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Cover design: Bakus design LLC December 2024 Policy Note Mongolia INVESTING IN NATURE AS A CLIMATE AND DEVELOPMENT OPPORTUNITY FOR MONGOLIA P178217 Environment, Natural Resources & the Blue Economy INVESTING IN NATURE AS A CLIMATE AND TABLE OF CONTENTS DEVELOPMENT OPPORTUNITY FOR MONGOLIA Acknowledgements iv Abbreviations v Key Messages vi Executive Summary vii The imperative of reconciling rural productivity with resilience and natural vii capital management Investing in nature to achieve growth and resilience at scale viii Mongolia’s trajectory on investing in nature: lights and shadows ix Harnessing the opportunity of nature: a whole-of-economy effort ix x 1. Introduction 1 2. Setting the Stage: The Economy, Natural Capital, and the Climate Change Challenge 3 2.1 The Economy 3 2.2 The Natural Resource Asset Base 4 2.3 Climate Change and its consequences 10 3. The Opportunity of Nature-based Solutions (NbS) 15 4. The Policy, Legal, and Institutional Framework for Nature-based Solutions 19 5. The Quest for Public and Private Finance 30 5.1 Estimated Costs and Currently Available Financing 30 5.2 Potential Funding 33 6. Policy Recommendations: Harnessing Institutions and Finance for NbS 42 Appendix 1: Policy Documents Relevant to Nature-based Solutions 48 Appendix 2: Land Use Efficiency 49 Appendix 3: Nature-based Solutions for Potential Adoption in Mongolia 52 Appendix 4: EX-ACT Analysis of the Proposed NbS for Mongolia 56 Appendix 5: NbS Pilot Area Details 63 Appendix 6: Proposed Mongolia Reforestation Fund 64 REFERENCES 65 FIGURES Figure 1 Nature-based Solutions for Sustainable Development 2 Figure 2 Mongolian Forest Areas 6 Figure 3 GHG Emissions by Scenario 13 Figure 4 Mongolia’s GHG Emissions and Removals by Sector in 2020 13 Figure 5 Mongolia’s Total and Net GHG Emissions and Removals by Year, 14 1990–2020 Figure 6 Per Capita GHG Emissions by Country and Year 14 Figure 7 Impact of Implementing NbS on Net GHG Emissions 17 Figure 8 Simplified Forest Institution Organization Char 22 Figure 9 Environmental Taxes by Year and Sector 34 II TABLE OF CONTENTS Figure 10 Revenue from the Natural Resource Fee and its Environmental 34 Expenditure Figure 11 Domestic Sector Credit to the Private Sector (percent of GDP) 38 Figure 12 Carbon Credit Markets 39 Figure A2. 1 Sustainable Landscape Efficiency Frontiers and Current Performance 49 Showing the Potential for Simultaneous Gains in Carbon Storage and Net Economic Returns under Current Climatic Conditions Figure A2. 2 Land-use Transitions in Hectares from Current Land Use to Land Use 50 on the Efficiency Frontier Figure A6. 1 Afforestation/Reforestation Fund Structure as Proposed by UNDP in 2022 64 MAPS Map 1 Map Showing Forest Cover and Protected Areas 6 TABLES Table 1 Major Land Use Types in Mongolia, 2019 4 Table 2 Forest Area, by Type 6 Table 3 Estimated Annual Roundwood Consumption 10 Table 4 Wildfire Areas Burned, by Year 12 Table 5 Selected Extracts from the National Adaptation Plan Showing Adaptation 16 Priorities and Targets with Estimated Funding Requirements Table 6 Abatement and Implementation Costs, and Estimated Sequestration over 32 10 percent of the Operational Area for Six NbS Investment Models Table 7 Estimated Costs of Implementing NbS in the context of broader NDC 32 and BTNM Measures Table 8: Next Steps and Possible Time Frame 47 Table A3. 1 Summary of the Nature-based Solutions as Proposed by Glauner et 52 al., 2023 Table A3. 2 GHG Mitigation Potential by NbS Model 54 Table A3. 3 NbS Adaptation Benefits 54 Table A4. 1 List of Investment Models/NbS Interventions Supported by the Project 57 Table A4. 2 Land Use and Land-use Change Dynamics Supported by Mongolia 59 NbS (1-6) Table A4. 3 Land Use and Land-use Change Dynamics Supported by Mongolia 59 NbS (10-13) Table A4. 4 GHG Balance - Results of the ex-ante GHG Analysis in tCO2e NbS (1-6) 61 Table A4. 5 GHG Balance - Results of the ex-ante GHG Analysis in tCO2e NbS (10-13) 61 Table A4. 6 Results of the EX-ACT Analysis of the Proposed NbS Measures 62 BOX Box 1 The Billion Tree National Movement (BTNM) in Mongolia: Progress 20 and Expected Contributions III INVESTING IN NATURE AS A CLIMATE AND ACKNOWLEDGEMENTS DEVELOPMENT OPPORTUNITY FOR MONGOLIA This Policy Note was written by Andrew Mitchell (Lead Forestry Specalist, Consultant) and Giovanni Ruta (Team Task Leader, TTL – Lead Environmental Economist), supported by a team comprising Orgil Batsukh (Environment Specialist), Delgerjargal Dugarjav (Environment Specialist, Consultant), Zoljargal Sainbuyan (Environment Specialist, Consultant), Stavros Papageorgiou (Senior Natural Resources Management Specialist), Angar Enkhtur (Program Assistant) and Sukhchimeg Tumur (Team Assistant). The Policy Note synthesizes the results of collaboration between the Government of Mongolia (GoM) and the World Bank that produced a body of analytic and advisory work that can be used to generate policy-relevant knowledge to manage and finance Nature-based Solutions (NbS), to address development and climate change challenges. The team is grateful for the precious support and collaboration with the National Forest Agency (NFA) of Mongolia and its Director-General, Dr. Oyunsanaa Byambasuren, who provided data, information and insight for the development of this Policy Note. The NFA contributions have been instrumental in shaping its content and ensuring its relevance to the forestry sector. The background reports that underpin this Policy Note where authored by: Reinhold Glauner, Delgerjargal Dugarjav, Munkh-Erdene Altangerel, Walter Kollert and Robert Davis for the report on “The Potential of Nature-based Solutions for Climate Change Mitigation and Adaptation”; Nelson Gapare and Robert Davis for the report on “Options for Financing Nature-based Solutions in Mongolia”; UNIQUE team for the report on “Restoration of degraded landscapes and large-scale tree planting in the context of Mongolia’s initiative ‘The Billion Tree National Movement’”; and Peter Hawthorne, Haku Bo and Stephen Polasky for the report on “Potential Efficiency Gains in Carbon Storage and Economic Returns under Current and Potential Future Climate Change: Addressing Vulnerability in Mongolia’s Agriculture and Forestry Sectors”. The Policy Note was prepared under the overall direction of Taehyun Lee (Country Manager, Mongolia), Christophe Crepin (Environment Manager, East Asia and the Pacific), Ann Jeannette Glauber (Environment Manager, South Asia), Yaa Oppong (Program Leader, China, Mongolia and Korea). We are grateful for the rich insights and feedback received from peer reviewers Tuukka Castren (Senior Forestry Specialist); José Luis Diaz Sanchez (Senior Economist); Talimjan Urazov (Senior Agricultural Specialist). IV ABBREVIATIONS ABBREVIATIONS AAC annual allowable cut BAU business as usual BTNM Billion Tree National Movement CO2e carbon dioxide equivalent CSA climate-smart agriculture °C degree Celsius DET Department of Environment and Tourism EX-ACT Ex-Ante Carbon Balance Tool (FAO) F&PMIS Forest and Pasture Management Information System FDI foreign direct investment FUG forestry user group GDP gross domestic product Gg gigagram GHG greenhouse gas GIS Geographic Information System GoM Government of Mongolia GPS Global Positioning System ha hectare HAC high-activity clay IFC International Finance Corporation LULUCF Land Use, Land Use Change and Forestry m3 cubic meter MECC Ministry of Environment and Climate Change (from July 2024) MED Ministry of Economy and Development MET Ministry of Environment and Tourism (until July 2024) MNT Mongolian tughrik, the Mongolian monetary unit MoFALI Ministry of Food, Agriculture and Light Industry MtCO2e metric tons of carbon dioxide equivalent NAP National Adaptation Plan NAPCC National Action Program on Climate Change NAPCD National Action Program for Combatting Desertification NbS Nature-based Solutions NDC Nationally determined contribution NFA National Forestry Agency NFPUG National Federation of Pasture User Groups of Herders NSO National Statistics Office of Mongolia ODA Official Development Assistance OECD Organisation for Economic Co-operation and Development PFEs Professional forest enterprises PUG Pasture User Group SD VIS Sustainable Development Verified Impact Standard SDG Sustainable Development Goal SFM Sustainable Forest Management SLLs sustainability-linked loans SME small and medium-sized enterprise tCO2e tonnes carbon dioxide equivalent V Key Messages Mongolia has harsh natural and climatic conditions, with human-induced degradation worsening the impact of the increasing climate risks. Climate change is increasing the frequency and intensity of droughts, floods, and dzuds, damaging infrastructure and impacting livelihoods. Climate change is exacerbating existing environmental pressures, particularly land degradation and desertification. Over the last 30 years, the number of natural disasters has nearly tripled. Extreme weather and natural disasters between 2001 to 2021, caused the death of 539 people and 29.8 million animals, at a cost of MNT 681.8 billion (US$197 million). These challenges are compounded by poor land management, such as failing to control overgrazing and not harmonizing the management of the constituent parts of the landscape (rangeland, forests, water catchments, and protected areas). This, in turn, further increases environmental pressures, particularly land degradation and desertification. Solutions to these challenges can come from nature itself, partly through investing in the integration of the management of grassland and forest ecosystems. Nature-based Solutions (NbS) (such as reforestation, forest and grassland restoration, and wetland conservation) help tackle climate change adaptation and mitigation and create more productive livelihoods while offering a cost-effective and sustainable approach to many of Mongolia’s climate and development challenges. Modeling shows that it is possible for Mongolia to increase both carbon storage and economic returns from grazing, forestry, and crop production by optimizing land use. From a resilience perspective, NbS can address drought and desertification risks in drylands, buffer urban areas from flashflood impacts, improve water flow, and provide shelter for livestock during harsh weather. Importantly, increasing resilience can lead to increases in productivity. Moreover, NbS can support the forest to significantly increase absorption of the country’s fast-growing emissions from energy and agriculture. For example, implementation of selected NbS over a fraction of the country’s vast area could reduce Mongolia’s 2030 carbon emissions by 12.5 metric tons of carbon dioxide equivalent (MtCO2eq) per year, at an estimated cost of US$80 million per year for seven years. This would double the relative emission reduction target currently contemplated in Mongolia’s nationally determined contribution. However, while Mongolia has put nature at the heart of its policy and investment toolbox, it needs to fill important gaps in terms of integrated planning, implementation capacity, and financing. The Billion Tree National Movement, which builds on the country’s long-term efforts to develop the economy and infrastructure based on its endowment of natural resources, aims to plant 1.51 billion trees by 2031 at an estimated cost of US$8.89 billion, with benefits encompassing improved adaptation and carbon sequestration (with an estimated potential of 1.8 MtCO2e per year). However, implementation faces challenges, including funding constraints, inadequate institutional capacity, lack of robust monitoring frameworks, inadequate private sector participation, and limited human resources. Building on the Government Program of Action 2024–2028, a whole-of-economy effort, involving public and private actors and leveraging a variety of tools, including carbon finance, is required to develop the full potential of nature to boost resilience and development opportunities. The central government will be instrumental in developing an integrated landscape management policy that includes multistakeholder participation, multisectoral frameworks, and coordination of management decisions over natural capital assets. It will also be key to strengthening institutional capacity and providing financial support and incentives—including carbon finance—for NbS initiatives that contribute to a thriving rural economy through agriculture, forestry, and nature-based tourism. Local governments should play a key role in implementing these policies, ensuring community participation, and promoting sustainable land management practices. Local stakeholders, including herders and forest users, need to be empowered and supported to adopt climate-smart practices. Technology, targeted public sector investments, and extension services will allow the creation of space for the private sector to invest in green value chains, sustainable forest management, and livestock sector improvements. 6 EXECUTIVE SUMMARY EXECUTIVE SUMMARY The imperative of reconciling rural productivity with resilience and natural capital management The management of natural capital in Mongolia is crucial to achieving sustainable growth and improving livelihoods. Mongolia’s rich natural resources, including its grassland, wetland and forest ecosystems, and biodiversity, support key economic sectors like agriculture and tourism. Effective management can enhance economic diversification, create jobs, and ensure long-term environmental sustainability, thereby improving the well-being of its population.1 However, challenges such as land degradation and climate change are hindering achievement of these goals. While agriculture, the second-largest sector after mining, accounts for 13 percent of gross domestic product (GDP) (87 percent from livestock)2 and 23 percent of employment, the natural capital that underpins it is threatened by degradation. As much as 70 to 88 percent of Mongolian pasture is degraded by overgrazing.3 From 1987 to 2020, the area of productive rangeland decreased from 124 million hectares to 110 million, while livestock numbers more than tripled to between two to seven times the carrying capacity. Herding also provides subsistence to much of the rural population. The forestry sector has high capital value but a low and undervalued contribution to GDP (0.3 percent).4 Climate change is having an increasingly significant impact on the economy, 1 World Bank 2020. with the northward expansion of arid and hyper-arid land cover.5 Projections 2 National Statistics Office of Mon- to 2050 have shown that the frequency of drought will increase by 5 to 45 golia, Mongolian Statistical Informa- percent, and the frequency of dzuds6 will increase 5 to 40 percent. A flood in tion Service; https://www.1212.mn/. 1966 inundated 24.9 square kilometers of land. A similar event projected for 3 MET 2021a; ADB 2022. 2050 would cover an area 21 percent larger. The wildfire area is expected to 4 MET 2021b. increase by 9 percent by 2050.7 Changes in the distribution of tree species 5 World Bank 2024; MET 2018. is expected, with a reduction of forest cover of between 1 and 6 percent by 6 A dzud is a cold-season disaster in 2081–2100. Permafrost areas (29 percent of the country in 2015) are set which anomalous climatic (that is, heavy snow and severe cold) and/ to decline to just 1 percent by the 2090s. Dzuds, droughts, and floods are or land-surface (snow/ice cover already becoming more frequent and intense. The average annual livestock and lack of pasture) conditions lead to reduced accessibility and/or losses from dzuds could be 4.1 million animals per year by 2050, rising to availability of forage/pastures, and 6.8 million by 2100. Dry, windy springs delay grass regrowth, leading to slow ultimately to high livestock mortality during winter–spring. Severe dzuds herd recovery.8 Most precipitation falls during July and August, with changing (high mortality) result from a combi- rainfall patterns resulting in frequent flooding and drought. Around 18 percent nation of growing-season drought and severe weather (Natsagdorj of the population is exposed to flooding. Many schools, hospitals, and other and Dulamsuren 2001). urban infrastructure are flood-prone. 7 MET 2024. 