian Infrastructure Investment Bank (AIIB) announced the allocation of a loan of $270 million, and the Kuwait Fund for Arab Economic Development opened a credit line of $100 million for this project.
Diversify funding sources
The document notes that financing even half of the NDC funding needs through 2030 through public debt would more than double it. This points to the clear need for a range of financing measures, including a significant contribution from the private sector.
The authors of the Plan also warn that as the economy recovers, Tajikistan may no longer receive the same amount of resources in the form of international aid. There is also no certainty that this aid will be provided on a grant basis.
At the same time, additional projects are emerging that can directly or indirectly support the implementation of the NDC. All this suggests that Tajikistan needs to diversify its sources of funding.
“In order to attract new investments, manage them effectively and comply with international reporting standards, it is extremely important to reform the existing financial system, strengthen the potential and institutional mechanisms. It is worth looking at the position of the republic in the Doing Business rating or the international Corruption Perceptions Index to understand that serious changes are required,” shares his opinion a Tajik economist who wished to remain anonymous.
The plan considers various sources of additional private and institutional funding (including investment funds, pension funds, insurance companies) that could potentially be tapped.
However, its authors agree that “this is unlikely to be achieved unless there is a significant increase in capacity and financial support from the government, and measures are not taken to increase the flow of official development assistance and funds from international financial institutions, and to enhance the participation of the private sector.”
“Despite the availability of blended finance instruments such as public-private partnerships, green bonds and support for small and medium enterprises (SMEs) through local financial institutions, the number of projects using these approaches remains extremely low. Green bonds are generally not yet available to SMEs. The main reason is the limited access of SMEs to low-interest loans and the lack of interest from financial institutions due to the risks and insufficient readiness of the private sector to implement such initiatives,” comments Nasibakhon Aminova, head of the Small and Medium Business Association in Tajikistan.
How to Make Climate Finance Sustainable
The Plan’s developers have put forward a number of recommendations that will help the government improve the situation.
Among the most significant are strengthening the fiscal and financial systems (including green public finance management and carbon market systems), creating a mechanism for coordinating and overseeing climate finance flows, and developing adequate reporting structures and tools for monitoring and verifying climate finance.
“It is important to develop a monitoring and evaluation system to track progress and adjust actions, which will ensure transparency and accountability in the use of resources. This will help the government track the flow of climate finance and increase the credibility of the work being done by potential investors and society as a whole,” says an anonymous economist.
Serious efforts must be made by the government to attract public funds by stimulating private sector participation and investment. This can only be achieved by creating an environment and mechanisms that ensure private sector interest and involvement.
There is an urgent need to strengthen capacity in both the public and private sectors in developing green projects.
“Insufficient attention from government agencies to encouraging private investment in climate projects leads to the lack of necessary infrastructure and incentives for businesses,” says Nasibakhon Aminova. “To change the situation, it is necessary to develop a system of awareness about the benefits of climate investment and existing opportunities.
Additionally, local financial institutions need to be strengthened, trained and prepared to provide more accessible and tailored financial products that support such projects,” she adds.
It is also proposed to focus on small-scale and decentralized investments, for example at the household and small and medium enterprise level.
Such programs could be encouraged by international financial institutions through the involvement of commercial banks.
For example, in 2024, ADB approved a large grant of $50 million to help the Government of Tajikistan create a climate-resilient business environment and support small and medium enterprises in the country.
“ADB is actively working with the Government of Tajikistan to explore opportunities to implement some of the objectives of the Plan. This includes, for example, plans to develop a green taxonomy framework, as well as a system of ‘labelling’ and tracking climate expenditures for further identification, monitoring, and reporting.
ADB is currently working with the Government of Tajikistan on a new Country Partnership Strategy, and we intend to explore additional channels of support related to the implementation of the Plan,” says ADB expert Samet Bulut.
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The deadline for countries, including Tajikistan, to submit updated NDCs is approaching. It is likely that the country will revise its emission reduction targets, which in turn may require an update to the NDC Implementation Plan.
It is not yet known whether a possible adjustment to the Climate Finance Plan is planned.
The authors of the Plan themselves remind us that “in the absence of real results of NDC implementation and tangible positive consequences, it will be increasingly difficult to attract external assistance, so it is necessary to promote the internalization of climate goals in all implementing bodies.” They propose to consider the Plan as a basis for the preparation and implementation of programs and projects aimed at achieving national climate goals.
“Solving the climate change problem requires profound changes in our economy and society. The energy sector, industry, agriculture, transport, as well as people’s daily lives will require transformations. This requires resources. The NDC climate finance plan is a good tool that the republic can use to strengthen the potential of the financial sector and increase the volume of climate investments,” concludes Anton Timoshenko.
