| By Jess Shankleman From the city of Baku's shoreline along the Caspian Sea, amid restaurants and high end hotels, Azerbaijan's relationship with fossil fuels is plain to see by the rigs and tankers that dot the horizon. Azerbaijan, one of the birthplaces of the modern fossil fuel industry, will become another oil and gas exporter tasked with hosting the annual round of United Nations climate talks when delegates and world leaders descend on COP29 in Baku this November. The former Soviet republic of 10 million people follows the United Arab Emirates, which held the event last year.  Baku Stadium will be the main COP29 venue. Photographer: Ozan Kose/Getty Images To climate activists, countries like Azerbaijan and the UAE, dependent on oil and gas export revenues for their economic well being, are compromised diplomatic brokers. But a recent visit to Baku reveals a more nuanced picture: Azeri officials say the country fully accepts the logic of the energy transition and the need to lower carbon emissions. The trouble is neighbors in Europe, who are desperate to buy more of the country's gas, need them to remain fossil fuel producers. For Baku's European customers, the priority has been securing alternatives to Russian gas supplies ever since Moscow's invasion of Ukraine in 2022. This has meant tapping into much more gas from Azerbaijan's fields under the Caspian. Europe imported 11.8 billion cubic meters of gas from Azerbaijan last year and that's expected to increase to 13 bcm this year. Azerbaijan in 2022 signed a memorandum of understanding with the European Commission to double its gas exports to Europe to 20 billion cubic meters by 2027. There are also talks underway about the option to pump Azeri gas into another pipeline that runs via Ukraine in a attempt to keep supplies flowing to Europe without buying from Russia. In an interview at Baku Energy Week in early June, Deputy Energy Minister Orxan Zeynalov said there was no indication that European countries, Georgia or Turkey would stop buying its gas. All of this seems to fly in the face of an agreement nearly 200 countries made at COP28 in Dubai last year to phase out the use of fossil fuels. The deal was hailed as a landmark achievement, though it also included the caveat that gas will be key to helping countries shift to renewables. This is an important proviso for countries like Azerbaijan, which says it's taking steps to green its economy despite the increasing demand for fossil fuels. In an interview in Baku, Mukhtar Babayev, the former oil executive who is now environment minister and president of COP29, pointed to the growing number of hybrid and pure electric cars driving around the capital, saying demand for them has grown so much that charging is starting to disrupt the grid. "Now the country has turned the economy to green growth," he said.  A view of Baku looking toward the business center. Photographer: Natalia Kolesnikova/AFP/Getty Images Socar, its state run energy company, is planning to become net zero by 2050; the government has signed memorandums of understanding to build 27 gigawatts of new wind and solar farms, said Kamran Huseynov, deputy director at the state run Azerbaijan Renewable Energy Agency, in an interview. This would add more than three times Azerbaijan's total installed electricity generation capacity today. There are also speculative plans to install a fiber optic cable to export renewable electricity to the European Union, while excess wind and solar power would be used to create hydrogen or green ammonia for export too. "We want to do this, it's not like we're being forced by EU rules," said Zeynalov, the deputy energy minister. The idea is that the pipelines that run more than 2,000 miles from Baku to southern Italy may one day be exporting green gas such as e-methane to help the European Union meet its net zero goal. The most controversial part of Azerbaijan's green strategy is its plan to build so-called smart villages in areas recaptured from Armenia in the 2020 war. Azerbaijan is hoping to sign a formal peace deal with Armenia ahead of COP29, putting an end to a conflict that's lasted since the collapse of the Soviet Union more than three decades ago, said Presidential Advisor Hikmet Hajiyev. The mixing of climate diplomacy with the bitter, often violent, dispute with its neighbor will draw criticism, but officials say it signals the serious intent to switch from fossil fuels to renewables over the coming decades. Despite the green rhetoric, there's still a lot of skepticism about how much Azerbaijan will be able to transition its economy. While wind and solar power are already cheaper than many other forms of electricity, other energy sources it's considering, like hydrogen, are still in the early stages of commercialization and will be expensive to deploy. The government's priority is to increase natural gas revenues as its oil income wanes, according to Gulmira Rzayeva, a senior visiting research fellow at the Oxford Institute for Energy Studies. "Yes, the country is investing a lot of money in renewable energy, but even if it starts exporting very large amounts of renewable energy, solar, wind, hydrogen in the longer term perspective, it'll not substitute revenues coming from fossil fuels," she said. "It cannot, it's impossible." Moreover, it will be buyers of Azerbaijan's gas, more than anyone else, who will have the most influence on the speed of the fossil fuel producer's energy transition. "If there is a demand, there always will be supply. That's how the market works," Rzayeva said. "You can't change it." Read and share this story on Bloomberg.com. | 
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