8 UNDP 2023. Mongolia’s comprehensive Program of Action for 2024–2028, which addresses climate change, is built on the principles of promoting sustainable development and economic diversification, complements the country’s nationally determined contribution (NDC), and serves as a key vehicle for building resilience and a greener economy. The program stresses how VII INVESTING IN NATURE climate change action presents a significant development opportunity for AS A CLIMATE AND Mongolia by fostering economic diversification, enhancing environmental DEVELOPMENT sustainability, and improving public health. In addition, Mongolia has set OPPORTUNITY FOR ambitious targets under its NDC. Mongolia plans to reduce its greenhouse MONGOLIA gas (GHG) emissions from the business-as-usual (BAU) scenario by 22.7 percent by 2030, primarily through reductions from the energy and agriculture sectors.9 The NDC does not have a specific target for afforestation.10 This constitutes a missed opportunity, as forests are a major carbon sink. Until 2011, the country’s large forest estate captured more carbon than was emitted. Between 1990 and 2020, GHG emissions rose by 82 percent, and by 2020, net annual emissions were around 50 MtCO2e and were predicted to rise to 74 MtCO2e by 2030. Per capita emissions are about double Uzbekistan’s.11 9 Government of Mongolia’s Na- tionally Determined Contributions Investing in nature to achieve growth and resilience at scale to the UNFCCC, 2019 updated 2020; https://unfccc.int/sites/de- fault/files/NDC/2022-06/First%20 Land use optimization models show it is possible to increase both Submission%20of%20Mongo- lia%27s%20NDC.pdf. sustainable economic returns and carbon sequestration, even after 10 Afforestation is the process of accounting for the impacts of climate change. The sustainable management planting trees on land that has of grazing and forest land allows the generation of stable income streams not been forested before, or has not been forested for a long time. even after accounting for the impacts of climate change on land productivity. Reforestation is the conversion of Sustainable pasture and forest management can generate socioeconomic previously forested land back to forest. benefits and increase carbon sequestration. The estimates presented in this Policy Note show that the implementation of selected Nature-based Solutions 11 World Bank World Development Indicators database; https:// to climate change mitigation over a land surface covering 430,000 hectares databank.worldbank.org/source/ could contribute to doubling the country’s current NDC target by adding an world-development-indicators. extra 23 percent reduction per year by 2030, at an estimated incremental cost 12 The United Nations Environment Assembly formally recognized of US$80 million/year for seven years. Nature-based Solutions and defined them as “actions to protect, conserve, restore, sustainably use Managing natural capital also provides a cost-effective, environmentally and manage natural or modified friendly alternative or addition to built infrastructure in adapting to climate- terrestrial, freshwater, coastal and marine ecosystems, which address related hazards. Grey infrastructure, such as dams and flood defenses, can social, economic and environ- be costly and ecologically disruptive. Nature-based Solutions (NbS),12 such mental challenges effectively and adaptively, while simultaneously as reforestation, grassland restoration, and wetland conservation, offer providing human well-being, sustainable ways to combat land degradation while promoting biodiversity ecosystem services and resilience and biodiversity benefits.” (https:// and local livelihoods. Planting wind- and water-erosion-prone areas can wedocs.unep.org/bitstream/ stabilize the soil and reduce the intensity of dust storms, while improving handle/20.500.11822/39864/NA- TURE-BASED%20SOLUTIONS%20 water retention and flow. In addition, the restoration of degraded riparian FOR%20SUPPORTING%20SUS- zones can regulate water and reduce flood risk. By investing in NbS, more TAINABLE%20DEVELOPMENT.%20 English.pdf?sequence=1&isAl- resilient landscapes that protect against hazards but also contribute to long- lowed=y). term ecosystem health and climate adaptation can be created. 13 Shelterbelts are natural barriers such as rows of trees, shrubs, or grasses planted to provide environ- Countries like China and the Republic of Korea have implemented NbS mental benefits such as blocking at scale, producing remarkable results. For example, over the last 20 wind flow and drifting snow, re- ducing soil erosion, and protecting years, Ningxia autonomous region in China has made significant strides in buildings or crops. livelihood and ecosystem restoration. The region has successfully controlled 14 https://documents.world- desertification and land degradation through various initiatives, including the bank.org/en/publication/ documents-reports/document- establishment of shelterbelts,13 reclamation of sandy soils, and increasing detail/721821596821583318/ vegetation cover. These efforts have not only protected farmland and china-ningxia-desertification-con- trol-and-ecological-protection-project. infrastructure but have also enhanced biodiversity and soil quality. In addition, the implementation of projects like the Ningxia Desertification Control and Ecological Protection Project14 have led to substantial technical expertise VIII and practical experience in environmental protection. In Korea, notable EXECUTIVE examples include the restoration of the Cheonggyecheon Stream in Seoul, SUMMARY which transformed an urban highway into a vibrant green space, and the extensive use of green roofs and urban parks to enhance climate resilience and urban livability. Mongolia’s trajectory on investing in nature: lights and shadows The Government of Mongolia has put a strong emphasis on nature in recent years, notably with the announcement of the Billion Tree National Movement (BTNM). In 2021, the BTNM was launched with the goal of planting 1 billion trees (since increased to 1.51 billion) by 2031. A strategic implementation plan and road map were prepared and agreements made with provincial governments and the private sector. Although planting rates have accelerated, planting is well behind target. Implementation is hampered by a lack of funding; inadequate private sector participation; underinvestment in modern seed collection, processing, storage, and tracking facilities; poor supply of quality planting stock from both state and private nurseries and the underuse of modern plant treatment facilities such as cold storage to increase planting season length and root trainers; insufficiently trained workers and other staff; and little monitoring capacity or uptake of remote sensing, drones, and state- of-the-art management information systems. Fully implemented, the BTNM is expected to sequester 16.25 MtCO2e over nine years (1.8 MtCO2e per year).15 If the new forests are managed sustainably, this or similar levels of sequestration could carry on in perpetuity. This initiative builds on a history of putting natural resources at the center of Mongolia’s development. Since 1987, Mongolia has adopted national policies for sustainable development and development of the economy and infrastructure based on its natural resources. The Forest Policy was adopted in 1998 and was revised in 2001 and 2015. Its goal is to increase forest cover to 9 percent by 2030 (currently, 8.3 percent). The government subsequently canceled some policy documents, including on forests, to consolidate the policy framework. The development of policies for landscapes, forests, and NbS is prudent, given the need for more specific goals and ambitions than are in the higher-level policies. Policy shifts from commercial exploitation and utilization to conservation have contributed suboptimal forest stocks. Policy shifted from commercial exploitation and utilization of forests to conservation, protection, and 15 MET 2023. reforestation following the enactment of the Forest Law in 1995,16 as well 16 Amended in 2007, 2012, and 2022/23. as several other laws and regulations. This was supported by a ban on clear- 17 https://studylib.net/ cutting, and the granting of user rights to professional forest enterprises doc/7566170/ percentE2 percent80 and community forestry user groups. The main implementation strategies percent9Cgreen-wall percentE2 percent80 percent9D-national-pro- were enshrined, first, in the Green Wall Programme (2005–2035),17 which gramme was superseded by the Billion Tree National Movement in 2021. As a result of this policy shift, forests today are suboptimally managed, with both over- and understocked stands, a skewed age-class distribution, and some stands with a high proportion of dead and dying trees (increasing the risks of fire and pests). IX INVESTING IN NATURE In parallel, past policies in the agrifood sector favored production volumes AS A CLIMATE AND and neglected productivity, inclusion, and environmental outcomes. DEVELOPMENT Subsidies were largely output-oriented and benefited large herds, incentivizing OPPORTUNITY FOR the growth in the number of animals, resulting in ecosystem degradation and MONGOLIA growing GHG emissions. There has been a policy shift from direct production subsidies to subsidized loans from commercial banks, although the loans are not linked to sustainability. A livestock head tax with revenue earmarked for rangeland and livestock management activities was introduced, but the taxation levels are low. Implementation has not been fully successful, owing to challenges in enforcement and local reluctance to collect these taxes. Extension services are virtually nonexistent, limiting training and uptake of climate-smart practices among herders.18 Harnessing the opportunity of nature: a whole-of-economy effort Investing in nature and climate-resilient landscapes is necessary to support Mongolia’s development and can build on Mongolia’s own development strategy. The Government’s Program of Action 2024–2028 explicitly recognizes that climate change is having a negative impact on the country’s sustainable social and economic development and national security, thereby reducing real household income and increasing supply-side inflation pressure, unemployment, and inequality. The Program of Action commits to building green development with climate change mitigation and adaptation capabilities, including through the management of nature and the development of a green development model. Important bottlenecks need to be tackled to allow NbS to be deployed at their full potential, starting with the institutional arrangements for managing forestry and steppe ecosystems. The institutional arrangements and responsibilities for the forestry sector are complex, with overlapping or competing roles. The National Forestry Agency (NFA) is responsible for developing forest policies and coordinating forestry activities (including a national forest inventory, forest fire management, and pest monitoring) at the national level. The NFA’s Director-General is appointed by the Prime Minister, but the NFA’s budget is covered by the Ministry of Environment and Climate Change (MECC), which is responsible for the sector. The Ministry of Food, Agriculture and Light Industry (MoFALI) is responsible for forest utilization and product processing, and for overseeing the pasture and livestock sectors. At the national and local level, it is important to address the disconnect among the NFA, MECC, and MoFALI—the provincial decision- makers, those implementing the decisions, and the lack of an independent monitoring framework and supervision capacity and extension services. Moreover, there is no specific law on the need for grassland management plans that set the sustainable carrying capacity, the level of production, or remedial/improvement measures. Significant financial resources are required, and for that reason, scarce 18 Chuluunbaatar and Annor- Frempong 2016. public funding needs to be used strategically to mobilize the private sector and the resource users. Mobilizing finance to invest in NbS is challenging and requires a multipronged approach combining domestic (public and private) and international finance, including Official Development Assistance (ODA), X foreign direct investment, and voluntary carbon payments. Implementation of the NDC action plan is estimated to require 7.8 percent of GDP and nearly a EXECUTIVE quarter of the Government’s expenditure for the next three years. This report SUMMARY shows that the implementation of six NbS measures, although still costly, would require just 0.4 percent of GDP and would be able to generate 12.5 Mt CO2e per year. State funding, philanthropy, and ODA are only sufficient to develop the methods and create the enabling environment to allow the private sector and resource users to implement the programs at scale. The private sector and local communities require easier access to finance as well as extension advice to be able to ramp up implementation rates. A whole-of-economy approach is needed to harness nature to address Mongolia’s climate vulnerabilities and development challenges. The following recommendations are proposed, focusing on four key categories of intervention. Policy Coordination and Development i) Appoint a national champion with authority to work across ministries and agencies as well as with the different levels of government, to drive and guide the implementation of NbS strategies (including the BTNM) and as part of the NDC action plan implementation. ii) Develop an overarching landscape-level policy that targets resilience and development in the rural space and that includes both rangelands and forests. This policy should set the overall vision for building long- term resilience and rural development opportunities, identify the goals and objectives, and outline how these aspirations can be achieved in the medium to longer term. The policy, drawing from experience in countries like China and Korea, would include multistakeholder coordination, multisectoral frameworks, and coordination of management decisions over natural capital assets. These should be developed following an inclusive participatory process. This will take time to complete and should be undertaken concurrently with the rest of these recommendations. iii) Improve the design, setting, targeting, and implementation of agricultural taxes and subsidies to address overgrazing. It is necessary to ensure consistent implementation of these taxes across the different localities. The levels of tax and subsidy could be fiscally neutral and not unfairly impact poor local herders, but at the same time have sufficient strength to reduce overgrazing while encouraging an increase in productivity and quality. Monitoring frameworks need to be established to measure the effectiveness and impact of the subsidies and taxes. Institutional Reform and Capacity Building iv) Prepare and implement sustainable landscape management plans (pastures, rangelands, forests, wetlands and protected areas), that are holistic and support growth and livelihoods, are science-based and are designed and implemented in a collaborative manner using modern technology. Collaboration is required at all levels both within and among the different levels of government and institutions, and with and among the different users. This is needed in the preparation of forest and XI INVESTING IN NATURE pasture management plans, as part of the plan approval process, among AS A CLIMATE AND the users when the plans are being implemented, during supervision and DEVELOPMENT monitoring, and when the management plans are being reviewed prior to OPPORTUNITY FOR the next iteration. Sustainable landscape management would not need MONGOLIA to rely so heavily on artificial planting, but because the livestock will be better controlled and managed, a higher proportion of forest restoration could be undertaken through natural regeneration. This is cheaper, results in denser stocking, and is of locally native and adapted species. v) Enhance and establish the institutional capacity required to manage, supervise, monitor, and evaluate the forestry and pastureland sectors. There is a significant shortage of human resources in the forest and pasture sectors. Technical capacity is needed to ensure that forests, protected areas, and landscapes are managed in accordance with technically sound, sustainable management plans that determine locally the sustainable levels of use and production. This requires the design of a management plan preparation process that includes technical as well as local approval, and that the implementation of these plans is then monitored, and that any infringements or unsustainable practices are prevented. Forest and pasture extension services are required to support the resource users. Greater use could be made of modern technology to enhance areas such as seed management and processing; nursery production; remote sensing; resource management planning, monitoring, and control; and wildfire detection and prevention. Moreover, the state needs to have the capacity to undertake certain key roles that the private sector cannot. It is therefore recommended that a functional review be undertaken of all the institutions involved in management of rangeland, forest, protected areas, and the forest industry. Private Sector Resources Mobilization and Financing vi) Implement Sustainable Forest Management to both conserve and protect the boreal forests and protected areas, while providing opportunities for the development of rural green value chains to enhance livelihoods and carbon storage. Sustainable forest management, with planned, sustainable harvesting of silvicultural thinnings19 and regeneration fellings,20 will enhance forest health and resilience. To encourage the development of the wood- and non-wood-processing industry, 19 Silvicultural thinning is a forestry sustainable forest production should be increased and the timber sales practice that involves selectively