98764 The World Bank Group Mongolia - National Low Emission Stove Strategy Completing the Transition to a Sustainable Market for Cleaner Stoves in Mongolia With generous support from the Australian Government Table of Contents Figures....................................................................................................................... 3 Tables......................................................................................................................... 3 Boxes......................................................................................................................... 3 Abbreviations............................................................................................................. 4 Foreword................................................................................................................... 5 Acknowledgements.................................................................................................... 7 Executive Summary.................................................................................................... 8 Chapter 1: Introduction................................................................................................. 17 Chapter 2: Strengths and Challenges of the Low Emission Stove Programs in Mongolia...................................................................................................... 20 Strengths of the Low-emission Stove Switching Program and Low-emission stove Market Opportunities.............................................................................. 21 Challenges of the Low-emission stove Switching Program and Threats to the Low-emission Stove Market............................................................................. 25 Chapter 3: Transforming Mongolia’s Stove Market..................................................... 32 Expand the stove switching program nationally.............................................. 32 Modify eligibility criteria to include all urban users of traditional heating stoves.................................................................................................. 33 Temporarily maintain but simplify the consumer subsidy mechanism............. 34 Simplify the quality assurance mechanism...................................................... 36 Provide fiscal and regulatory policies to foster innovation, ensure spare parts and protect the population from polluting stoves...................................37 Strengthening, Expanding and Enforcing Standards........................................ 39 Assistance to Stove Producers to Promote Innovation......................................41 Strengthen coordination and policy coherence to enhance national expansion......................................................................................................... 43 Policy and Program Coordination..................................................................... 43 Framework for Informing Policy Decisions on Stoves...................................... 44 International knowledge sharing...................................................................... 44 Coordinated and Intensified Awareness Raising and Community Engagement..................................................................................................... 45 Financing Preparation and Implementation..................................................... 47 Economic Benefits........................................................................................... 47 Chapter 4: Suggested Road Map for Transforming the Stove Market........................ 49 Establish road map to implement the strategy................................................ 49 Ten steps for completing the transformation to a cleaner stove market........ 50 Step 1: Establish institutional arrangements.................................................... 50 Step 2: Maintain and set up new PCs in Ulaanbaatar.................................... 53 Step 3: Develop standards for heating appliances.......................................... 53 2 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Step 4: Assist local stove producers................................................................ 54 Step 5: Set up supply chain of low-emission stoves outside Ulaanbaatar...... 55 Step 6: Set up quality control system............................................................. 59 Step 7: Expand and coordinate the awareness campaign............................... 60 Step 8: Adjust the subsidy mechanism and phase it out over three years..... 60 Step 9: Enforce of emission performance standards.......................................61 Step 10: Monitor and evaluate results, identify and manage risks................. 62 Chapter 5: Conclusion.................................................................................................. 63 References....................................................................................................... 64 Annex 1: Estimation of the Potential Market............................................................... 65 Additional market for traditional stoves in Ulaanbaatar.................................. 66 Market for traditional stoves outside Ulaanbaatar.......................................... 67 Market for traditional stoves in the country side............................................ 68 Summary of market for traditional stoves....................................................... 68 Annex 2: Program Cost and Benefit Analysis on Selected Scenarios........................... 69 Annex 3: Cost of installing stoves in the Aimag and Assumptions..............................72 Annex 4: Stove Subsidies............................................................................................. 74 Figures Figure 1: Comparison of PM2.5 in 2012 and 2013 relative to 2011, UB2 station....... 22 Figure 2: Perceived Difficulties with Using a Low-emission Stove.......................... 29 Figure 3: Time table for roll-out............................................................................. 49 Tables Table 1: Suggestions on Institutional Responsibilities for the Nationwide Roll-out.12 Table 2: Households with a low-emission stove, October 2013 ('000)................... 24 Table 3: Example of fiscal measures to phase out the use of dirty stoves and SWHB...................................................................................... 39 Table 4.............................................................................................................................. 41 Table 5: Institutional responsibilities for the nationwide roll-out............................51 Table 6: Roadmap of the Development and Enforcement of Standards................ 54 Table 7: Comparison of stove prices to end users with and without subsidy.........61 Table 8: Households with a low-emission stove, October 2013 ('000).................. 65 Boxes Box 1: Terminology...................................................................................................18 Box 2: Low-emission stove market segments......................................................... 25 Box 3: Reassessing Principles of the Current Subsidy Scheme................................ 35 Box 4: Local Mongolian Manufacturing Capacity................................................... 42 Box 5: The Sales and Distribution System in UB..................................................... 57 Box 6: Distribution and installation of solar Homes Systems in areas outside Ulaanbaatar.................................................................................... 58 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 3 Abbreviations ADB Asian Development Bank khoroo Administrative subdivision of aimag Administrative region of Ulaanbaatar City below the Mongolia, equivalent to a level of duureg, about province 1000 households ASTAE Asia Sustainable and kW Kilowatt Alternative Energy Program Low-e Low-emission AQS Air Quality Standard LPB Low Pressure Boiler, also AusAID Australian Agency for SWHB International Development LPG Liquefied Petroleum Gas CAF Clean Air Foundation MASM Mongolian Agency for CDM Clean Development Standardization and Mechanism Metrology CHP Combined Heating and MJ Megajoule Power MVR monitoring, verification and CSI Clean Stove Initiative reporting DSA Distribution and Sales Agent PC Product Center duureg Largest administrative district PM Particulate Matter of Ulaanbaatar City QAA Quality Assurance Agent EAP East Asia and Pacific REAP Rural and Renewable Energy ger Wood-framed, felt-covered Access Project dwelling traditionally used by SDC Stove Development Center nomadic households and SEET Stove Emissions and households in high density Efficiency Testing laboratory areas of towns including owned by MUST Ulaanbaatar SMS Short message system hashaa Small fenced-in plot typically (texting on a mobile phone) occupied by a single soum Administrative division below household or family the level of aimag, equivalent IDA International Development to a county or township Association (The World Bank SSIA State Specialised Inspection Group) Agency kheseg Smallest administrative SWHB Small water heating boiler, subdivision of Ulaanbaatar also LPB City below the level of Tg Mongolian Togrog (currency) Khoroo, about less than 100 UBCAP Ulaanbaatar Clean Air Project households WHO World Health Organization μg Microgram The findings, recommendations and conclusions expressed in this report are entirely those of the authors and should not be attributed in any manner to the Australian Government, the World Bank, or its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, other information shown on any map or figure in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. 4 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Foreword 2 012 was declared the Year of air quality in Ulaanbaatar. Lower emission Sustainable Energy for All by the United stoves are considered a short term pollution Nations and established universal abatement measure. Short term measures access to modern energy services by 2030 can move forward more quickly than More as a key target set for this initiative. By that permanent solutions, such as improved year, Mongolia already set out to achieve housing, which take time to prepare and access to cleaner, affordable cooking and implement. Penetration of cleaner, low heating appliances in peri-urban ger areas emission models in Ulaanbaatar over the of Ulaanbaatar. Despite initial success, a past few years has indeed contributed sustainable, clean stove market has not to better air quality. This success came yet been established due to a number about with hard efforts from many of challenges. The heating and cooking ministries, central government agencies, conditions in Mongolia are relatively unique the Ulaanbaatar municipality, Mongolian in the world, combining a tradition to cook universities, laboratories, donors and and heat with the same appliance in a international financial institutions. climate with extremely low temperatures, However, the achievements and poor households living in thinly insulated investments are at risk for a number homes comprising mainly felt “ger” tents of factors discussed in this report. The and small, cheaply constructed detached risks are sufficiently serious that they houses, and no affordable or securely could even reverse hard-won air quality supplied fuel alternatives to low quality improvements. Stoves, fuels, users’ coal. Because stoves are not efficient and habits, dwelling characteristics are key clean burning, they cause severe winter air factors to determining fuel combustion pollution making winter days some of the and emissions. Prices, quality, reliable most polluted in the world in Ulaanbaatar. private sector supply chains, maintenance, Some other Aimags have also reported standards and regulations are key building winter air quality problems for the same blocks for a commercial market. The right reasons. Additionally, Mongolia achieved combination of these factors, adjusted to a very high penetration of cleaner, mainly local conditions, can build a sustainable imported, stoves in a very short period of low emission stove market. The available time in its largest market, Ulaanbaatar. technologies and fuels, supply chain This contrasts it with more gradual capacities, market demand segments, user market development approaches in other preferences, incentives and regulations are cookstove programs globally. With its key features of stove switching programs. unique challenges and near term success Designing a program that considers all story, Mongolia’s clean stove initiative also these factors is not easy and requires has the potential to significantly contribute strong coordination across central and local to the international body of knowledge in government agencies, reliable private sector development of cleaner cookstoves. participation, stable financing sources, and Reducing emissions from heating good program management. Monitoring and cooking are part of the Mongolian and evaluation of stove switching programs Government and Ulaanbaatar Municipality’s is critical because technologies, suppliers, multi-year, multi-sector strategy to improve and market demand change over time. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 5 Building on six years of technical assistance, policy dialogue and recent stove switching program experience in Ulaanbaatar, this report sets out a proposed national low-emission stove strategy for Mongolia The objective of the strategy is to establish a sustainable market for low emission stoves in Mongolia. The report focuses on clean heating and cooking stoves as well as small water heating boilers used in peri-urban ger areas of Ulaanbaatar and other Aimags and Soum centers. The strategy is valid for the current clean stove market development situation and may change in the near future. Therefore, results should be monitored and fine-tuned when needed. This report, it's asusumptions, suggestions and recommendations are valid for the clean stove market as of the time of writing this repor. Conditions are dynamic and can influence the design of the strategy. Recently, the Australian Government provided funds through the World Bank to sustain this dialogue through the Mongolia Clean Stove Initiative technical assistance project, which financed the development of this report. 6 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Acknowledgements T he co-authors of this report are General, Strategic Policy and Planning, Gailius J. Draugelis and Robert van Ministry of Energy, Vice Mayor Bat-Erdene, der Plas with substantial contributions Vice Mayor in charge of air quality at the from Dr. Yun Wu. The report was prepared Ulaanbaatar Municipality, Mr. Enkhbold, under the guidance of Gailius J. Draugelis, Director of the Project Management Unit, Task Team Leader of the Mongolia Clean Ulaanbaatar Clean Air Project (UBCAP), Stove Initiative. The strategy also built upon Ms. Tsendsuren, Program Manager, PMU, previous research, analysis and studies UBCAP, and the entire PMU of UBCAP for of the Mongolia CSI team, including their sincere work spirit and support as key Voravate Tuntivate and Chris Sall, who counterparts of this CSI activity. were co-authors with Gailius Draugelis of This strategy builds upon the efforts, the stocktaking report referenced in this reports and discussions of many strategy. development partners including the Asian The Bank team is especially grateful Development Bank, the United States to the Prime Minister Altankhuyag who Millennium Challenge Corporation, the met with the team to share his views in Japan International Cooperation Agency, January 2014 and May 2, 2014. The team the EBRD, GIZ, the United States Agency is also grateful for the support and inputs for International Development, the Swiss received from the Prime Minister’s Office, Development Cooperation, among many the Ulaanbaatar Municipality including others. The team is most grateful for their its Project Management Unit of the knowledge sharing and insights. Ulaanbaatar Clean Air Project, the Ministry The team appreciates the insights of Energy, and the Ministry of Environment offered by World Bank peer reviewers Koffi and Green Development, XacBank, the Ekouevi, Senior Economist, and Jan Friedrich Mongolian Clean Air Fund, the Mongolian Kappen, Senior Energy Specialist. Dr. Yabei University of Science and Technology’s Zhang, Senior Energy Economist, provided Stove Emissions and Efficiency Testing important overall guidance as coordinator Laboratory, heating stove retailers, ger-area (and Dejan Ostojic, Practice Leader and leaders, and many others who contributed former coordinator) of the World Bank’s their thoughtful advice, time and energy. East Asia and Pacific Region Clean Stoves A draft set of recommendations were Initiative. The team is also most grateful to shared with stakeholders at a workshop Coralie Gevers, in her former capacity as in January 2014 and May 6, 2014 who Country Manager, Mongolia, World Bank, provided valuable feedback. Mark Lundell, former Sector Manager The team would like to thank the for Sustainable Development, China and formal counterparts of the Mongolia Clean Mongolia and Charles Feinstein, current Stove Initiative, the Ministry of Energy Sector Manager, Energy and Water, World and the Ulaanbaatar Municipality for their Bank for their longstanding support and excellent cooperation and oversight of guidance to the team. The team thanks the Mongolia CSI. Special thanks go to Otgonbayar Yadmaa for many logistical Minister Oyun, Minister of Environment arrangements during missions and Arailym and Green Development, Vice Minister Murat, Extended Term Temporary, who D. Dorjpurev, Vice Minister, Ministry of provided invaluable logistics and publishing Energy, Mr. Tovuudorj Purevjav, Director support in the World Bank Office in Ulaanbaatar. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 7 Executive Summary The Challenge to Sustaining Emissions low emission (low-e) stoves in ger areas. Reductions from Low-Emission Stoves Unfortunately, data from monitoring in Ulaanbaatar stations is not systematically collected for A ccess to clean, affordable cooking PM2.5. From available statistics, monthly and heating solutions currently average PM2.5 concentrations decreased is the key short-term measure to by 20 to 40 percent in coldest winter reduce the severity of Ulaanbaatar’s (UB) months of January and February, and by air pollution. They can also help reduce air 20 to 30 percent in warmer months of pollution in other urban cities of Mongolia March and April, compared to monthly where stoves are used for heating and averages in 2011.There are some data cooking in the winter. Coal and wood inconsistencies where some monitoring burning for heating of individual residences, stations reported no large changes. These essential for survival in the harsh winters, inconsistencies should be addressed with contribute about 60 percent of the annual a better distribution and maintenance of fine particulate (PM2.5) concentrations stations across UB, including in ger areas, in Ulaanbaatar.1 Observed high levels and ensuring that these monitor fine of exposure in the winter are extremely particulates. Nevertheless, the recorded harmful to health and exceed World Health reductions happened at a time of continued Organization (WHO) standards many- population growth in the ger areas3. In fold2. The potential benefits of lower these 3.5 years by January 2014, a total emissions from stove switching are large. of 135,193 stoves were purchased and A 50% reduction in emissions from ger 131,206 stoves have been installed. This area stoves can yield economic benefits of is an impressive penetration rate by any an estimated US$28-52 million per year; measure internationally. and an 80% emission reduction can yield These results face important headwinds benefits of an estimated US$52-96 million and have a better chance of being per year. Even a 30% emission reduction sustained and improved if a large part of can generate benefits of an estimated urban stove users use low emission (low-e) US$15-29 million annually (World Bank, stoves inside - and outside UB. There are 2011). These benefits appear to justify the seven important challenges: estimated size of investment already made • First, demand in all stove market by the Government and donors in stove segments continues to increase and switching of about US$30 million. shift toward higher energy consuming Recent air quality improvements in UB units, such as small water heating coincide with the large scale switching to boilers. 1 Air Quality Analysis of Ulaanbaatar Improving Air Quality to Reduce Health Impacts; World Bank, December 2011 2 The highest average daily concentration of PM 2.5 in 2009 was over 4000 μg/m3, compared to average annual concentrations of 75-150 μg/m3 in the city center to 200-300 μg/m3 in ger areas. The Mongolian annual ambient air quality standards are 50 μg/m3 and 25 μg/m3 for PM10 and PM2.5, respectively, while the WHO interim targets for developing countries are 70 μg/m3 for PM10 and 35 μg/m3 for PM2.5. 3 About 128,000 people entered Ulaanbaatar between 2010 and 2014; source: MUB statistics 8 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy • Second, there are no qualified local insufficient attention to small water stove models produced at scale thus heating boilers, a lack of enforcement far. Current list prices of imported of standards (which traditional stoves stoves are unaffordable without do not meet), and weak coordination high subsidies. Without the subsidy, between clean stove and alternative traditional stoves will out-compete fuel programs. low-emission stoves at current prices to • Seventh, stove markets, including the meet growing demand. The difficulty low-emission stove re-sale market, of adjusting this distortion should not inside and outside Ulaanbaatar be underestimated - consumers are are intricately linked. This can be a now used to very high quality products challenge – traditional stove producers at unreasonably low prices. Resistance outside Ulaanbaatar could re-enter the from current low-e stove suppliers to UB market. If the Government decides changes in the subsidy mechanism to stop subsidies abruptly without a can be substantial because it would comprehensive policy that supports introduce competition, force a change a transition to low-emission stoves, to the business model, and perhaps users may have no choice but to buy switch to different stove models to traditional stoves because they are meet prices that households can afford available and affordable. without high subsidies. A Proposed Strategy for Transforming • Third, there are high transaction costs Mongolia’s Stove Market – Building a relative to the market size outside Sustainable Market for Low Emission Ulaanbaatar; therefore, under present Stoves conditions it is highly unlikely that clean stove production outside Ulaanbaatar In his meeting with the World Bank is a viable business model. on January 28, 2014, Prime Minister Altankhuyag confirmed low-e stoves are • Fourth, there is a risk that the technical the Government of Mongolia’s priority capacity and materials for maintenance short-term air pollution abatement of low-emission stoves that have already measure and that the policy objective for been sold will diminish considerably the GOM and MUB is to transition to a after warranty periods expire. sustainable low-e stove market so that • Fifth, despite training, consumers their air pollution reduction benefits could have a hard time breaking traditional be sustained. The World Bank was asked fuelling/cooking habits when using to lay out the challenges and propose low emission stoves. Improper use of measures that could help to achieve this new stoves increases their emissions. objective. This report is the response to While they don’t have to, new models this request. The following package of do not necessarily take into account policies and support measures is proposed traditional habits. This requires more to support this objective. training and awareness. And, it opens From the outset if a national the door to competition for even more strategy is pursued, the NCAPR and attractive models. UB municipality should commit to • Sixth, there are regulatory gaps continuous monitoring and evaluation and lapses in policy coordination to of their strategy. Market conditions will support low emission stoves, such as change, and can do so quickly. