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Mongolia: Moving Beyond Financial Incentives to Meet Energy Efficiency Goals

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Crossroads Asia | Environment | Central Asia

Mongolia: Moving Beyond Financial Incentives to Meet Energy Efficiency Goals

Non-financial incentives could prove useful for increasing energy efficiency in developing countries with tight budgets. Mongolia is a prime example.

Mongolia: Moving Beyond Financial Incentives to Meet Energy Efficiency Goals

Erdenet Thermal Power Plant, Mongolia

Credit: Rachel Thibeault

Sitting inside the warmth of the iconic Millie’s Espresso in Ulaanbaatar and watching cold air plume behind the vehicles driving by, it’s easy to forget how quickly that comfort can disappear. 

As temperatures drop and weather grows more erratic in the face of climate change, Mongolia’s energy systems are struggling to keep up with heating and electricity demand. Rolling blackouts are becoming more frequent and lasting longer; one of Mongolia’s main sources of energy imports, Russia, is becoming less reliable as it focuses its attention toward Ukraine.

Mongolia is facing a serious, complicated, and rapidly escalating energy crisis. Solutions to these problems do not come easy. Updating energy systems eats into both time and budgets – something that its industries and government cannot afford.

Since the adoption of Mongolia’s State Policy on Energy for 2015-2030 in 2015, the country has been searching for new, cheap, and creative ways to meet its promise of reducing energy sector related greenhouse gas emissions by 20 percent by 2030. Increasingly, energy efficiency is being called on as a quick and cost-effective option. Finding ways to use less energy for the same tasks helps reduce strain on existing energy systems, cuts energy bill costs, secures long-term steady energy supply, and reduces pollution.

Many countries across the globe are moving in a similar direction to Mongolia, searching for the best incentives to convince their populations to change consumption patterns. Financial incentives – monetary benefits paid to encourage specific behaviors – prove an especially popular and effective choice for countries that can afford to use them. South Africa, Canada, China, and India all feature prominent financial incentive components in their respective programs. 

The problem is that, like Mongolia, not all countries can afford to allocate massive amounts of money toward energy efficiency projects. As will be shown in our upcoming report (May 2024), our team discovered something interesting from speaking directly with local Mongolian industrial firms: they aren’t especially interested in financial incentives

Most firms prefer other options like awards and recognition, increased access to energy saving information, and capacity building resources. Of all local firms our team surveyed, 60 percent showed a preference for awards and recognition for energy saving efforts. As framed by one respondent, doing something like announcing an official “Best Energy Efficiency Manager” every year would help motivate them to do more.

Clearly, money isn’t the only motivating factor for these firms to become more energy conscious, and ignoring that fact will cost more in the long run. In our interviews, we repeatedly noticed an eagerness to act, but a lack of knowledge about where to begin. This highlights the importance of social awareness, and how that affects accountability in energy crises – raising energy consciousness helps lead to simple actions such as turning the lights off when not being used, or being more mindful of heat usage.

For governments struggling to come up with the money required to motivate local firms, this is fantastic news. Many non-financial incentive options need very little government supervision and funds to run smoothly, and take very little time to plan and put in action. A perfect example is information sharing networks. They connect stakeholders to one another, allow them to post peer-advice for energy efficiency, and act as a streamlined, low-effort way to provide information. 

Developing countries don’t need to reinvent the wheel, either. Countries across the globe have already experimented with different programs and solutions, such as Energy Conservation Awards or improving existing training systems. They’ve created a treasure trove of useful information for developing countries, which may not otherwise have the resources to start from scratch. This helps skip a huge step in the typical policy process, saving both time and money.

Non-financial incentive based approaches also help lay the groundwork for future sustainability projects. They provide capacity building and information resources to companies, which helps them prepare for the integration of new technologies and systems further down the line. This is essential for addressing environmental challenges in developing countries, such as climate change mitigation and green growth. It creates a solid base on which longer energy transition projects can be built. 

When it comes down to it, for countries that have the resources easily available, financial incentives present low-hanging fruit because they’re quick and simple to implement. It’s important to remember, though, that it’s not the only tool in the policy kit. Especially in developing contexts, non-financial incentives can help provide similar outcomes but at a lower cost. Money talks, but when we mix it with other solutions, its impact goes much further.