methods revised so that investors can be assured (provided they pay removing trees to improve the health and growth of the remaining competitive prices) of the necessary raw materials. Investments can be trees, while providing useful raw undertaken locally to develop forest harvesting and primary processing. materials. Fuel switch projects should be undertaken in municipal buildings to use 20 Regeneration felling is the wood waste and chips. For higher-quality timber products, a system of selective cutting of mature trees to create gaps in the forest canopy, to hubs and a distribution network should be set up. Development of the allow space and light to encourage value chains at scale requires a change in how forest and rangeland the establishment of natural regeneration (young trees naturally are managed, how the resources are allocated and sold, and how the growing from seeds shed by the sustainable levels of removals are set, monitored, and controlled. remaining mature trees). Without this, encouraging the development of processing capacity could be counterproductive and exacerbate demand for unsustainable production. It is therefore necessary to have the legal and regulatory XII frameworks designed and the institutional capacity in place first. EXECUTIVE vii) Design financing models, including through the blending of public and SUMMARY private sector finance, to ramp up implementation rates and green value chain opportunities. Robust investment and business models need to be developed, using multiple sources of finance (for example, sustainability-linked loans, green bonds, debt-for-nature swaps) and diverse income streams that arise from carbon finance, future timber and non-timber forest product revenues, tourism opportunities, improved product quality, development of improved green value chains, and fuel switches. viii) Establish the institutional capacity for accessing carbon markets as a way to enhance the viability of financing programs. Mongolia is looking to expand its participation in international carbon markets. While the country has made progress in setting targets and initiating policies for climate change mitigation and adaptation, as noted above, further efforts are needed to fully prepare the country institutionally for accessing international carbon markets. This includes creating species- and site- specific tree growth curves and collecting additional data on carbon sequestration; establishing a designated authority for carbon markets; and establishing a monitoring, reporting, and verification system. Implementation at Scale ix) Develop scalable landscape-level investment projects that target resilience and productivity improvements in the rural space. The above recommendations can be put to use through a program of investments that address the issues outlined above, including technical assistance (such as the functional review); investments in landscape restoration at scale, with multiple development and climate co-benefits (that includes sustainable, holistic, landscape-level management planning and implementation); institutional capacity building (including necessary state capacity for critical functions such as certified seed collection, treatment, storage and tacking, and infrastructure); and pilots of on-the- ground critical investments, policy reform support, and scale-up. XIII INVESTING IN NATURE AS A CLIMATE AND DEVELOPMENT OPPORTUNITY FOR MONGOLIA XIV INTRODUCTION 1 INTRODUCTION This Policy Note synthesizes the results of collaboration between the Government of Mongolia (GoM) and the World Bank that produced a body of analytic and advisory work that can be used to generate policy-relevant knowledge to manage and finance Nature-based Solutions (NbS), to address development and climate change challenges. The Note highlights key policy messages to harness the potential of NbS in Mongolia. Its key audience is the new Ministry of Environment and Climate Change (MECC),21 the National Forestry Agency (NFA), the Ministry of Economy and Development (MED), and the Ministry of Finance, in addition to development partners, local governments, relevant nongovernmental organizations, and private sector players. 21 Formerly the Ministry of To generate policy-relevant knowledge, the Note identifies the development Environment and Tourism (MET). and climate co-benefits of NbS, demonstrates that this potential is possible 22 Background reports prepared as but will involve a combination of public and private sector initiatives and part of this collaboration, include: (i) “Restoration of degraded efforts, identifies institutional and regulatory gaps, and suggests ways landscapes and large-scale tree forward. The Note also suggests a process that starts with policy but supports planting in the context of Mongolia’s initiative ‘The Billion Tree National implementation and scale-up through institution and capacity building and Movement’” (Unique 2023); (ii) investment at the landscape level using various funding mechanisms. “The Potential of Nature-based Solutions for Climate Change Mitigation and Adaptation” (Glauner The Note draws upon four previous analytical works commissioned by the et al. 2023); (iii) “Options for Financing Nature-based Solutions World Bank,22 as well as four other major reports,23 and has been informed in Mongolia” (Gapare 2023); and by the important policy developed by the GoM, to help mitigate climate (iv) “Potential Efficiency Gains in Carbon Storage and Economic change and contribute to Mongolia’s nationally determined contribution Returns under Current and Potential (NDC) through the Billion Tree National Movement (BTNM). The four main Future Climate Change: Addressing Vulnerability in Mongolia’s objectives of the BTNM are to (i) increase Mongolia’s forest cover to 9 percent; Agriculture and Forestry Sector” (ii) afforest upland watersheds, riverbanks, and lake and pond shores to (Hawthorne, Bo, and Polasky 2024). increase water resources; (iii) establish shelterbelts to reduce desertification, 23 “Mongolia Country Climate and Development Report” (World land degradation, soil erosion, and damage to infrastructure while improving Bank Group 2024); “The Green living conditions; and (iv) increase green space per capita in towns and Transformation of the Mongolian Agri-food System” (World Bank cities. The BTNM goals are ambitious and the funding requirements onerous. 2022); “Boosting Mongolia’s Private Implementation is lagging and adequate funding needs to be secured to Sector and Green Competitiveness” (World Bank 2024, draft); and achieve the long-term sustainability goals. “Mongolia: Fostering Inclusive Tourism Development in the Aftermath of COVID-19” (World Mongolia’s vision for NbS aligns with international definitions and best Bank 2021). practice. In a 2022 landmark decision, the United Nations Environment 24 https://wwf.panda.org/ Assembly formally recognized NbS and defined them as “actions to discover/our_focus/climate_and_ protect, conserve, restore, sustainably use and manage natural or modified energy_practice/what_we_do/ nature_based_solutions_for_ terrestrial, freshwater, coastal and marine ecosystems, which address climate/?5226891/nature-based- social, economic and environmental challenges effectively and adaptively, solutions-UNEA. while simultaneously providing human well-being, ecosystem services and resilience and biodiversity benefits.”24 These interrelationships and synergies are shown in Figure 1. 1 INVESTING IN NATURE Figure 1 Nature-based Solutions for Sustainable Development AS A CLIMATE AND DEVELOPMENT OPPORTUNITY FOR MONGOLIA Source: UNEP 2020 ; https://pedrr.org/about-us. A key aspect of NbS is that they have multiple benefits. For example, reversing 25 Vision 2050 is Mongolia’s long- term development policy that pasture degradation through NbS (such as reducing the grazing pressure, states that “By 2050 Mongolia shall planting/protecting upper catchments) would reduce erosion, flooding, and become a leading Asian country in terms of its social develop- damage to infrastructure; enhance productivity (and hence bolster local ment, economic growth and its livelihoods); while at the same time improve environmental performance citizens’ quality of life” (https:// en.med.gov.mn/post/124760#:~:- (including biodiversity benefits and GHG emission reduction). The GoM has text=%E2%80%9CVI- similar development aspirations as recognized, for example, by Vision 2050,25 SION%2D2050%E2%80%9D%20 LONG%2DTERM%20DEVELOP- and including the BTNM, which is an excellent example of Nature-based MENT%20POLICY%20OF%20 Solutions being used to help address both climate change mitigation and MONGOLIA,-Vision&text=By%20 2050%20Mongolia%20shall%20be- adaptation, and the National Adaptation Plan. NbS implementation will have come,its%20citizens'%20quality%20 positive impacts on the carbon balance, pasture and range-land management, of%20life). tourism,26 rural energy and heating,27 development of rural small and medium- 26 Through improved management and protection of protected areas. sized enterprises, and improved sustainable forest management. 27 Through use of fuel switches to woody biomass instead of fossil Mongolia struggles with low rural productivity, will be increasingly impacted fuels. by climate change, and has increasing carbon emissions per capita. Rapid rollout and deployment of NbS offers Mongolia a sustainable and significant method of addressing these issues. 2 SETTING THE STAGE: THE 2 ECONOMY, NATURAL CAPITAL, AND THE CLIMATE CHANGE CHALLENGE 2.1 THE ECONOMY Mongolia is the 18th-largest country in the world. With a land mass of 1.564 million square kilometers and a population of only 3.5 million, it is the most sparsely populated country in the world, with only two people per square kilometer. Management of its vast natural capital is crucial to achieving sustainable growth and improving livelihoods. Mongolia’s rich natural resources, including its grassland, wetland, and forest ecosystems, and biodiversity, support key economic sectors, such as agriculture and tourism. Effective management can enhance economic diversification, create jobs, and ensure long-term environmental sustainability, thereby improving the well-being of its population.28 However, challenges such as land degradation and climate change are hindering achievement of these goals. Mining is a key driver of economic growth in Mongolia. Mining (and quarrying) is the largest economic sector, contributing 24 percent to GDP and 30.9 percent of government revenues.29 However, while mining is the major driver of economic growth, with the export of commodities such as gold and copper, it provides only 5.4 percent of employment. Agriculture, in contrast, is a major source of jobs and poverty reduction. 28 World Bank 2020. The sector accounts for 23 percent of employment but only 13 percent of https://eiti.org/countries/ 29 GDP (although it is the second-largest contributor). Livestock production mongolia contributed 87 percent of total agricultural output in 2020 and is the second 30 National Statistics Office of most important export sector after mining.30 Livestock herding also provides Mongolia. Mongolian Statistical Information Service; https:// subsistence to a large proportion of the rural population, in addition to www.1212.mn/. employment. 31 World Development Indicators, Macro Poverty Outlook and Official Per capita GDP increased almost tenfold between 2000 and 2023 to Data, World Bank, 2024; http:// macropovertyoutlook.worldbank. US$5,956.60 per year, while life expectancy increased from 59 to 71.31 org/mpo_files/mpo/mpo-sm24- A general description of Mongolia’s current growth trajectory emphasizes mng-scope.pdf. improving rural economies partially due to the “Rural Revival” movement initiated by the GoM. In 2023, the fiscal balance recorded a surplus of 2.6 percent of GDP, driven by robust revenue collection stemming from increased coal exports and a thriving economy, resulting in a reduction in public debt, which stood at 44.1 percent of GDP by the end of the year. GDP growth in 2024 is expected to reach 4.8 percent, while in 2023, GDP growth was estimated at 7.1 percent. 3 INVESTING IN NATURE The forestry sector contribution to GDP is estimated at just 0.3 percent and AS A CLIMATE AND is significantly undervalued due in part to inadequate data for assessing DEVELOPMENT the sector’s value chains and employment creation potential.32 Not only is OPPORTUNITY FOR the current contribution to GDP underestimated, the forest sector has huge MONGOLIA natural capital value, with the potential to significantly increase its importance in the rural economy while actively increasing carbon sequestration. 2.2 THE NATURAL RESOURCE ASSET BASE The land area of Mongolia is divided into six natural zones: steppe (34.2 percent), desert steppe (23.4 percent), desert (19.1 percent), forest steppe (15.2 percent), mountain taiga33 (4.5 percent), and high mountain-alpine (3.6 percent).34 The major land uses are shown in Table 1. Desertification and pasture degradation have been the major issues affecting Mongolian land resources, and as of 2020, around 77 percent of the total land is affected by desertification. Table 1 Major Land Use Types in Mongolia, 2019 Area by Land Use (millions of ha) Settlements/ Roads/ Water Special use Agriculture Forest Total towns Infra-structure bodies area/* 114.74 0.91 0.47 14.34 0.69 25.27 156.4 Source: MET 2021a. Note: *As of 2022, forest area increased by 3,600 ha (Hawthorne, Bo, and Polasky 2024). a. According to the 2002 Mongolian Law on Land, land-use types are classified into six groups. Special use areas include many subcategories, specified in Article 16.1 of the law, such as Specially Protected Areas, State Border Zones, embassies, consulates, research fields, pasture reserves, and so forth. 32 MET 2021a. A taiga is a biome characterized 2.2.1 Steppe and Rangeland 33 by coniferous forests consisting mostly of pine, spruce, and larch. A biome is a large geographic area Mongolia’s natural rangelands are decreasing in quantity and quality. The with a distinct climate, vegetation, and animal life. area of productive rangeland (steppe) decreased from 123.6 million ha in 34 Mongolian Academy of Sciences 1987 to 110.3 million ha in 2020,35 while during the same period, livestock 2020. numbers more than tripled, from 22.7 million to 67.0 million, which further 35 MET 2021a; World Resources increased to 71.1 million in 2022. Due to a harsh winter, however, the number Institute 2024; https://www.wri. org/insights/global-trends-forest- declined to 64.6 million by 2023. Livestock density also more than tripled, fires#:~:text=Using%20data%20 from 18 head per 100 ha in 1987 to 60 in 2020. At the end of 2022, about 70 from%20researchers%20at,all%20 tree%20cover%20loss%20globally. to 88 percent of rangeland was degraded, depending on source36, 37 due to overgrazing and other factors, such as drought and an outbreak of Brandt’s 36 ALAMGC 2022. vole.38 Following overgrazing, the soil is further degraded through wind and 37 UNDP/GEF 2022. water erosion and a loss of soil organic carbon, leading to low water-holding 38 Brandt’s voles give birth up to three times a year with up to 11 capacity and increasing desertification.39 This human-induced pressure on the offspring at a time, make a colander natural ecosystems is accelerated by climate change, making all ecosystems of terrain by digging holes for their nests, and consume large quantities more vulnerable to further degradation and desertification. of grass that would otherwise be consumed by livestock. The growth of the livestock sector in the last decade has been driven entirely 39 Cherlet et al. 2018. by the increase in herd size, which represents the traditional heritage and approach to pastoralism. The increase in herd size comes at the expense of productivity and quality improvement and has been a significant cause of 4 degradation of pastures and rangelands.40 As of 2022, Mongolia’s livestock SETTING THE numbers (71.1 million) exceeded the pasture-carrying capacity by 33 million STAGE: THE dry sheep equivalents41 and between two to seven times in most aimags.42 ECONOMY, NATURAL The 2023–24 winter was unusually harsh due to high snowfall, and the country CAPITAL AND THE lost 3.9 million livestock,43 but if the recent trends continue, the herd size CLIMATE CHANGE will rebound. Factors driving increasing herd size include: (i) the traditional CHALLENGE approach to pastoralism; (ii) government subsidies and taxation, and high export demand; (iii) relaxing restrictions on the open access to rangeland; (iv) a response to climate change—that is, as productivity declines due to the variable climate and landscape degradation, herders may increase livestock numbers in an attempt to maintain their income; and (v) the practice of using livestock as collateral for bank loans. According to the National Statistics Office of Mongolia, between 2012 and 2023, there was a net migration of 174,000 people from rural to urban areas. With this net movement to cities, a commensurate reduction in livestock numbers could be expected. However, herd size continued to rise. Analysts have reported a correlation between the decline in livestock numbers and increased migration to cities in the past,44 but this does not seem to be what is happening currently. It is therefore likely that urban households see livestock as an important asset and maintain herds in their former rural neighborhoods, meaning that continuing urban migration is unlikely to reduce herd size overall, while reducing the overall capacity for managing the herds on the rangeland. Climate change will lead to a long-term decline in grazing productivity that 40 ADB 2022. leads to further increases in GHG emissions. Models45 show that modest 41 Stocking rate is measured in global warming could increase crop productivity in the short term. However, terms of dry sheep equivalents. warming also leads to greater evaporation, exacerbating water shortages One dry sheep equivalent represents the energy requirement and further reducing grassland productivity. Models also show a decline in of a nonlactating 50-kilogram ewe grassland productivity by 2050, with larger productivity declines in climate at maintenance; 8.3 megajoules metabolizable energy per head scenarios associated with greater warming. In addition, climate change will per day. increase the intensity and frequency of extreme events such as dzuds, with 42 An aimag is an administrative negative impacts on grazing. Moreover, if no action is taken, agrifood system subdivision, or province, in Mongolia, of which there are 21. emissions will increase further, as livestock numbers rise, rangelands degrade even further, and pre- and post-production activities gain more importance in 43 National Federation of Pasture User Groups of Herders; http:// the agrifood value chain. In addition, climate change is likely to increase the en.greenmongolia.mn/. incidence and severity of wildfires, as well as the prevalence of pests and 44 UN Migration 2021. diseases, thereby affecting forests, crops, and livestock. 