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 9 Promote sale of low-e stoves traditional stove would be greatly eliminated nationally to all urban areas, but with if every household was eligible to buy a a strong focus on Ulaanbaatar’s market low-e stove nationally. Suppliers confirmed as the foundation for innovation during stakeholder consultations that it is and private sector supply. Expanding feasible to supply various models of low-e nationally can address several problems stoves that can meet current requirements simultaneously. First, it eliminates the need for emissions performance but are at for a black market for low-emission stoves. lower list prices of about US$150/unit. In Provided prices are comparable, it would October 2013, the black market price of a reduce incentives for Ulaanbaatar ger-area low-e stove was about US$200, or about residents to sell low-emission stoves to half the current list price and about twice outside markets, which currently have no the price of a traditional stove. access to affordable low-e stoves. Second, Ulaanbaatar is able to sustain support for it also contributes to addressing winter air innovation through its research institutes, quality problems in other cities. Air pollution financing institutions, and infrastructure. is an issue not just in Ulaanbaatar but also In addition, the stove switching program for 10 other cities (where in 2014 state has not reached a sufficient number of budget resources are allocated to support ger households, especially the ones living air pollution mitigation). Third, expanding further away from the city center (but still the market nationally would reduce affecting air quality in the city center), dependence on regulations that prohibit and in underserved market segments like re-sale of stoves, which will still be needed heating walls and small water heating but may be difficult to enforce. Fourth, boilers. Other Aimags do not have this it moves Mongolia closer to providing economy of scale. Based on consultations, universal access to clean cooking energy it is clear the consensus is to use strengths especially to urban areas, complementing of the UB program and maintain a central its other successful initiatives of providing focus on UB while also serving other areas access to electricity to 100,000 herders in Mongolia. through the provision of solar PV home The strengths of the successful stove systems. A national market would be switching program in Ulaanbaatar promoted by expanding the number of should be maintained in a national eligible households, providing supportive program. The enlarged program would incentives and market-friendly regulations, should maintain these design principles: and designing a small water heating boiler (a) preserve consumer choice of many improvement program. models; (b) encourage innovation and Currently, there is concern about the set transparent standards that can be re-sale of stoves to users from outside supported through laboratory emissions Ulaanbaatar, mainly driven by the high performance testing at the Stove Emissions subsidy levels and lack of access to stoves and Efficiency Laboratory of the Mongolian outside UB. This could be addressed University of Science and Technology and through rigorous enforcement of anti- the proposed Stove Development Center; resale regulations, but it may be difficult (c) ensure professional supply and quality to do so, for instance to impose fines on with strict program requirements; (d) individual households, especially poor ger create conditions to drive down list prices residents. The arbitrage opportunity for re- so that, eventually, subsidies will no longer sale of stoves that are priced less than a be needed. UB’s experience demonstrates 10 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy that an adjustment to the combination of supply chains to Aimags outside incentives and regulations to encourage Ulaanbaatar starting with the ten scale economies as much as possible, Aimags that have reported winter air retain fair competition among different quality problems stove models, and reduce overall program • Maintain but simplify the consumer implementation costs. subsidy mechanism by setting a It should also retain the strengths of single fixed level of subsidy or a fixed the current program: (i) only stoves and percentage of the retail price for any producers of high quality and capacity are eligible stove model. High performing eligible; (ii) trading in old stoves is required; stoves that are lower priced are (iii) after sales service is guaranteed by the available on the global market, but not producer for a limited period of time; (iv) in Mongolia. Encourage micro-credit a consumer-subsidy is applied for eligible financing of the larger household households (one-time purchase); (v) a payments for low emission stoves. quality assurance mechanism that verifies • Maintain but simplify the quality installation and extra training in stove use assurance mechanism (verification by a third party; (vi) a strategic, public through quality assurance agents) over awareness campaign informs households about the next two years after stove of their responsibilities and reinforces suppliers are more firmly established. government policies such as discouraging The system can move to a formal re-sale of stoves; (vii) financing plan of licensing system for suppliers with the program would remain a combination checking based on a sampling method of both central and local government and rather than nearly 100 percent checking private sector sources. as it is now. Modifications to the program Strengthen coordination of policies should address its weaknesses and the to improve coherence and support characteristics of a national program. national expansion. Follow the principle The strategy includes the following of evidence-based interventions. There adjustments: are several key actions needed: First, the • Modify eligibility criteria for consumer National Coordination Committee on Air subsidies to include all registered urban Pollution Reduction (NCAPR) should be users of traditional heating stoves. responsible for ensuring policies are well The goal is to motivate households to coordinated, and overlaps and conflicting voluntarily replace in 3-4 years the use ones avoided. The NCAPR includes of all traditional stoves and unqualified representation of all main pollution small water heating boilers with low abatement policy stakeholders, headed emission models that meet national by the Prime Minister’s office and is standards. well placed to also oversee this strategy. • Gradually start enforcing a ban Executive Summary Table 1 summarizes the on traditional stoves, first through key institutional roles and responsibilities strengthened public awareness about proposed for implementing this strategy. the health damages from traditional Second, the Ulaanbaatar city should stoves (and benefits of low emission take the lead in ensuring the strategy is ones) and then through regulation. implemented in its city and coordinate • Gradually expand low emission stove closely with the NCAPR for implementation outside the city. Because Ulaanbaatar plays Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 11 a central role in the supply of low emission ensure coordination and policy coherence. stoves, parts and services to markets If these two do not work together, there is outside UB, Ulaanbaatar city leadership a risk of failure. should play an active role in the NCAPR to Table 1: Suggestions on Institutional Responsibilities for the Nationwide Roll-out Possible Key Roles Preparation Implementation Enact legislation, make Order the strategy roll out and Monitor progress Parliament funding available monitor progress Coordination of all activities Coordinate with all stakeholders to Monitor results, fine ensuring policies and prepare plan for roll out tune strategy, and programs are coherent Oversee implementation, coordinate, ensure budget is and avoid contradictions review feedback, fine tune strategy available NCAPR (including awareness and plan, ensure budget is available campaign), oversight of implementation (oversight can also be done via smaller Steering Committee) Ensuring protection from Develop and implement supportive Report on results and harmful air pollution via policies, including improving PM2.5 improvements of air policy and program support, monitoring and reporting system quality improvement including monitoring and in Ulaanbaatar and other cities Ministry of reporting on air quality. and set up a system for analysis Environment Executing responsibility as of results. Report on results to Chairman of Board of the civil society periodically. Identify Clean Air Foundation other opportunities for introducing emission control technologies. Ensuring expanded access Develop and implement supportive Report on results to clean energy for heating policies, ensure monitoring and in terms of stoves and cooking via policy and reporting system set up to monitor disseminated, fuel use Ministry of program support, including fuel and stove use. M&E system changes Energy coordination between clean to follow progress of clean energy fuel and clean stove policies access and actual stove performance in terms of emissions and fuel consumption. Ensuring fiscal resources are Develop and, once approved, Apply scheme and provided under approved implement range of fiscal and monitor implication on Ministry of budgets and other approved tax measures incentivizing clean the national budget Finance (or, fiscal measures are executed. technology use and preventing partially, Clean polluting technologies (i.e. import Air Fund) duty scheme, company tax, and VAT) Monitor budget execution comparing with results Ensure strategy and stove Implement UBCAP project, develop Assist SSIA with switching is implemented and implement supportive measures, enforcing the in Ulaanbaatar, ensuring including ensuring good coordination standards supporting policies and between NAMHEM and Ulaanbaatar MUB programs are coherent and Air Quality Agency (increasing its well coordinated within UB capacity to for monitoring and and the national program. analysis), assisting in development and enforcement of standards within the framework of the law 12 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Oversee stove switching Take stock of results and Maintain family books, within their jurisdiction, communicate potential market to sensitize households to Khoroo and provide support where PMU participate kheseg leaders necessary, participate in identifying eligible households and preventing fraud Oversee stove switching Participate in public awareness Sensitize households, within their jurisdiction, campaign, develop lists of eligible monitor results Aimag provide support where households, help to identify PCs and Governor and necessary, participate in QAA local leaders identifying eligible households and preventing fraud Can provide a wide range UBCAP and JICA are currently Monitor results and of resources, depending on focused on Ulaanbaatar only. World IFIs/Donors respond donor country strategies and Bank provides technical assistance to other requests for MFIs and requests from the government to inform both Ulaanbaatar and support if possible. Donors national policy. Other agencies also Commercial Banks providing important support. to participate in implementation where feasible. Encouraged to participate Engage with government on in financial management of possibility of managing PCs in the stove switching program, Ulaanbaatar and establishing system replicating Ulaanbaatar of accepting HH payments across Commercial system as much as possible, the country, managing subsidy Banks encouraged to offer micro- funds flow to producers and, if credits for (increased) down role continues as PC, developing a payments for low-emission nation-wide monitoring database stoves and potential supply of purchases, payments and side financing installations Manages and allocates funds Continue to finance subsidies and for air pollution abatement elements of the national strategy. If Clean Air Fund measures. it still remains, CAF can be a stable funding source. Mongolian Set standards for heating Together with SEET lab, MUB/ Fine tune standards Agency for systems AQD, Min of Env, Min of Energy if applicable, due to Standardization set standards for heating stoves, new technological and Metrology heating walls, and SWHBs innovation State Enforce air quality standards Prepare a plan for gradual application Enforce the standards Specialised for heating appliances of the standards Inspection Agency Manage implementation Prepare plan for rolling out to 10 Coordinate between aimags. Develop contracts between all stakeholders and PC, QAA, PMU, suppliers, and local provide management PMU bank offices in soums. Possibly assistance when may need to maintain database needed of purchases, payments and installations Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 13 Private sector investment and Private sector invited to provide Set up sustainable commercial skills to develop/ feedback on the implementation supply chain of low- import and sell attractive of the strategy also as part of emission stoves stove models, contributing their interests in corporate social significantly to reduction responsibility. Current private sector in air pollution. Provide suppliers work with government maintenance and repair to develop viable plan for after Suppliers services during warrantee sales services outside Ulaanbaatar period and after warranties expire. Possible work with SDC to develop training program in servicing low- emission stoves targeting current traditional stove producers. Suppliers encouraged to diversify models and supply chains. Communicate the rationale Prepare households for the upcoming Maintain the messages for stove switching and changes to the modalities of the and prepare for behavioral change stove witching program. the changes in the Media program (removal of subsidy, enforcement of standards). Buy low-emission stove and Phase out use of non- Households use correctly low-emission stoves and SWHB Third, a well-funded, well-staffed there have been initial contacts with the and competent Project Management University of Johannesburg and Agriculture Unit should be appointed to manage the University in Beijing. These are important implementation of the strategy nationwide. channels for scientific and policy knowledge The PMU reports to the NCAPR, which sharing. provides a governance structure that acts in Fifth, both NCAPR and Ulaanbaatar concert across multiple agencies. The PMU city will also have an important role in should remain active until the market for coordinating an awareness campaign low-emission stoves has been established. for continued public awareness of air It should be able to communicate and quality issues, results, and building broad- interact regularly with high level politicians, based support and understanding of this technical Ministries and Municipality staff, program. The public awareness campaign and donor agencies. It should also have needs to be more tightly planned and as strong procurement and administrative its key messages delivered consistently capacity. The main role of the PMU is to by key stakeholders, including members manage the implementation of all activities of the NCAPR and Ulaanbaatar city, so and coordinate between all actors to ensure as to build and sustain both political and that they all realize their tasks. public support for the strategy. Ultimately Fourth, NCAPR and UB city should the market is made up of customers who encourage international cooperation, must be convinced of the science, the scientific exchanges and knowledge sharing technology and the benefits of the stove with other countries facing challenges in switching program. It is they who need to access to household cooking and heating be convinced to buy new stoves, even if solutions. Mongolia is a member of the their traditional polluting stove is working Global Alliance for Clean Cookstoves and fine, and to change some behaviors on 14 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy fuelling and cooking to accommodate the of use of the new technology. The SEET new technology (so that the stoves emit Lab should also develop a testing protocol particulates as little as possible). They for small water heating boilers (SWHB) as need to be convinced that these actions soon as possible to inform policy makers contribute to the wellbeing of those who on the potential benefits of an improved are important to them. They need to be SWHB program. convinced that these inconveniences are Seventh, the NCAPR and UB city outweighed by the benefits. The awareness should start introducing well-coordinated campaign should also be used to report fiscal and regulatory policies that foster back to the public what are the current innovation, ensure spare parts, and protect results of air pollution reduction efforts so the population from polluting stoves. that they can feel connected to the effort Incentives and regulations should work to clean up the air. together to make purchase of low emission Sixth, the policy making process for low stoves easier, while making supply and emission stoves should follow a systematic purchase of dirty stoves harder, eventually and more disciplined framework. Emissions banning them altogether. It does not make performance of stoves depends on three sense to provide fiscal incentives such as factors: stoves, fuels and users. The policy consumer subsidies while dirty stoves are still mix of incentives and regulations should allowed to be manufactured with no plan consider how they impact any of these to phase them out. Minimum performance factors. Fuels should not be ignored. For standards for stove-fuel combinations example, Baganuur coal use in traditional need to be established and approved by stoves has been shown to double the relevant authorities – and these should emissions compared to Nalaikh coal in apply equally to local products and imports. traditional stoves. There are also practical Enforcement of the policy to apply these considerations – it is not realistic to expect standards will also need a comprehensive households who recently switched their set of supportive measures to prevent the stove, to switch again just because there production, sale, and use of dirty stoves, is a new fuel. and to encourage the production, sale and Stove emissions testing – the result use of clean stoves. of burning the fuel in the stove – is Eighth, appropriate sequencing of critical to informing policy makers. Effects policies is needed and this strategy of different models or fuels need to be includes a roadmap for its implementation. known before substantial public funds are Additionally, monitoring and evaluation allocated. Unlike many countries, Mongolia early and often is needed to ensure the benefits from having a local laboratory, mix of new policies is achieving desired the Stove Emissions and Efficiency Testing results. Every strategy has inherent risks. Laboratory, that is owned by the Mongolian The key risk of the strategy is the lack of University of Science and Technology response from the private sector. Very to carry out performance tests locally. close cooperation and consultation with However, these tests are conducted in a the private sector in calibrating the rules of laboratory setting following user manuals the game for the next phase of Mongolia’s strictly – this is not typical user behavior. clean stove initiatives will be needed. Field tests could be conducted to help Another risk is the lack of political support understand the differences. The SEET Lab is for a continued program – the rapid encouraged to provide such caveats in the success rate may incorrectly signal “mission report based on its judgment on the ease accomplished”. The role of the NCAPR Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 15 should address these views and ensure stove switching program, the strategy adequate awareness of the issues. The addresses ‘sustainability gaps’ that prevent NCAPR should continually review policies the full transformation of the market to adjust to changing market dynamics, for cleaner stoves. This includes national user preferences and program experience. expansion, revising and gradually enforcing stove and SWHB standards, revamping Ulaanbaatar is the coldest capital in fiscal incentives to help import needed the world, it does not need to be its most polluted spare parts and materials, supporting local producers including developing The main economic benefit from their skills for repair and maintenance of implementing the strategy is the fact new technologies, revising the consumer that the current level of health benefits subsidy mechanism and phasing it out over in Ulaanbaatar can be maintained and three years, and sharpening messages in a does not deteriorate, despite population strengthened public awareness campaign. growth. The largest cost element of Monitoring and evaluation should be a implementing the strategy is the subsidy norm at the NCAPR and UB city. All these itself. The average 2009 economic costs of actions would add up to a better and more air pollution have been estimated at almost sustainable effort to build up a sustainable US$ 2000 per household. The benefits clean stove market in Ulaanbaatar. If of USD 52-96 million per year (mean of successful, cleaner, low emissions stoves 74 million) as estimated under the 80% will allow citizens of Ulaanbaatar and other AMHIB scenario are equivalent to USD 211 cities breathe easier during winter months. per year per household in Ulaanbaatar. The actual one-time subsidy paid so far ranged from US$ 250-350 per stove: this level of costs is far below the annual economic benefit obtained from using these stoves. Annex 2 of this strategy provides additional economic analysis. While stoves are only part of the answer to solving Ulaanbaatar’s air quality problems, the analysis in this strategy lead to a conclusion that a higher share of the urban population needs to have access to cleaner stoves in order to sustain and increase their contributions to air quality improvements especially in Ulaanbaatar. The strategy calls for not only expanding to other urban markets but also for introducing and enforcing standards for small water heating boilers, which have received little attention thus far. It recognizes there are links between stove markets in Ulaanbaatar and other aimag centers. This can be a threat, but it can also be an opportunity as described above. Building on the strengths of the current 16 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Chapter 1 - Introduction U laanbaatar is the coldest capital b) medium-term measures include of the world and it is also one of encouraging people to live in the most polluted. Coal and wood apartments, construction of university burning for heating of individual residences campuses, relocation of factories, and in ger areas, although essential for survival, enhanced surfacing of roads; and contribute about 60 percent of the annual c) long-term measures include cleaner fine particulate (PM2.5) concentrations in and larger power and heating plants, the city4. The remainder of the emissions more apartment buildings and greening comes from the CHP and HOB exhaust of the city through parks as well as a stacks, and suspended wind-blown dust. more comprehensive and efficient road Observed high levels of exposure in the network. winter season are extremely harmful One of the key short-term measures to health and exceed World Health is provide access to clean and affordable Organization (WHO) standards many- cooking and heating appliances, especially fold5. for poor, peri-urban residents who use With the objective to reduce Ulaanbaatar stoves for cooking and heating in winter. air pollution, the MUB laid out short-, The World Bank’s study (World Bank 2011) medium-, and long-term measures (Smoke estimates that a relatively rapid reduction Free Ulaanbaatar, March 2010, Resolution of 80% of emissions from ger area 81) heating could achieve a 48% reduction in a) short-term measures include population weighted exposure to PM2.5. implementing a population remigration The total estimated associated economic policy; relocating the central market, benefits (World Bank 2011) in terms of the railway’s freight terminal, and avoided health damage are estimated at some factories and offices; to replace 144 million USD per year. To achieve this, most firewood and coal heating poor households need to permanently stoves used by households in ger switch to less polluting heating solutions, areas of Ulaanbaatar with a variety an effort that will require a multi-year, of alternatives (such as briquettes of coordinated set of policies and programs. compressed sawdust, processed coal, Medium and long-term action will be semi coked coal, electricity – and required to make these improvements in air cleaner stoves); use electric appliance quality permanent, by moving away from at night using a special electricity tariff individually heated homes and relocating in certain parts of the ger areas; and industries. to start the supply of gas from coal as Traditionally used stoves and coal government’s main policy. fired stove-furnaces (called Small Water 4 Air Quality Analysis of Ulaanbaatar Improving Air Quality to Reduce Health Impacts; World Bank, December 2011 5 The highest average daily concentration of PM 2.5 in 2009 was over 4000 μg/m3, compared to average annual concentrations of 75-150 μg/m3 in the city center to 200-300 μg/m3 in ger areas. The Mongolian annual ambient air quality standards are 50 μg/m3 and 25 μg/m3 for PM10 and PM2.5, respectively, while the WHO interim targets for developing countries are 70 μg/m3 for PM10 and 35 μg/m3 for PM2.5. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 17 Heating Boilers or SWHBs) used by households with SWHBs burn up to 3 times wealthier households are the main sources more coal than gers in a winter season. of the severe ground-level wintertime The overwhelming majority of pollution. Households use a stand-alone, households in the ger areas of Ulaanbaatar hybrid heating/cooking stove in gers and (peri-urban settlements surrounding the small, wooden or brick detached houses. city), however, are poor, and use stand- Traditional stoves are quite dirty. They emit alone stoves or stoves connected to a as much as about 600-700 mg PM2.5 per heating wall. The poor population continues net MJ when using Nalaikh coal or about to grow as job prospects in Ulaanbaatar 1400-1500 mg PM2.5 per net MJ when using attract more migrants from the rest of Baganuur coal. In larger houses, these stoves the country. The influx of new entrants can be attached to a heating wall (HW). was some 30,000 persons annually from The emission performance when stoves are 2006-2008, and official statistics show attached to a heating wall has not been that for every nine persons entering measured, but it is expected to be similar Ulaanbaatar one left over the period from to that of stand-alone stoves. Additionally, 2000 to 20086. The large number of new in even larger detached houses, households people entering Ulaanbaatar as well as use small water heating boilers (SWHBs) the number of people upgrading their with rudimentary radiator and hot tap homes continues to pose challenges for air water systems. Emission performance of pollution reduction. SWHB has not been carried out yet but Box 1: Terminology In this report, the term “clean stoves” and “low emission stoves” are used interchangeably, so are “dirty stoves” and “traditional stoves”. Traditional stoves: rectangular steel stoves, originally designed for burning wood. With Nalaikh coal, the SEET lab showed that traditional stove emit about 600-700 mg/net MJ of PM2.5; with Baganuur coal this is 1400-1500 mg/net MJ. Low emission stoves: They emit less than 70 mg/net MJ of PM2.5, or a 90% reduction compared to traditional stoves operating on Nalaikh coal. Heating wall: a hollow, heat retaining wall that is connected to the stove, consisting of a combination of horizontal and vertical flue channels. Small water heating boilers: also called low pressure boilers. These are stoves with a heat exchanger and are used in somewhat larger houses; the working fluid is water that circulates through pipes and radiators to heat the house. More expensive systems use pumps to circulate the water, while others use the thermo syphon effect. The Mongolian Government and UB towards achieving penetration of clean Municipality’s request for a stock taking stoves and better air quality. However, re- of the stove program and preparation of sale of low emission stoves to households a draft national clean stove strategy is outside Ulaanbaatar has been observed and very timely. Mongolia’s recent experience is seen as a major risk to these achievements. with stove switching provides valuable This report finds other ‘sustainability gaps’ experiences and lessons. The program thus that put the program at risk. Yet, it also far has made significant contributions finds that it is not too late to adjust the 6 Capital Statistics Department; taken from the Air Pollution Costs of Ulaanbaatar, 2013 18 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy program’s design to transform the stove market. This strategy has three sections following this introduction. Chapter 2 is an analysis of strengths and challenges of the stove switching programs. Chapter 3 presents the strategic objectives and plan. Chapter 4 presents a road map for implementing the strategy. The strategy relies on several missions observing Ulaanbaatar stove market as well as one mission conducting a rapid assessment of the stove market outside Ulaanbaatar. In particular, the strategy relies on the findings of a 1000 household survey (referred to in the report as the CSI survey) in the ger areas of Ulaanbaatar as well as the rapid assessment in areas outside Ulaanbaatar. The findings are published in Mongolia: Heating Stove Market Trends in Poor, Peri-Urban Ger Areas of Ulaanbaatar and Selected Markets Outside Ulaanbaatar (December 2013) and translated into Mongolian. The 1000 household survey made use of a similar 1000 household survey conducted by the Bank in 2009 (before any major stove switching program). These two surveys help to detect and describe impacts of the stove switching program on the market and user characteristics. The Survey’s findings are reflected in this analysis. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 19 Chapter 2 – Strengths and Challenges of the Low Emission Stove Programs in Mongolia A n analysis of strengths and challenges of low-emission stoves and applying better is helpful analytical approach to insulation in gers and houses, and the organize the myriad of lessons and replacement of several poorly performing experience on stoves generated since 2011. HOBs. There are clear overlaps, depending on the As a result of previous efforts, the perspective - a challenge can be turned switch out of stoves is a big success as into an opportunity. Missed opportunities a large number of households have been can turn into risks to the benefits gained reached. In total as result of all supporting from the current stove switching program. activities combined, some 110,000 low- Therefore, it is important to understand the emission stoves have been supplied (out of context in which the analysis is conducted. a total of about 170,000 ger households. Thus, this introductory section summarizes What is more, as reported by NAMHEM, the history of the stove switching program general pollution levels were some 30% from 2009 and compares and contrasts lower in January 2013 compared to the year different phases. The analysis follows. before - despite population growth: there Based on the analysis, it is clear that is measureable reduction in air pollution as Mongolia is at a critical crossroads. Policies a result. can help Mongolia complete its stove In order to continue the momentum market transformation or risk a rebound toward a sustainable market transformation of traditional stove use in Ulaanbaatar, to low emission stoves, a new stove overturning difficult-to-obtain health switching campaign started in October benefits. 