Coalition study leads to clean air loans in Mongolia

A feasibility study in cooperation with the Frankfurt School and XacBank has led to an $18 million loan program for energy efficient households

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Smog sits over Ulaanbaatar's Ger District. Clean Air loans will help households access more energy efficient and less polluting appliances.

Mongolian winters are notoriously cold. To keep warm many people living in Ulaanbaatar’s large informal ger districts turn to wood and coal to heat their homes, blanketing the city in a thick smog, making it one of the most polluted cities in the world.

In May 2017, a team from the Climate and Clean Air Coalition and the Frankfurt School of Finance and Management (the Frankfurt School), travelled to Ulaanbaatar to meet with the Mongolian commercial bank, XacBank, to investigate setting up cheap household loans for ger residents to purchase cleaner household heating appliances to replace the inefficient traditional heat-stoves they currently use.

Working with ger residents, local and national government, academics, engineers, and technology suppliers, the team assessed the available alternatives and identified appropriate options for ger households.

The subsequent feasibility study showed a viable market for energy efficient heating appliances and helped XacBank design an Energy Efficient Consumption Loan Programme, a financial product to help poor families purchase clean heating options, reduce air pollution, and provide environmental and health benefits.

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XacBank is helping people pay for cleaner transport and household energy products

XacBank then submitted a proposal to the Green Climate Fund (GCF) for funds to implement the Energy Efficiency Consumption Loan Programme as the first energy efficient heating appliance and energy efficient housing lending programme to be implemented at scale in Mongolia. GCF funds would be combined with the XacBank commercial funds to improve access to finance for people making pre-eligible household energy efficiency investments, including energy efficient heating appliances, energy efficient housing materials for insulation retrofits, and energy efficient housing construction.   

A GCF loan for $9 million was approved. This will be combined with an additional $9 million from XacBank and a $1 million grant from GCF that matches a $2.5 million grant from French NGO Groupe Energies Renouvelables, Environnement et Solidarités (GERES). The funds combine to create a $21.5 million program, $18 million of which will go toward energy efficient loans that have lower interest rates and lengthened loan terms. Of this $3 million will go to loans for purchasing energy efficient heating appliances and $15 million will be used to purchase energy efficient housing products. The $3.5 million in grants will support complementary efforts that maximize the loan programme’s impact, like disposing old heating appliances evaluating household energy use and costs, awareness raising, and capacity building.

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Solar panels for sale at a market in Ulaanbaatar

“CCAC helped us optimize the CO2 and black carbon emissions impact of the program”, said Ms. Tuul Galzagd, Director of XacBank’s Eco Banking Department. “The assessment showed that energy efficient heating alternatives need to be paired with insulation retrofit measures to lock in emissions savings. This was key in designing an efficient program and submitting a successful Funding Proposal to the GCF.”

The GCF funds will help XacBank expand the portfolio of energy efficient products available and increase sales of clean technology options through its affordable loan programme. This will help increase the market for energy efficient products in Mongolia, particularly in Ulaanbaatar, where the programme will be focused.

This story also appeared in the Coaltion's 2017-2018 Annual report. You can download the report here

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