45 Hawthorne, Bo, and Polasky 2024. 46 Saxaul is small tree or shrub 2.2.2 Forest Resources native to Mongolia and is adapted to harsh cold and desert conditions. Saxaul forests grow in the The total area of Mongolia classified as forest (the Forest Fund—19.1 million Mongolian deserts, where they are ha), is divided into protection forest and utilization forest zones (Figure 2). Of the dominant brush-type plant. Saxaul forests help stabilize sand this, 82.7 percent is composed of coniferous and deciduous forests located dunes and reduce the effects of primarily in the northern regions. The remaining 17.3 percent comprises sandstorms. saxaul forests (Table 2),46 which are predominantly found in the arid southern 47 Government of Mongolia 2018. regions of the Gobi Desert (Map 1). Mongolia’s intact forest area stands at 8.28 percent.47 All forest in Mongolia is state owned. 5 INVESTING IN NATURE Figure 2 Mongolian Forest Areas AS A CLIMATE AND DEVELOPMENT OPPORTUNITY FOR MONGOLIA Source: AFoCO 2024. Table 2 Forest Area, by Type Forest Cover Type Area (ha) Degraded forest 1,506,184 Instact forest 11,905,409 Saxaul forest 2,408,003 Shrubs 766,740 Subtotal 16,586,335     Non forest 140,083,006     Total 156,669,341 Source: GoM 2018. Mongolia’s boreal forests grow at less than half the rate of well-managed boreal forests, and less than a quarter of the annual biomass increment is being harvested, resulting in overaged stands with self-thinned dead trees posing greater risks for wildfires and pest outbreaks. The boreal forests are significantly undermanaged and require urgent silvicultural attention to help make them more sustainable, as well as more productive in terms of the environmental, economic, and social goods and services these forests can provide. According to Mongolia’s first Multipurpose National Forest Inventory48: • The total forest fund covers around 19 million ha, but there is an 48 The Multipurpose National Forest Inventory was undertaken between annual loss of 0.15 percent. 2014 and 2017, by the Forest Research and Development Centre, • There are 11.3 million ha of boreal forest (9.5 million ha have a in collaboration with international canopy closure of greater than 40 percent), of which: expertise and the country’s main forestry institutions, universities, o 69 percent is located outside protected areas and research organizations (Altrell 2019). o 4 percent is designated for wood harvesting through forest 6 enterprise concessions Map 1 Map Showing Forest Cover and Protected Areas SETTING THE STAGE: THE ECONOMY, NATURAL CAPITAL AND THE CLIMATE CHANGE CHALLENGE Source: MET, UN REDD Mongolia Program 2018. o 16 percent is designated for fallen dead-wood collection through forest user group concessions. • From 2005 to 2015,49 approximately 52,000 ha of forest were lost, while fire affected up to 390,000 ha between 2001 and 2021. • Approximately 1.5 million hectares of forest are considered degraded and in need of rehabilitation. • The production forests (forests in the utilization zone) have an average growing stock volume of just 115 cubic meters (m3)/ ha (with an additional 46.5 m3/ha of dead wood), which is low in comparison to the optimal live growing stock volume of 237 m3/ha for these forest types in similar regions. • 24 m3/ha of the growing stock volume is over 200 years old (the trees are economically overaged and are either senescing50 or growing very slowly and are at the same time suppressing the regeneration and growth of younger trees underneath the canopy). • The main forest management challenges are: o Wildfire, which is the primary environmental threat to the forest 49 UN REDD Mongolia 2018. tree biomass. 50 Senescing trees are so o Pests and disease are becoming more widespread with climate overmature that growth has change, poor silviculture, and the increasing incidence of fires.51 stopped, and the volume may even be declining. o Forest regeneration is significantly hampered through 51 Dead, dying, and diseased trees overgrazing and overaged stocking in some areas. also create a fire hazard, thus creating negative feedback in the o Understocking—that is, less than 50 percent of the production cycle of fire and disease. potential. o Overaged growing stock—31 percent of the volume in stocked production forest is above the optimal production age. o Underutilization of the forest resources—only 4 percent of the forest area is designated for green-wood utilization. 7 INVESTING IN NATURE Managing the existing forest resources better would result in important AS A CLIMATE AND development and environmental benefits. Good management of forests DEVELOPMENT can bring a triple dividend through the creation of business and employment OPPORTUNITY FOR opportunities while significantly improving the carbon balance and improving MONGOLIA the biodiversity and resiliency of the natural forests. Globally, the net carbon uptake of boreal forests is estimated to range between 0.34 to 0.56 tonnes of carbon per hectare per year, including both above-ground and below-ground storage.52 Livestock grazing and browsing continues to be the major cause of unsuccessful forest regeneration. This is especially the case along the lower boundary of forests and rangeland, and in the riparian forest53 zones. Livestock grazing causes long-term suppression of the natural regeneration of forests.54 However, if protection such as fencing is provided, or livestock are managed to avoid regeneration areas, successful tree regeneration occurs, especially in the riparian zones. In the scattered mosaic forests, combining methods such as assisted natural regeneration and limiting livestock grazing could be a cost-effective aid to restoration.55 In the rangeland areas, it is necessary to implement a resilience-based management system based on the specific environmental condition and carrying capacity of the pasture in collaboration with local herders.56 Recently, more attention has been given to the idea of implementation of 52 UN-REDD 2013. sustainable forest management through increased economic incentives 53 A riparian zone is the zone bordering a river or stream. for the forest communities. About 70 percent of Mongolia’s forest is old or 54 Juřička et al. 2019. degraded and in need of management intervention to create healthy forest. As such, the development of green value chains from timber and non-timber 55 Battulga 2014. forest products has become important, and one recommendation57 of the 56 Dashbal et al. 2023. Second National Forestry Summit is to increase the economic benefits of Recommendations from Second 57 National Forestry Summit of forest resources through development of sustainable use. Mongolia, March 5, 2024. 58 UN REDD Mongolia Program The UN-REDD Mongolia National Program58 estimated that Mongolia’s 2018. consumption of home-produced wood products to be the standing volume 59 The AAC (Annual Allowable Cut) equivalent of around 8.1 million m3/year. These estimates are based on is the officially permitted annual sustainable timber harvest and summaries of all the available reported data and required the conversion of should ideally be set based on different units of measurement. Official removal statistics and consumption sound forest management data, such as the proportion of the net data are not available. growth of the forest that can be sustainably removed. There is strong potential to increase the economic utilization and production 60 Hawthorne, Bo, and Polasky 2024. from the natural sustainable growth of Mongolia’s forests, with the annual 61 Belarus has 96 State Forest Enterprises, numerous public and allowable cut (AAC) being increased to 10.3 million m3/year. Taking into private sector high-tech wood consideration the current forest growth rates in both protection and utilization processing factories, and significant wood exports. forest, the backlog of cleaning and tending operations, and to some extent 62 World Bank 2013. cutting some of the overmature standing volume in the utilization forest, the net AAC59 could safely be increased nationally to 10.3 million m3/year for the next 10 to 20 years.60 This would appreciably exceed the current levels of harvest and increase the consumption of local wood products. To put this theoretical AAC level into context, the annual allowable harvest for the well-developed forestry nation of Belarus61 was 16 million m3 in 2013.62 This means that there is appreciable scope for significant public and private development of the forestry sector in Mongolia. Currently, the AAC is first 8 determined locally at the forest management unit level, based on forest SETTING THE management plans (inventory and growth estimates). The MECC approves STAGE: THE the AAC nationally, and at this stage the locally determined AACs can change. ECONOMY, NATURAL The local AAC is then distributed to the forest enterprises by the Citizens’ CAPITAL AND THE Representative Khural (district council), the local self-governing body, when CLIMATE CHANGE the amount to be allocated can again change. Cutting too little in some CHALLENGE instances can be as much of a problem as cutting too much. Sustainable forest management therefore requires the setting of the AAC based on sound technical and environmental criteria, and the removals need to be monitored, with this information used to update forest management plans and forest databases. Currently, most of the production is being used for the lowest-quality (and hence lowest-value) product, fuelwood. It is also likely that the current removals are not evenly distributed, and the forest is being overcut in areas near to settlements and with better accessibility, and that in other areas, the forest is not being cut enough. Both factors will constrain forest growth. It is also likely that many of the forest removal operations are not sufficiently supervised by the NFA or Inter-Soum Forest Units,63 or are part of formal forest management plans or are included in an annual harvesting plan. Meanwhile, the forests will be deteriorating due to overharvesting in some areas and not being harvested enough in others, with the best-quality stems removed, leaving the worst-quality and hard-to-access trees in situ. This is difficult to prove, however, as the management and harvesting plans are not monitored and the harvesting performance is not reviewed. It is also likely that higher-quality stems will be harvested in preference to twisted, damaged, or degraded stems, and these higher-quality logs are then being used for fuelwood and timber. Ninety-one percent of the country’s energy is generated by coal-fired, combined heat and power plants, with the balance coming from renewable sources (wind, solar, hydro), but with biomass holding important, but as yet largely untapped, potential. Much of the household space heating outside of city centers is achieved through burning coal and firewood in small stoves with low combustion efficiency. The coal-burning stoves used in the Ger area of Ulaanbaatar account for 80 percent of the air pollutants. Woody biomass-powered boilers could economically64 be used to heat key 63 A soum is a region. buildings in rural areas. These include, for example, such as kindergartens, 64 Depending on the price of coal three-story buildings, and local administrative offices, as demonstrated by a and the distance from the forest. fuel switch feasibility project undertaken from 2015 to 2018.65 65 Battuvshin and Aruga 2022. 66 Selective thinning will remove the It is possible to get appreciably more from the existing resource utilization lower-quality stems at an earlier stage, which will allow increased through increases in the efficiency of harvesting and processing. At the growth of the remaining crop. With same time, improved silviculture will significantly enhance and improve forest the volume concentrated on fewer stems, the later thinnings will yield growth and, as importantly, quality,66 and hence the sales price over time. The larger-diameter, better-quality logs estimated roundwood consumption figures presented in Table 3 assume a (which can attract higher prices). 30 percent harvesting loss. If markets are created for low-grade wood chips and sawdust, which could be used in switching district heating systems from coal to woodchips, this 30 percent loss could be utilized, thereby effectively 9 INVESTING IN NATURE increasing the size of the harvestable volume by at least 30 percent. At the AS A CLIMATE AND same time, it is also likely, due to the use of outdated technology, that it is DEVELOPMENT possible to increase both the recovery in terms of wood processing (that is, OPPORTUNITY FOR less wastage as sawdust and offcuts) but also in terms of increasing the MONGOLIA efficiency of combustion with improved wood-burning stoves for rural areas. Table 3 Estimated Annual Roundwood Consumption Volume millions m3/yr Type Net Gross Firewood 4.5 5.9 Industrial wood 0.8 1 Rural construction wood 0.9 1.2 Imports 0.3   Totals 6.5 8.1 Source: UN-REDD 2018 2.3 CLIMATE CHANGE AND ITS CONSEQUENCES 2.3.1 Mongolia’s Vulnerability Mongolia is becoming warmer, with much more volatile rainfall and snowfall 67 A dzud is a cold-season disaster patterns. Average surface temperatures in the past decade in Mongolia were in which anomalous climatic (that is, heavy snow and severe 2.3 degrees Celsius (°C) higher than they were during 1901–10. Because of its cold) and/or land-surface (snow/ latitude and land-locked status, these temperature increases are much higher ice cover and lack of pasture) conditions lead to reduced than the global average (around 1.3°C), and much of the rise in temperatures accessibility and/or availability of has happened since 1980. Rainfall increased from 226 millimeters per year to forage/pastures, and ultimately to high livestock mortality during 236 millimeters per year between 1901–10 and 2013–22. A greater concern, winter–spring. Severe dzuds (high however, is the increasing variability of the amount, duration, and timing of mortality) result from a combination of growing-season drought and rainfall. severe weather (Natsagdorj and Dulamsuren 2001). Climate change will make dzuds67 more frequent and more intense, and 68 This section uses data from multiple sources that use their flooding will become more common. Dzuds have occurred in one out of five own scenarios and units of years since 2000. By midcentury, they could be as common as once every measurement. The high-emission scenario in the Country Climate three years.68 The severity of dzuds will also increase, potentially doubling by and Development Report should 2100. If livestock herds remain at today’s size and no adaptation measures be interpreted as lying between RCP6.0 and RCP8.5, with expected are taken, the average annual losses from dzuds could be around 4.1 million average global warming by 2100 of animals (about 5.8 percent of the stock) by 2050 and 6.8 million by 2100 (9.6 3.5°C to 4°C. RCPs (Representative Concentration Pathways) are percent of total livestock). Thus, the harsh winter of 2023 and the dzud of climate change scenarios to 2024 could become the new normal, and extreme cases like the 2010 dzud, project future greenhouse gas concentrations. Lower RCP values which killed 