2013, which takes into consideration of As part of a major short-term experience and some lessons from past effort to reduce outdoor air pollution programs and the stocktaking survey. The in Ulaanbaatar, the donor community program is implemented by the Municipality organized small pilots in 2009-2011 and of Ulaanbaatar and supported by the Clean established a stove emissions laboratory. In Air Foundation and the UBCAP project7, 2011-2012, Millennium Challenge Account with a goal of disseminating 45,000 stoves (MCA)-Mongolia financed a scale- during this winter. If all stoves are sold, up of its pilot program in selected sub- the overwhelming majority of households districts (khoroo) of the five districts that in Ulaanbaatar will then have a stove that comprised Ulaanbaatar City’s Air Pollution is significantly cleaner than the traditional Reduction Zone. This mainly consisted of model. Those without are either very recent the provision of subsidies for the purchase new entrants or households with a SWHB. 7 Ulaanbaatar Clean Air Project; The Project Development Objective of the Ulaanbaatar Clean Air Project is to connect consumers in ger areas of Ulaanbaatar to heating services producing less particulate emissions and to develop selected medium-term particulate abatement measures in Ulaanbaatar. The UBCAP has three components: A. Ger Area Particulate Matter Mitigation; B. Central Ulaanbaatar Particulate Matter Migration; and C. Public Awareness Raising, Program Coordination and Project Management. The results of the project will be measured by: (i) coverage of remaining HHs with eligible stoves; (ii) the number of studies for medium term pollution abatement measures prepared; (iii) number of days an air pollution coordination mechanism is functioning. 20 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Compared to the past programs, a few training households in proper use of the modifications were made to the approach stove is strengthened through the use of in this program starting in winter 2013. First a third party which visits households twice and importantly, the stove switching is now (once upon installation and once after managed by Ulaanbaatar city itself (for the a few months). The third party ensures first time). Second, the stove performance households are trained in using the clean criteria are published and stove models technology and indeed are still using the solicited for eligibility testing8 through an stove after a few months. Fifth, there is open competition. The origin of the stove a strong partnership between JICA and is not relevant, as long as it satisfies the the Ulaanbaatar City and the World Bank published performance criteria. Some 15 in coordinating support to strengthen air different stove models were proposed quality management, which is essential for by 11 suppliers, among which were 8 monitoring the most important result of the Mongolian producers. Only four stove stove switching – reduction of exposure models satisfied all criteria and although to harmful ambient concentrations of only one was locally manufactured, it particulate matter. was the first time a Mongolian stove was The UB city has set a target of 45,000 eligible. These stove models are able to low emissions stoves, partially supported reduce PM2.5 emissions by as much as 95% by UBCAP, and as of January 22, 2014 - if the stoves are used properly. Although and as of January 22, 2014, over 29,710 the stoves are still priced at low levels, orders were made after the formal start of and below the price of a traditional stove, the program on October 7, 2013, of which they are more expensive than in the past. 25,193 households have already made Third, the stove program focuses resources payment and 21,206 have clean stoves on building capacity in a local laboratory installed already. which could provide objective information on stove-fuel emissions performance. Strengths of the Low-emission Stove Switching Program and Low-emission Third, the previous program did not stove Market Opportunities support the laboratory, which had been designed under a cooperative project The eight key strengths of the stove financed by the Asian Development Bank switching system are: with the World Bank and the Ministry Strength 1: Government policies support of Mineral Resources and Energy. This a market-based, results-focused laboratory now receives support from approach to market transformation. the UBCAP project and the Mongolian They reward results and promote University of Science and Technology’s quality products. Institute for Heating and Industrial Ecology. The stove replacement program It is a source of scientific information for is results-based, providing consumer policy makers to understand the emissions subsidies that disbursed only upon sale performance, and therefore potential and verified installation of eligible stoves. impact on air pollution reduction, of The Government has also done a good job proposed new fuels and stoves. Fourth, letting the market know that the currently verification of installation and support on 8 Main criteria: power of stove > 3 kW; max PM2.5 emission of 70 mg/net MJ; max CO emission of 7 g/net MJ; and thermal efficiency > 70%. The monthly production capacity was another criterion. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 21 high subsidies are temporary. not captured in official statistics, this is a The results-based approach allows penetration rate of 65% of the estimated for competition among producers on the market of 208,400 stoves for gers/houses basis of the quality and attractiveness of and stoves for heating walls. their product. It avoids major problems Strength 3: Average particulate matter associated with other approaches such concentrations in winter months have as government procurement of stoves decreased in Ulaanbaatar. (i.e., when the government makes the As shown in Figure 1, Government choice for consumers when it procures of Mongolia’s statistics show that PM2.5 stoves which goes against the principle of emissions in the first four months of the consumer choice) or giving away stoves for year have considerably decreased between free (although the current subsidy brings 2011 and 2014. Monthly average of the down the price to very low prices it does most harmful, PM2.5 fine particulates was not give stoves away for free). The market reduced by 20% - 50% in peak cold winter based approach places government in the months of January and February, and by appropriate role of ensuring standards 20% - 30% in the end of winter months of are met to achieve public policy objectives March and April. This is measured in the UB2 (lower emissions from heating, and safety), station located West cross road /Baruun and the private sector in a role that is its 4 zam/ along Peace avenue that is the competitive advantage – selling attractive, only station that consistently has recorded innovative products to the market. PM2.5 data at a rate of up to 3000 points Strength 2: The stove switching initiative per month. There is only one other station yielded rapid and high penetration of that measures PM2.5, UB4 station that is low-emissions stoves. located near East Cross Road /13 Khoroo, As noted above in 3.5 years by January but data are only intermittently available. 2014, 135,193 stoves were purchased and For a more consistent and meaningful 131,206 stoves have been installed, which analysis, more stations throughout the city is an impressive penetration rate by any will need to start monitoring fine particle measure internationally. Taking into emissions. account the estimates of additional stoves Figure 1: Comparison of ambient PM2.5 microgram per m3 from 2011 - 2014, UB2 station 500 PM 2.5 (station UB2) 450 400 350 300 2011 250 2012 200 2013 150 2014 100 50 - Jan Feb Mar Apr Source: NAMHEM, 2014, adapted by UBCAP Project Coordinator 22 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Strength 4: There is a proven and are in-kind contribution by households reliable supply chain for low-emission towards the purchase of the stove and are stoves. The supply chain includes removed by stove producers when new reliable suppliers, Product Centers, stoves are installed in households. Stoves a screening system for suppliers and are collected by an agent that ships them models, and a verification system for to the steel mill in Darkhan where they are quality assurance. destroyed and recycled for scrap metal. Product Centers (PCs) are government- The system can be improved to avoid financed and private sector-managed sales households providing spare stoves rather centers set up exclusively for the sale of than their primary ones and ensuring more eligible stove products. They also provide systematic disposal of the stoves, the marketing and other product information. system is important to remove products The high sales figures show people trust that threaten public health. the system and rely on it to provide reliable Strength 6: There is local experience products and information. Suppliers also and management capacity in managing trust the system because they sell products large-scale, market-based, results- through it. A transparent screening system focused distribution of stoves. of suppliers and models strengthens perceptions of reliability. Currently, clear This capacity did not exist before. The and publicly available stove and producer National Committee on the Coordination eligibility criteria, supported by emissions (NCAPR) of Air Pollution Reduction in tests at the Stove Emissions and Efficiency Ulaanbaatar, the MCA program staff and Testing laboratory, are used by the contractors, the Clean Air Foundation Ulaanbaatar city. A verification system for under the chairmanship of the Ministry quality assurance includes: (a) confirmation of Nature, Environment and Tourism, the of installation and training in the use of UBCAP Project Management Unit (PMU, stoves at each household, recorded by which has hired some of the same staff SMS in an electronic database by the and contractors), suppliers, and consumers private sector PC manager and by written now have awareness and experience in documentation by an independent Quality stove switching. Importantly, the leaders Assurance Agent hired by Ulaanbaatar city; in the NCAPR are now using elements of (b) confirmation on the use of the stove by the program, including the Stove Emissions the Quality Assurance Agent by a second and Efficiency Testing Laboratory visit to households and reporting back to Strength 7: Though small by the Ulaanbaatar city; (c) regulations and a international standards, there is a system of penalties, included in a Producers sufficiently large market nationally Agreement signed by each eligible Producer that should attract good quality private with the Ulaanbaatar city, for sales of sector participation. poor quality products and failure to rectify Altogether, it is estimated that the failures. total potential market size of low-emission Strength 5: There is a system for stoves (including small water heating removing old, polluting stoves. boilers) is 500,000 in Mongolia, which is not large by international standards but can The government has an interest in be sufficiently large to attract good quality removing traditional stoves from use private sector participation. This excludes because they are heavily polluting. Stoves the number of stoves that needs repair and Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 23 maintenance each year. The estimation for statistics suggest. Stoves across Mongolia each category is specified in Annex 1. In can be categorized into the following three summary, according to XacBank’s records, groups of household heating stoves: (1) in as of Oct 2013 there are still about 64,000 Ulaanbaatar, “non-primary” stoves10 (other households without low emission stoves stoves used by households who already installed as their primary heating appliance use a low emission stove as their main in Ulaanbaatar, of which 17,100 in gers stove) or primary stoves in “non-eligible” and small houses, 27,400 in houses with households11 (generally, households without heating walls, and 19,100 in houses with proper registration or those that live in SWHB. a hashaa where a household has already Based on discussions with stove program received a subsidy for a low emission participants, there are more traditional stove); (2) heating stoves in other towns stoves in use within Ulaanbaatar that these (Aimag, Soum and Bag Centers); and (3) heating stoves in herder households. Table 2: Households with a low-emission stove, October 2013 ('000) Total in Ulaanbaatar With low-emission % remaining without stove Total nr of households 350 Na Na Ulaanbaatar Apartment 175 Na Na Ger 76.5 73.0 19% (or 17.1) House 13.6 house with HW 54.3 26.9 50% (or 27.4) house with SWHB 19.7 0.6 97% (or 19.1) Source: XacBank Strength 8: Stove suppliers report there higher cost ones due to the high subsidy are lower cost models that can be sold program. nationally. In early May 2014 one company has Based on consultations with stove established an assembly plant in Ulaanbaatar suppliers, it is likely that eligible models with a daily production capacity of about could be supplied at a lower list prices. 300 stoves per day. The plant assembles According to these discussions, lower-cost clean stoves from imported parts that models exist in the price range of 150 USD. cannot be produced in Mongolia, and is Suppliers indicated their interest to submit able to spray paint and finish with enamel. such stove models for testing to the SEET It expects to sell eligible stoves for around laboratory in the future. However, they USD 130. reportedly held back these models favoring 10 A primary stove is the main heating source for the household’s main residence. If the household has more than one dwelling on the hashaa, it also has secondary heating sources that would not be eligible for financial support. A summer house with a heating stove is also considered a secondary heating stove. 11 Households not officially registered with the Khoroo or municipality; multiple households sharing the same hashaa have been ineligible under the previous stove dissemination efforts are eligible to receive financial support under the UBCAP program. 24 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Challenges of the Low-emission stove Challenge 1: Demand in all stove market Switching Program and Threats to the segments continues to increase and Low-emission Stove Market shift toward higher energy consuming units. Generally, despite the excellent results of the stove replacement efforts in Changing demographics and household Ulaanbaatar and its positive impact on air dwelling situations are driving continued quality, there are significant weaknesses in growth in all stove market segments, the program that threaten to stop and even whether stoves for individual homes, stoves reverse the obtained benefits. An analysis for heating walls, or small water heating of the following risks of the program also boilers. This is an opportunity as well as a offers insights into possible solutions. threat to the program. In 2012, compared with 2007, the markets have grown in absolute numbers and have changed in line with evolving household preferences for larger and more comfortable housing, driven by rising incomes. Box 2 Low-emission stove market segments In order to successfully meet market demands, market segments need to be clearly defined. Markets for heating appliances, both in and outside Ulaanbaatar, consist of three distinct market segments: (i) stand-alone stoves used in gers (felt tents) and detached homes (made from wood and/or brick, occasionally with two levels, often poorly insulated); (ii) stoves attached to heating walls in medium- size detached homes; and (iii) SWHBs in larger detached homes with radiators and/or piped hot water systems in most rooms, which is the high-end of coal-fired heating appliances. Households in general use their heating stoves for most of their cooking, especially during the winter months, although some households with SWHBs also have another cooking appliance. From 2007-2012, the number of are the largest (73 m2). households in the six central ger area With more wealth, households move districts has grown by 36 percent or into larger dwellings and upgrade their 43,990 households. In the same period, heating systems. This is important because the average size of dwellings has increased fuel use correlates with dwelling size: ger in all market segments, correlating with homes reported using 3.9 tons of coal per increases in income. According to the CSI year, compared to 4.84 tons for homes household survey, about 44 percent of with heating walls and 6.3 tons for homes households have a ger in their hashaa (a using SWHBs. Heating walls continue to be small fenced-in plot), about 42 percent the most common form of heating system, have a detached home of one or two levels, although the proportion of detached and about 14 percent have both a ger and homes with heating walls dropped from 70 a detached home. The average floor area percent in 2007 to 62 percent in 2012. This of a five-walled ger is 28m2. The averaged market share was almost entirely taken by detached house without a heating wall that SWHBs, which increased from 16 percent relies on a space-heating ger stove has a to 23 percent. Homes with stand-alone living area of 39 m2. The average home stoves without heating walls, a step above with a heating wall is slightly larger, with living in gers, maintained a stable share an area of 41 m2, and homes with SWHBs at 15 percent of total detached-home households. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 25 The CSI survey furthermore shows that and CAF. However, it has encountered around 67% of traditional stove users are production issues. Low capacity of local interested in switching to a low-emission production is a function of a lack of interest stove and that fewer households are from serious private sector investors, who buying traditional stoves—the average age need a stable regulatory environment and of traditional stoves in use by households confidence in the viability of the market of has risen significantly to 9 years, from low-emission stoves and SWHBs. 6 years in 2007. Because stoves have an Current low-e stoves are very high average lifecycle of 10 years, many of quality generally. Lower priced models the remaining households with traditional might have less appealing finishes or other stoves will likely buy replacement stoves features. A transition to a sustainable in the near term. There continue to be market without subsidy may require an large, un-served segments of the ger-area adjustment in consumer expectations in market that use relatively more coal. what they get for their money. However, In summary, when incomes rise, the private sector is innovative and may households want larger homes and deliver very high quality at lower prices, more comfortable heating solutions, i.e., if given a chance to do so. Changing the more heat, less refueling, lower fuel subsidy model may therefore trigger strong consumption. Efforts to promote cleaner resistance from both users and suppliers of air in Mongolia should take this into low-e stoves. The appearance of a local account by providing low-emission heating assembly plant appears to proof this point. solutions for all different market segments, Challenge 3: There are high transaction not just individual stoves. costs relative to market size outside Challenge 2: There are no qualified Ulaanbaatar, challenging the viability local stove models produced at scale of local production of low-emission thus far and consumers are now used to stoves outside Ulaanbaatar. very high quality products at distorted The structure of the stove markets low prices. Resistance from current outside Ulaanbaatar is similar to those in low-e stove suppliers to changes in the Ulaanbaatar, but they are of a smaller scale subsidy mechanism can be substantial because it would introduce competition, and more dispersed in nature. This seriously force a change to the business model, challenges the viability of local production and perhaps require them to switch to of low-emission stoves, unless models are different stove models to meet prices redesigned to significantly lower production that households can afford without and supply costs. Stoves are currently high subsidies. supplied by artisanal producers, who would There is a risk of traditional heating have difficulties ensuring consistent quality stoves out-competing higher priced when producing at large scale needed to low-emission alternatives, reversing the address the growing concerns over air tremendous penetration of clean stove pollution exposure in the provincial capitals technologies. In the absence of continued (aimag centers) and larger soum centers. subsidies, most households in need of a stove will revert back to purchasing traditional stoves. As noted above only one model was selected under the Ulaanbaatar city’s program that is supported by UBCAP 26 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Challenge 4: Technical capacity and the stove market in Ulaanbaatar and materials for maintenance of low- markets in other cities, especially the aimag emission stoves are at risk after centers. Most stoves or stove parts are warrantee periods are over sourced from Ulaanbaatar. This suggests The imported low-emission stoves are that the a scaled-up clean stove program expected to have a useful service life to reach areas outside the capital will of 5-10 years. Some parts of the stoves depend on Ulaanbaatar as a supply base cannot be produced in Mongolia and be useful in creating a sustainable supply must be imported. Current low-emission of low-emission stoves in Ulaanbaatar. In stove suppliers are expected to provide addition, linkages flow both ways -- even a minimum of 2 years of warranty, but if traditional stove makers in Ulaanbaatar during this period stoves are expected to go out of business, producers outside perform properly. Maintenance is expected Ulaanbaatar could potentially fill the to be needed when the stoves mature in market with cheaper, traditional stoves the future and solutions should be found when subsidies on low-emission stoves are for the lack of imported spare parts. lifted. Entrepreneurs supplying traditional Some of the low-emission stoves initially stoves before could possibly provide the purchased by households in Ulaanbaatar necessary skills, spare parts inventories, will flow out of the city through resale and eventually replacement stoves allowing markets, and that those households are for repair and maintenance of low- most likely to buy traditional stoves as emission stoves in Mongolia. This additional replacements if they are unable to access business could help to them to refrain affordable clean stoves. A visit to Narantuul from producing traditional stoves, or could market found 20-30 low-emission stoves help them survive if the manufacturing of of all models for sale in October 2013. traditional stoves will be prohibited. This Retailers indicated that most of these will maintenance and repair infrastructure is be sold to households in the country side missing at the moment but will need to (especially commercial properties like guest be developed so that the supply and use houses); observed prices for these stoves of low-emission stoves has a chance to were 60-75% of the unsubsidized price of become sustainable. It is likely that skills the stove. Even if they sell 20 low-emission of the artisanal producers throughout stoves per day, this would only represent a the country would need to be upgraded leakage of about 6%. through training in order to supply these Challenge 6: Despite training, technical services. consumers have a hard time breaking Challenge 5: Stove Markets, including traditional fuelling/cooking habits the low-emission stove resale market, in when using low-emission stoves. and outside Ulaanbaatar are intricately Improper use of new stoves increases linked their emissions. While they don’t have to, new models do not necessarily take Like stove demand, linkages between into account traditional habits and this markets are both an opportunity and a requires more training and awareness threat to the low-emission stove market efforts. in Ulaanbaatar. Results of the rapid Emissions performance depends heavily assessment of markets outside Ulaanbaatar on consumer practices and preferences. indicate that clear linkages exist between Indeed, not all households with a low- Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 27 emission stove know how to use it properly. of the stove development, marketing, This is understandable as new technologies and stove replacement initiatives. The ger can require a change in behavior. An household heating and cooking preferences education and awareness campaign should and habits can inform the development, be continued so that all households with a market entrance, or introduction of new low-emission stove start and continue to stove types. New technologies are more use it properly. Households are receptive readily accepted by ger-area consumers— to awareness campaigns, as illustrated and more properly used—when they align by the fact that when there were a few more closely with the traditional patterns exploding heating walls, the intensified of cooking and heating behavior. awareness campaign was very effective Apart from producing less pollution, in passing the right messages and even low-emission stoves are also seen by households outside Ulaanbaatar - without their users as saving fuel, one of the low-emission stove - had understood the characteristics that consumers ranked as main messages of this campaign. being most important in their preferences Based on observations made in the for stoves. However, while about two- World Bank study, spikes in particulate thirds of low-emission stove users in the matter concentrations correspond to the survey were satisfied with the ability of their fuelling and re-fuelling cycle - most of new stoves to heat their homes, the same the pollution stems from cold-starting the was not true for cooking. Only 52 percent fire and refueling the stove. Therefore, of low-emission stove users agreed their knowing how to do this properly this can stoves were easy to cook with, compared considerably help to reduce emissions. The to nearly 90 percent of traditional stove user of the stove is thus also important, users, and during the winter, households or his/her behavior, and educating and with low-emission stoves tend to cook informing users should be part of any more with electric hot plates (33 percent) program to promote low-emission stoves. than traditional stove users (13 percent). Even if the users’ instructions explicitly state Among the top difficulties perceived by that pollution can substantially increase if users of low-emission stoves are the need a fresh load of coal is placed on top of to make a fire twice per day (70 percent the burning coal, users may be inclined to compared to 45 percent of traditional do so in an effort to extend the heating stove users), difficulties with refueling period. They should be made aware that the (60 percent compared to 42 percent of stove they bought has certain operational traditional stove users) and time required aspects that need to be adhered to, and to heat dwelling (44 percent compared it may take time and effort to have this to 25 percent of traditional stove users). message sink in. This is particularly important because the Inasmuch as improper use is a threat, survey results also indicate that the ability it is also an opportunity – although four of the stove to heat a room and stay warm different types of stoves are offered (meaning also less refueling, not a popular in the current program, room for more task) is seen as its most