Uzbekistan: Uzbekistan Green and Resilient Market Economy Program

OBJECTIVE

To help the Government of Uzbekistan (GoU) implement key policy and governance reforms aimed at accelerating the country’s transition to a green economy

DESCRIPTION

The proposed Program will support policy and governance reforms through: (i) sectoral interventions in the energy, and state-owned enterprise (SOE) sectors to improve resource and energy efficiencies and enhance resilience; (ii) enhancements in public administration to stimulate “green” procurement; and (iii) clear and transparent rules for the creation and trade of carbon credits to scale up private finance in climate mitigation and through the establishment of a measurement, reporting, and verification (MRV) system.

The transition to low-carbon, resource-efficient, resilient, and socially and environmentally sustainable economic growth is central to Uzbekistan’s development agenda, as outlined in its “Strategy for Transition to a Green Economy for the Period 2019–2030” (hereinafter referred to as the “Green Economy Strategy”) and supports GoU’s more ambitious climate targets in its second Nationally Determined Contribution (NDC, 2021). Additionally, the Program aligns with the priorities of the Uzbekistan-2030 national development strategy, adopted in 2023, which promotes the green economy transition by increasing the use of renewable energy and improving energy efficiency. The Program will be co-financed by the World Bank (WB), as the lead financier.

ENVIRONMENTAL AND SOCIAL INFORMATION

Applicable Policy and Environment and Social Instrument. AIIB's Environmental and Social Policy (ESP), including the Environmental and Social Exclusion List (ESEL) and provisions related to CPBF set forth in Section 16 of the ESP, are applicable to this Program. Therefore, the provisions on Environmental and Social (ES) categorization in the ESP do not apply to this Program. The Program focuses on policy and institutional reforms that do not entail involuntary resettlement or impact the lives of Indigenous Peoples. However, some downstream investment activities resulting from specific policy actions under the Program may lead to indirect, short-term, and temporary adverse impacts. The assessment of ES impacts of the Program is largely informed by the analytical work of the World Bank (WB), the lead co-financier of the Program, including an ES impact analysis matrix that has been prepared covering the Program’s policy actions. This outlines the potential direct and indirect impacts of each prior action, along with corresponding mitigation measures. ES matrix will be disclosed on AIIB’s website in a timely manner to inform the Member’s consultation.

Environmental and Social Impacts. The Program supports Uzbekistan’s green transition through policy actions that advance energy efficiency, renewable deployment, and climate-responsive regulation, and is expected to deliver net environmental gains through reductions in GHG emissions, improved air quality, and enhanced climate resilience. Several Prior Actions are not anticipated to have direct adverse environmental or social impacts, such as the establishment of a National Energy Efficiency Agency, the introduction of climate-sensitive public procurement standards, and the creation of MRV systems for carbon markets.

The Program is expected to provide opportunities for poverty reduction and social inclusion, though some policy actions carry transitional risks. Of the AIIB-supported policy actions, five out of seven are expected to yield positive social impacts without any potential risks. These include reforms in the electricity market, low-carbon economic transition through the carbon credit system and MRV framework, reforms in the use of renewable energy at household and building levels, financial incentives for reducing household energy costs and improving health outcomes, and establishment of the National Investment Fund (NIF).

However, SOE privatization in the extractives sector could increase pollution risks if environmental standards are not enforced. Heating tariff reforms may temporarily drive low-income households toward more polluting fuels like coal or wood, while electricity market reforms could lead to short-term grid instability and land-use pressures from large-scale renewable deployment. These risks are expected to be mitigated through phased tariff adjustments with social protection, strengthened energy efficiency and methane controls, reinforced environmental assessments, integration of environmental oversight into privatization processes and grid loss-reduction measures. Further due diligence will be carried out to assess the impacts of the implementation of these policy actions.

Gender Aspect. While the AIIB-supported policy actions under the Program do not include gender as a primary objective, several reform areas present opportunities for gender co-benefits, particularly energy access and rural livelihoods. In addition, improved access to clean heating and energy-efficient technologies may reduce time poverty and improve living conditions, especially for female-headed households as women are the major users of water and energy for domestic activities.

Program Grievance Redress Mechanism (GRM) and Monitoring Arrangement. Individuals and communities who believe that they are adversely affected by the Program may submit complaints to the responsible government authorities and the appropriate local/national grievance mechanisms. The information of the GRM to be used and AIIB’s Project-affected People’s Mechanism (PPM) will be timely disclosed in the appropriate manner.

The MOEF is the main implementing agency and is thus responsible for implementing the program supported by the proposed operation. The MOEF will coordinate with other government agencies to implement the operation. AIIB and WB will jointly conduct regular policy dialogue and monitor implementation.