22 percent of the livestock, could become even worse.69 Most are more desirable for humans. precipitation falls during July and August, and in recent years, there have been 69 World Bank 2024. Mongolia changes in precipitation patterns resulting in frequent flooding during these Economic Update, Spring 2024. months. Dry, windy spring months cause delayed growth of grasses in the 70 UNDP 2023. pasture, leading to the slow recovery of herds after winter and long springs.70 Historically, floods have occurred once every three years in Mongolia, but the past decade has seen a marked incidence of flood events. Around 18 percent of the population in the three largest cities is exposed to flooding. Many schools, hospitals, and other key urban infrastructure are in flood- 10 prone areas, increasing the vulnerability of urban residents to the impacts of SETTING THE flooding, particularly those in Ger areas.71 Unpredictable rainfall patterns will STAGE: THE continue to increase flooding in Mongolia. ECONOMY, NATURAL CAPITAL AND THE Climate change is going to have an increasing and significant impact on CLIMATE CHANGE large parts of Mongolia’s territory, with the expected expansion north of arid CHALLENGE and hyper-arid land cover.72 Complex changes in the distribution of different tree species is likely, with an overall net reduction in forest cover of 1 to 6 percent predicted by 2081–2100. In 2015, 29 percent of Mongolia’s land area was classified as permafrost. This area is set to decline to 22 percent during 2016–35, 11 percent by 2046–65, and 1 percent by the 2090s. The incidence of boreal forest73 is closely linked to the distribution of permafrost, which regulates the availability of water, nutrients, and soil temperatures. Researchers have reported that the large-scale permafrost degradation was the primary factor in declining Siberian larch forest in northern Mongolia. Alongside these land cover transitions, there are potentially significant declines likely in the suitable habitat ranges of a large number of cornerstone Mongolian animal species. Larch trees occurring in small and isolated forest patches within steppe and grassland areas have been shown to be more susceptible to climate warming than in large continuous forest areas. Analysis of tree rings has shown increasing climate sensitivity through a decreasing annual stemwood75 increment, accompanied by decreasing forest stand size in north-central Mongolian Siberian larch forests.76 According to Yu, Yan, and Zhang (2020), the regional impact of climate change is affecting forest phenology—that is, how seasonal and climate changes affect the life cycles of plants and animals—increasing the frequency of insect outbreak, and with new forest insect pest species being reported77 by the researchers from the Institute of Botany of the Mongolian Academy of Sciences. Climate change and the increasing incidence of natural disasters will 71 World Bank 2022a. Ger areas are significantly increase the damage and the cost of repair and future residential districts in Mongolia that construction of transport, communications, and water infrastructure. From are characterized by traditional, portable dwellings called gers. 2010 to 2021, the transport and communications network increased from 72 MET 2018. 407,000 hectares (ha) to 477,000 ha. Roads comprised 69 percent of this 73 Boreal forests are forests growing area, railways 7 percent, air transport 2 percent, and network lines (such as in high-latitude environments where power and telecommunications lines) 21.0 percent. Between 2000 and 2020, freezing temperatures occur for six to eight months and in which trees the frequency of disasters on the roads doubled, mostly due to flooding and are capable of reaching a minimum heavy precipitation. After 2000, intense rainfall accounted for 54 percent height of 5 meters and a canopy cover of 10 percent. of all cases. Over the last three decades, the incidence of natural disasters increased from 29 events between 1989 and 1998, to 53 between 1999 and 74 Juřička, Novotná et al. 2020. 2008, to 80 between 2008 and 2018. Extreme weather and natural disasters Stemwood is the wood of the 75 stem or stems of a tree, that is, the occurring between 2001 to 2021, accounted for the death of 539 people above-ground main growing shoots. and 29.773 million animals at a cost of MNT 681.8 billion (US$197 million). 76 Khansaritoreh et al. 2017. Projections up to 2050 have shown that the frequency of drought will increase 77 Mongolian National Broadcast; 5 to 45 percent, and the frequency of dzuds will increase from 5 to 40 percent. https://www.mnb.mn/i/311371. A flood in 1966 inundated 24.9 square kilometers; a similar event projected 78 MET 2024. for 2050 would cover an area 21 percent larger.78 11 INVESTING IN NATURE Globally, the incidence and area of wildfire is increasing, with a 5.4 percent AS A CLIMATE AND annual increase in area burned since 2001. In 2023, nearly 12 million ha DEVELOPMENT of forest burned worldwide, 24 percent greater than the previous record. OPPORTUNITY FOR 2020, 2021, and 2023 were three of the worst four years on record.79 Table 4 MONGOLIA shows Mongolia’s wildfire statistics for 2020–24. Fire statistics are variable to local socioeconomic and climatic conditions, and this dataset is not big enough to discern any trends. However, 2022 was an exceptionally bad year for forest fires, with 0.13 percent of the forest area impacted. Cross-border fires encroaching from the Russian Federation are a significant problem for Mongolia. The average wildfire area is expected to increase by 9 percent by 2050. Table 4 Wildfire Areas Burned, by Year   Area burned by year 2020 2021 2022 2024 Forest 9,549 2,092 16,401 1,295 Steppe 235,762 201,535 1,166,921 1,029,402 Source: NFA 2024 2.3.2 Mitigation and the role of nature In November 2020, Mongolia submitted its updated nationally determined contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC). Mongolia has set a target of reducing its GHG emissions by 22.7 percent, from the business-as-usual (BAU) scenario by 2030 (Figure 3). To implement the NDC targets, the GoM is seeking to develop renewable energy, and to reduce GHG emissions in the energy, agriculture, construction, transport, industry, and waste management sectors, as well as through afforestation, protection of peat bogs, restoration of degraded land, and protection of vegetation cover.80 Figure 3 GHG Emissions by Scenario Figure 3 GHG Emissions by Scenario 79 World Resources Institute 2024; https://www.wri.org/ insights/global-trends-forest- fires#:~:text=Using%20data%20 from%20researchers%20at,all%20 tree%20cover%20loss%20globally. 80 Gapare 2023. Source: GoM 2019. Source: GoM 2019. 12 The forestry sector is currently estimated to offset 70 percent of total emissions, sequestering 30,173 gigagrams (Gg) CO2e (Figure 4). In 2020, Mongolia’s total GHG emissions were estimated 43,062 Gg 81 CO2e, 82 of which agriculture accounted for 52 percent (22,390 Gg CO2e) and energy percent (19,292 Gg CO2e), with industrial processes and product use and waste making up the balance (3 percent). The forestry sector is currently estimated to offset 70 percent of total SETTING THE emissions, sequestering 30,173 gigagrams (Gg) CO2e (Figure 4). In 2020, STAGE: THE Mongolia’s total GHG emissions were estimated at 43,062 Gg81 CO2e,82 of Source: GoM 2019. ECONOMY, NATURAL which The forestryagriculture accounted sector is currently for estimated to52 percent offset (22,390 70 percent of totalGg CO2e) emissions, and energy sequestering CAPITAL AND THE 45 percent (19,292 Gg CO2e), with industrial processes and product 30,173 gigagrams (Gg) CO2e (Figure 4). In 2020, Mongolia’s total GHG emissions were estimateduse andat CLIMATE CHANGE waste making up the balance (3 percent). 43,062 Gg 81 CO e, 82 of which agriculture accounted for 52 percent (22,390 Gg CO e) and energy 45 CHALLENGE 2 2 percent (19,292 Gg CO2e), with industrial processes and product use and waste making up the balance (3 percent). Figure 4 Mongolia’s GHG Emissions and Removals by Sector in 2020 Figure 4 Mongolia’s GHG Emissions and Removals by Sector in 2020 Note: IPPU = Industrial Processes and Product Use; LULUCF = Land Use, Land Use Change and Forestry. Note: IPPU = Industrial Processes and Product Use; LULUCF = Land Use, Land Use Change Between 1990 and 2020, GHG emissions increased by 82 percent, whereas the carbon sequestered and Forestry. by the forestry sector has remained more or less constant. Thanks to its large forest stock, until Between 1990 and 2020, GHG emissions increased by 82 percent, whereas the carbon sequestered by the forestry sector has remained more or less constant. 81 Thanks Gg = gigagrams (10 9 to its grams); 1 gigagram large = 1,000 tonnes. stock, until 2011 Mongolia was actively forest metric 82MET 2023. sequestering more carbon than it emitted when emissions exceeded 13 sequestration for the first time (Figure 5). 2011 MongoliaFigure 5 Mongolia’s was actively Total sequestering more and than carbon NetitGHG Emissions emitted and when emissions exceeded sequestration for the first time (Figure 5). Removals by Year, 1990–2020 Figure 5 Mongolia’s Total and Net GHG Emissions and Removals by Year, 1990–2020 81 Gg = gigagrams (109 grams); 1 gigagram = 1,000 metric tonnes. 82 MET 2023. Mongolia’s per capita emissions are approximately double those of Uzbekistan and four times those of the Kyrgyz Republic, countries with similar climatic conditions, even though forestry offsets a significant proportion of Mongolia’s emissions, a result of Mongolia having a relatively large forest area in comparison to the size of its population. China, the world’s largest emitter of GHGs, has per capita emissions just 15 percent greater than Mongolia (Figure 6). 13 Figure 6 Per Capita GHG Emissions by Country and Year 9.00 year) 8.00 INVESTING IN NATURE Mongolia’s per capita emissions are approximately double those of AS A CLIMATE AND Uzbekistan and four times those of the Kyrgyz Republic, countries with DEVELOPMENT similar climatic conditions, even though forestry offsets a significant OPPORTUNITY FOR proportion of Mongolia’s emissions, a result of Mongolia having a relatively MONGOLIA large forest area in comparison to the size of its population. China, the world’s Mongolia’s per capita largest emitter emissions of GHGs, areper has approximately double those capita emissions of 15 just Uzbekistan percent and four times greater those of the Kyrgyz Republic, countries with similar climatic conditions, even though forestry than Mongolia (Figure 6). offsets a significant proportion of Mongolia’s emissions, a result of Mongolia having a relatively large forest area in comparison to the size of its population. China, the world’s largest emitter of GHGs, has per capita emissions just 15 percent greater than Mongolia (Figure 6). Figure 6 Per Capita GHG Emissions by Country and Year Figure 6 Per Capita GHG Emissions by Country and Year 9.00 GHG emissions per capita (tCO2e per year) 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 1990 2000 2014 2015 2016 2017 2018 2019 2020 Year Mongolia China Kyrgyz Republic Uzbekistan Source: World Bank World Development Indicators; 14 https://databank.worldbank.org/ reports.aspx?source=2&series=EN.ATM.CO2E.PC&country=MNG#. 14 THE OPPORTUNITY 3 OF NATURE-BASED SOLUTIONS (NBS) Countries like China and the Republic of Korea have implemented NbS at scale, producing remarkable results. For example, over the last 20 years, Ningxia province in China has made significant strides in livelihood and ecosystem restoration. The region has successfully controlled desertification and land degradation through various initiatives, including the establishment of shelterbelts,83 reclamation of sandy soils, and increasing vegetation cover. These efforts have not only protected farmland and infrastructure but have also enhanced biodiversity and soil quality. In addition, the implementation of projects like the Ningxia Desertification Control and Ecological Protection Project84 has led to substantial technical expertise and practical experience in environmental protection. In Korea, notable examples include the restoration of the Cheonggyecheon Stream in Seoul, which transformed an urban highway into a vibrant green space, and the extensive use of green roofs and urban parks to enhance climate resilience and urban livability. NbS can provide a valuable alternative to conventional grey infrastructure in mitigating climate-related hazards, such as desertification, dust storms, winter storms, and floods, which are exacerbated by climate change and unsustainable land management practices. Due to Mongolia’s expansive grasslands and fragile ecosystems, grey infrastructure like dams or levees can be costly and ecologically disruptive. Water availability is a major concern for the GoM, hence, a water sector investment program for 2018–2030 worth US$6.50 billion was formulated in 2020. The private sector is expected to contribute at least US$3.67 billion (56 percent), the government is expected to contribute US$1.76 billion (27 percent), and beneficiaries are expected to contribute US$1.07 billion (16 percent).85 The investments from this program are expected to be in water-related 83 Shelterbelts are natural barriers infrastructure, in conjunction with initiatives to effectively manage and such as rows of trees, shrubs, or ensure the sustainability of water resources. NbS, such as reforestation, grasses planted to provide environ- mental benefits such as blocking grassland restoration, and wetland conservation, offer sustainable ways to wind flow and drifting snow, re- combat land degradation and enhance water retention and regulation while ducing soil erosion, and protecting buildings or crops. promoting biodiversity and local livelihoods. For example, planting native 84 https://documents.world- trees and shrubs in areas prone to wind erosion can stabilize soil and reduce bank.org/en/publication/ the intensity of dust storms, a frequent hazard affecting both rural and urban documents-reports/document- detail/721821596821583318/ communities. In addition, the restoration of riparian zones along rivers, which china-ningxia-desertification-con- have been degraded due to mining and overgrazing, can help regulate water trol-and-ecological-protection-proj- ect. flows and reduce flood risk. By investing in NbS, Mongolia can create more resilient landscapes that not only protect against hazards but also contribute 85 ADB 2020. to long-term ecosystem health and climate adaptation. 15 INVESTING IN NATURE The costs for Mongolia to implement identified actions to adapt to the AS A CLIMATE AND impacts of climate change are estimated at MNT 27 trillion (US$7.8 billion). DEVELOPMENT The decree of the National Committee on Climate Change on March 11, OPPORTUNITY FOR 2024, approving the National Adaptation Plan (NAP), lists 99 actions with MONGOLIA the objective of increasing the capacity of the environmental, social, and economic sectors to adapt to climate change, strengthen resilience to natural and weather-related disasters, and reduce vulnerability and risk. Currently, the narrative NAP report, which is awaiting submission to the UNFCCC, has not yet been publicly disclosed, so it is not known whether these funding requirements have been secured or are more aspirational in nature or time frame (although the final indicator included targets for 2030). Many of the actions outlined in the NAP are Nature-based Solutions or will require Nature- based Solutions to be implemented. Table 5 shows an extract from part of NAP Decree Annex 2, highlighting the relative importance of the forest, water, and livestock sectors for adaptation. Table 5 Selected Extracts from the National Adaptation Plan Showing Adaptation Priorities and Targets with Estimated Funding Requirements Funding Adaptation Priority Target millions MNT millions US$ 1. Ecosystem, 3. Improve capacity of ecosystems and biodiversity to climate 92,963 27 biodiversity, land change degradation and 4. Reduce desertification, land degradation and permafrost loss desertification 37,170 11 2 Water regime, 6. Enhancement of ecosystem services by catchment of water reserve and supply resources in humid and temperate regions, as well as appropri- ate use, protection and restoration of water resources and the 13,505,321 3,915 introduction of advanced technology to increase surface water resources 3. Forest sector 7. Resilient and adapted to climate change forest and wood sector 11,607,490 3,364 developed 4. Weather and cli- 8. Reduce the climate change induced and ever intensifying disas- 1,202,100 348 mate induced natural ter risks and improve resilience capacity disasters 9. Establish multi-hazard impact based early warning systems to 140,000 41 enable rapid response 5. Livestock, hus- 10. Develop a productive livestock sector that is compatible with bandry, rangeland pasture and water resources based on advanced technology for 77,520 22 adaptation to climate change and resilience 11. Improve the quality and economic turnover of livestock herds, 38,910 11 increase meat exports and reduce pasture loads and costs Source: Annex 2 of the resolution of the National Climate Committee, March 11, 2024. While there are huge opportunities to implement NbS, the critical task will be to select the best options in the best location, to maximize and optimize the different benefits accruing for the lowest costs. Most of the analyses of the NbS have concentrated on the carbon mitigation potential, as the adaptation benefits would really need to be assessed at the site level for specific interventions. The adaptation benefits of the identified NbS are described qualitatively in Appendix 3 Table A3.3 16 Modeling has shown that it is possible for Mongolia to increase both carbon THE OPPORTUNITY storage and economic returns from grazing, forestry, and crop production by OF NATURE-BASED optimizing land use. Optimization methods (see Appendix 2) were used to derive SOLUTIONS efficiency frontiers, showing the maximum combination of carbon storage and (NBS) net economic returns for a range of values. This demonstrated that substantial potential increases in carbon storage and net economic returns relative to current outcomes are possible even when the effects of climate change are accounted for. Shifts in land use among grazing land, forestry, cropland, and natural lands can generate increases in carbon storage on the landscape of approximately 6 percent without loss in net economic returns. Net economic returns from land can be increased by 115 percent without loss of carbon storage under current climate conditions. Increases in forestry and, to a much lesser extent, increases in intensively managed cropland, make it possible to increase the net value of economic activity from land without any loss of carbon storage. Nature-based Solutions offer a pragmatic and cost-effective way to achieve the multiple goals of improving environmental performance and increasing carbon sequestration while generating socioeconomic benefits for both local populations and the nation as a whole. of approximately 6 percent Implementation of NbSwithout economic returns. loss in netmeasures mitigation over Net area ofreturns an economic 430,000 from ha land can be increased by 115 percent without loss of carbon storage under current climate conditions. could reduce Increases emissions in forestry by 23 and, to a much percent lesser per extent, year by increases 2030, at an in intensively estimated managed cost cropland, make it of US$80 possible million to increase per the netyear value for seven years of economic (Appendix activity 3). Glauner from land without any losset of al. (2023) carbon storage. identified and Nature-based quantified Solutions offer a NbS mitigation pragmatic measures and cost-effective way that could the to achieve have a relatively multiple goals of improving high total mitigationperformance environmental potential of and increasing up to 592carbon MtCO sequestration e over a whileoperational total generating 2 socioeconomic benefits for both local populations and the nation as a whole. area of 4.3 million ha over an adjustment period of 18 to 75 years, depending 86 Implementation on the measure. of NbS mitigation This, measures however, willover takean area time ofand 430,000 ha could reduce investment emissions by to achieve 23 percent per year by 2030, at an estimated cost of US$80 million per year for seven years and is separate from the estimated US$8.89 billion required for the BTNM. (Appendix 3). Glauner et al. (2023) identified and quantified NbS mitigation measures that could have aMongolia’s relatively high total target NDC is to mitigation reduce potential emissions of up to 592 MtCO from 74.3 to 51.5 MtCO2e per 2e over a total operational area 86 of 4.3 year, 87 a net reduction of 22.7 MtCO million ha over an adjustment period of 18 to e per year by 2030. If the NbS mitigation 2 75 years, depending on the measure. This, however, measures will take time are implemented and investment overand to achieve just 10 percent is separate from theof estimated the operational area required by US$8.89 billion for the BTNM. Mongolia’s NDC target is to reduce emissions from 2030, Glauner et al. (2023) estimate that this would contribute a further 74.3 to 51.5 MtCO 2e per 12.5 year, 87 a net reduction of 22.7 MtCO2e per year by 2030. If the NbS mitigation measures are implemented MtCO2e per year to emission reductions, thereby reducing net total emissions over just 10 percent of the operational area by 2030, Glauner et al. (2023) estimate that this would by another contribute 23 percent a further 12.5 MtCO(Figure 7), at an implementation cost to 2030 of around 2e per year to emission reductions, thereby reducing net total US$80 million, emissions by anotherwith a net abatement (Figure 7), at cost 23 percent of US$135/tCO an implementation cost toe. 2 2030 of around US$80 million, with a net abatement cost of US$135/tCO2e. Figure Figure 7 Impact 7 Impact of Implementing of NbS onImplementing Net GHG Emissions NbS on Net GHG Emissions 86 For each NbS proposed, an op- erational area (where the measure could be implemented) was defined following a set of agreed criteria. For example, for the enhancement of growing stock in boreal forests, the criteria included that it was boreal forest, with a stocking of less than 100 m3/ha, and that it was within 50 kilometers of a soum center. The total area available for measure using these criteria was estimated at 1.64 million ha. 87 Including conditional measures as well as the GHG removed by the forest sector. Source: Glauner et al. 2023 Source: Glauner et al. 2023 Validation of the estimated NbS mitigation potential using the FAO Ex-Ante Carbon Balance Tool 17 (EX-ACT) demonstrated carbon sequestration of similar magnitude. The EX-ACT Tool was also used to estimate some of the carbon mitigation potential of some of the unevaluated NbS (see Appendix INVESTING IN NATURE Validation of the estimated NbS mitigation potential using the FAO Ex- AS A CLIMATE AND Ante Carbon Balance Tool (EX-ACT) demonstrated carbon sequestration of DEVELOPMENT similar magnitude. The EX-ACT Tool was also used to estimate some of the OPPORTUNITY FOR carbon mitigation potential of some of the unevaluated NbS (see Appendix MONGOLIA 4). The EX-ACT analysis identified that for NbS mitigation measures, the total sequestration would be 468 MtCO2e; however, this was over an implementation period of 20 years, in comparison to Glauner et al.’s (2023) estimate of 592 MtCO2e sequestered over 18 and 75 years, depending on the model. As the two estimates are assessing slightly different aspects of the NbS measures, the two figures should not be directly compared. It does, however, demonstrate that the two estimates are the same order of magnitude and that the assumptions behind both models are probably correct. The Ex- Act analysis was also carried out for NbS adaptation measures and showed that a further 222 MtCO2e would be sequestered. The EX-ACT analysis also revealed that, if fully implemented, the average amount of carbon sequestered per year over a 20-year implementation period, would be: • 23.44 MtCO2e per year for NbS mitigation measures • 11.10 MtCO2e per year for NbS adaptation measures • 34.54 MtCO2e per year in total, (in comparison with Mongolia’s current NDC 2030 target of 51.5 MtCO2e) • Over a gross operational area of 8.3 million ha. These estimates are a conservative approximation of the potential, as they exclude important additional but unquantifiable sources of carbon capture or reduction or prevention of emissions. As with the estimates of mitigation potential of the BTNM,88 these sequestration rates for NbS mitigation measures should continue in perpetuity if the newly established and restored forests are managed sustainably. Once the established and restored forests come into sustainable production, it is likely that the emission reductions can be further increased, as the wood products and fuelwood will substitute other products with a high carbon footprint. Neither analysis took account of conserving peatlands, which could be implemented over another 8.1 million ha, or sustainable forest management. Furthermore, the conservation and rehabilitation of floodplains and riparian reserves could be implemented over an additional 7.3 million ha. Moreover, due to the lack of data, neither analysis estimated the impact on carbon sequestration of improving the sustainability of forest management by increasing the silvicultural treatment of stands to thin crops properly and to even out the skewed age-class distribution.89 These interventions can boost local employment while providing the raw material 88 There is probably an overlap between some of 24 areas included for green value chains which, again, will replace other products with a high in the BTNM and some of the areas fossil fuel footprint. in the NbS mitigation measures identified. To avoid double counting, the potential carbon sequestered by the BTNM and the NbS mitigation measures should not be added. 89 There are considerable areas of woodland where there is a too- dense stocking of overmature trees. 18 THE POLICY, LEGAL, AND 4 INSTITUTIONAL FRAMEWORK FOR NATURE-BASED SOLUTIONS 4.1.1 Policies Since 1987, Mongolia has adopted multiple national policies and strategies with the goal of sustainable development and developing the country’s economy and infrastructure based on its endowment of natural resources. Nature-based Solutions were included to some extent within the numerous strategies and policies listed in Appendix 1. The Forest Policy appears to be well aligned with the objectives and goals of Mongolia’s main development and environmental strategies. These include Mongolia Vision 2050, the Mongolia Development Plan 2025, the New Revival Policy (2022), the National Biodiversity Program 2015–2025, the 2019 nationally determined contribution (NDC), and the Sustainable Development Vision until 2030. Mongolia adopted the National Policy on Forests in 1998 and revised it in 2001 and 2015. Its declared goal is to increase the forest cover to 9 percent by 2030. However, the government decided to cancel multiple policy documents, including the erstwhile forest policy, to consolidate and streamline its policy framework as a move toward a more unified and simplified policy approach. While it is important that national level policies are clear and unambiguous, the development of sectoral policies, such as for landscapes, NbS, and forestry, may be prudent, given the sector’s unique circumstances and requirements, and the need for landscapes and forests to be managed and developed in line with more specific goals and ambitions than are reflected in the higher-level policies. It is also important that any national NbS and forest policy has the ownership and buy-in of the different stakeholders. Once an overall national NbS and forest policy has been developed and agreed, a strategy can be formulated for how the country can achieve the vision and objectives for the sector. The Forest Law was enacted in 1995, and subsequently amended in 90 This initiative was designed to es- 2007, 2012, and 2022/3, with the main strategies to achieve the aims of tablish and replant forest greenbelts the legislation enshrined, first, in the Green Wall Programme, and then in in the desert and steppe ecosys- tems with the aim of augmenting the Billion Tree National Movement. The revised law, together with other the country’s forest reserve from 9.8 policies and legislation addressing forests, represented a shift in priorities percent forest area to 11.4 percent by the end of the program (https:// from commercial exploitation and utilization of forests toward conservation, studylib.net/doc/7566170/ percen- protection, and reforestation. This paradigm shift was supported by a ban tE2 percent80 percent9Cgreen-wall percentE2 percent80 percent9D-na- on clear-cutting, the granting of user rights in state-owned forests to private tional-programme). enterprises and community forestry user groups (FUGs), and the adoption of the Green Wall Programme 2005–2035.90 However, this program was 19 INVESTING IN NATURE canceled and superseded by the Billion Tree National Movement (BTNM) (Box AS A CLIMATE AND 1), which had the goal of planting 1 billion trees (subsequently increased to DEVELOPMENT 1.51 billion trees) by 2031. In addition, the GoM has advanced the respective OPPORTUNITY FOR legal and policymaking framework to restore not less than 70 percent of MONGOLIA degraded land and decrease the area of deserted land to 60 percent of total territory by 2030, in line with Sustainable Development Goal Target 15.3.91 A major amendment was passed on June 3, 2022, which added general terms such as agroforestry, and provisions regarding seed collection, seed source, and quality standards, among others. The main legal constraint is the consistency with other laws such as for the implementation of silvicultural measures in the buffer zones of protected areas, which is limited according by the Mongolian Law on Special Protected Areas. Box 1 The Billion Tree National Movement (BTNM) in Mongolia: Progress and Expected Contributions The BTNM is a large-scale afforestation and reforestation initiative launched in 2021. The program aims to plant 1.51 billion trees over 10 years, with the goals of increasing Mongolia’s forest cover to 9 percent, protecting and enhancing water resources, combating desertification and degradation, greening urban spaces, and mitigating climate change. As of spring 2024, 50.6 million trees had been planted, covering an estimated 24,490 hectares,a which represents just 3.4 percent of the overall target. Survival rates have reportedly improved from plantings undertaken prior to the BTNM, but with no published figures on actual BTNM survival rates it is hard to know if the target of 75 percent survival by the third year will be met. There is an online platform for self-reporting progress, but there is no formal monitoring framework or results matrix with established indicators and milestones. There is also a significant shortfall in nursery capacity, with more than 200 million seedlings required per year for the remainder of the BTNM period. Many nurseries lack modern technology (such as cellular production and cold storage) and automated irrigation systems. The BTNM also faces a shortage of forestry professionals, with an estimated need for 790 forest engineers and 6,000 forestry workers. The BTNM is expected to make substantial contributions to Mongolia’s development. It will create seasonal jobs in rural areas and generate new economic opportunities from the future processing of forest products. Environmentally, the program will contribute to the protection of water resources, greening of urban areas, and increased crop production through 91 UNECE 2018. Target “15.3 By 2030, combat desertification, re- windbreaks. In terms of climate change mitigation, the BTNM is expected store degraded land and soil, includ- to sequester an additional 16.25 MtCO2e over the nine-year project period,b ing land affected by desertification, significantly contributing to Mongolia’s NDCs. The program also aims to drought and floods, and strive to achieve a land degradation-neutral halt land degradation and soil erosion, improving soil health and reducing world” (https://indicators.report/ desertification. Furthermore, the BTNM will increase Mongolia’s resilience to targets/15-3/#:~:text=Target%20 the impacts of climate change by expanding forest cover and improving water 15.3%20By%202030%2C%20com- resources. bat,a%20land%20degradation%2D- neutral%20world). However, to succeed, the BTNM needs to address several challenges such as: insufficient participation by the private sector, funding constraints, lack of suitable quality plants, and improving planting techniques and post-planting maintenance to increase survival rates. Investing in modern technology and irrigation systems in nurseries is therefore essential to meet the demand for seedlings. Strengthening forestry education and training programs is vital to address the shortage of professionals. Establishing a robust monitoring framework with clear indicators, milestones, and targets is necessary to track progress and ensure accountability. 