important aspect competition exists. Naturally, consumer by consumers. preferences must guide stove development and marketing of clean stove technologies. Consumer cooking and heating habits heavily influence the emissions performance 28 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Figure 2: Perceived Difficulties with Using a Low-emission Stove Have used low emission stove Haven't ever used low emission stove Stove must be cold-started twice a day 70% 45% Can't use large pot to boil water or 64% 48% Stove can't be refueled easily 42% 60% Can't use stove to boil water or cook 51% 41% Haev to read instructions to use 48% 62% Stove is slow to warm up dwelling 25% 44% Stove has a small firing chamber 36%43% Fuels used by house hold don't match 43% 36% Stove can cause heat wall to blow up 32% 44% High price of stove 31% 41% Don't know where to buy stove 25% 58% Stove is difficult to install 25% 40% Stove is difficult to operate 21% 26% Increased fuel expenditures 18% 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% percent of respondents who agreed One way to increase comfort levels in market can respond with clean solutions. detached houses is to install a heating wall. In sum, while the current low-emission Low-emission stoves can be attached to a stove offerings have been accepted by the heating wall with appropriate connecting market, a wider range of product offerings pipes. The Municipality of Ulaanbaatar will be needed to maintain the program’s carried out a research on the construction penetration rates, while heating wall stoves of heating walls and the safe installation of and SWHBs need to fully be incorporated. low-emission stoves connected to heating walls. Different internal configurations of Challenge 7: Regulatory gaps and the heating wall’s flue channels exist and lapses in policy coordination on low- emission stoves. some are not suitable for connecting to a low-emission stove. The research found The current Mongolian stove emission that there are simple technical solutions standards have been adapted from to ensure the safety of the users. MUB European stove standards that are far is encouraged to currently identifying more restrictive than the standards that how this knowledge can be transformed were replaced. However, eligible stoves out into enforceable regulation, for existing perform these new standards. This would, heating walls as well as heating walls to be at least in theory, allow stoves to be constructed. sold that perform less well than the low- SWHBs are not well researched in emission stoves that are currently used. Ulaanbaatar and there are currently no Traditional stoves that do not meet the old clear criteria for “clean” SWHBs. A recent or the current standards are still allowed initiative involved the government directly to be sold in the market. Once sufficient supplying new, “clean” SWHBs which was and affordable alternatives are available, not successful and has been stopped. New the standard should be enforced. Thus a criteria need to be developed so that the considerable effort to replace traditional stoves with low-emission stoves is made Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 29 less effective because traditional stoves performance can only be tested reliably remain available for those who want to in a well-equipped laboratory that uses a purchase it. standard testing protocol to characterize Also, the increased use of small the performance of the stove according to water heating boilers (SWHBs) requires the user instructions and in relation to the urgent attention as there currently are fuel used. no clear emission test results and market Most of the PM emissions come studies which can identify the emissions from starting the fire or refueling it; a performance criteria that would define “low continuously fueled stove would most emission SWHBs”. Once defined, regulations likely have lower PM emissions than a and incentives could be designed to phase batch fueled stove. As soon as the stove is out unqualified SWHBs and promote low- hot and the fire is well established, most emission ones. SWHBs are like coal fired stoves emit only very limited PM or none furnaces distributing hot water through at all. Thus, being able to easily start the pipes. Some SWHBs are pre-fabricated fire - and knowing how to do this - are in China while others are made by local two important elements in reducing air artisans; there is no information about pollution. Some stove models are able to their PM emission performance. SWHBs do this better and easier than others, and are completely different technologies than it is therefore important to use only stove stoves and need to be tested and evaluated models that have shown to be able to burn separately to set minimum requirements with low emissions in standard laboratory for their emissions performance in the tests . next phase of stove replacement activities. It also matters which fuel is burnt in the While there is an emerging consensus stove. As an example, after the Government among policy makers to base decisions on recently closed the Nalaikh mines, most scientifically determined laboratory testing households started using Baganuur coal. of stove-fuel emissions performance, Unfortunately, Baganuur coal burns some policies remain unsubstantiated less cleanly than Nalaikh coal: the SEET or contradict each other. Emission laboratory showed that the traditional stove performance of different fuel-stove roughly doubles PM2.5 emissions. Depending combinations varies and reliable laboratory on the number of traditional stoves in use, emissions performance tests are essential this may have negative consequences on to determine their potential contributions air quality in Ulaanbaatar. Currently tested, to air pollution reduction objectives. The low emission stoves will also be affected, impact that low-emission stoves have on though less so than traditional stoves. air pollution essentially depends on three Some low-e stoves remain very clean and elements: (i) the stove; (ii) the fuel; and can still reduce emissions by over 90% (iii) the user. The combination of the three compared to a traditional stove using determines how cleanly the stove performs. Nalaikh coal.The “+90% criteria” is one of A fourth element exists that however is the eligibility criteria for support under the not considered in this strategy: insulation current stove switching program. However, and heat retention characteristics of the after switching the dominant coal type, dwelling. Emissions performance test results one of the low-emission stove models that may differ from reality, when stoves are had been widely sold, could not any longer used by households due to a lack of user meet the +90% criteria. As a result, it is education and ingrained habits. Emission not supported in the current phase of the 30 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy stove switching program. If policies to introduce alternative fuels such as semi-coke coal are pursued, it is imperative that the alternative fuels are tested for emissions when burned in a stove and that the results are made public. This information helps evaluate estimated impacts on emissions against program costs. Mandating new fuels may also require introducing new types of stoves that are designed specifically for those fuels. If the right stove is not paired with the right fuel, emission reductions will differ. So far, the government has provided significant support to alternative fuel producers (especially for semi-coke coal). Yet, the CSI survey reveals that only 5 percent of all households reported using semi-coke coal on a regular basis. These include only 49 percent of households in the Bayangol District where raw coal is formally banned. Comparatively, 98 percent of households in the six districts report using raw coal, while 6 percent burn dried animal dung. In summary, support for different possible air pollution solutions should be based on PM emission performance of fuel and stove combinations, in addition to quality and fuel consumption criteria. However, air pollution performance is more stringent and takes precedence over other criteria, which are normally satisfied for well designed and built stoves. Households should continue to be reminded that their stoves need to be operated appropriately to minimize emissions and maximize fuel efficiency. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 31 Chapter 3 - Transforming Mongolia’s Stove Market M ongolia’s stove market is at a also moves Mongolia closer to providing crossroads – clean stoves have universal access to clean cooking energy been purchased by 64% of especially to urban areas, complementing Ulaanbaatar’s ger and heating wall market, its other successful initiatives of providing but the use of traditional, polluting stoves access to electricity to 100,000 herders and SWHBs can easily increase without through the provision of solar PV home a comprehensive strategy of completing systems. the transformation to a low-emission The strengths of the successful stove technology stove market. This chapter switching program in Ulaanbaatar should be presents the proposed strategy to move maintained with modifications addressing towards a sustainable low-emission stove its weaknesses and characteristics of a market. Since the approach for reducing national program. In summary, the design PM emissions from heating stoves and of the national program should: from SWHBs is similar, they are examined a) Enlarge low-emission stove market If simultaneously. the total number of traditional stoves Expand the stove switching program in the country is taken as an indication nationally for the potential low-emission stove There are three main benefits in market, this could be an interesting developing a sustainable supply chain of market to supply. The total number of low-emission stoves and extending the low-emission stoves that potentially switch-out program to the entire country: can be sold is larger than the number (i) Sustain air quality improvement benefits that has been distributed so far, see in UB; (ii) Expand access to clean stoves; Annex 1. A national market could be and (iii) Reduce air pollution in some other supported by expanding the number aimags. of eligible households, providing supportive incentives and market- Expanding nationally addresses several oriented regulations, and designing a problems simultaneously. It eliminates the SWHB improvement program. need for a black market for low-emission stoves, reducing incentives for Ulaanbaatar b) Preserve consumer choice of many ger-area residents to sell low-emission models: Consumer preferences for stoves to outside markets. The black specific stove models or specific market exists because households only features could provide guidance to in Ulaanbaatar benefit from the current producers in developing, producing, or program (and the price of the stove is too selecting stove models. low – see next section). It also contributes c) Encourage innovation: It should be easy to addressing winter air quality problems to introduce new models provided they in other cities. Air pollution is an issue not strictly meet standards for emissions just in Ulaanbaatar but also for 10 other performance, safety and other cities (where 2014 state budget is allocated Mongolian legal regulations. Standards to support air pollution mitigation). It should be applied to all stoves, without exceptions. 32 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy d) Ensure professional supply and stoves and polluting SWHB over the next quality preferably over the lifetime few years. of the stoves: Producers should have Modify eligibility criteria to include the capacity to produce high quality all urban users of traditional heating products, at scale, and provide after stoves sales service. In the past, only registered households e) Create incentives to drive down list in Ulaanbaatar who have not yet benefitted prices so that eventually a subsidy is no from any stove program associated subsidy longer needed. The following options are eligible to obtain a low-emission stove can be considered: with a consumer subsidy. Since air pollution i. A large market requires less price benefits can only be maintained or improved margins and allows for scale- when as many households as possible use economies to take place; low-emission stoves, it is recommended ii. Healthy price competition will that all urban households using traditional further reduce prices once several stoves become eligible, including temporary different low-emission models residents and households with more than are available at the market; one stove. In order to monitor this, a iii. The production cost of stoves national database should be established, could be reduced through research reconciling all kheseg and soum family and development activities; and books with national systems (to take into iv. Reduction in program cost is also account movement of households in and likely to lead to lower list price. out of Ulaanbaatar and other areas). For example, the monitoring cost Based on preliminary estimates, the could be reduced. The current total potential market for low-emission Ulaanbaatar program includes stoves nationally (households without an extensive, but coordinated a low-emission stove) could be around monitoring system, which is 220,000 units (Annex 1), which amounts needed to address the leakage to a market value of about US$20-30 risks of the current low-emission million. This does not distinguish between stove subsidy policy. However, stoves and low pressure boilers outside it will be cost-prohibitive to Ulaanbaatar but excludes 160,000 herder expand this monitoring system households who also use stoves. Low nationally in the same way. Thus, pressure boilers are used by about 11% simplification of the system is of total households in the ger districts of recommended for the national Ulaanbaatar (about 20000 households), program but they use an significantly more coal. In Through technological innovation, addition, if all high emission SWHBs are further market creation and scale- replaced nationally, the estimated market economies, and households’ willingness value would be about US$16-20 million. The to pay a small premium for low-emission potential market size is relatively substantial stoves, a market could be sustained and but most likely not enough to attract large the subsidy can be scaled down and international suppliers. It is likely to draw phased out in the future. Well-designed small and medium enterprises, such as regulations should support this by phasing those currently participating in the stove out the production and use of traditional switching program. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 33 Temporarily maintain but simplify the term will not lead to market development consumer subsidy mechanism because there currently are no identified Although the current subsidy products whose price can be brought mechanism has been highly successful in down to affordable levels. In addition, rapidly penetrating the Ulaanbaatar market shocking the market with massive price with low-emission stoves, adjustments are increases relative to those today could be needed for the next phase of the stove counterproductive as consumers are used switching program for the following to unreasonably low prices for relatively reasons: high quality products. Yet, high subsidies are unsustainable and only perpetuate a a) Suppliers confirmed through interviews distorted market dependent on government that it is feasible to supply different subsidies. Maintaining, temporarily, an models of low-emission stoves under adjusted subsidy mechanism also is a win- current requirements for emissions win for households inside and outside performance at list prices of around Ulaanbaatar – a stove switching subsidy US$150/unit; the unsubsidized price of program for citizens outside Ulaanbaatar the current low-emission stoves ranges will benefit citizens in Ulaanbaatar because from US$ 250 – 350; it will remove incentives to sell stoves in b) There is too much asymmetrical Ulaanbaatar and thus sustain air quality information between the government benefits. and the suppliers on unit costs, which There might be resistance from makes it difficult for the government households and from suppliers of low- to adjust consumer subsidies to emission stoves when subsidies are perfectly match stove prices with a substantially reduced. Users have grown user’s willingness to pay. It should get accustomed to high quality stoves for very out of discussing subsidy levels with low prices, and suppliers to high subsidies suppliers. It would be better to get out without price competition. In order to of direct discussions on subsidy levels overcome these distortions, subsidy levels with suppliers; and should be reduced as soon as possible. c) The current subsidized price of low- emission stoves is lower than traditional stoves; this means that (i) the government would need to continue its program to sustain benefits for the indefinite future; (ii) it would also need to continue a rigorous quality control and verification system, which may be cost prohibitive when expanded nationally; and (iii) some households could have an incentive to sell their low- emission stove on the black market. Nevertheless, a consumer subsidy appears to be necessary in the short-term to gradually adjust distorted consumer expectations so as to promote further stove switching. Eliminating it in the short 34 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Box 3 Reassessing Principles of the Current Subsidy Scheme The current subsidy comprises 3 elements in principle; the value is justified based on future economic health benefits, which are considerable. In addition to air pollution benefits, these elements could be brought out more in public relations campaigns to raise public awareness of the rationale for the subsidy: (i) Replacement component; households hand in their old stove which represents a value to them; (ii) Equalization component; to render the price of the low-e-stove similar to the traditional stove; households are able to purchase a traditional stove, so they should be able to buy a low-emission stove at that price level too; (iii) Promotional component; to convince households to buy a low-emission stove now rather than in the future. One option to consider is that the Government’s current message that high subsidy would be a fixed amount that is subsidies are not to last past this winter the same for all stove models (alternatives season. Yet, by keeping the adjusted could include a percentage of the end-user consumer subsidy, the Government will price). This new subsidy would be phased also give a signal to households that it is out over a transition period. The subsidy still important to switch their stoves. should avoid end user prices that are lower If this option is chosen, the subsidy than current traditional stove models, taking should be made available only for a into account transport costs. The level of limited period of time, for instance the subsidy should be set carefully as not about three years. Thereafter the subsidy to introduce further market distortions, should be dramatically reduced or entirely but should consider transportation costs to discontinued. supply markets outside Ulaanbaatar (see In addition, the NCAPR should work below). In the past, prices were offered with commercial financiers to identify by suppliers with proposed subsidy levels favorable consumer financing programs, for a fixed period - subsidies varied by like micro-credits, which could smooth out model. This should be discontinued and payments for new, but higher priced low- replaced by the proposed approach. Box emission stoves. Payment streams could be 3 provides a description of the current partially offset by any fuel savings realized general principles of the subsidy and how from the use of low-e stoves. Use of they should be changed. Annex 2 provides commercial, consumer financing should be a program cost benefit analysis of various part of a transition to a sustainable market. subsidy models. Discussions with suppliers suggest that In a free market, end user prices are low-emission stoves satisfying the current a key determining factor for the level of performance criteria could be available at sales. Suppliers of good quality stoves with prices around 150-200 USD, although the the lowest prices are likely to obtain the stove’s quality and some features may be largest market share, and therefore the different. Traditional stoves are available largest amount of subsidy payment. The for about 80 USD and the secondary adjusted subsidy scheme is expected to give ‘black’ market for low-emission stoves strong incentives to suppliers for reducing appears to support a retail price of 200 the price of their low-emission stoves. USD. A new subsidy level of 20% of the The level of subsidy needs to be lower retail price gives a price reduction of 30-40 than now, staying consistent with the USD, which might be enough to convince Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 35 households to give up their currently used also check on household satisfaction, and traditional stove if these new models their proper use of the stove; (g) a Project indeed are guaranteed to show good Management Unit where complaints can performance. However, this does not work be sent. out well for stoves outside Ulaanbaatar The third party verification could be because of the incremental costs for simplified. The remaining system should be stove transport and QAA at long distance. retained. Therefore, the subsidy program should be First, it is important to maintain adjusted to cover part of these incremental and improve transparency, which is the costs. Annex 3 provides cost estimates for strongest tool for verification: (a) the programs outside Ulaanbaatar. list of eligible stove models and eligible Because the market is dynamic, it will stove suppliers should be made public; (b) be difficult to establish the perfect level maintain and improve product labelling; of subsidy. The subsidy level should be (c) monitor performance of suppliers and monitored closely through market studies stoves by the proposed PMU (see below) and supplier consultations allowing its and publicize results. and (d) publicize all level to be changed according to market laboratory testing results. conditions. Second, it is proposed to maintain but Simplify the quality assurance simplify the quality assurance system for mechanism Ulaanbaatar, and introduce a simplified quality assurance system in markets outside The Government will complete its audit Ulaanbaatar. (If the pricing is right and of stoves under the previous (2012-2013) less dependent on subsidies, the quality program this summer (2014). Its conclusions assurance will be less needed.) should influence any modifications to the current verification process. Inside and outside Ulaanbaatar, the national quality assurance system should Quality assurance contains several maintain two key features: (i) allowing elements: (a) a reliable laboratory that tests the sales of low-emission stove only in a emissions performance, which provides number of visible outlets (Product Centers), important public information; (b) a reliable and (ii) maintaining an independent supply chain of stove producers under an monitoring agency. obligation to supply good quality products (currently each stove producer signs a Inside Ulaanbaatar, PCs should be producer’s agreement which sets out their kept, but their number could reduced, or obligations and defines penalties for non moved to districts once certain districts are compliance; (c) a reliable sales center that saturated. Third party verification should avoids copy cats through official Product continue and be adjusted based on the Centers (which are the only place to go to findings of the NCARP’s audit of the stoves buy eligible stoves and receive consumer sold in the previous program. subsidies); (d) a reliable database and Outside Ulaanbaatar, in addition to sales installation system, verified by SMS establishing PCs, the verification process and recorded in a database of consumers; can adopt a sampling method rather than (e) a list of households who are eligible visiting every single household (current for consumer subsidies; (f) a third party approach in Ulaanbaatar). Of each batch of verifier, which not only comes a few weeks stoves sold, the QAA will visit only a sample after the sale to check on stove use, but of households to verify that the supplier 36 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy indeed has installed the stoves. As the households are verified based on family experience and confidence with suppliers books maintained by kheseg leaders in grows, the number of households can be Ulaanbaatar. Households only with official reduced as appropriate. The QAA could registration numbers and verification be contracted by the project management of residence in Ulaanbaatar are eligible, unit (PMU) and closely coordinated with and only one stove can be supported per the PC. The QAA can be an existing, viable households. Similar registration systems local organization that is already active exist at soum level outside Ulaanbaatar at the location. The proposed sampling that can be used for this, as was the case method described for markets outside with the solar home system program. It Ulaanbaatar could be considered to reduce is proposed to establish a similar system compliance costs. outside Ulaanbaatar, which would require There is currently no quality control the creation of a data base combining data for Small Water Heating Boilers (SWHB) from the entire country so that the principle and once scientific evidence is obtained on of one subsidy per households can be their performance and appropriate criteria maintained. Households would be verified are defined, new regulations on SWHBs by local leaders and included in a national should be introduced. SWHB are purchased list. This is similar to what was implemented by middle class households and not the under the 100,000 solar ger program. The poor. Establishing and enforcing emission list can be modified if households move standards in the short term will ensure that and local leaders confirm their residency in all new SWHB are low-emission models. In ger areas or areas where stoves are used. the future suppliers could be licensed to Official registration numbers would track manufacture, assemble, import and sell individuals who have received the subsidy. only low-emission models. As quality and Provide fiscal and regulatory policies performance standards for SWHB do not to foster innovation, ensure spare currently exist, they should be developed parts and protect the population from and enforced quickly. polluting stoves For the entire national program, Coordinated incentives and regulations the PMU should maintain a Complaints could help to make purchasing low- Center where households can report their emission stoves easier, while making supply, problems either by telephone or in person. purchase and use of dirty stoves harder, and This does not need to be a fancy center, eventually banning them altogether. The just a dedicated telephone number and necessary ‘carrots and sticks’ are needed to someone assigned to answer the phone. facilitate sustainable market development This helps with the flow of experiences, of low-emission stoves. Current fiscal and can be directed to the suppliers who incentives are not completely coherent. supplier underperforming stoves. The For example, a profit tax exemption exists information will allow the QAA to better for clean stove sales and import duty request suppliers to provide after sales exemptions are granted for import of services and monitor the performance of entire stoves. It does not make sense to the stoves. allow dirty stoves to be manufactured and As the program expands nationally, sold while simultaneously investing heavily information technologies and databases in switching these for low-emission stoves. should be expanded to accept households But such incentives are not available outside Ulaanbaatar. Currently, Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 37 for parts even though these cannot be period to promote the production and sale manufactured in Mongolia. of low-emission stoves and SWHBs, and The public investment in low-emission discourage those of traditional stoves and stoves is less effective as long as dirty ineligible SWHBs. The use of traditional stoves remain available and used. stoves and ineligible SWHB will be more Imports and locally produced stoves difficult to prohibit because people may should be treated even handedly. The find that their equipment is still in good Government indicated that local production working condition for heating their homes and assembly of low emission stoves is and does not need premature replacement desirable for employment generation and just as an air pollution reduction measure. cost reduction. However, imports of parts Imposing fines on relatively poor households and entire low emission stoves should is difficult to enforce, especially if they be allowed because some parts and raw are not offered affordable low emission materials for low-emission stoves are not alternatives. available in Mongolia. China, for example, In the example in Table 2, households also has a large manufacturing capacity could have a three year period13 to switch for stoves, including SWHBs (which are to a low-emission stove. The Government currently exported to Mongolia) that can would provide a consumer subsidy in the have the economies of scale to produce same period (although the subsidy can be high quality, low cost stoves. shorter than the transition period). After Minimum performance standards need the three year transition period, only low- to be established and approved by the emission stoves would be allowed to be relevant authorities – these would apply imported, assembled or manufactured equally to local products and imports. locally, and used. The subsidy for switching Enforcement of the policy to apply these would be no longer available. Revenues standards will also need a comprehensive obtained from fines could be recycled back set of supportive measures to prevent the to incentives and other measures to help production, sale, and use of dirty stoves, foster a clean stove market. and to encourage the production, sale This transition period would be widely and use of clean stoves. Some of these announced and explained to the public. measures may be politically sensitive and It also needs to be carefully coordinated the NCAPR should monitor this closely and with improved and ever stricter standards intervene as needed. The following sections enforcement (refer to the section on discuss this package in more detail. enforcement of standards below). Other than consumer subsidies, the tools commonly used as fiscal incentives are favorable import duties, VAT reductions or exemptions, reductions in company taxes, and fines. Table 2 shows an example how these could be applied over a three year The precise period should be chosen by the NCAPR; South Africa applied this mechanism to switch 13 over in three years to more safe and efficient kerosene cooking stoves. It simultaneously worked with the kerosene stove manufacturers association to improve stove models and raised awareness among households for the need to buy betters stoves. 