Carbon credits.

Introduction

In the face of growing climate challenges, countries around the world are seeking to implement mechanisms to reduce greenhouse gas emissions and promote environmentally sustainable development. One such tool is carbon credits, a market- based mechanism that allows governments and companies to offset their emissions by financing or implementing projects that reduce or sequester carbon. These projects may include planting forests, introducing energy-efficient technologies, switching to renewable energy sources, restoring degraded land and other measures.

The carbon credit system is based on the concept of Measurement, Reporting and Verification (MRV), the key steps required to recognize emission reductions and then trade these units. Carbon units can be used to meet voluntary climate targets or offset against commitments under international agreements, including the Paris Agreement. In this way, carbon credits become part of a sustainable economic model where emissions get a price and climate-friendly actions get financial support.

For Uzbekistan, with its significant natural potential in renewable energy, reforestation, energy efficiency and sustainable land use, participation in carbon markets presents both a challenge and an opportunity. Against the backdrop of the global trend towards decarbonization and transition to a “green economy”, the country is taking the first steps towards the formation of national carbon regulation, as well as inclusion in international carbon trading mechanisms.

Since 2021, Uzbekistan has intensified efforts to develop climate policy, including updating the Nationally Determined Contribution (NDC), conducting a greenhouse gas emissions assessment, and launching pilot projects in the area of climate finance. At the same time, initiatives to create a national registry of carbon units, standards for projects and participation in international platforms (e.g. VERRA or Gold Standard) are being discussed.

However, the country faces a number of constraints, ranging from a lack of institutional experience and technical base to the absence of a clear regulatory architecture and mechanisms to incentivize investors. In such circumstances, it is important not only to provide a framework for fair carbon trading, but also to consider how the resources derived from it can be used for regional development, conservation and adaptation to climate change.

This article discusses the basic principles of carbon credits, the current status of their implementation in Uzbekistan, key obstacles, and the country's prospects for participation in global and regional carbon markets.

What are carbon credits and how do they work?

Carboncreditsare special financial instruments that are units equal to one ton of reduced or sequestered carbon dioxide (CO₂) emissions. These credits are issued as a result of climate projects aimed at reducing greenhouse gas emissions or increasing their absorption. The main objective of a carbon credit is to act as a measure to quantify the result of an environmentally significant action.

In terms of operation, the system of carbon credits is based on the principle of “pay for emission”: if the organization can not fully reduce its emissions, it can compensate for them by purchasing carbon units from those who reduced or absorbed more. In this way, an international system for trading climate gains is taking shape.

Therearetwotypesof markets:

Mandatory(regulated)carbonmarkets- operate under international or national mechanisms. A classic example is the European Emissions Trading System (EU ETS), as well as the Article 6 mechanisms of the Paris Agreement, including the new Sustainable Development Mechanism (Article 6.4 Mechanism, A6.4M).
VoluntaryCarbonMarkets(VCM) - operate outside of government regulation and allow companies to offset their own emissions on a voluntary basis. This market utilizes international voluntary standards such as Verra's VCS, Gold Standard, Plan Vivo, Climate Action Reserve.

Thecarboncreditgenerationprocessincludesthefollowingkeysteps:

Definingaprojectidea- e.g. reforestation, methane utilization, transition to solar energy, etc
Selectingacertifiedmethodologythat contains rules for calculating emission reductions.
Developmentofprojectdocumentation, including a description of additional effects, social and environmental impacts.
Validationprocedureby an independent body (DOE - Designated Operational Entity)
Monitoringandverificationofachievedresults, usually every 1-2 years.
Issuanceofcarbonunitsin a specialized registry.
Marketingandsaleof credits on platforms, directly or through brokers.

Therearealsoadditionalqualitycriteriaforcarboncredits,suchas:

Additionality- the project would not have been realized without the income from the sale of credits;
Permanence- sustainability of achieved emission reductions over time;
Absenceofleakage- the project should not lead to an increase in emissions outside the territory of implementation;
Verifiabilityandtransparency.

The key concept - MRV (Monitoring, Reporting, Verification) - ensures that climate benefits are accounted for, verified and monitored. Without these mechanisms, the project loses credibility and credits are not recognized by international markets.

According to the World Bank (State and Trends of Carbon Pricing 2023), in 2022, the volume of carbon pricing revenues amounted to more than $95 billion and the turnover of the voluntary market reached $2 billion. These figures demonstrate the growing interest in this tool among both regulated industries and companies seeking “carbon neutrality” .

Carbon credits are thus becoming an important bridge between the economy and the environment. They allow investments to be channeled into nature-saving and climate- resilient solutions, providing a new source of finance for countries with high climate potential - such as Uzbekistan.

Current situation in Uzbekistan: steps and initiatives.

Against the backdrop of global efforts to mitigate climate change, Uzbekistan is taking systematic steps towards integration into international and regional carbon markets. Despite the fact that carbon trading has not yet been officially launched in the country, there are already significant processes in the regulatory, institutional and project spheres that form the basis for the future functioning of this market.

After joining the Paris Agreement and submitting an updated Nationally Determined Contribution (NDC) in 2021, Uzbekistan committed to reduce specific greenhouse gas emissions by 35% by 2030 compared to 2010. This was the starting point for beginning work on climate regulation and carbon trading mechanisms. (tab.1; tab.2; tab.3)

Tab. 1. Greenhouse gas emissions. For selected gases, mln t CO2-eq

Tab. 2. Total GHG emissions in Uzbekistan

Tab. 3. Istribution of GHG emissions by types of gases and sectors of the inventory (excluding the FOLU sector)

One of the central areas was the establishment of a national carbon accounting system. In 2023, the Ministry of Environment and Climate Change, in collaboration with UNDP and the ICAT initiative, began developing a digital platform capable of integrating with international standards (VERRA, Gold Standard). Such a system will allow emissions and reductions to be captured, tracked and verified, creating the basis for future exports of carbon units .