20 THE POLICY, In conclusion, the BTNM has the potential to make significant contributions LEGAL, AND to Mongolia’s development and environmental priorities. However, addressing the challenges related to survival rates, nursery capacity, human resources, and INSTITUTIONAL monitoring is crucial for the program’s success. With effective implementation FRAMEWORK FOR and continued commitment, the BTNM can play a vital role in achieving Mongolia’s sustainable development goals. NATURE-BASED SOLUTIONS Note: a. This assumes an average stocking of 2066 stems per ha or a spacing of 2.2m x 2.2m. b. MET 2023. Going forward, there should be an increased emphasis on the benefits of sustainable forest management. Conservation and protection, and sustainable production, are not mutually exclusive; in fact, sustainable harvesting is frequently needed to secure and enhance the forest’s conservation and protection functions. In some instances, small clear fells may be appropriate as part of an overall sustainable forest management plan. The critical issues here are that: (i) there are approved sustainable forest management plans in place, (ii) implementation of these plans is properly supervised and controlled, and (iii) the necessary follow-up silvicultural interventions are taken.92 Implementors of the forest management plans, which include forest user groups and professional forest enterprises, are likely to need extension support, which is currently unavailable, to ensure that the harvesting operations are done in accordance with the management and harvesting plans while minimizing any environmental impact. Past sectoral and fiscal policies in the agrifood sector favored production 92 Interventions include protection volumes and neglected productivity, inclusion, and environmental from fire and grazing, replanting if outcomes. Between 2010 and 2020, subsidies accounted for 57 percent of natural regeneration fails, weeding and respacing, and then selective total agriculture spending. These subsidies were largely output-oriented and silvicultural thinning. benefited livestock herders with large herds, thereby incentivizing the growth in 93 Several shortcomings in the livestock numbers and resulting in ecosystem degradation and growing GHG subsidized loan program, including weak input markets, the absence of emissions. In April 2024, the Mongolian Parliament passed legislation with extension systems, poor targeting, the aim of safeguarding the traditional livestock sector from the detrimental and potential leakage, could lead to misallocation of resources and impacts of climate change. This law encompasses measures focusing on inefficient credit use by herders and mitigation, adaptation, and resilience, notably offering subsidized loans to farmers. In addition, growing con- cerns about the transparency, ac- herders, their associations, and cooperatives. countability, and loan performance of the system have emerged. There has been a recent policy shift from direct production subsidies 94 World Bank 2022a. toward subsidized loans from commercial banks, although the loans are 95 Chuluunbaatar and Annor-Frem- not linked to sustainable agricultural practices. These issues mirror those pong 2016. observed with direct production subsidies.93 Interventions to manage negative environmental externalities were introduced, such as the livestock head tax, the revenues of which are earmarked for rangeland and livestock management activities.94 The levels of the tax are extremely low, and the actual collection is variable (see section 5.2.1, para 89) Implementation of the revised legislation and taxation has not been fully successful owing to enforcement challenges and the reluctance in the collection of taxes, resulting in continued landscape degradation. In addition, aimags and soums do not receive adequate allocation for extension services, making them effectively nonexistent locally, thereby limiting training and uptake of climate-smart practices among farmers and herders.95 21 INVESTING IN NATURE 4.1.2 Institutions AS A CLIMATE AND DEVELOPMENT Forest resources management OPPORTUNITY FOR MONGOLIA The institutional arrangements and responsibilities for the Mongolian forestry sector are complex, with overlapping and sometimes competing roles. Forest management planning, which is key to the sustainable use and protection of the resource, and approval, is undertaken on a nontechnical basis, and the monitoring and control lines are unclear. Figure 8 shows the institutional relationships of forestry sector management.96 The National Forestry Agency (NFA) is responsible for developing forest policies and coordinating forestry activities at the national level. The NFA leads national level forestry activities, such as the national forest inventory, forest fire management, and pest monitoring and control. While the NFA’s Director-General is appointed by the Prime Minister, the budget is covered by the Ministry of Environment and Climate Change (MECC), the ministry with overall responsibility for the sector. The Ministry of Food, Agriculture and Light Industry (MoFALI) is responsible for forest utilization and forest product processing. There is often 96 Excluding forest product disagreement between the two ministries over the implementation of sustainable processing. forest management through the sustainable use of forest resources. Figure 8 Simplified Forest Institution Organization Chart Figure 8 Simplified Forest Institution Organization Chart Supervisory role Government of Mongolia Advisory role Ministry of Environment and Climate Change National level National Forestry Agency Regional/Local Aimag and Soum Governors/ Citizens Representative Khural Department of Environment and Climate Change 8 Aimag Forest Divisions 45 Soum and Inter-Soum Forest Units 848 Professional Forest 1281 Forest User Groups Enterprises (PFEs) (FUGs) Source: Team Note: Excluding the forest industry. In each Source: of the eight aimags with boreal forests, a forest division (which operates under the Team Department Note: Excluding of Environment the and Tourism, DET), oversees regional coordination, planning, and forest industry. budgeting. They are supposed to monitor and guide the work of the soum and Inter-Soum Forest Units at the local level. The work of the aimag agencies is guided by regional political processes (the department head is appointed by the governor), and by national policies and regulations set by the Ministry of Environment and Tourism (MET) (now the MECC). About 45 Inter-Soum and Soum Forest Units are responsible for local forestry planning, allocation of logging rights, and community 22 They guide and monitor the work of operational stakeholders (for example, Forest User mobilization. Groups and Professional Forest Enterprises) in their area and represent forestry authorities at the local level. However, due to a lack of authority, equipment, and capacity, their direct involvement in forestry activities is limited. Professional and experienced forest experts are increasingly scarce in forestry institutions, 97 and Inter-Soum Forest Units are severely understaffed, which impairs their In each of the eight aimags with boreal forests, a forest division (which THE POLICY, operates under the Department of Environment and Tourism, DET), oversees LEGAL, AND regional coordination, planning, and budgeting. They are supposed to monitor INSTITUTIONAL and guide the work of the soum and Inter-Soum Forest Units at the local level. The work of the aimag agencies is guided by regional political processes FRAMEWORK FOR (the department head is appointed by the governor), and by national policies NATURE-BASED and regulations set by the Ministry of Environment and Tourism (MET) (now SOLUTIONS the MECC). About 45 Inter-Soum and Soum Forest Units are responsible for local forestry planning, allocation of logging rights, and community mobilization. They guide and monitor the work of operational stakeholders (for example, Forest User Groups and Professional Forest Enterprises) in their area and represent forestry authorities at the local level. However, due to a lack of authority, equipment, and capacity, their direct involvement in forestry activities is limited. Professional and experienced forest experts are increasingly scarce in forestry institutions,97 and Inter-Soum Forest Units are severely understaffed, which impairs their capacity to implement successful operations in rural areas. Each ranger covers an area too big to patrol, but some improvements are being made through the use of cameras and drones. Critical bottlenecks in the forestry sector are the disconnect among the NFA, the provincial decision-makers, and those implementing the decisions, and the lack of an overall independent monitoring framework with supervision capacity. At the local level, forest management plans, annual allowable cuts, and budgets are approved by the Citizens’ Representatives Khural; the NFA has no control over the decisions of Citizens’ Representative Khural, so the forest management plans may not be technically sound. The Inter-Soum Forestry Units’ priorities may also be ignored by the Khural. The NFA cannot ensure accountability for the implementation of forest management plans by the Citizens’ Representatives Khural and Governors. Local level accountability falls under the forest units, which have no power for allocating budgets or approval of forest management plans. The stakeholders (the Khural representatives) that decide on the plans and budgets take no responsibility for their decisions.98 The NFA has limited authority over the forest management planning process 97 Gradel 2022. in practice and has insufficient human and other resources. The former Forest Research and Development Center, a state-owned enterprise that had a 98 Mongolian Forest Research Asso- ciation 2021. small budget and few staff, and which was supposed to carry out nationwide 99 A “stand” is an area of forest forest management activities, has since been subsumed within the NFA, made up of trees with relatively uni- which is mandated to coordinate the implementation of forest management form characteristics. A “standwise forest inventory” provides estimates plans to support the MECC and provide guidance to the forest units, organize the size and composition of forest events, and share information and knowledge. Ideally, each forest should for use in forest management plan- ning and determining the necessary have a 10-year forest management plan based on a local standwise forest silvicultural interventions at the inventory,99 with estimates of the sustainable annual allowable cut; based stand level. on the management plan, annual harvesting plans should be prepared to define the coming year’s forest activities; the implementation of these annual plans should be monitored, with actual removals used to update the overall management plan; and the monitoring should be done or at least checked independently from the harvesting. Once basic forest management planning processes are established, Mongolia could consider moving toward developing national standards of forest management and certification of 23 INVESTING IN NATURE forest management by a recognized forest certification standard such as the AS A CLIMATE AND Forest Stewardship Council or Programme for the Endorsement of Forest DEVELOPMENT Certification. OPPORTUNITY FOR MONGOLIA There are no independent monitoring and evaluation bodies either at the national level or at the local level, where the forest units monitor and evaluate their own work. Reporting guidelines and templates approved by the MECC are not fully utilized by the forest units due to their inapplicability and lack of staff capacity. Although all aimags are supposed to submit reports to the NFA, few do. The forestry sector is significantly constrained by the lack of adequate and trained staff. There are less than 1,000 forest sector employees in Mongolia, and it is estimated that more than 7,000 forest professionals are needed to implement the Billion Tree National Movement.100 Other government institutions that manage trees and forests in the lands under their jurisdiction include the Department of Protected Areas Management under the MET; the Ministry of Food, Agriculture and Light Industry (MoFALI); and the Ministry of Infrastructure. Forest User Groups (FUGs) have emerged as important local stakeholders in forest management and protection. FUGs are voluntary associations of citizens and are responsible for protecting forests from illegal logging and fire. In some cases, they are contracted to undertake afforestation and reforestation activities. As of 2018, there were 1,281 FUGs managing 3.3 million ha of forest.101 The territory under their management is state-owned land. Tenure rights can legally be granted to FUGs by the local authorities for up to 60 years, but are generally signed for four years, corresponding to the elected terms of local governors. There is now some uncertainty over the legal status of the FUGs following amendment of the Law Combatting Money Laundering and Terrorism Financing in 2018, which obliges entities to identify clients and report transactions above a certain threshold. Due to these changes, which supersede the law related to the forest, FUGs are no longer recognized as legal entities. However, some FUGs have recently been able to open bank accounts at the State bank. On April 24, 2024, the GoM announced the “New Cooperative” program, which aims to support rural development. Some FUGs have reportedly secured loans under this new program. FUGs are ideally placed to increase the silvicultural interventions in rural 100 Forest Forum meeting held in areas and to be part of developing smaller-scale local harvesting and Ulaanbaatar, 2021. processing capacity. For example, they could be involved in the production 101 Unique (2023), referencing data from MET 2018. of wood chips for use in fuel switch projects, where municipal buildings have been converted to using wood waste instead of coal, or for small- scale sawmills producing poles and timber for local markets, or acting as harvesting contractors for timber buyers from outside the locality. To do this, the FUGs would need extension support from the NFA or Inter-Soum Forest Units to prepare forest management plans, annual harvesting plans, business plans, and loan applications, and to complete reporting procedures. The Inter-Soum Forest Units would also need the capacity to monitor and enforce the management plan implementation and compliance with environmental legislation. 24 Professional forest enterprises are private entities operating in the fields of THE POLICY, protection (such as pest eradication), rational use (interpreted as sustainable LEGAL, AND use here), and restoration of natural resources. They are licensed by the MECC, INSTITUTIONAL and the license is renewed every three years.102 According to the NFA, as of May 31, 2024, there were 848 enterprises operating nationwide, including 366 FRAMEWORK FOR enterprises in the field of tree breeding, afforestation, and rehabilitation; 36 NATURE-BASED enterprises in the field of research and control of forest pests and diseases; SOLUTIONS 20 enterprises in the field of forest inventory and forest management; 395 enterprises with a special license for forest logging, cleaning, and industrial logging in forests; and 31 enterprises with a license for the protection and use of non-timber products. There are 300 to 500 professional forest enterprises with a license for sanitary cuts (which can include silvicultural thinnings as well as the removal of dead, dying, and diseased trees), afforestation, and reforestation.103 Private sector investment in more harvesting and processing equipment is hampered by the insecurity of the raw material supply. If investors are uncertain of their roundwood supplies, they cannot safely be assured of the necessary income over the short to medium term (that is, three to 10 years) to repay investment costs. A complete evaluation is needed of how forest products (such as timber, poles, woody biomass, and non-timber forest products) are sold to the private sector and how the process can be improved to encourage private sector investment. Forest Industry The Ministry of Food, Agriculture and Light Industry (MoFALI) has departments of Food and Agriculture at the aimag level under their direct management. These departments are staffed by one officer in charge of small and medium-sized enterprises and light industry, who is tasked with the monitoring and supervision of all local enterprises. There are two main professional enterprise associations that work closely with the MoFALI—the Mongolian Forest and Wood Industry Association and the Mongolia Yurt and Yurt Kit Manufacturers Association. The supervision of and support for the forest product processing industry According to Ministry Order A 102 in Mongolia is underdeveloped, resulting in investments in processing that 223/2013. are unplanned and ad hoc. For example, how would a potential investor in 103 Ganbat 2021. a wood processing factory know whether the raw material supply could be guaranteed, where the best place to site the factory would be, the appropriate technology to use, and the potential best products and markets to develop? Timber is mainly processed by professional forest enterprises with a timber license. These licenses are frequently for small quantities of timber over short periods, resulting in timber enterprises not having enough security of supply to enable investment in advanced techniques and technologies to produce higher-quality products. Development of the main value chains (timber and pine nuts) is of great importance to the successful implementation of sustainable forest management, but both are hampered by a poor supply of raw materials, a lack of human resources, inadequate marketing, and low uptake of advanced and appropriate technology. To create the sustained and predictable flows of 25 INVESTING IN NATURE forest products required to justify investment in harvesting and processing, 10- AS A CLIMATE AND year forest management plans are needed, with