38 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Table 3: Example of a Fiscal Measures to Phase Out the Use of Dirty Stoves and SWHBs Traditional stove Low-emission stove and SWHB and SWHB VAT on sale of Apply Exempt stove High, or prohibit Exemption or low; could consider increasing slowly if and import completely when local production capacity exist and suffices to meet demand; distinguish between import of entire systems Import duty and parts; local assembly could be preferred over import of entire systems, as some parts cannot be produced in Mongolia (yet). Company tax on High Low or Exemption, tax credit production of stove and SWHB Fine for using after High None 3 year transition period Strengthening, Expanding and market. Consultations should take place Enforcing Standards with different manufacturers but the Currently, there are two different Government should be very careful to not sets of criteria: (i) legal stove standards dilute the emissions performance standard and (ii) eligibility criteria for consumer without strong objective analysis. It is subsidies for stove switching. There important to note that a significant large are some differences which need to be local investor, which is currently importing unified gradually. Currently, all traditional stoves, has invested in a local production stoves do not meet the current legal line to produce stoves with the current standards while all stoves eligible for stove emissions performance. consumer subsidy support exceed it. It The timing of the review is appropriate is proposed to currently maintain the now with over three years’ experience eligibility criteria, especially the emissions with a stable set of low-emission stoves. performance criteria, used by UB city for The State Standards Inspectorate should consumer subsidies. It is also proposed to work with the SEET Laboratory and simultaneously review the current stove other authorities to initiate formal review emission standard, comparing it with the procedures to update the standard. The stove switching eligibility criteria and field State Standards Inspectorate should also experiences. The current standard is based be brought into the development of the on European standards but does not take testing and standards development of into account the local experience with low- SWHBs. emissions stoves sold in Mongolia. Local Standards for SWHBs currently do not characteristics and experience should be exist and are needed. The SWHBs is one of considered to ensure the desired emissions the fastest growing market segments for performance can be achieved in the local heating systems, and includes imported, Not a single unit has been sold so far of the one locally manufactured stove model that is eligible because 14 of quality control issues. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 39 locally produced, and do-it-yourself models. The manufacturers can obtain and systems. The UBCAP is supporting local maintain their license as long as they only consultants in developing a testing protocol sell low-emission equipment. This requires for SWHBs. them to agree and submit all new models It is proposed to aim to issue standards to the SEET lab for compliance testing. for all heating appliances, to update By the end of a transition period existing standards to reflect the current (proposed 3 year transition period), situation, and in the future to regularly traditional stoves or SWHBs that do not update standards to reflect technological meet the standard would no longer be sold innovations. In addition, it is recommended and preferably no longer used. If there is a to gradually increase the coverage and decision to enforce prohibitions in use it is scope of enforcement over several years especially important that affordable low- as presented in the table below. This emission stove alternatives are available process could be explained to households and that the Government enlists support through the awareness campaign, so that from Kheseg leaders who would be asked users of dirty stoves and SWHBs are aware to help to explain and convince the few that they have 3 years to replace their remaining households to switch to low equipment before the standards will be emission stoves and SWHBs. mandatory and dirty equipment cannot be used anymore. Although there is a clear preference among many government officials to promote local production, the regulatory framework should treat all producers and models, whether imported or domestic, even handedly. This will foster competition, innovation and keep open doors to new technologies and materials unavailable in Mongolia. Currently, all low-emission stoves are imported (except for one model) and all dirty stoves are manufactured locally14. Stricter regulation will be easier to apply for SWHB than for stoves. The prices of SWHB are already fairly high and any incremental costs due to regulation are likely to be relatively low. Since many SWHB are imported, it would be fairly simple to immediately stop imports of dirty SWHBs. It will be more difficult to stop the local manufacturing of dirty SWHB models, although it would fit well in an effort to professionalize the heating equipment market. A licensing procedure is recommended to professionalize local producers of SWHB and start manufacturing only low-emission SWHB 40 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Table 4. Heating stoves with/without Timing SWHB HW connection Update standard Develop standard through literature search and Immediately testing in SEET lab Apply standards for imported Apply standard for imported SWHB: no more dirty 0-6 months stoves: no more dirty stoves can SWHB can be imported be imported Request local stove producers to Request manufacturers to obtain a license and only get in touch with the SDC and manufacture (or import) and sell equipment that 0-12 months start developing low-emission satisfies the standard. Sales of low-emission SWHB stoves that satisfy the standard. are VAT exonerated. Apply standards on the Licensed suppliers manufacture or import clean production of stoves; start taxing SWHB; VAT applied on locally manufactured dirty 1-2 years production of traditional stove SWHB (for non-licensed suppliers); import duty (VAT) and exonerate low- reduction on parts or entire low-emission SWHB; emission stoves DIY is no longer allowed; Mandatory switching of Mandatory switching of dirty SWHB. Year 3 traditional stoves Assistance to Stove Producers to will gain unfair market advantage, thus Promote Innovation risking objectives of competition and The transition period for enforcing innovation. The private sector will critical new standards is important also to foster to the success of this strategy. innovation – clearly advertising a standard On the one hand, most producers of and giving it time for full compliance traditional stoves are not able to design allows the market to respond. In addition low-emission stove models or to supply to transparent and competitive selection high quality stoves and in large quantities. as well as continued consumer subsidy However, the large number of traditional program for eligible models, stove stove producers have market knowledge producers can be supported more directly and basic technical skills that can be used with technical assistance. This is especially to service a transformed market. On the important if the government’s objective other hand local manufacturers and very remains to foster local innovation of stoves few private investors know little about rather than relying on imports. the market and stove products. Their What is important is to encourage commercial capacities need to be harnessed ways to sustainably reduce costs in order to deliver high quality, innovative products to remove subsidies eventually – it is likely at prices households can afford. that commercial local production (even of imported technologies) will be part of the solution. It is unlikely that government- owned and operated manufacturing will fit this market-based strategy because (a) government-owned facilities will receive unavoidable preferences because regulator and owner will be the same; (b) with preferences government-owned suppliers Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 41 Box 4 Local Mongolian Manufacturing Capacity There are several different types of stove suppliers in Mongolia: (i) backyard/garage type of operators with a minimum of equipment and able to manufacture a few stoves per day; (ii) semi- industrial operators with a small metal workshop that is used for the production of stoves and other products, and able to manufacture a few 10s of stoves per day; and (iii) industrial operators. The industrial operators have modern production facilities and can easily produce different stove models at a capacity of 100 per day; their core business is to produce other products. The one Mongolian stove model that is eligible for support under UBCAP is produced in such an industrial production facility. The backyard/garage operators are not likely to be able to provide the quality and quantity required for large-scale dissemination of low-emission stoves. In general traditional stoves do not necessarily have quality issues even though they are produced in several backyard/ garage facilities throughout town: the earlier 1000 household survey found that the typical life time of traditional stoves is 10 years. However, the production capacity is limited. Given the small number of new models over the years, innovative, small scale production is not possible from the existing backyard/garage producers. The suppliers will also not be able to quickly satisfy demand at scale. It may be worthwhile to explore if a production facility could be opened to a consortium of smaller producers that have developed eligible models. This idea has floated among stove producers and MUB for some time but was never realized. With the assistance of SDC, however this is an idea to pursue. During the transition period, a Stove low temperatures with poorly insulated Development Center can assist local homes such as ger and small cheaply producers with the design of cleaner models. constructed detached houses. This causes The SDC can assist local stove producers more heating energy to be used than in: (i) developing cleaner stove models by necessary, and better insulation materials modifying the combustion characteristics may help to improve this. In fact, the of the stoves; (ii) producing higher quality heat loss characteristics of the dwelling stoves at lower costs by improving both are the fourth factor determining fuel stove design and the manufacturing consumption and PM emissions: the stove, process; (iii) working with current eligible the fuel, and the user are the other three. suppliers to retrain traditional stove R&D combining the four factors is likely producers who will eventually find their to produce even better results in terms of products illegal to learn how to service low- fuel consumption and PM emissions. emission stoves. The MUST has committed In addition, R&D can possibly develop to establishing a SDC with the support of specific solutions for summer and/or MUB/UBCAP (for equipment only) and its winter cooking. Longer-term solutions for own resources (for facilities operation and innovation consist of the next generation of maintenance and staffing). This should be clean fuel technologies, such as coal to gas accelerated to help foster local innovation or coal to liquid. These may become viable - and be a place where producers who fail as the technology improves and provide to meet criteria can better understand and solutions for heating and cooking under improve their models. Mongolian conditions. This is particularly The Stove Development Center and important since Mongolia’s main source of SEET Lab, under MUST, can also be centers energy by far is coal, and the viability of for research and development, if they connecting individual homes to the central have funding to do so. The heating and district heating system is poor. cooking conditions in Mongolia appear If local manufacturers are able to unique in the world, combining extremely 42 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy demonstrate that they can produce or conflicting policies. As an example, in eligible stoves in important quantities, the past, fuels were promoted without the government should consider the stoves that could properly use these fuels. introduction of licenses for them also. They The NCAPR should ensure the consistency would then agree to only manufacture or of the entire package of short, medium, import low-emission stoves meeting the and long-term measures to combat air standard, and also agree to submit new pollution. models for compliance testing by the At the Ulaanbaatar city level, the MUB SEET laboratory. A program to promote should be responsible for managing the stove switching would then no longer be program in Ulaanbaatar but coordinate necessary as all stove and SWHB producers with the government at aimag level and in the country are necessarily licensed and NCAPR on elements of the national dirty stoves and SWHB, at least in theory, strategy. Both NCAPR and MUB will also are no longer supplied. have an important role in coordinating Strengthen coordination and policy an awareness campaign to address air coherence to enhance national pollution issues to the public and inform expansion the public of results achieved. The media and awareness campaign can be used more Policy and Program Coordination and better to bring about key messages This strategy will require strong required for households to take their coordination of national policies and responsibility. programs in addition to strong program A strong project management unit management. Introducing clean should be identified. The main role of the technologies to essentially the poorer PMU is to manage the implementation of households in Mongolia’s urban areas all activities and coordinate between all cut across several jurisdictions, including actors to ensure that they all realize their environment, energy, finance, central and tasks. The PMU will prepare a plan for local governments. the roll out to 10 aimag or soum centers, The National Coordination Committee identify the PC and QAA in each location, on Air Pollution Reduction (NCAPR) has and provide training. Then the PMU will been introduced by the Government to monitor the operations of the PC and coordinate all air pollution measures. the QAA, and intervene if and when It has been attached to the President’s necessary. The PMU will also analyze the office, but since 2014 it is restructured results of implementation and report back under the Prime Minister’s office. The to the NCAPR. It should remain active NCAPR includes representation of all main until the market for low-emission stoves pollution abatement stakeholders, such has been established. It should be able as the Ministry of Nature, Environment to communicate comfortably with high and Green Development; The Ministry of level politicians, technical Ministries and Energy; the Municipality of Ulaanbaatar, Municipality staff, and donor agencies. It and is headed by the Prime Minister’s should also have as strong procurement office. The NCAPR is well placed to oversee and administrative capacity. the implementation of the strategy. To maximize the impact of all air pollution reduction measures combined, the NCAPR should ensure that there are no overlapping Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 43 Framework for Informing Policy be taken into account when reporting Decisions on Stoves test results so that public and policy expectations are properly informed. Such Emissions performance of stoves field investigations could be undertaken by depends on a combination of three factors: others but it is proposed such efforts are stoves, fuels, and users. The Government coordinated with SEET Lab because there has made it a primary objective to reduce are very few local professionals – working air pollution in Ulaanbaatar, and stoves together across institutions would build are properly considered a key short-term needed experience and capacity to improve mitigation measure. However, the type testing. of fuel should not be ignored. The recent policy that promoted use of Baganuur coal The NCAPR should regularly be informed could double PM emissions in traditional of a summary of all test results, and stoves. Before different fuels are promoted should be briefed by the PMU if certain in Ulaanbaatar, proof should be available issues arise with the introduction of new that these are compatible with the current fuels, new stoves, or user requirements for low emission stove criteria. There are properly operating stoves. also practical considerations – it is not International knowledge sharing realistic to expect households who recently switched their stove, to switch again in The strategy will also require the near future just because there are new continuous monitoring and adjustment to fuels, which require new stoves to burn respond to market dynamics and external cleanly. factors. Maintaining connections with the international cookstove community will also Unlike many countries, Mongolia be essential to share knowledge, maintain benefits from having a local laboratory, the networks with the scientific community, SEET laboratory that is owned and operated and stay up to speed on best practices. by MUST to carry out stove performance tests locally. The SEET Lab has developed Access to clean cooking energy is an protocols for testing ger household stoves, important global agenda. Many countries— but has not yet developed a protocol for such as China, Indonesia, Kenya, Lao PDR, testing SWHBs. The emission performance and Nigeria—have launched a program to of different combinations of stoves and obtain universal access to clean cooking fuels can be tested to determine if certain solutions in their country by 2020, and stoves or fuels can contribute to further air many more contemplate to launch such pollution reductions. Such test information programs in the near future. The NCAPR can be very useful for the government’s should ensure that important stakeholders decision making on the estimated benefits in Mongolia are aware of the ongoing of proposed interventions, comparing stove programs elsewhere and stimulate them to implementation costs. exchange of experiences. All over the world, users deviate The SEET laboratory is an increasingly from stove user manuals. This will affect internationally recognized as one of the stove emissions performance in the field few laboratories that are able to reliably compared to that measured in a laboratory. measure real-time PM emissions from The SEET Lab should carry out field stoves. It is in touch with the SeTAR investigations to understand user behaviors Centre of the University of Johannesburg with new technologies. Deviations should that operates a similar laboratory and also seek contact with universities or research 44 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy institutes that are setting up their own messages delivered consistently by key laboratories, such as in China (Agricultural stakeholders, including members of University) and in Indonesia (an NGO the NCAPR and Ulaanbaatar city, so as Yayasan Dian Desa). to build and sustain both political and The Global Alliance of Clean Cookstoves public support for the strategy. Market (GACC) is a public-private partnership that transformation requires sacrifices, seeks to save lives, improve livelihoods, changing longstanding behaviors, and can empower women, and protect the challenge interest groups. It also has new environment by creating a thriving global champions and stakeholders. Ultimately market for clean and efficient household the market is made up of customers who cooking solutions. It is recommended must be convinced of the science, the to maintain contact with the GACC for technology and the benefits of the stove coordination, knowledge exchange, and switching program. It is they who need to potential future cooperation. be convinced to buy new stoves, even if In addition, there are other players their traditional polluting stove is working in this field, such as GERES, GIZ, ADB, fine, and to change some behaviors on etc. The coordination and collaboration fuelling and cooking to accommodate the are important in moving the clean stove new technology (so that the stoves emit agenda and achieving common objectives. particulates as little as possible). They need to be convinced that these actions Coordinated and Intensified Awareness contribute to the wellbeing of those who Raising and Community Engagement are important to them. The awareness The objective of entirely replacing campaign should also be used to report traditional heating stoves with low- back to the public what are the current emission stoves will not be easy to achieve results of air pollution reduction efforts so without public support. While many that they can feel connected to the effort households have already replaced their to clean up the air. stove and it is expected that many more Television media and word-of-mouth will do so in the near future, there might appear to be the most effective channels also be households who cannot or do not for delivering messages but there can be want to replace their stoves. They could other ways to reach stakeholders. Because either be culturally or socially attached to there currently are limits to the capacity their stove, or they do not want to replace of public relations departments especially it before it gets old, or they could simply at the city level (and no specific person be too poor to even buy a subsidized low- responsible for PR at the NCAPR at the emission stove. Awareness raising is a time of writing), professional public key element of building a foundation of relations advice can be very helpful to help support for enforcing stricter regulations the National Coordination Committee and and more broadly the objectives of this the Ulaanbaatar Municipality develop a strategy. Ultimately, once the transition well-focused campaign. The UBCAP has period is over a strict enforcement regime, some financing to design a PR campaign with penalties, will need to be in place. This and provide some training, but it may will be difficult to implement without the be useful to supplement this work with support and understanding of the public. additional resources in the future. The public awareness campaign needs to be more tightly planned and its key Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 45 In addition, international experience shows the public whether air quality suggests that there are non-traditional is improving. Feedback on stoves, channels that can reach ger area residents supplier services and other issues can in Ulaanbaatar and other Aimags. These help improve the program and, if their can be identified by the PR experts. For concerns are effectively addressed, instance, information on the effects of convince civil society they have a critical air pollution on health can be provided at stake and role in helping transform the preventative health clinics visited by ger stoves market and reduce air pollution. area residents. Information can also be Although the Government will mandate provided on how people can find ways the use of standards, it does not necessarily to reduce pollution, including the use of mean that everyone immediately or low emission stoves. Generally, there are automatically complies. It is recommended two ways of convincing households to to carry out a number of activities prior to voluntarily switch their stoves are: enforcement in order to prepare the general • Maintaining a focused awareness public for the enforcement: (i) announce campaign emphasizing key messages the intention to enforce standards ahead on proper stove use, health risks of time; (ii) explain the action that will associated with using traditional stoves, be taken to enforce the standards; (iii) implications of reselling low-emission ensure that households understand that a stoves and reverting to traditional, subsidy program can be used to replace polluting stoves, that subsidies will be dirty stoves before enforcement; and temporary, that stricter regulations will (iv) regular updates on progress with the be enforced against a clear timeline, action leading to enforcement through the and that air pollution will not be awareness campaign. solved overnight, requiring both short Another priority is the extended term and long term solutions. Stoves coverage of lighting and re-fuelling so that provide short term relief from extreme households eventually adopt appropriate exposure to wintertime pollution but techniques. Based on experience gained will need to be complemented with thus far, households seem able to fully other abatement measures that will adopt fire starting practices required for more permanently reduce exposure to clean operation