Can Mongolia ‘survive’ and protect economy during net-zero transition?

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Countries have long expressed their desire to reduce greenhouse gas emission and end the use of coal. In particular, as part of the Paris Agreement, countries around the world agreed to pursue efforts to limit global warming to well below two degrees Celsius, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. To achieve this, countries must reduce their greenhouse gas emissions to “net zero” by around 2050. In that context, more than 40 countries pledged to phase out coal and international organizations have already announced that they will not finance projects that involve coal. It has been questionable whether our country, which has an economy based on mining, is ready for this and how to achieve the net zero promise.

The main reason why the global focus on this matter has accelerated is, of course, global warming, as it has led to an increase in the number of droughts, as well as the threat of desertification due to human activities.

Global warming manifests itself in different ways depending on the region, zone, and location. In particular, chief economist of the Asian Development Bank (ADB) Albert Park said at the bank’s Annual Meeting on May 3 in Incheon, South Korea that given its geographic features and socioeconomic circumstances, developing Asia is vulnerable to climate-related risks. More specifically, 76.9 percent of Mongolia’s land area is estimated to have been affected by desertification.

According to the Asia in the Global Transition to Net Zero: Asian Development Outlook 2023 Thematic Report of ADB, at current levels of greenhouse gas emissions, Asia would, by itself, exhaust the remaining global carbon budget consistent with limiting warming to 1.5 degrees Celsius by 2040. Therefore, countries and international organizations are working carefully in this direction and announcing important projects and programs. For instance, this year, ADB has launched the Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP), a landmark program which will help ADB accelerate much-needed climate financing. The IF-CAP’s initial ambition of 3 billion USD could create up to 15 billion USD in new climate investment. It is expected to contribute to ADB’s raised ambition of 100 billion USD in climate finance for 2019 through 2030.

When the world is moving in this direction, what is Mongolia aiming for and what is it implementing? Issues such as whether the country is ready for a net zero transition and whether it can save its economy while meeting its commitments are arising.

At the Sharm el-Sheikh Climate Change Conference (COP 27) last year, President U.Khurelsukh remarked, “Although the amount of greenhouse gases emitted by our country is only 0.1 percent of the total greenhouse gas emissions in the world, it is considered high compared to the size of its population and economy. That is why Mongolia has consistently supported global efforts against climate change and has been making its due contribution.” In this context, he said that the country defined the national goal of reducing greenhouse gas emissions by 27.2 percent.

Accordingly, as a national contribution to combating climate change, Mongolia launched a national campaign to plant billions of trees by 2030 to reach net-zero emission targets, reduce poverty or combat desertification through economic means, protect the health of children and women who are the most vulnerable to the climate change.

To achieve its commitment, the country is also working with regional countries and international organizations to increase domestic renewable energy sources. Due to its geographical location and climatic conditions, Mongolia has huge renewable energy resources, which can be measured at 2,600 gigawatts. This shows the potential to increase renewable energy production and further contribute to the region’s energy supply. At present, 18.2 percent of Mongolia’s total installed energy capacity is provided by renewable energy, and it aims to reach 30 percent by 2030. Currently, 75 percent of livestock farmers in our country use renewable energy.

According to the Ministry of Environment and Tourism, to reduce greenhouse gas emissions by 12.3 percent in 2024, it is necessary to reduce the amount of greenhouse gases equivalent to 9.2 million tons of carbon dioxide. Therefore, the ministry announced that it will increase the number of wind and hydropower plants, reduce heat loss in buildings, improve energy efficiency, use quality fuel in cars, decrease the number of livestock, and upgrade pasture management. Head of the Department of Climate Change of the ministry A.Enkhbat said that by adding greenhouse gas absorbers or forest areas, the goal of reducing greenhouse gas emissions by 12.3 percent, which is included in the government’s action plan, will be implemented.

