Uzbekistan has become the first country in the world receiving a payment from the World Bank for reducing carbon emissions through a policy crediting program.

This pioneering project – the Innovative Carbon Resource Application for Energy Transition (iCRAFT) – was crafted to support Uzbekistan in implementing energy efficiency measures, phasing out energy subsidies, and transitioning to cleaner energy sources.

The World Bank’s Transformative Carbon Asset Facility (TCAF) rewarded Uzbekistan with a $7.5 million grant for successfully cutting 500,000 tons of carbon emissions under the iCRAFT Project. These emission reductions were independently verified.

Marco Mantovanelli, the World Bank Country Manager for Uzbekistan, congratulated the country on this significant achievement: “This initiative is the world’s first to leverage climate finance in support of policy reform. The iCRAFT project aims to transition from individual transactions to program-level carbon trade interventions. We are eager to see how this pilot can set a precedent for reforms in other sectors in Uzbekistan and for other countries to follow its example.”

The government of Uzbekistan has pledged to allocate a portion of the project funds to assist vulnerable households impacted by changes in energy tariffs. Additionally, these funds will support the country’s broader agenda for green transition and energy sector reform, yielding multiple benefits from the iCRAFT project.

Jamshid Kuchkarov, the Deputy Prime Minister and Minister of Economy and Finance of Uzbekistan, highlighted the significance of this climate finance transaction: “The first payment transferred under the iCRAFT Project marks a key step for Uzbekistan towards reducing energy subsidies and achieving cost recovery in the energy sector. It also contributes to the government’s broader efforts for a green economy to foster economic growth and reduce poverty.”

The Ministry of Economy and Finance and the Ministry of Energy are spearheading Uzbekistan’s energy sector reform that contributes to energy conservation and carbon reduction. “By generating carbon credits through the iCRAFT Project’s innovative approach, Uzbekistan is poised to further accelerate its clean energy transition and position itself as a regional leader in accessing international carbon markets,” stated Jurabek Mirzamakhmudov, the Minister of Energy of Uzbekistan.

The iCRAFT Project is investing in developing appropriate infrastructure, systems, processes, and standard documents, which will prepare the country to roll out similar initiatives in the future with the support of other development partners and private investors.

The Project is helping set up a monitoring, reporting, and verification (MRV) system in line with Article 6 of the Paris Agreement, an international treaty that aims to curb global temperature rise by reducing global greenhouse gas emissions. It is also pioneering a climate finance transaction to support Uzbekistan’s Nationally Determined Contribution (NDC) targets under the Paris Agreement and its clean energy transition.

The Project benefits from ongoing support from the Agency for Strategic Reforms, the Ministry of Investment, Industry, and Trade, and the Agency for Hydrometeorological Services (Uzhydromet).

The above-mentioned payment is the first of several anticipated payments under the Emissions Reduction Payment Agreement (ERPA) concluded between the government of Uzbekistan and the World Bank as part of the iCRAFT Project. Under this agreement, Uzbekistan could receive up to $20 million in grants for verified emission reductions or carbon credits generated through its energy subsidy reforms.

Uzbekistan aims to reduce 60 million tons of CO2 through the Project, with the iCRAFT set to purchase approximately 2.5 million tons of CO2. The country will have the opportunity to sell the remaining carbon credits on international carbon markets, using the systems and processes established by the iCRAFT Project.