of the new stoves – but it harmful particulates. These messages takes time and much effort to get them to can increase peer pressure and maintain adopt these methods. The main pollution a broad base of public support which is emitted from heating stoves and SWHB essential not only to transforming the is related with start-up and refueling stove market but also to sustainably procedures. Households continue to follow reducing air pollution to Mongolia Air procedures they have traditionally applied, Quality Standards. which is likely to increase air pollution • More direct consultation with civil substantially. society, including through Khoroo The expanded national program and and kheseg leaders. Also, NCAPR transition period to stricter standards will could organize public hearings to also need to be explained very well – how solicit public input. Finally, air quality this affects people and why is this done. monitoring results, good or bad, The Government was effective in signaling should be transparently and regularly to the market that the 2013-2014 Winter reported with comparative analysis that is the last season for the subsidy as it is 46 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy structured now. The market responded to implement the strategy is the Clean favorably. Likewise, the new subsidy Air Foundation. The UBCAP support is structure and mechanism will need to be limited strictly to Ulaanbaatar city by legal described and a clear timeline will need agreement. Only the CAF currently has a to be established that coincides with the national reach. Recognizing that there are transition to stricter standards. That is, the discussions underway to close the fund, it subsidy will be phased out over 3 years and is proposed to keep the CAF open because later it becomes mandatory to use a low- it is the only relatively stable source of emission stove or SWHB. financing for this kind of support. As the program details are further defined, other Financing Preparation and financing sources should be made available. Implementation There have been numerous donor Economic Benefits initiatives to combat air pollution that have The economic cost of air pollution in been mobilized by the Government of Ulaanbaatar in 2009 have been estimated Mongolia since 2007 with assistance from at USD 687 million; an updated number for the World Bank. About $63 million were 2014 is not known. The benefits of USD 74 mobilized from various donor and MFI million as estimated under the 80% AMHIB resources thus far and about $39 million scenario are equivalent to USD 211 per year has been used to support stove switching. per household in Ulaanbaatar. The actual The investment has helped yield tangible one-time subsidy paid until now ranged benefits but it also is at risk of losing these from USD 250-350 per stove: this level benefits if resources are abruptly cut off of costs is far below the annual economic for further building a sustainable low e benefit obtained from using these stoves. stove and SWHB markets. Therefore, the main economic benefit A cost and benefit analysis is conducted from implementing the strategy is the fact to shed lights on the cost of the envisioned that the current level of health benefits in program. As illustrated in Scenario 1 of Annex Ulaanbaatar can be maintained and does 2, if stoves were provided a subsidy level not deteriorate. Health benefits in the of 20% in Ulaanbaatar or 30% in aimags, aimags, fuel savings for all households excluding SWHBs, additional subsidies over with low-emission stoves, and employment three years would amount to $5.8 million. generation from setting up the supply chain On top of the subsidies, other program of low-emission stoves should be added cost items, such as Quality Assurance to the Ulaanbaatar health benefits. This Agents, market development support, and level of benefits (USD 74 million/year) is program operation cost across the country far higher than the costs for implementing would need to be paid over three years, the entire strategy, which does not surpass amounting to an estimated $2.6 million. USD 13 million. Even if the total costs of Through 2015 the SDC and SEET Lab should switching 135,000 stoves under the current be fully funded by UBCAP and the MUST, and past programs are added to the costs though gradually commercial payments for the national stove switching strategy, should help to offset decreases in UBCAP the costs for stove switching are far lower funding over time. The PMU will need to than the sustained health benefits in be supported with government funding. Ulaanbaatar. As shown in Annex 2, the net Aside from the UBCAP and the MUST, present value of the costs amount to USD the only other stable source of funding 94 million and are indeed far lower than Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 47 the net present value of just the health benefits in Ulaanbaatar, USD 703 million. Although the precise benefits from implementing the national stove switching strategy are difficult to estimate, it is clear that they far exceed the costs. Therefore, these estimates indicated that the economic benefits exceed by a comfortable margin the estimated costs of the proposed strategy. 48 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Chapter 4: Suggested Road Map for Transforming the Stove Market Establish road map to implement the of the adoption of the strategy. Once strategy approved, the strategy and road map will T his chapter presents an indicative need to be transformed into a detailed roadmap for implementing the implementation plan. It will also need to proposed strategy for building a be adjusted by NCARP based on feedback sustainable market for clean stoves. The during monitoring and evaluation. The strategy calls for multiple actions to be strategy is not cast in stone and should taken concurrently – actions that will be reviewed periodically and adjusted if help make a transition from short-term needed. objectives of reducing air pollution in The strategy aims to sustain emissions Ulaanbaatar through rapid penetration reductions from low emissions stoves in of low-emission stoves to a long term Ulaanbaatar, as well as provide universal sustainable low-emission stove market access to clean cooking and heating nationally. This requires a clear governance solutions. Figure 3 below shows an and management structure that oversees a indicative flow chart of major steps. The well-coordinated plan. steps are further elaborated in this Chapter, The following is an indicative road including suggested assignments of tasks map for consideration. It will need to be for the main responsible organizations. adjusted to fit with conditions at the time Figure 3: Time table for roll-out year 1 year 2 year 3 year 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Ten steps for completing the transformation 1 Establish Institutional Arrangements 2 Maintain & set up new PCs in UB 3 Develop standards 4 Assist local stove producers 5 Set up supply chain outside UB 6 Set up quality control system 7 Expand & adjust awareness campaign 8 Adjust subsidy mechanism, 3 years 9a Enforcement of standards SWHBs 9b Enforcement of standards producing traditional stoves 9c Enforcement of standards using traditional stoves 10 Monitor and evaluate results Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 49 Ten steps for completing the to lead implementation of the national transformation to a cleaner stove strategy and the Ulaanbaatar city should market remain responsible for implementation of the strategy in its city. Step 1 Establish institutional A well-funded, well-staffed and arrangements competent Project Management Unit Preparing for the national rollout will should be appointed to manage the take approximately one year as shown in implementation of the strategy nationwide. Figure 3 above. Table 3 below shows the The PMU reports to the NCAPR, which main stakeholders for the nationwide roll- provides a governance structure that acts in out and their responsibilities in preparation concert across multiple agencies. The PMU and implementation of the rollout. The two should remain active until the market for most important stakeholders are the PMU low-emission stoves has been established. and the NCAPR: The Project Management It should be able to communicate and Unit manages implementation and reports interact regularly with high level politicians, to the NCAPR that functions as the Steering technical Ministries and Municipality staff, Committee; their roles are specified below. and donor agencies. It should also have Many other stakeholders have a specific role as strong procurement and administrative to play which is summarized in Table 3. Due capacity. The main role of the PMU is to to the number of agencies and jurisdictions manage the implementation of all activities involved in implementing several actions, and coordinate between all actors to a clear governance and management ensure that they all realize their tasks. The structure is needed to oversee, coordinate PMU will prepare a plan for the roll out and manage the implementation of the to about the 10 aimag or soum centers, strategy. identify the PC and QAA in each location, It is proposed that the NCAPR, under the and provide training. Then the PMU will leadership of the Prime Minister, receive a monitor the operations of the PC and the mandate to oversee the implementation of QAA, and intervene if and when necessary. the strategy and in particular be responsible The PMU will also analyze the results of for ensuring coordination across agencies. implementation and report back to the The Ministry of Energy has primary NCAPR. responsibility for ensuring access to clean The UBCAP PMU is one of the energy. The Ministry of Environment and organizations that could handle these Green Development is responsible for tasks comfortably as it is a logical environmental protection. The Ulaanbaatar extension of currently carried out activities city has experience in stove switching, within Ulaanbaatar. The PMU should the largest stove market and the base be relatively autonomous, reporting to for private supply of clean stoves for the a Steering Committee comprised of the rest of the country. Other agencies will be main institutional stakeholders, such as the responsible for other critical aspects, such NCAPR. as standards and enforcement. Academia can be the frontline of innovation. Key Parliamentarians will also need to support the strategy. The private sector and households are ultimately critical to success. A lead ministry should be selected 50 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Table 5: Institutional responsibilities for the nationwide roll-out Possible Key Roles Preparation implementation Enact legislation, make funding Order the strategy roll out and Monitor progress Parliament available monitor progress Coordination of all activities Coordinate with all stakeholders Monitor results, ensuring policies and to prepare plan for roll out fine tune programs are coherent and Oversee implementation, strategy, and well coordinated (including coordinate, review feedback, fine ensure budget is NCAPR awareness campaign), tune strategy and plan, ensure available oversight of implementation budget is available (directly or via Steering Committee) Ensuring protection from Develop and implement Report on harmful air pollution via policy supportive policies, including results and and program support, including improving PM2.5 monitoring and improvements monitoring and reporting on reporting system in Ulaanbaatar of air quality Ministry of air quality. and other cities and set up a improvement Environment Executing responsibility as system for analysis of results. Chairman of Board of the Report on results to civil society Clean Air Foundation periodically. Identify other opportunities for introducing emission control technologies. Ensuring expanded access to Develop and implement Report on results clean energy for heating and supportive policies, ensure in terms of stoves cooking via policy and program monitoring and reporting system disseminated, support, including coordination set up to monitor fuel and stove fuel use changes Ministry of between clean fuel and clean use. M&E system to follow Energy stove policies progress of clean energy access and actual stove performance in terms of emissions and fuel consumption. Ensuring fiscal resources are Develop and, once approved, Apply scheme provided under approved implement range of fiscal and and monitor Ministry of budgets and other approved tax measures incentivizing clean implication on the Finance (or, fiscal measures are executed. technology use and preventing national budget partially, Clean polluting technologies (i.e. import Air Fund) duty scheme, company tax, and VAT) Monitor budget execution comparing with results Ensure strategy and stove Implement UBCAP project, Assist SSIA with switching is implemented develop and implement supportive enforcing the in Ulaanbaatar, ensuring measures, including ensuring standards supporting policies and good coordination between programs are coherent and NAMHEM and Ulaanbaatar Air MUB well coordinated Quality Agency (increasing its capacity to for monitoring and analysis), assisting in development and enforcement of standards within the framework of the law Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 51 Oversee stove switching within Take stock of results and Maintain family their jurisdiction, provide communicate potential market to books, sensitize Khoroo and support where necessary, PMU households to kheseg leaders participate in identifying participate eligible households and preventing fraud Oversee stove switching within Participate in public awareness Sensitize their jurisdiction, provide campaign, develop lists of eligible households, Aimag support where necessary, households, help to identify PCs monitor results Governor and participate in identifying and QAA local leaders eligible households and preventing fraud Can provide a wide range of UBCAP and JICA are currently Monitor resuls resources, depending on donor focused on Ulaanbaatar only. and IFIs/Donors country strategies and requests World Bank provides technical respond to from the government assistance to inform both other requests MFIs and Ulaanbaatar and national policy. for support if Donors Other agencies also providing possible. important support. Commercial Banks to participate in implementation where feasible. Encouraged to participate Engage with government on in financial management of possibility of managing PCs in the stove switching program, Ulaanbaatar and establishing replicating Ulaanbaatar system of accepting HH Commercial system as much as possible, payments across the country, Banks encouraged to offer micro- managing subsidy funds flow credits for (increased) down to producers and developing a payments for low-emission nation-wide monitoring database stoves of purchases, payments and installations Manages and allocates funds Continue to finance subsidies and for air pollution abatement elements of the national strategy. Clean Air Fund measures. If it still remains, CAF can be a stable funding source. Set standards for heating Together with SEET lab, MUB/ Fine tune Mongolian systems AQD, Min of Env, Min of Energy standards if Agency for set standards for heating stoves, applicable, due to Standardization heating walls, and SWHBs new technological and Metrology innovation State Enforce air quality standards Prepare a plan for gradual Enforce the Specialised for heating appliances application of the standards standards Inspection Agency Manage implementation Prepare plan for rolling out to Coordinate 10 aimags. Develop contracts between all between PC, QAA, PMU, stakeholders PMU suppliers, and local bank offices and provide in soums management assistance when needed 52 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Private sector investment and Private sector invited to provide Set up sustainable commercial skills to develop/ feedback on the implementation supply chain of import and sell attractive of the strategy also as part of low-emission stove models, contributing their interests in corporate social stoves significantly to reduction in air responsibility. Current private pollution. Provide maintenance sector suppliers work with and repair services during government to develop viable plan warrantee period for after sales services outside Suppliers Ulaanbaatar and after warranties expire. Possible work with SDC to develop training program in servicing low-emission stoves targeting current traditional stove producers. Suppliers encouraged to diversify models and supply chains. Communicate the rationale for Prepare households for the Maintain the stove switching and behavioral upcoming changes to the messages and change modalities of the stove witching prepare for the program. changes in the Media program (removal of subsidy, enforcement of standards). Buy low-emission stove and Phase out use of Households use correctly non-low-emission stoves and SWHB The NCAPR comprises of high level These PCs should be set up early on so representatives of all main stakeholders. Its that low-emission stoves remain available role is to coordinate at high Government at all times. The number of PCs should be level, monitor implementation and examined regularly so that when business motivate all stakeholders to realize their declines, certain PC can be combined, responsibilities, analyze results and moved to locations where larger numbers fine tune the strategy, and ensure that of households without low emission budget is available for implementation products live, or closed. of the strategy. The NCAPR should also Step 3: Develop standards for heating be actively involved in the design and appliances realization of the awareness campaign and refine messages when needed at different Developing the heating and emission phases of implementation. standards discussed in the strategy in Chapter 3 will most likely take at least Step 2: Maintain and set up new PCs in one year. There are three main types of Ulaanbaatar standards for domestic heating systems in With the implementation of the Mongolia: (i) for individual heating stoves, strategy initial focus will be on remaining for ger and small detached homes; (ii) for eligible households still without clean heating stoves connected to a heating wall stoves in Ulaanbaatar. Therefore, new PCs in detached homes; and (iii) small water at strategic locations should be set up. heating boilers for larger detached homes. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 53 For heating stoves, standards exist but these but in addition there are safety issues that are not stringent enough and the current need to be regulated as well. There no low-emission stoves outperform them. As emission standards for SWHB, although an example, the current emission standard there are likely similar standards in other for heating stoves is based on European countries, e,g, in China for SWHB. standards, but the currently supported It is proposed that the PMU initiates eligible stoves are far cleaner because the and coordinates the following actions with eligibility criteria for consumer subsidies relevant authorities to develop and enforce use a stricter emissions performance stricter standards as outlined in the table requirement. For stoves used with heating below. walls the same emission standards apply Table 6: Roadmap of the Development and Enforcement of Standards Heating stoves with heating Small water heating Heating stoves wall connection boilers Update the standards Review literature, develop Review literature, develop with current testing protocol testing protocol Within 6 performance data and months start the process to approve the standard Standard updated Testing completed, develop Testing completed, Within 12 standard, start process to develop standard, start months approve standard process to approve standard Enforce standard for Enforce standard for imported Enforce standard for Start of Year 2 imported models models imported models Enforce standard for Enforce standard for locally Enforce standard for Start of Year 3 locally produced models produced models locally produced models Enforce standard for Enforce standard for end-user Enforce standard for end- Start of Year 4 end-user stoves stoves user SWHB The standards need to be developed in a as possible. Producers may need time to concerted effort between the NCAPR, the develop new models. As noted in Chapter 3, MUST SEET laboratory, and the standards local stove producers are supported by: (a) organization, the Mongolian Agency being eligible to submit models that would for Standardization and Metrology. The be eligible for purchasing with a consumer NCAPR should be involved in overseeing subsidy; (b) transparent and unbiased the setting of the rules for how strict the screening process that chooses only eligible standards should be. The NCAPR should models and suppliers; (c) supportive agree how clean is realistically possible for regulations and fiscal/tax incentives for Mongolia, and it should be assisted in this eligible models (both local and imported); effort by the testing laboratory of MUST. (d) a (so far) free of charge laboratory testing service to determine emissions Step 4: Assist local stove producers performance of stove models. Technical Assisting stove producers to improve assistance can be provided through the the quality and performance of the locally Mongolian University of Science and produced stoves should take place as soon Technology’s Stove Development Center. 54 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy As noted in Chapter 3, local stove will be set up at strategic locations, in producers have not been able to develop Ulaanbaatar as well as in other Aimag or stoves that meet the UBCAP eligibility Soum centers in accordance to the priorities criteria, which are stricter than the current as indicated by the NCAPR. standard. The exception is one Mongolian With the assistance of local leaders, the company that was able to be included in PMU will identify the most suitable business the current selection of eligible stoves. or organization to host a PC in the selected Out of the 15 stove models submitted for location and sign an agreement. The PC eligibility testing, only 4 qualified. Out of should be attached to an existing, viable the 8 submitted Mongolian stove models, business or organization that may have only one met the eligibility criteria. In the an interest in operating the PC to increase past Mongolian stove suppliers experienced his own business, e.g., hardware stores. a common production problem: the The latter could, if interested, create even production capacity is not high enough to more PC in different locations nationwide. quickly satisfy the demand, and there are At a PC all eligible stove models are on issues with quality control of their stoves display and can be purchased. Users can due to the nature of the non-automated place purchase orders at the PC, which will production process. record orders in the electronic database MUST has encountered delays in setting and process paperwork as in the current up the Stove Development Center, but it program. Households will deposit their should now be established shortly. Once contribution at a participating commercial operational, it can provide assistance to bank branch at their location. The PMU stove suppliers in modifying and improving will need to approach commercial banks, their models into low-emission stoves, as such as XacBank, to participate and willing well as advice on the production process. It to offer microcredits. The PC will combine is recommended to quickly include current and group orders and communicate these traditional stove producers in this process with the suppliers for the delivery of the as they would be out of a job once the stoves. The participating commercial bank enforcement starts. will also arrange for payment of the buyers’ deposit into the supplier’s bank Step 5: Set up supply chain of low- account and request release of the subsidy emission stoves outside Ulaanbaatar from the PMU once the stoves have been Towards the end of the first year, such installed. distribution chain could be set up. Once the suppliers have diversified the supply of low-emission stoves in Ulaanbaatar, these stoves should also become available outside the capital. The state of the market is not advanced enough to expect stove suppliers to set up their own supply chain. Until now, users knew that they could only get a trusted low-emission stove for a fixed price at a PC. The concept of Product Centers should therefore be used until users understand the quality difference between low-emission and traditional stoves. PCs Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 55 The PC will thus place bulk orders modified. PCs are exclusive, trusted sales with the suppliers of eligible stoves, while centers that prevent illegal copycat models coordinating closely with the PMU. The PC from being sold. Retaining this system as owner is paid for services rendered including it is would incur continued costs to the transferring client deposits to suppliers via government, but would preserve a key part the local bank branch, installing the stove of the quality control system. See Box 5 for and training the user, removing the old more details about the sales and distribution stove, liaising with the QAA (see below). mechanism applied in Ulaanbaatar. The supplier will transport the stoves to the PC and will truck out the old stoves. All costs for these operations15 will be built into the price of the stove. Initially a few PCs will be set up in Ulaanbaatar, and as quickly as some experience is obtained with these new style PCs, the 10 cities where air pollution problems have been reported will also be equipped. More PCs can be identified and set up if there is particularly strong demand for low-emission stoves in a particular region or location. In the long-run, if and when suppliers become more professional, the Government may wish to set up a licensing system to replace the PC distribution system and the quality control mechanism along the lines as proposed for SWHBs. This would guarantee quality at entry, i.e., stoves sold by a licensed supplier are necessarily low-emission stoves Stove suppliers can obtain and maintain their license as long as they only sell clean stoves, and provide good services to their clients. They should submit new models for testing the by SEET laboratory before putting them on the market. There should be checks and balances to verify compliance, for which the SSIA and MUB are responsible. It is proposed to gradually extend the sales and distribution system to make low- emission stoves available in other Aimags. The sales and distribution system using Product Centers should be preserved but 15 Average transport costs for 800 km nationwide; transport to and installation at the client; training of the client; taking away the old stove; service fee for operations of the PC; cost of QAA. 56 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Box 5 The Sales and Distribution System in UB Producers and stove models are selected competitively, against specific criteria. Once selected, Producers sign a Producers Agreement with the Project Management Unit. The Producers Agreement sets the rules and responsibilities of suppliers, including minimum service standards, installation responsibilities and penalties for non-compliance. Producers have the right to sell their eligible models through Product Centers. Ineligible models and producers are excluded from the Product Centers. Product Centers are managed by a Distribution and Sales Agent (DSA). The DSA is XacBank who places representative in each PC to process paperwork, offer microloans for down payments, and record sales. In addition, NGO staff are available at each PC to provide consumers with product information. Customers make payments at XacBank branches, which transfer funds to producers. XacBank also collects emission reduction rights from customers and sells these rights to carbon markets. This covers only part of the costs of the PCs and the government, through the Clean Air Fund, pays an