Cost of Climate Change Adaptation Measures for Uzbekistan

Climate change is having an increasingly noticeable impact on the economies of Central Asian countries. Uzbekistan, as a country with a sharply continental climate, a high share of agriculture, and energy-intensive industry, is particularly vulnerable to climate risks. Rising temperatures, water shortages, and more frequent extreme weather events pose significant threats to the country’s economic growth, food security, and financial stability.

According to World Bank economic modeling estimates, without climate change adaptation measures, Uzbekistan’s GDP could decline by 10% by 2050 compared to what it would have been without the damage caused by climate change. This will lead to lower employment and higher poverty levels. The main threats include droughts, heat, water shortages, dust storms, and land degradation. It should be noted that more than half of the country’s population lives in regions that are highly vulnerable to climate risks, and climate impacts affect not only the real sector of the economy but also the financial system, creating new fiscal and credit risks.

The impact of climate risks on economic sectors

Energy and industry

Energy is the main source of greenhouse gas emissions in Uzbekistan (GHG emissions associated with heat and electricity generation accounted for 39.1% of total GHG emissions, according to a UNECE study). The scenario for Uzbekistan to achieve carbon neutrality (Net Zero) by 2060 assumes that natural gas consumption should decrease by 40% and the share of renewable energy sources should reach 70%. Achieving these goals will require approximately $79 billion in investment by 2060, with total energy sector costs estimated at around $341 billion.

Reforms in the energy sector, including the removal of subsidies and tariff liberalization, may slow growth in the short term but will ensure sustainable development after 2040. The carbon intensity of Uzbekistan’s GDP is 0.46 kgCO₂-eq per USD (at purchasing power parity), which is almost twice the global average (around 0.26 kgCO₂-eq per USD).

The hydropower potential of Uzbekistan’s rivers, including for electricity generation at hydropower plants, will decline by 9% by 2050 compared to current levels due to physical climate risks such as drought and water stress.

Agriculture and water resources

Agriculture is the most vulnerable sector of Uzbekistan’s economy. It consumes more than 90% of the country’s water resources. At the same time, according to forecasts, total river flow will decrease by 15% by 2050. Without adaptation measures, the yield of major crops may fall. For example, cotton yields could fall by 8%. At the same time, labor productivity in agriculture could decline by 3.5% if no measures are taken to adapt to climate risks.

Livestock productivity will decline by 8-13% by 2040. Estimated climate-related losses in the agricultural sector will be higher in Karakalpakstan and the Aral Sea region. Floods and droughts could lead to capital losses of up to 2.6% of asset value. Adaptation will require approximately $6 billion in investment by 2030. Extreme temperatures above 37°C, according to World Bank estimates, could lead to a 2–3.5% drop in labor productivity and a loss of up to 7% of working days in the summer.

Improving water management practices and increasing water use efficiency will require an additional $1.5 billion in investments in agricultural enterprises, resulting in an initial investment cost of $7.5 billion.

An additional US$1.2 billion is estimated to be needed to improve water use efficiency in order to adapt to climate impacts, bringing the total capital cost of fully upgrading the irrigation system by 2030 to US$8.7 billion.

Investments aimed at modernizing irrigation systems and restoring degraded land can have a triple economic effect: reducing losses, increasing yields, and improving drought resilience.

Financial sector

As of the end of 2022, 42% of the banking portfolio was linked to high-carbon sectors (fossil fuels, utilities, energy-intensive industries), with these loans growing faster than the market in 2021–2022. Banks’ investment portfolios may be exposed to significant transition risk (regulatory measures, carbon pricing, technology), and this share is growing. With the introduction of carbon pricing, some assets may become impaired and turn into “impaired” or “frozen” assets, which is particularly characteristic of carbon-intensive sectors of the economy.

The volume of financial assets subject to impairment will depend on a combination of factors: the carbon price introduced, the implementation of transition and physical risk scenarios, and the pace of implementation of climate change adaptation measures.

In 2024, the Central Bank of Uzbekistan (CBU) approved a roadmap for integrating climate risks into banking sector regulation, including a pilot stress test on portfolios in the energy sector.

CBU recommendation: integrate a climate and transition risk management strategy into the risk assessment of investment portfolios for banks (disclosure of exposures, systemic sustainability reviews, regular assessments of bank vulnerability). This will help increase the resilience of banks’ investment strategies in the medium and long term to transition and physical climate risks, depending on the strategies.

If the state assumes half of the investment costs of the green transition, public debt may exceed sustainable levels until 2050. This means that the “budget pays” scenario increases indirect pressure on the financial sector (funding costs, sovereign risk in assets).

If energy subsidies are abolished and a carbon tax is introduced, the budget will be able to free up significant funds—up to 5% of GDP. This money can be used to support sustainable projects and smart subsidy programs that help businesses adapt to the green transition.

It is necessary to establish a unified financial mechanism for dealing with climate risks, which would combine state resources, international financing, carbon mechanisms, and private investment. Such an approach would allow climate risks to be integrated into the system of strategic and financial analysis for the medium and long term. For the insurance market, this means developing insurance products that take into account possible climate risks in different regions of the country, which will help reduce the potential damage from climate risks to the portfolio assets of the financial sector and insurance companies.

The implementation of the above measures requires a comprehensive approach and the involvement of a wide range of specialists, including sustainable development consultants who can assess the impact of climate risks on various sectors of the economy, participate in the development of climate change adaptation plans, attract green financing for their implementation, and mitigate climate risks.

Conclusions

Climate risks for Uzbekistan are complex and affect different sectors of the country’s economy to varying degrees. According to World Bank estimates, the cumulative damage from climate risks without adaptation could reach 4-6% of GDP by 2050. At the same time, the benefits of investing in green technologies and adaptation significantly outweigh the costs.

How much does adaptation to climate risks cost for Uzbekistan (by sector)?

The analysis shows that climate risks have a significant impact on Uzbekistan’s economy, particularly on the energy, agriculture, and financial sectors. To reduce vulnerability, a comprehensive adaptation strategy is needed, including the following areas:

Development of renewable energy sources and improvement of energy efficiency;
Modernization of irrigation systems and introduction of climate-resilient agricultural technologies;
Introduction of climate stress tests and green financing in the banking sector. A combination of energy tariff reforms and climate financing can minimize long-term costs;
Developing mechanisms for climate risk insurance and carbon pricing.

It should be emphasized that social aspects must also be taken into account in the process of implementing climate change adaptation measures and transitioning to a green economy. For example, retraining employees in new specialties that are in demand as a result of structural changes in various sectors of the country’s economy (in particular, retraining specialists in the traditional energy sector to operate renewable energy facilities). It is also important to ensure equitable access to natural resources (for example, access to water for farms in different regions of the country in the context of climate risks of water scarcity and drought).

Overall, on a national scale, the benefits of investing in sustainability outweigh the potential losses, and the transition of the economy to green technologies can become a driver of modernization and a source of new jobs.