He informed, “According to the survey of greenhouse gas emissions, 50.1 percent of Mongolia’s greenhouse gas emissions are accounted for by the energy sector, 49 percent by the agricultural sector, and a small percentage by the industry, waste, and construction sectors. Mongolia’s future development is inextricably linked with climate change policy. Therefore, we are implementing a program to develop a low-carbon, inclusive and green economy, mitigate climate change, and contribute to international efforts. For example, there is a need to improve the legal framework for climate change.”

“We use coal burning technology to generate power. About 20 to 30 percent of the installed energy capacity should be made green. The government has decided to build several hydropower plants, which is a real step towards reducing greenhouse gas emissions. Public-private partnerships and green development are important in the direction of reducing and adapting to greenhouse gas emissions,” he added.

On top of these commitments, Mongolia decided to host COP17 session in 2026. In general, our country is taking these initiatives to fight against global climate change. In other words, we are making some efforts to achieve our promises, but it is doubtful whether we are ready to protect our economy in the future in this global trend.

This is because some countries and international organizations have committed to shift away from coal, in pledges made at the COP26 climate summit. Signatories to the agreement have committed to ending all investment in new coal power generation domestically and internationally. They have also agreed to phase out coal power in the 2030s for major economies, and the 2040s for poorer nations.

On the contrary, according to data from the World Bank, the mining sector accounted for approximately 22 percent of Mongolia’s GDP in 2021, and over a staggering 80 percent of the country’s exports. Thus, the importance of mining to the Mongolian economy cannot be overstated, as it has been a key driver of economic growth. More specifically, coal is the main component of the economy. The country’s coal exports totaled 13.78 million tons between January and March 2023, surging 11.26 million tons or 446.17 percent year on year. The export amounts totaled 2.24 billion USD during the first three months, jumping 232.16 percent year on year.

The 2030s, 2040s and 2050s may sound far away, but it is doubtful whether Mongolia will be able to diversify its economy out of dependence on mining until then. Therefore, we should start paying attention to this issue as well.

On this matter, Prime Minister L.Oyun-Erdene expressed that the government is making commitments to the net-zero transition and is preparing for the “end of coal”. In particular, the government is trying to develop its tourism to support its economy, declaring this year and upcoming years as “Years to Visit Mongolia”.

Professor of the University of Finance and Economics J.Delgersaikhan commented, “This issue is not discussed today. Since the beginning of the 21st century, the issue of reducing greenhouse gases started to be considered. The issue of stopping the use of coal was raised 10 years ago. I see that Mongolia will continue to have an economy based on mining in the next 10 years. I don’t see coal going out of demand during this time. That’s why we need to increase our existing coal export, improve its output, and spend our wealth and income from mining very properly. In the next 10 years, we need to change and diversify our economic structure with this mining income. Only then will we survive. Until today, Mongolia has been spending most of its mining income in areas that do not bring much impact or benefit to the society, such as welfare. In the future, we need to reduce our dependence on mining. Unfortunately, our country cannot do this. We’ve been talking about it since 1998, but we still haven’t done it.”

ADB Country Director for Mongolia Pavit Ramachandran also expressed, “Mongolia has a coal-dependent economy right now, particularly for the energy sector. Countries are already making commitments to the net zero transition so there will be less and less demand for coal. That’s just the nature of where things are headed. The multilaterals and bilaterals will not invest in coal projects. Moreover, we are also going to see less investment flowing into the fossil fuel sector so I think attractiveness as an investment destination will also depend on diversification. Mongolia has a lot of potential in agribusiness agriculture but it only processes five percent of the meat that they produce in the country. So there’s a huge potential for value addition. On the issue of tourism, the government is now making a big push. They just need to look at a broader product base, broader marketplace and look at diversification.”

It is commendable that Mongolia is contributing to this big global issue and is making efforts, but as economists and experts say, it is important to diversify the economy from now on. At a time when Mongolia is greatly affected by global climate change, it is 100 percent up to us how we can join hands in this great contribution to the world while saving and expanding our economy.    

Misheel Lkhasuren