additional fee for its services. XacBank representatives at the PC also make an electronic record of installation (and removal of old stoves) by SMS when stoves are installed, recording the location. It maintains a database (accessible to the PMU) of sales, installations by model number and location that is frequently updated. Paperwork is forwarded to the Project Management Unit which is used as evidence, together with the electronic verification, for paying the consumer’s subsidy to the eligible stove supplier. The roles and responsibilities of the DSA are defined in a DSA Agreement signed between the DSA and the PMU. Verification of installation will be impossible for stoves sold during Phase 1 of the expansion program. Customers sign a User Agreement which defines the roles and responsibilities of households, including following the user manual, allowing the QAA to visit, and promising to use the stove and not resell it. Upon verified down payments by households, lists are sent to suppliers by the DSA and delivery schedules are arranged. As a part of their agreement, suppliers visit each household, install the new stove, train customers in lighting, refueling and use, and remove old stoves. Old stoves are deposited at collection sites managed by a company that transports them to a scrap metal and recycling facility in Darkhan. The installation and removal costs are included in the price of the stove. Stove disposal is commercially based with no additional charges to consumers or the government. A Quality Assurance Agent (QAA) is hired by the PMU to independently verify installation. It visits households at the point of installation, verifies their training and sends a separate report to the PMU. It also visits households a few months after installation to check on proper use and household satisfaction. It also makes spot checks by sending random units to the SEET laboratory for testing. Monitoring reports are provided to the PMU. A Project Management Unit is proposed to be established for the national program to supervise the program. The Ulaanbaatar city maintains a Steering Committee to govern the program. A phased approach is proposed to expand in UB’s ger areas to continue to sell stoves coverage by reducing the cost via making to ger area households, while one PC, use of the PC based distribution system in possibly at the Narantuul market where the short run. In the long run however, shoppers come from outside Ulaanbaatar, as the market matures, licensed suppliers could be open to start the sales of stoves should take over the sale of eligible stoves nationally. The latter would not only serve from PCs and operate their own distribution the demand in Ulaanbaatar, but also the chains. The national expansion is proposed rest of the country until PCs are set up in three phases. in the country side (Phase 2), but does Phase 1 – Consolidate PCs in Ulaanbaatar not include the submission of old stoves and Open Access in Ulaanbaatar to outside Ulaanbaatar. Quality control Households Residing Outside UB should continue in Ulaanbaatar as it is now A few PCs should continue to operate to continue to strictly enforce regulations Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 57 so that air quality improvements can be It is proposed to follow the sales and sustained. However, similar quality control service center model used successfully for stoves sold to households outside for selling solar home systems under the Ulaanbaatar in this way will become very 100,000 herder program (See Box 5). costly. Warrantees for stoves sold to A selection procedure would be used to households outside Ulaanbaatar will need identify appropriate organizations or to clearly describe the contact numbers businesses to operate as PCs or QAAs. PCs and service standards their customers could be general stores in Aimags where can expect in case of defective products. customers come to buy other household A Project Management Unit (PMU) is needs, for instance. They could also be proposed to be established for the national space in Aimag municipal government program. The PMU should be available to office buildings as they are now in help households contact suppliers. Ulaanbaatar. In the former case, less staff Phase 2 – Maintain Ulaanbaatar PCs is needed because commercial stores would and Establish Product Centers in Selected be provided the right to sell eligible models Aimags as part of their normal business (with a PCs could be identified in other Aimags, commission on every purchase). They would prioritizing those where winter air pollution be required, through a signed agreement, is a concern (reportedly, about ten cities). to refuse to sell ineligible models. They Eligible suppliers would be free to price would be required for collecting orders their models based on transport and and transmitting these to the suppliers of installation costs. Additionally, depending eligible stoves. The details of the financial on the expressed demand for low-emission management system and information stoves from certain regions, licensed PCs system (to be functioning at each PC) will and QAA could be set up in locations need to be further developed, depending where additional demand is concentrated. on the availability and willingness of local financial services. Box 6. Distribution and installation of solar Homes Systems in areas outside Ulaanbaatar Under the Rural and Renewable Energy Access Project (REAP) subsidized solar home systems (SHS) were sold and distributed to rural households. Service centers were set up in selected aimag and soum centers. The SHS were transported by suppliers to the service centers, and local technicians were used for the installation of the systems. The service centers were paid for the services rendered. Under the current program, stoves the quality of the stoves. are only available through PCs and all (i) A few PCs are set up throughout the households are visited by the independent country; these are attached to existing QAA to verify that the stoves have actually and viable commercial establishments been installed. This ensures the quality that may have an interest to operate but administration cost is high. Under the a PC; as an example, hardware stores modified approach, it is proposed that a would be potential candidates16. At the combination of measures is taken to ensure PC, all eligible stoves are on display, and This follows the REAP experience, whereby Service and Sales Centers were set up in selected aimag and 16 soum centers to facilitate the supply of solar home systems to herders. 58 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy the operator of the PC will take orders Phase 3 -- Regulated market with for the suppliers on a commission basis; licensed suppliers the PC will install the stoves and supply It is expected that several suppliers will evidence of installation. The PC could offer low-emission stoves in the future. also provide maintenance and repair Two issues that need to be addressed to services, which during the warrantee facilitate dissemination of low-emission period is covered by the supplier; stoves: (i) how to inform potential clients (ii)Eventually eligible suppliers could which stove models are eligible; and (ii) operate their own distribution system, where are locations for purchasing eligible as long as they have an established stoves. The use of PCs was justified to good track record with regards to the introduce low-emission stoves to the quality of stoves. The introduction of market. Once the market matures and licensed low-emission stove suppliers professionalizes in the future, PCs may no will help to further professionalize the longer be necessary as licensed suppliers stove market. could sell eligible stoves from their own As with the 100,000 herder solar home location. system program, the sales and service The final phase is regulated market, centers would be responsible for placing whereby licensed suppliers sell and install orders with suppliers, receiving stoves low-emission stoves and are monitored supplied by suppliers, then distributing and by the normal inspection authorities. installing stoves. Delivery schedules would Depending on the business model of the be determined based on order numbers supplier, PCs that in fact acted as licensed and established trucking deliveries to the suppliers in Phase 2, could now become Aimag from Ulaanbaatar. The PCs would licensed suppliers or dealers for, or collect old stoves, which would be trucked franchisees of licensed suppliers. The PMU back by stove suppliers. is no longer needed and can cease to exist. At each PC outside Ulaanbaatar, a Step 6: Set up quality control system separate Quality and Assurance Agent (QAA) should be established. It is assumed For each PC outside of Ulaanbaatar, that the distances between PCs are too great the PMU together with soum or aimag for one QAA to cover the entire country or governor, will identify and select the even a region, and a locally based QAA most suitable organizations to act as QAA is therefore more appropriate. Training for and sign an agreement. The alternative PC and QAA staff would be provided by would be one QAA per region, or for the national PMU staff. Close coordination the country as a whole. The logistic and with the PMU in Ulaanbaatar is required cost implications will need to be analyzed as subsidy disbursement will be triggered further. For now, let’s assume that there once confirmed by PMU of information will be one QAA per remote PC. The QAA provided by the QAA in the aimag. It is and the PC in that location should be thinkable that a few soum centers with able to work closely together. The QAA a large demand for low-emission stoves is paid for services rendered (See Annex could host a PC in the future too. 3), which includes visiting households with an eligible stove following a statistical sample that is communicated from the PMU based on earlier experience with the particular supplier of the stoves. The better Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 59 the experience with a particular supplier, should not only address stoves, but air the fewer households receiving his stove pollution reduction issues in general and will need to be visited. Eventually, no visit people’s responsibilities. The NCAPR should should be necessary, as is the case in a fully take a stronger role in identifying which mature market. The QAA also sets up a messages should be disseminated to the Complaints Center, where people can visit public. Special training for high-level NCAPR or call in to lodge any complaints they may staff in dealing with the media should be have. The QAA remains in close contact provided. Different channels should be with the PMU to share and learn from used, from ranging from public & private experiences with other PCs throughout the television, newspapers and written articles, country. and social media. Step 7: Expand and coordinate the Step 8: Adjust the subsidy mechanism awareness campaign and phase it out over three years The NCAPR should hire a professional PR It is proposed that during the initial agency to help put together a coordinated awareness campaign the message is passed public awareness campaign, budget and that all urban households have 3 years to implementation plan. The awareness switch their current dirty stove to a clean campaign should be considered an integral stove. During these three years, the subsidy part of the program and not merely as an mechanism will continue to be available added-on requirement: it is a necessary for users but the amounts provided are far activity for the success of the program. less than before. After the 3 year period, People need to be informed consistently the subsidy will no longer be provided but over a longer period because it involves instead a ban on the use of traditional changing customary habits and practices. stoves will be enforced. It is suggested The campaign should be rolled out early that the period leading to the ban and the on in the first year so that households and period that the subsidy is available is the suppliers know the approach for stove same, but this is not necessary: it is up to dissemination. the NCAPR to decide. Raising awareness of the general public The suggested subsidy mechanism is (users) and suppliers of stoves is essential similar to before, but simpler and with to explain and gain support for regulatory lower subsidy levels. The user visits a PC to changes and policies that may affect their sign a purchase order and deposits his initial habits, product choices, pocketbooks and payment. He will get the subsidy assigned in some cases jobs. Consultations should once the stove is installed. The subsidy be a part of reaching out especially to is a fixed percentage of the retail price. affected stakeholders like traditional The PC staff assumes the responsibility to stove producers, to understand their communicate with the PMU in Ulaanbaatar concerns and build up plans together on to request releasing the subsidy. The PC transitions away for producing unqualified staff also communicates with the suppliers and polluting models (e.g. serving clean and the involved bank, and makes the models). Success can be achieved only necessary financial transfers. The PMU through such an approach. release the subsidy once the PC provided The awareness campaign should play proof of installation of the stove. The an even larger role than before. Messages purchaser may opt for a micro-financing need to be coordinated by the NCAPR and loan from the financial institution involved 60 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy in the deal. Households in Ulaanbaatar See Table 5 below for more details did not find it necessary due to the low about possible price levels. The first line price of the clean stove and less than 10% shows the retail price and subsidy level made use of the micro financing offered for stoves supported under the UBCAP by XacBank. project. The second line shows the price of The proposed subsidy level is proposed a traditional stove during the same period; to be either a fixed amount or a fixed although there are different traditional percentage of the retail price; the NCAPR stoves, one with a relatively good quality should decide which one is the preferred was sold for this price. This is not expected mechanism. to change in the future. The third line Under these conditions, micro-finance shows proposed price levels for new low- may become more attractive to households. emission stoves that will be sold after the The market will decide which stoves will summer of 2014. Two different subsidy be sold most, and the price is likely to be levels (25% and 30%) for low-emission a determining factor. Previously the retail stoves are presented here, which bring the price paid by the users was decided by a price close to the retail price of traditional committee consisting of MUB, the PM’s stoves. This is based on the assumption, office and a few other ministries, which confirmed by low-emission stove suppliers, did not give an incentive for suppliers to that it is indeed possible to bring eligible provide low-cost models. low-emission stoves to the market for about US$ 150. Table 7: Comparison of stove prices to end users with and without subsidy USD Retail price Combined subsidy End-user price Low-emission stove prior to 2014 300 275 25 Traditional stove prior to 2014 80 0 80 Low e-stove from 2014, with two possible subsidy levels: - subsidy US$ 50 150 50 100 - subsidy US$ 30 150 50 120 Traditional stove expected from 80 0 80 2014 The NCAPR should determine the actual users to switch to cleaner stoves and subsidy level. It is necessary to closely refrain from using dirty stoves (and monitor the adoption rate and possible SWHB). Enforcement in Ulaanbaatar will fine-tune the subsidy level in case of need. be realized by MUB in collaboration with Annex 5 provides more information about the State Specialized Inspection Agency of different subsidy possibilities. the Regulatory Agency of the Government of Mongolia. In other parts of the country, Step 9: Enforce of emission performance the aimag or soum governor should be standards involved in the enforcement jointly with the As indicated in Table 4 a series of SSIA. SWHBs standards should be set after interventions is needed at different times. vigorous testing of emissions performance Enforcement of the standards is an (currently underway). SWHB standards essential part for successfully convincing can be more easily enforced because they Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 61 reach middle income households and much obtained. The Ministry of Environment of the market is reported to be served and the MUB should work together to by imports. Traditional stove production monitor PM2.5 in Ulaanbaatar. The Ministry should be phased out first, and after that of Finance should monitor the use of the prohibition of stove use can be implemented fiscal incentives put in place to promote gradually. The PMU should coordinate the manufacturing and assembly of low- activities. Related agencies will need to not emission stoves. only develop the standards, based on the It is critically important that the NCAPR last three years’ experience and other data, identifies and manages risks during but also assess the capacity of SSIA and implementation. A key risk is the lack of other agencies to enforce these standards. private sector response. As it plans to roll The standards will be ineffective if they are out this strategy, very close consultation will unrealistic in three aspects: (a) they create be needed with the private sector to ensure barriers the private sector cannot meet; the subsidy scheme and regulatory regime (b) the SSIA does not have the capacity are something they will respond to. This to enforce them (c) traditional producer includes consulting with commercial banks issues are not adequately addressed. as it is their business to assess credit risk – Step 10: Monitor and evaluate results, if they are willing to lend to the sector for identify and manage risks working capital or capital improvements, it means the market potential and rules of Monitoring will take on a new meaning the game are clear and likely to be viable. during the market transformation as it An additional key risk is political. Some becomes integral part of the program. officials may see that the rapid and high Feedback should be given to users, in penetration of clean stoves is a “mission terms of how many low-emission stoves accomplished”, and there is no further have been sold, how many traditional need for such involved efforts to build a stoves still in use, and how much time clean stove market. Moreover, impacts on there still is before traditional stoves will be traditional stove producers must also be banned. This may give households a sense carefully addressed. The NCAPR will be of urgency and accept changing their tasked with awareness raising among these stoves. Users should get a feeling that they stakeholders to listen to their concerns and belong to the program and are part of the build up a mutual understanding of the solution. issues and challenges to ensuring results Normal monitoring of results, as that have been achieved will be preserved carried out before, should take place as and expanded. well and managed by the PMU. Specialized firms can be hired to carry out survey work and an impact assessment one year after the enforcement starts. In addition, dissemination information will be increasingly based on supplier and PC data, and may be complemented by data from the aimag or soum governor. It is proposed that the Ministry of Energy also becomes more involved in monitoring of the number of stoves and the fuel savings 62 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Chapter 5: Conclusion T his proposed strategy and the financing stove programs. Policy makers December 2013 stocktaking reports also should ask to be informed with find that a higher share of the scientifically based emissions test results urban population needs to have access to when evaluating new fuels and/or new cleaner stoves to sustain and increase their stove models, comparing their benefits to contributions to air quality improvements the program implementation costs. Selling in Ulaanbaatar. The strategy calls for not clean technology to the poor sustainably only expanding to other urban markets, but is not an easy market transformation, also introducing and enforcing standards requiring many and well-coordinated policy for small water heating boilers, which have actions and a willing private sector. lacked attention thus far. It recognizes Ulaanbaatar is the coldest capital of the that there are links between stove markets world – it does not need to be its most in Ulaanbaatar and other aimag centers, polluted. Stoves are not a magic bullet to which can be both a threat (where local solving Ulaanbaatar’s air quality but they producers in aimag centers could easily can be an effective short term abatement start selling dirty stoves in Ulaanbaatar) measure. Low emission stove programs and an opportunity (where established also disproportionately help the poorest supply chains can be strengthened to segments of the market. The poorer distribute low emission stoves). households have fewer options to adapt Building on the strengths of the to poor air quality and their winter heating current stove switching program, the costs represent a larger share of income strategy addresses ‘sustainability gaps’ compared to their richer counterparts. that prevent the full transformation of the Therefore, providing access to cleaner market for cleaner stoves. In addition to heating/cooking solutions presents a win- expanding nationally, this includes revising win opportunity for a broad range of and gradually enforcing stove and SWHB society – it helps the poor by reducing standards, revamping fiscal incentives fuel bills with more efficient stoves using to help import needed spare parts and cleaner technologies and it helps everyone materials, supporting local producers with lower health risks from better air including developing skills for repair quality. and maintenance of new technologies, revising the consumer subsidy mechanism and phasing it out over three years, and sharpening messages in a strengthened public awareness campaign. Monitoring and evaluation is required to continually adjust to a dynamic market, user preferences and program experience. The institutional and financing arrangements need to be solidly in place to ensure the strategy takes advantage of built-up capacity in managing and Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 63 References Smoke Free Ulaanbaatar, March 2010, XacBank. “Market Mechanisms for was originally proposed to the Parliament MCA Energy and Environment Project.” but did not result in a Resolution; it was Presentation delivered in Ulaanbaatar, included later in the New Construction Mongolia, March 15, 2010. ”medium term target program”, published January 12, 2012. Ulaanbaatar Statistics Department, http://statis.Ulaanbaatar.gov.mn/. Ulaanbaatar Services Improvement Project II Project Implementation Unit. “Mongolia: Ulaanbaatar Clean Air Project Safeguards Report” (management unit internal report, September 29, 2011). World Bank and Public-Private Infrastructure Advisory Facility. Mongolia: Foundation for Sustainable Development: Rethinking Infrastructure Services in Mongolia. June 2007. World Bank, Mongolia – Heating in Poor, Peri-urban Ger Areas of Ulaanbaatar. ASTAE (Asia Sustainable and Alternative Energy Program) Report, Washington, DC, 2009. World Bank and Cities Alliances. Mongolia- Managing Urban Expansion in Mongolia; Best Practices in Scenario-Based Urban Planning. Washington, DC: World Bank, 2010. World Bank. “Clean Stove Initiative in the East Asia and Pacific Region.” World Bank Concept Note,Washington, DC, 2011. World Bank. Mongolia - Air Quality Analysis of Ulaanbaatar; Improving Air Quality to Reduce Health Impacts Vol 1 and 2. World Bank Sustainable Development Series Discussion Paper, December 2011. World Bank. Rapid Assessment of Stove Markets outside Ulaanbaatar – Trip Report. Internal report for the project. Washington DC: World Bank, 2012. 64 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Annex 1: Estimation of the Potential Market T he objective of the national stove outside Ulaanbaatar. program strategy is to establish a First, the total number of traditional sustainable low emission stove market stoves that are currently in use in Mongolia in Mongolia. This would help to achieve are estimated, not distinguishing between the universal access to modern energy heating wall stoves and stand-alone stoves. services by 2030 goal that is set by the This would be the theoretical maximum UN, which declared the Year 2012 as the number of low-emission stoves that can Year of Sustainable Energy for all goal to be replaced. Since there are no heating be achieved by 2030, access to modern equipment statistics other than through energy must be scaled up massively in the Stocktaking Report and a recent survey Mongolia. In this report, stand-alone by MCA, this estimation is for illustrative heating stoves for gers and small detached purposes only. The Stocktaking Report houses, heating wall stoves, and SWHBs shows that there are currently some are addressed only. 20000 SWHB in Ulaanbaatar in use at the Having access to clean and modern moment, or 11.6% of all heating appliances cooking energy does not necessarily mean reported in use; this is 3% higher than in that users actually enjoy the full benefits the winter of 2007/2008 when there were of clean and modern energy: they need to only about 10000 in use. know how to operate their stoves properly. The following Table shows the actual If they don’t use their stove properly, theylow-emission stove sales per type as of could jeopardize the clean aspects of this October 2013 as presented in XacBank’s access. Because old habits are hard to records: some 19% of household living in a break and since the fire in low-emission ger or a small house without heating wall stoves need to be started differently, the still do not have a low-emission stove, and strategy to disseminate low-emission stoves 50% of the households with a heating therefore needs to include an integral and wall currently have a low-emission stove. sustained element of awareness raising. MUB imported 600 new SWHBs that are The Ulaanbaatar market heavily relies expected to be low-emission models, but on imported clean stove products which this has not been confirmed yet through have high retail prices. Some imported laboratory tests. For completing modern products are successfully sold without heating energy access in Ulaanbaatar, subsidies – Chinese made small water the focus should be on heating walls heating boilers compete effectively with and SWHBs as penetration rates in these locally manufactured models, even in cities segments are the lowest. Table 8: households with a low-emission stove, October 2013 ('000) Total in With low-emission % remaining Ulaanbaatar stove without Total nr of households Ulaanbaatar 350 Na na Apartment 175 Na na Ger 76.5 73.0 19% (or 17.1) House 13.6 house with HW 54.3 26.9 50% (or 27.4) house with SWHB 19.7 0.6 97% (or 19.1) Source: XacBank Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 65 These estimates show that about their primary heating stove, if they have 17.1 thousand gers and small houses in more than one stove, the second stove will Ulaanbaatar, plus 27.4 thousand houses be a traditional model. They cannot benefit with heating walls currently do not have from the financial support more than once a low emission model installed as their to purchase a clean stove at low prices. It primary heating system. In addition to the is doubtful that they will buy in the short above, in reality there are more traditional run a second low-emission stove because stoves in use, both within Ulaanbaatar and the unsubsidized price of a clean stove is outside. It is important to analyze these as so much higher than the subsidized price. they reduce the impact that clean stoves It is uncertain if recent new entrants into can have on the air quality. Individual clean the city are able to quickly meet residency heating stoves will reduce air pollution by requirements of the stove replacement over 90% if properly operated, but the program. It is not unthinkable that 20000 impact of clean stoves is greatly reduced if additional households or more enter many traditional stoves remain in use. Ulaanbaatar every year, which all need to Three categories of traditional stoves use at least one stove. Thus, even today in that continue to be used are the following: Ulaanbaatar there are households living in (i) In Ulaanbaatar in one hashaa, more the city but without the possibility to buy than one household may live, each with a low-emission stove. Assuming 170,000 its own stove; until recently, the second ger district households in Ulaanbaatar and household would be non-eligible to receive this year another 20,000 new households the subsidy; similarly, households may have arrived. The total number of low-emission more than one ger or house that each have stoves disseminated by the end of the a stove; (ii) heating stoves in other towns 2013 winter is 110,000 (previous efforts) (Aimag, Soum and Bag Centers); and (iii) plus 45,000 (current effort), leaving about heating stoves in herder households. 