This research analyzes the climate change-related factors’ impact on inflation in Azerbaijan between 2005-2020 and forecasts for the 2021-2030 period. For this purpose, the chain impact of temperature on agricultural producer prices is analyzed by the BVAR model. In the second dimension, the transition requirements to green energy’s effects on inflation are examined through the exchange rate. According to the model results, climate changes’ contribution to inflation is expected to be 1.3 percentage points (pp) in the long run with the normal scenario. On the other hand, climate contribution to inflation is estimated to be 2.2 pp (surpasses half of the inflation target) in the worst scenario of climate change. In the light of these results, the paper highlights the importance of a well-developed climate action plan set by the government and the Central Bank of the Republic of Azerbaijan.
JEL Codes: E31, Q54, E37, E58, C32