In parallel with the digital infrastructure, work is underway to create a regulatory

framework. The Ministry of Justice has initiated discussion of the draft law “On Climate Regulation and Carbon Market” in 2024. It should consolidate the concept of carbon units, introduce the MRV (Monitoring, Reporting, Verification) system, provide for accreditation of verification bodies and define mechanisms for economic incentives for climate-oriented projects.

Also on June 21, 2024, Uzbekistan became the first country in the world to receive funding from the World Bank. The Carbon Asset Transformation Fund (TCAF) awarded Uzbekistan a $7.5 million grant for successfully reducing CO₂ emissions by 500,000 tons under the Carbon for

Clean Energy Transition (iCRAFT) project.

In practical terms, Uzbekistan is already implementing pilot projects that potentially meet the criteria for carbon certification. These are, first of all, forest plantations on the dried bed of the Aral Sea (with the participation of FAO and KoICA), large solar power plants in Navoi and Jizzak regions, as well as modernization of industrial facilities based on ISO 14064 and CDM-methodologies. So far, none of the projects has passed international certification, but the accumulation of institutional experience and technical documentation will facilitate this procedure in the future.

International partnerships play an important role: Uzbekistan actively cooperates with UNDP, GIZ, the World Bank and GEF, and also participates in ICAT (Initiative for Climate Action Transparency). These partnerships help to build human resources, adapt international methodologies to the national context and provide technical support for the development of MRV systems.

Thus, the country is in a transitional phase - from political declarations to the creation of real carbon market infrastructure. If the current dynamics is maintained and support from international institutions is expanded, it can be expected that within 2-3 years Uzbekistan will be able to start registering its own climate projects in international registries and enter the carbon credit market.

Potential and prospects for carbon market development in Uzbekistan

Due to its natural and climatic conditions, high potential in the field of renewable energy, as well as a large area of degraded and saline lands, Uzbekistan has objective prerequisites for active participation in international trade in carbon units. The country annually implements dozens of projects in the field of greening, sustainable agriculture, modernization of industrial facilities and construction of RES facilities - all these areas can be monetized through the mechanisms of voluntary or regulated carbon markets.

One of the largest untapped potentials is the large-scale reforestation work on the bottom of the former Aral Sea. According to FAO, more than 1.6 million hectares have been planted by 2023, creating huge opportunities for carbon sequestration. With an accounting and certification system in place, these initiatives could generate thousands of carbon units annually.

In addition, Uzbekistan has been actively developing the solar and wind energy market since the 2020s. By 2025, it plans to launch facilities with a total capacity of over 2 GW, which IRENA estimates could avoid tens of millions of tons of CO₂ emissions by 2030. These projects could form the basis for generating high quality carbon credits, subject to verification under VERRA, Gold Standard or Article 6 of the Paris Agreement.

The agriculture sector is also of significant interest, especially in terms of agroforestry, methane emission reductions, adoption of no-till technologies and organic farming.

Transition to sustainable practices can not only improve soil health, but also create additional value through carbon units demanded in international markets.

In the future, Uzbekistan can also create its own domestic voluntary carbon market platform. This will open up opportunities for local companies - including those from the energy sector, agribusiness and transportation - to offset emissions through the purchase of carbon credits from domestic environmental projects. Such a decision will not only activate the domestic “green” market, but will also strengthen the country's position in the international arena as an exporter of carbon units.

Successful development of the carbon market in Uzbekistan will require:

finalization of legislation on carbon trading;
establishment of a national registry and MRV system;
training of specialists in climate monitoring, reporting and verification;
attracting investment in project certification and validation;
institutional partnership with global standards (VERRA, Gold Standard, A6.4M).

Also based on the data of the Institute of Macroeconomic and Regional Studies, three scenarios of future dynamics and changes were developed:

Optimistic scenario (2050) - annual carbon reduction of 5.9 million tons.
Baseline scenario (2060) - annual carbon reduction of 4.8 million tons.
Pessimistic scenario (2070) - annual carbon reduction of 4.2 million tons.

Given the rapidly changing international climate policy landscape, Uzbekistan has every chance to take an active position in the global carbon market. With effective coordination and a sustainable political course, the country can not only attract green finance, but also make a significant contribution to global efforts to curb climate change.

Conclusion

Carbon market development represents a strategic direction for Uzbekistan in the face of growing international pressure to reduce greenhouse gas emissions and accelerate the transition to a low-carbon economy. Uzbekistan has unique climatic, geographical and economic advantages that can be converted into financial and environmental benefits through participation in carbon trading systems.

The first steps in this direction have already been taken - from the development of legislation and digital platforms to the implementation of pilot projects and active interaction with international organizations. At the same time, the country has to solve key tasks: to finalize the regulatory framework, to ensure the functioning of the MRV system, to certify the first projects and to start full-fledged trade in carbon units both in international and national markets.

Timely implementation of these measures will allow Uzbekistan not only to attract investment in green projects, but also to strengthen its position in the international climate arena, increase the sustainability of the economy and contribute to the achievement of global goals to limit temperature rise. With a comprehensive approach and political consistency, carbon credits can become not only an environmental but also an economic asset for Uzbekistan's future.