35,000 households with a SWHB system (20,000) or a traditional stove (15,000). Additional market for traditional stoves in Ulaanbaatar There is no reliable estimate for the number of secondary stoves; the In Ulaanbaatar there are four categories Stocktaking report found that 9% of the of additional stoves: (i) in households with households reported 2 or more stoves, more than one stove per household; (ii) in which would be an additional 16000 summer homes; (iii) in households of new traditional stoves. Moreover, a number entrants or non-eligible households; and of households living in apartments or in (iv) households which gave away or sold the ger districts have a summer home that their clean stove. most likely has a stove as well. Based on Experience suggests that quite a few discussions with PMU, MUB and MUST Ulaanbaatar households operate more staff, as a first order estimation it has than one stove in their household, or been assumed that 10% of the population have dwellings in more than one location: living in apartments owns a summer house households may live on a hashaa with more in the surroundings of Ulaanbaatar. Due than one (heated) building, and quite a to the rapid expansion of the city, many few households have a summer place that of these summerhouses are now located may also occasionally be used in the winter in the outskirts of town and could actually time. Although the majority of households contribute to air pollution. One thing is in Ulaanbaatar will soon have changed beyond doubt: how many summer homes 66 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy have a stove is not known, but it is certain no data on this practice, although a survey that all of them are traditional stoves. by MUB is underway. Assuming that this A final Ulaanbaatar category of is 9%, then another 16000 households are households not using low-emission stoves without low-emission stoves and should has earlier benefitted from the subsidy but ideally replace these. sold off their stove or gave it to relatives To summarize, the market in Ulaanbaatar outside the city. They most likely reverted for additional low-emission stoves shows back to using traditional stoves. There are the following technical potential: List of household categories Estimated numbers Households in ger areas with more than one stove 16000 Summer homes 17000 Currently non-eligible households 15000 Reverted back to traditional stoves 16000 Total to be supplied low-emission stoves 64000 It is noted that this number is only a outside. Taking into account an estimated rough estimate of the technical potential number of 160000 herder households, this Ulaanbaatar market, combining ger stoves leaves 190000 households in aimag, soum and stoves for detached homes with or and bag centers. without heating wall. However, it does The Stocktaking Report identified illustrate that the technical potential a total technical potential market of market for more low-emission stoves in about 27 thousand households out of 42 Ulaanbaatar could be large. It also means thousand living in Bayankhongor, Darkhan, that if these stoves are not with low- Khovd and Ondorkhaan. It can roughly be emission models, air pollution will always assumed that the percentage of households remain high17. with ger stoves, heating wall stoves, and Market for traditional stoves outside SWHB are the same in these four cities as Ulaanbaatar in Ulaanbaatar. An estimation for the number of Another category of households lives households in other aimag and soum outside Ulaanbaatar and has not benefited centers is 148000 (i.e., 190000 minus the from the program. They heard about population of the 4 cities surveyed in the the benefits for the households and the Stocktaking Report). Assuming that there air quality, and could be interested in are much less SWHB and relatively more replacing their stove(s). In certain larger gers and homes without heating wall, a soum centers and aimag centers air rough estimation for the total number of pollution is noticeable as well and at least existing traditional stoves is 130000. 8 cities have requested funds to develop an action plan against air pollution. There In summary, the following technical are as many households in Ulaanbaatar as potential for low-emission stoves is found in aimag and soum centers: 17 Based on the number of stoves and an emission reduction potential of 90% for low-emission stoves, overall air pollution from ger district heating could be reduced by about 60% if these secondary stoves continue to be used. If they were replaced too, air pollution could be reduced by 90%. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 67 Aimag and soum centers Estimated numbers Bayankhongor, Darkhan, Khovd and Ondorkhaan: 27000 Other cities 130000 Total 157000 Again, this total is for illustrative combined is about 155000 and 38000 purposes only; a real market study needs to respectively, or 535000 This is a rough be carried out for more reliable numbers. estimate only, not taking into account several other potential markets such as Market for traditional stoves in the summer homes for households outside country side Ulaanbaatar, tourist camps, and small A final category of households lives shops. The total number could therefore in the country side, isolated from other even be higher. households. They could possibly be With an average useful life of 10 years, interested in low-emission stoves because the potential annual replacement market of the benefits of the stove (no indoor could therefore be more than 50000 stoves. air pollution, longer burn time, less fuel), These numbers should be high enough to but currently use traditional stoves. They attract private sector suppliers to step in noticed the awareness campaign and and innovate, particularly now that there is advertisements for these stoves and are so much attention to low-emission stoves. fully aware of the benefits. There are The market size remains small (relative 160000 herders, and the trend is observed to other stove markets worldwide), but that they become less sedentary and also should be high enough to attract private start to construct winter homes, while in sector suppliers to step in and innovate. summer they move around the country The transition to a sustainable clean stove side with their ger. market in Mongolia will require supporting However, many of these households policies, even without large-scale subsidies use mainly animal dung, which may offered in the past. require a different stove type than for In the following sections, the market for using coal. The experience of households in stoves and low-emission stoves is further Ulaanbaatar now using Baganuur coal has analyzed and a strategy is presented to demonstrated that it matters which type of transform this into a sustainable supply of fuel is used. Thus, research into different low-emission stoves. fuels and stoves should be launched and results made known to consumers so that they buy the optimal stove for their prevailing fuel situation. While rural households can purchase low emission stoves from Product Centers, they should not be eligible for the subsidy. Summary of market for traditional stoves The theoretical market for better stoves could be large indeed: the total number of low-emission stoves and traditional stoves 68 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Annex 2: Program Cost and Benefit Analysis on Selected Scenarios Costs for rolling out the strategy current eligibility criteria. These costs need to be kept updated in pace with inflation T he estimated costs for implementing and other factors. Based on economic the national stove strategy are broken health benefits, the justified subsidy level down in the (i) operational costs for could be higher (see chapter below). realizing the stove sales, such as awareness campaign, training, testing, certification, The study team was informed that and PMU costs; and (ii) subsidy costs. Two some stakeholders are suggesting to different levels of sales have been assumed, subsidize the clean stove price down to the in Ulaanbaatar to cover the annual inflow level of traditional stoves. If the end-user of 15,000 households who should buy a price were to be equal to the retail price low-emission stove to maintain the current of a traditional stove, subsidy levels of air pollution benefits, and an increasing 50% and 40% are needed (see Scenario number per year in the aimags: a total of 2). The study team does not recommend 75,000 stoves distributed over 15 aimags. this strategy as it depends on a benchmark This results in the establishment of a low- traditional stove that will be phased out. emission stove market with an annual value The price of that stove is likely to fall of about USD 6 million. sharply once this policy is understood in the market. Nevertheless, it provides figures to The subsidy level is a percentage of the compare with alternatives. retail price of the stove in Ulaanbaatar plus the costs of installation; the subsidy thus The costs of the program in the Scenario covers the costs of installation, transport, 1 (market based subsidy model) are USD the costs of operating the PC, and quality 8.4 million. They rise by 54% to USD control plus a buy-down for the end-user. 13.0 million in the Scenario 2 (price fixing One potential option for the subsidy level subsidy model; price equal to traditional could be 20% in Ulaanbaatar and 30% in stove). The total costs of the program per the aimags (see table below). This subsidy stove are USD 70 and USD 109 respectively. level is low compared to the level applied to previous years, when the subsidy was 90% of the price (that created unrealistic market expectations of what a clean stove might cost). The lower subsidy level is suggested with the intention to especially avoid market distortions and give impetus to a sustainable supply. Without a sustainable low-emission stove supply, continued financial assistance will be needed continuously and this should be avoided. It is also based on cost information obtained from stove suppliers who confirmed that less expensive stove models are available that can meet UB’s Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 69 Scenario 1 –low subsidy level y1 y2 y3 Stove sales Aimags 20,000 25,000 30,000 UB 15,000 15,000 15,000 Subsidy Aimag 1,140,000 1,425,000 1,710,000 Subsidy UB 510,000 510,000 510,000 Awareness campaign 350,000 262,500 262,500 Training, testing, certification 200,000 200,000 200,000 PMU operations 250,000 250,000 250,000 Misc 122,500 132,375 146,625 Total costs 2,572,500 2,779,875 3,079,125 Scenario 2–intermediate subsidy level (price y1 y2 y3 paid equals traditional stove) Stove sales Aimags 20,000 25,000 30,000 UB 15,000 15,000 15,000 Subsidy Aimag 1,900,000 2,375,000 2,850,000 Subsidy UB 1,020,000 1,020,000 1,020,000 Awareness campaign 350,000 262,500 262,500 Training, testing, certification 200,000 200,000 200,000 PMU operations 250,000 250,000 250,000 Misc 186,000 205,375 229,125 Total costs 3,906,000 4,312,875 4,811,625 Net Economic Benefits of implementing spent on program management per year the strategy and that in total there have been 5 years of The costs for implementing the stove stove switching activities, total estimated switching activities leading to about costs spent so far on stove switching are 135,000 households with a clean stove in USD 69m. Ulaanbaatar are not known but can be According to the World Bank study18, estimated. MCC allocated about USD 30m the annual economic health costs resulting mainly for stove switching, which was from air pollution amount to USD 687 matched by CAF to yield about 110,000 million in Ulaanbaatar in 2009. Three stoves. Under UBCAP some 25,000 stoves intervention scenarios of stove switching were disseminated for a total cost of about are considered, whereby the highest USD 4m. The unknown costs for program scenario assumes that 80% of the stoves management should be added to this. are switched, leading to annual economic Assuming that not more than 1m USD was health benefits of USD 74m19. It is noted Air Quality Analysis of Ulaanbaatar Improving Air Quality to Reduce Health Impacts, World Bank, 2011 18 Three scenarios are used: 30%, 50% and 80% success rate; the corresponding annual benefits are USD 19 22m, 40m, and 74m. 70 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy that the actual performance of the current USD 463 per year per low-emission stove low-emission stoves is higher than what in use21. The actual one-time subsidy paid was assumed in the World Bank study20. until now ranged from USD 250-350 per The same report estimates the estimated stove: this level of costs is far below the present value of health benefits from annual economic benefit obtained from intervention over a 13 year period from using these stoves. stove switching to be USD 1605m. In this The main economic benefit from scenario, PM2.5 reductions are 65% in implementing the strategy is the fact that terms of estimated population weighted the current level of health benefits in average concentration reduction. There Ulaanbaatar can be maintained and does are no estimates for 2013 or 2014. In the not deteriorate. This level of benefits (USD absence of actual data, the current analysis 74m/year) is far higher than the costs for cannot give precise results but can show implementing the entire strategy, which the boundaries. does not surpass USD 13m. Even if the Assuming that the economic costs of air total costs of switching 135,000 stoves pollution are the same in 2014 as in 2009, under the current and past programs are this translates into an average cost of almost added to the costs for the national stove USD 2000 per household. The benefits of switching strategy, the costs for stove USD 74 million as estimated under the 80% switching are far lower than the sustained AMHIB scenario are equivalent to USD 211 health benefits in Ulaanbaatar. per year per household in Ulaanbaatar, or Year 0 1 2 3 Costs (million USD) Past programs combined + UBCAP so far 97 Strategy rural 2.6 2.8 3.1 Total 97 2.6 2.8 3.1 NPV costs 94 PV benefits from AMHIB 2010-2023 1406 Assume 50% for period 2010-2014 703 Total nr low-emission stoves 110000 145,000 185,000 230,000 The above table shows estimated costs USD 94m, are indeed far lower than just of all past + current + proposed national the health benefits in Ulaanbaatar, USD program together, compared to the present 703m. value of the health benefits in Ulaanbaatar Although the precise benefits from only over the period 2010-2014. Health implementing the national stove switching benefits in the aimags, fuel savings for all strategy are difficult to estimate, it is clear households with low-emission stoves, and that they far exceed the costs. It is highly employment generation from setting up justified to implement the strategy as the supply chain of low-emission stoves proposed in this document. have not been incorporated. It is shown that the net present value of the costs, The study considered maximum PM 2.5 reductions of 90%, while the stoves yield > 96% reductions. 20 There are about 135,000 low-emission stoves disseminated so far. 21 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 71 Annex 3 Cost of installing stoves in the Aimag and Assumptions Summary costs of transport, installation, QAA, PC costs per stove, MNT Transport costs per stove 17,846 Return old stoves 17,846 Training costs 401 Supervision costs (from UB) 2,232 Operational costs PC 1,932 Staff costs PC 312 Stove installation costs 13068 QAA costs 1,941 Miscellaneous 8,337 63,915 Exchange rate 1750 Total costs USD 36.5 Assumptions Truck 5 Ton Number of stove for trip 65 Number of households per aimag 5,000 Distance of aimag 800 Km Transportation rate per ton/km 290 MNT per t.km Number of PCs -3 per aimag 3 Number of QAA staff 16 Number of supervisors 2 persons 3 time per aimag Number of trainers 2 time per aimag Duration of stove sale 3 Months Sales per day 56 stoves sold/d in total Sales per day 19 per PC Days per month 30 Total 5,040 Description of expenditures Training cost /MNT/ Trainer's salary (2 persons) 700000 Travel cost (by flight) 1100000 Hotel and perdiem (2 nights) 180000 Training tools 24000 Total 2004000 Cost per stove 400.8 Description of expenditures Supervision cost /MNT/ Supervisors (2 persons) 3 times 2100000 Travel cost (by flight) 3300000 Hotel and perdiem (2 nights) 3780000 72 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy Laptop/modem/camera/telephone 1980000 Total 11160000 Cost per stove 2232 Description of expenditures Operation cost of 3 PCs /MNT/ Computer 4800000 Printer 1450000 Stationary 670000 GPS android cell phone 900000 Broshur 1500000 Poster 90000 Placat 180000 72000 Board 9662000 Cost per stove 1932.4 PC staff 2 Staff per PC 65000 per month Salary 4 Months Duration 3 Number of PC 1560000 Total 312 Per stove QAA cost /12 persons/ /MNT/ Description of expenditures 12 Number of staff per PC 5000 Number of hh to visit 2 Duration /months/ 4,680,000.00 Salary of QAA staff 5,000,000.00 Transport costs 24000 9,704,000.00 Communication 1940.8 Cost per stove Installation costs 3 Number of months 8 Stoves per day installed per team 2 Teams per PC 16 Stoves per day installed 2 Persons per team 1 Trucks per team 65000 per month Cost staff 175000 per day Costs truck Cost overview 1 PC permonth 780000 Staff 21000000 Transport 21780000 Total 13068 Per stove Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 73 Annex 4 Stove Subsidies Why should the subsidy mechanism prices. The applied end-user prices for change? different models, even with different I n order to sustain and increase the air sizes, shapes, finishes, etc., are quality benefits in UB and in polluted practically the same22. Aimags, (i) a reliable supply of low-e (iii) The lack of incentives to supply stoves is needed; and (ii) households need lower cost models poses a significant to be motivated to switch from using their risk to UB air quality. If the high traditional stoves to a new clean stove level of subsidy is abruptly stopped even before the end of the life-cycle of and not replaced with a modified the traditional stove. The Government subsidy mechanism, and there are no of Mongolia decided to complement the alternative models, traditional stoves MCA’s consumer subsidy so as to further will regain market share. In the absence accelerate stove switching in Ulaanbaatar. of a modified approach, this is the This brought about unrelistic market current most likely scenario that will be expectations for a secondary market realized. for re-selling stoves to residents outside (iv) Suppliers confirmed that it is Ulaanbaatar. In addition, the subsidy feasible to supply different models mechanism used in the past now forces of low-e stoves with good emission the UB municipality to negotiate retail performance but at lower list prices. prices and subsidy levels for each stove Some current models might not be model with stove suppliers. While targeted suitable to produce locally, but the subsidies can be a useful tool to promote private sector should be able to find large-scale switching, the current subsidy ways to modify models to meet mechanism should not be used for the regulations and market needs. following reasons: (v) A larger variety of low-e stoves would (i) The information on unit costs is be beneficial to more quickly promote asymmetrical – the suppliers always switching of stoves. have more information than the In principle, the current subsidy government on the production and comprises 3 separate elements that distribution costs of their products. As each motivates the end-user in its a possible consequence, the current own rights; the value of the subsidy subsidy mechanism may have driven is justified based on future economic list prices of currently eligible stoves health benefits that are considerable: higher than they would be if sold on (i) Replacement component; households the market without a subsidy. Suppliers hand in their old stove which represents enjoy other benefits such as tax breaks a value to them; and import duty exemptions also. (ii) Equalization component; to render the The lack of price competition creates (ii) price of the low-e-stove similar to the no incentives to bring down costs and Stoves with list prices that range from US$ 167 – 254 are sold to end-users for USD 17.6 – 22.0. 22 74 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy traditional stove; households are able of the switch-out program as well as new to purchase a traditional stove, so they stoves that have not yet been formally should be able to buy a low-e stove at tested for eligibility are presented in the that price level too; table. It is noted that black market low-e (iii) Promotional component; to convince stoves are currently sold for approximately households to buy a low-e stove now 50% of the list price, around USD 200. rather than in the future. The NCAPR and MUB should no longer How would a revised subsidy mechanism negotiate prices with suppliers but simply work? fix the subsidy level. Retail prices should be used as benchmarks that should be This report suggests a strategy monitored regularly as basis for further and options for a strategy for the UB modifications to the subsidy level. municipality and the Government of Mongolia of negotiating directly with The justification for the subsidy is stove suppliers and offer a fixed subsidy based on health, fuel savings and comfort amount irrespective of list prices. In this benefits for households buying the stove, way, the government protects its public as well as on the benefits of improving the interest by: (i) ensuring any stove model air quality in the aimag or soum center and purchased from now on complies with also for maintaining the air quality benefits its emissions reduction targets and other in UB. regulations; (ii) stays out of commercial considerations and leaves this entirely to the private sector; (iii) yet provides an incentive to stimulate demand for clean stoves. Stove suppliers would submit stoves for performance testing, the SEET lab would report test results to producers and the UB city/NCARP, and the UB city/ NCARP would evaluate the tests and other documentation to determine if the models and suppliers meet their eligibility criteria. The table below presents different scenarios for the reformed subsidy mechanism using the same fixed amount of subsidy for all clean stoves. The NCARP and UB municipality would need to use its own judgment, informed by discussions with suppliers and its own research, as to the retail prices needed to stimulate demand. It is recommended to phase out the subsidy over a transitional period of 2-3 years. The table below shows approximate list prices of different low-e stoves and the effect of the new subsidy: both stoves that have been supported under earlier phases Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 75 Overview of list and end-user prices list price Subsidy end-user Stove type Subsidy level (USD) (USD) price (USD) 90% 300 270 30 2010 - 2014 seasons 250 225 25 30 USD 175 30 145 low-e stove Option A season 2014/2015 125 30 95 50 USD 175 50 125 Option B season 2014/2015 125 50 75 - 80 - 80 Traditional stove 60 - 60 Illegally sold - 200 - 200 Low-e stove The first line in Table 1 illustrates applied Subsidy Mechanism Options subsidy levels during the earlier phases All stove suppliers with stoves that of the stove switching program, with a satisfy the eligibility criteria can be subsidy level of around 90% and stoves supported. Three different options are with list prices between 250 and 300 US$. distinguished. End-users paid far less than the cost of Option a: fixed percentage subsidy a traditional stove. For the next heating season, it is proposed to apply a fixed Households receive a fixed subsidy subsidy level for all stoves. The second percentage for a low-e stove purchase line uses US$ 30 per stove and the third although this is paid directly to the supplier line US$ 50 per stove. Depending on the to buy down the price. Suppliers need to list price of the low-e stove, the end-user transport the stove to the household, install price is around the price of a traditional it, and provide training in the proper use stove. The price fixing of the subsidy level of the stove. The supplier needs to provide is expected to yield a downward trend of proof of payment by the household and the list prices of low-e stoves. evidence that the stove is installed before he can collect his subsidy. He can request Although the end-user price of low-e subsidy payment after a certain number of stoves under the new subsidy mechanism stoves have been installed (i.e., 100). Prices is higher, this is fully justified as other of the stoves would need to be checked benefits prevail that are associated to the from time to time. use of these stoves that could be enough to convince them to switch: longer duration Option b: fixed subsidy of the heating period of the stove on a This is similar to option a except that load of coal, reduced fuel consumption/ the subsidy level is the same for all stoves. higher efficiency, and better heat output This may have the added benefit that controllability. even lower-cost stoves are identified by suppliers. Very low-priced stoves could occur. In addition, it is less important or necessary to monitor stove prices. 76 Clean Stove Initiative – Mongolia National Low Emission Stove Strategy The advantage is that this system is simple to administer. A QAA should check part of the installations, with a larger sample early on in the program and a smaller sample once it is established that the supplier operates correctly; monitoring requirements are less stringent than under the current program because the subsidy level is much lower and in principle all households are eligible. If the quality of stoves from a certain supplier declines, he will be warned and eventually disqualified if the problems persist. Option c: incentive package In this scenario, support is provided to suppliers during six month campaigns for competitively selected stove models. This might stimulate suppliers and keep them alert, and it is simpler to control the quality of the stoves. The variety of stoves available for dissemination might be more limited, and could change after every six months. The price of the stoves to end- users is likely to be lowest from the three options. Six contracts are issued to the lowest bidders, two each for three different supply quantities over a 6 month period: 10,000 stoves, 5,000 stoves, and 1,000 stoves. For each supply level, the supplier who requests the lowest amount of subsidy will be selected as well as the runner up. They can sell their stoves during 6 months; the sales levels are capped at the supply level for which they submitted a bid, and they receive their subsidy once they provided proof of sale and installation of batches of 100 stoves. The added advantage is that the subsidy level may change (reduce) after six months. Clean Stove Initiative – Mongolia National Low Emission Stove Strategy 77