Bob Annibale

Via London and Seattle, Microfinance and Carbon Credits Intersect in Ulaanbaatar

In Ulaanbaatar, the capital and largest city in Mongolia, more than one quarter of the population lives in “gers,” the traditional and ubiquitous tent-like structures (similar to “yurts” in other locales). Gers are traditionally under-insulated and heated by inefficient coal-burning stoves that contribute to Ulaanbaatar’s stifling air pollution.

Now, in a deal that spans the work of parties in Mongolia, London, and Seattle, Citi’s Environmental Products Trading and Origination team, working with Citi Microfinance, has agreed to purchase 1.17 million metric tonnes of carbon credits. These credits will be generated by capturing reductions of greenhouse gas emissions following the installation of more efficient household insulation and heating fixtures, like energy-efficient stoves and “ger blankets,” in many of Ulaanbaatar’s gers. The purchase and installation of the fixtures will be funded through microloans from Mongolia’s XacBank.

Here’s how it works: The reductions in household emissions accrued through the use of energy efficient fixtures will be earned by XacBank clients and then assigned to Seattle-based social enterprise MicroEnergy Credits, which develops carbon finance projects and brings clean energy to low-income microfinance households in developing countries. (For more on MicroEnergy Credits, read a past NextBillion story here). MicroEnergy Credits will then quantify, aggregate, and sell the credits to Citi, which will monetize these credits on the European Union Emissions Trading Scheme. Portions of the proceeds from Citi’s carbon credit purchases will be distributed by MicroEnergy Credits back to XacBank, allowing the Mongolian lender to expand its clean energy program, build additional marketing and distribution centers, and increase access to affordable clean energy loans.

The purchase program will take place over the next seven years, with the first carbon credits expected to be available for purchase by Citi in March 2013. The program is in the process of being registered and approved through the Clean Development Mechanism run by the United Nations Framework Convention on Climate Change.

The global collaboration will lower the rate of fossil fuel consumption and carbon emission in Ulaanbaatar. Equally important, the arrangement increases the capacity for low-income ger occupants to access credit to make home energy efficiency improvements, save money, and limit their harmful environmental impact. It is an innovative example of using creative microfinance to address community needs, and a model the collaborators hope to apply in other initiatives and countries.

(Flickr credit: Scalino)

Bob Annibale is the Global Director of Citi Microfinance and Citi Community Development.

microfinance, rural development