Transforming Lives and the Environment

Posted: February 1, 2023

How Microfinance and Clean Energy Solutions Changed the Landscape of Ulaanbaatar

It is possible to take on the climate crisis and fight poverty at the same time, thanks to clean energy solutions. The story that unfolded in Ulaanbaatar in Mongolia is a strong testament to what’s possible.

The climate and energy landscape
In 2008, MEC collaborated with XacBank, a microfinance institution in Mongolia, to explore the potential of microfinance in supporting low-income households. Our team conducted initial market research in Ulaanbaatar, which uncovered some remarkable insights into the region's climate and energy challenges. Mongolia's high altitude and location far from any sea result in a harsh continental climate, characterized by freezing winters with average temperatures of -20°C and short, warm summers.

The findings of the research were staggering, revealing that a significant proportion of households were spending up to 90% of their income on coal to heat their homes during temperatures as low as -40°C. The practice of having truckloads of coal delivered to homes at the start of the winter season was commonplace.

Moreover, the adverse health impacts of burning coal, including high levels of lung disease, heart disease, and birth defects, were widespread. During the winter season, Ulaanbaatar was one of the world's most polluted cities, underscoring the urgent need for sustainable and efficient energy solutions in the region.

Clean energy solutions and the challenges
Our team collaborated with XacBank to identify two products that could meet the energy needs of low-income communities in Mongolia. The first product was an efficient furnace that could burn cleanly, thereby eliminating smoke in the home and reducing coal use by 50%. The second was an efficient home insulation solution called a ger blanket, which could reduce fuel consumption by an additional 50%. At the time, neither of these products were commercially available in Ulaanbaatar, and only a few prototypes had been developed by universities and development research institutions such as GIZ (then GTZ).

Introducing these products were not easy and significant challenges, including the development of local supply chains, distribution networks, financing products, marketing strategies, and education initiatives within local communities, needed to be surmounted. Additionally, capacity-building efforts were necessary within XacBank to enable it to engage in green banking beyond traditional banking activities.

Making a Difference
Despite the obstacles, the program achieved initial success, garnering attention from local government officials, including the President of Mongolia, and leading to new partnerships with aid agencies such as the World Bank, FMO, and the Millennium Challenge Corporation (MCC). The overwhelmingly positive response to our initial pilot program inspired us to find ways to scale the initiative, which ultimately resulted in over 90% of the gers in Ulaanbaatar adopting one or both technologies.

According to a report by UNDP, ICS penetration increased to 54% by 2016 (UNDP, 2020). This can be attributed to the interventions by MEC’s carbon program. Clean stove distribution activities reached total sales of 142,434 stoves by 2015 which covered more than 90% of ger area households at the time.

Between 2010-2015 PM2.5 concentration sharply reduced from over 80 mg/m3 to less than 25 mg/m3.  This is a 69% reduction in air pollution in Ulaanbaatar.  Since 80% of air pollution was emitted from ger area stoves, the sharp reduction in from 2010-2015 is attributable to the clean stoves. This is shown in the graph below (Enkhbat, et al., 2020):

Figure 1: Air pollutant concentrations in Ulaanbaatar City in 2015 (Mongolia Statistical Information Service, National Statistics Office) (Enkhbat, et al., 2020)

The program also received extensive scrutiny and analysis from experts in climate and international development. It has been presented at microfinance conferences by XacBank and has attracted interest from organizations such as the World Bank, FMO, and the IFC. Additionally, MEC was recognized as a finalist for an Ashden Award, and the Swedish Energy Agency conducted extensive due diligence before becoming the offtaker of the carbon credits. The program has brought about a significant positive impact in the lives of many residents of Ulaanbaatar, as one grateful resident tearfully shared with us, "We always wanted a clean environment and clean air for our children, we just never had a choice. Thank you for finally giving us the chance to buy these products for our family.”

Know more: Watch the documentary video created by the Ashden Awards team to highlight MEC’s efforts in Mongolia.

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