fair, competitive, established DEVELOPMENT methods of sale.104 Once sustained supplies have been established, it will OPPORTUNITY FOR be necessary to improve and demonstrate the chain of custody, to ensure MONGOLIA the legality of forest products in the market. The European Union Forest Partnership and the Food and Agriculture Organization (FAO) will support the initiation of this effort through implementation of the Forest Governance and Value Chains Programme, which aims to develop and support tracing and verification systems; trace wood and non-wood raw material sources; and develop standards, guidelines, and regulations that will contribute to sustainable natural resource management. Rangeland management Steppe and rangeland management falls under the remit of the MoFALI, which is responsible for policy, pastoral production, use, and protection of pasture. The Departments of the Food and Agriculture at the aimag level are responsible for supervision of implementation. There are 1,516 pasture monitoring sites located throughout Mongolia in 320 soums, and these have been collecting data since 2011 via specialist meteorological stations at each site. The data from these sites are used to assess the status/degradation of pasture. Pasture use is regulated by the Government along the boundaries of administrative units (aimags, soums, and districts). The Citizens’ Representatives Khural of these units have the right to approve and ensure implementation of regulations governing the use of pastures within the framework of the relevant law. There is no specific law on the need for grassland management plans that estimates the sustainable carrying capacity, the level of production, or the remedial/improvement measures that need to be implemented. According to the Land Law, the “General National Land Management Plan of Mongolia,” there is a land management plan that is adapted to the natural and geographic conditions, land resources, ecology, economy, spatial capacity, and capacity of the entire territory of Mongolia. According to the management policy, there is a 16- to 20-year perspective design document for the development of the country’s society and economy, while the regional and metropolitan land management plan is a 12- to 16-year design document developed within the framework of the National Land Management Plan. However, these are high-level plans that neither address specific management interventions nor define the carrying capacity or how degraded areas are managed. The Citizens’ Representatives Khural approves the soum and district land 104 Examples are through long-term leases, standing sales, sales at management plan for the year that defines the area covered, and its use and roadside, delivered sales, and long- protection, for citizens, enterprises, and organizations. The annual design term sales contracts. document includes the traditional use of pasture, and the requirements for 105 MET 2019. proper use, protection, and restoration, taking into account the schedule of winter, spring, summer, autumn, and winter reserve areas.105 It is unclear how the implementation of these plans is monitored and reported. 26 Pasture User Groups (PUGs) are collective organizations of herders whose THE POLICY, animals graze on the same land and comprise the traditional herders who, LEGAL, AND through customary law, have the exclusive right to manage the pasture area in INSTITUTIONAL their traditional grazing area. The National Federation of Pasture User Groups of Herders (NFPUG) was established in 2015 with the mission to create a FRAMEWORK FOR favorable pasture environment while meeting the social and economic needs NATURE-BASED of herders. NFPUG has more than 81,000 individual members and 1,445 PUG SOLUTIONS members. There are, in addition, 156 Soum Association PUGs, 18 Aimag Federation PUGs, and 87 marketing and credit and saving cooperatives. Once PUGs are formed, they map their combined pasture resources, which are discussed and then approved by the bagh (subdistrict) Citizens’ Public Meeting, pasture protection plans and maps are prepared, and they enter into a Pasture Use Agreement with the soum governor. 4.1.3 The Role of the State in Managing State-Owned Forests In many countries, there have been increasing pressures for institutional change within the forest sector,106 but frequently there has been insufficient and commensurate investment to create the capacity required to deal with these burgeoning demands. Many new policy initiatives are attempting to add objectives for forest management or to set priorities among other competing objectives. The role of states was diminished as functions were privatized, and resources were commensurately reduced, leaving a critical shortfall in capacity to cope with the new mandates. The functions of any state with respect to forestry fall into four main categories: 1. Regulatory – leading the processes of the formulation of forest policy and drafting relevant forest legislation 2. Supervisory – monitoring and enforcing compliance with the law and regulations, regardless of ownership, including the prevention of illegal activities in the forest 3. Support – state support of the sector includes financial support; research107; maintaining a forest management information system and detailed data; extension services to forest owners, users, and the private sector; and protection from disease, pests, and wildfires 4. Ownership – management of state-owned forest resources. The transition from a centrally planned to a market-based economy has often resulted in a reduction of the state’s capacity to manage forests following 106 Such as decentralization, globalization, privatization, privatization and creating long-term leasing arrangements with the private environmental advocacy, and sector. This process was meant to enable the private sector to take on many climate change. of the ownership functions of forest management in state-owned forests.108 107 Including the National Forest However, the private sector is selective about the operations it undertakes Inventory; monitoring of pests and disease; and species, provenance and concentrates on the most profitable. If management of the state’s and silvicultural trials. forest resources is to be outsourced, the state needs to have the capacity to 108 Such as forest management monitor, supervise, and control the private sector’s activities. There are other planning, harvesting, reforestation, and maintenance. operations the private sector cannot be expected to undertake that require state involvement and investment. 27 INVESTING IN NATURE These include: AS A CLIMATE AND DEVELOPMENT 1. Controlling seed source109 – that is, seeds need to be treated, OPPORTUNITY FOR tested, stored, and tracked.110 It is likely that private nurseries simply MONGOLIA collect seed from felling operations and do not register or track the seedlings that are planted. 2. Providing the necessary seedlings for reforestation activities such as the Billion Tree National Movement in areas that the private sector cannot supply. 3. Undertaking a national forest inventory and preparation of forest management plans in the case of forests let to FUGs, and in the case of the private sector, monitoring and approving forest management plan preparation and then monitoring and controlling implementation, and setting up, managing, and maintaining a multilayered forest and pasture management information system. 4. Providing an extension service to forest users, lessees, and owners, so that the users can prepare management and annual operation plans to the technical standards required, have the technical capacity to use the resources in line with approved management plans, and can address issues such as forest fire prevention and disease and pest outbreaks. 5. Monitoring forest health and addressing pest and disease outbreaks. 6. Maintaining the public good functions of forests, which include provision of environmental stability, clean water, biodiversity, tourism, and recreation opportunities, and opportunities for education and research, in the extensive forest and rangeland areas. 7. Monitoring, early warning, prevention, detection and suppression, Seeds need to be collected from 109 phenotypically superior trees of and coordination of suppression of wildfires, although the private known location. sector should undertake prevention and suppression activities in 110 Due to climate change and their specific forest areas if they have long-term leases. changing ecological zones, it is especially important that seeds are 8. Contracting and supervising FUGs or companies to undertake sourced and used from the correct provenance. noncommercial silvicultural operations such as cleaning, respacing, 111 Protection measures include es- pre-commercial thinning, and early to mid-age silvicultural thinning, tablishing fire breaks, and sanitary and protection measures.111 These activities can be contracted cutting of diseased and pest-infect- out to either FUGs or forestry contractors, but the state still needs ed trees. the funds to pay for these services and the capacity to supervise 112 Forest roads frequently require long-term state investment, as the implementation to ensure the operations are completed correctly. payback period is frequently more than one rotation of the forest. 9. Investing in the construction of forest roads.112 Without investment in forest roads, harvesting can cause serious environmental degradation or become uneconomic. 28 THE QUEST FOR THE QUEST 5 PUBLIC AND PRIVATE FINANCE FOR PUBLIC AND PRIVATE FINANCE 5.1 ESTIMATED COSTS AND CURRENTLY AVAILABLE FINANCING 5.1.1 The Financing Challenge The cost of achieving Mongolia’s NDC are substantial and will require a multipronged approach to mobilize finance. The estimated initial cost of achieving the NDCs is US$11.5 billion until 2030. Of this, US$6.3 billion is required for mitigation and US$5.2 billion for adaptation.113 This equates to US$1.15 billion per year over 10 years from 2021. The NDC Action Plan 2021–2025 broadly confirms this as it estimates the required financing for implementation at US$7.7 billion—equivalent to US$1.54 billion per year.114 Financial resource mobilization will need to strategically combine domestic public and private finance and international finance, including Official Development Assistance (ODA), foreign direct investment, and voluntary carbon payments. The costs of implementing the BTNM, which is a crucial complement to the NDC, are also high and depend heavily on planting and use of fencing to prevent grazing. The BTNM implementation plan estimates the average planting cost at MNT 20,315 (US$5.89115) per tree, which includes fencing and three years’ maintenance to reach a 75 percent survival rate,116 for a total cost of MNT 30,655.3 billion or US$8.89 billion, depending on the exchange rate. Assuming a stocking of 2,500 stems per ha, the average planting and establishment cost is US$14,725 per hectare. This might seem high, and it may be that fencing small, long, and thin, or irregularly shaped plots could significantly increase the overall establishment costs. Natural regeneration could be used more extensively where it is likely to be successful, resulting in significant savings. Other considerations such as planting density and 113 Mongolia’s Nationally Deter- plantation size could be considered to reduce costs. Better livestock mined Contribution to the United Nations Framework Convention management could reduce grazing pressure through cooperation with On Climate Change, 2019, updated herders, thereby reducing costs and facilitating natural regeneration. 2020 (https://unfccc.int/sites/de- fault/files/NDC/2022-06/First%20 Submission%20of%20Mongo- Mining companies have agreed to plant 608.5 million trees, and other lia%27s%20NDC.pdf). organizations such as financial institutions have agreed to plant a further 114 MET 2023. 200 million. Assuming the mining companies and banks pay for these Assuming an exchange rate of 115 MNT 3,450.00 to US$1.00. plantations, this would leave additional funding required from the state of Billion Tree National Campaign 116 MNT 14,237 billion (US$4.13 billion), or MNT 2,033 billion (US$0.59 billion) Implementation Plan. per year, assuming seven years are remaining. 29 INVESTING IN NATURE The plantations will need maintenance beyond the budgeted three years. If AS A CLIMATE AND the crop is not properly protected from livestock, fire, and pests and diseases DEVELOPMENT after year three, the investment could be wasted. There then follows the need OPPORTUNITY FOR for stand cleaning and pre-commercial thinning. These operations will require MONGOLIA funding going forward.117 Institutional capacity is also required to supervise and monitor the plantations. Since the start of the BTNM, 50.6 million trees have been planted, which, although a large number, represents only 3.4 percent of the target, while 30 percent of program period has elapsed.118 Assuming that the outstanding planting is funded in the same proportion of the state to private sector planting target, this leaves a remaining state budget requirement of MNT 13,759 billion (US$3.99 billion) or MNT 1,966 billion (US$0.57 billion) per year. State funding for the BTNM is insufficient. In recent years, the country has allocated more funds to the forestry sector, but this amounts to just 3 percent of the estimated total costs to implement the BTNM. The NFA’s total budget119 rose from MNT 0.3 billion (US$87,000) in 2022, to MNT 14.0 billion in 2023 (US$4.1 million), and to MNT 45.1 billion in 2024 (US$13.1 million). This represents only 2.3 percent of the state planting costs required for the BTNM. In addition, there are budgets allocated to the Inter-Soum Forest Units, the Aimag Department of Environment and Tourism, and environmental conservation and restoration activities. In total, MNT 116.5 billion (US$33.8 million) has been budgeted for the forestry sector in 2024 (6 percent of the required annual state BTNM funding). 5.1.2 Prioritizing Investments through the NbS Lens While efforts such as the BTNM may appear daunting, targeting forest 117 These are operations that could be contracted to the FUGs. planting and restoration through an NbS lens will allow minimizing costs 118 There are 1.33 billion trees still while maximizing impact. The total annual GDP for Mongolia was estimated left to plant over the remaining six by the IMF to be US$19.86 billion in 2023,120 with a total government budget years. of MNT 22,454 billion (US$6.51 billion).121 Therefore, implementing the NDC 119 The NFA budget includes funds action plan, as noted above, would require 7.8 percent of GDP and nearly a for afforestation/reforestation and for all other tasks such as quarter of the Government’s entire expenditure for the next three years. The inventory and forest fire monitoring background work prepared for this policy note shows that implementing NbS and control. in targeted area, with clear mitigation and adaptation co-benefits, could be a https://www.imf.org/external/ 120 datamapper/NGDPD@WEO/ cost-effective method for contributing to development through ecosystem MNG?zoom=MNG&highlight=MNG. approaches. Our estimates suggest that select NbS, implemented over an 121 National Statistics Office of Mon- area of 430,000 ha would require just 0.4 percent of GDP, while sequestering golia; https://www.nso.mn/en/sta- tistic/statcate/573058/table-view/ 12.5 MtCO2e over a period of seven years. The investment costs and the DT_NSO_0800_005V1. potential mitigation for the implementation of the selected NbS measures are shown in Table 6. The costs of these selected NbS are put in the context of the broader implementation costs of the NDC and BTNM in Table 7. 30 Table 6 Abatement and Implementation Costs, and Estimated THE QUEST Sequestration over 10 Percent of the Operational Area for FOR PUBLIC Six NbS Investment Models AND PRIVATE Implementation cost Mitigation potential if FINANCE Abatement NbS is implemented for 10 percent of the cost on 10 percent of the Investment models operational area operational area (MtCO2e/yr over 7 (US$/tCO2e) (US$/yr for 7 years) years) Enhancement of 17 12,252,386 5.2 growing stock in boreal forests Establishment of 74 64,123,994 6.0 protective shelterbelts Forest landscape 17 991,966 0.4 restoration in forest reserves Restoration of 22 3,046,618 1.0 abandoned or active mining areas Prevention of wildfires/a 662 Improving forest health 20 AVERAGE 135 80,414,964 12.5 Note: a. Estimates for prevention of wildfires were developed assuming intense silvicultural measures such as ploughing 50-meter strips around forest boundaries and creating 100-meter debris-free areas on the inside edge of the forests. While these interventions would serve as good preventive measures, they are too costly to implement over the wider landscape. Other, more cost-effective measures such as improving community awareness, working with PUGs and FUGs, better localized fire danger rating systems, improved detection systems, and reduced response times could significantly reduce the incidence of forest fires at a reasonable cost. Table 7 Estimated Costs of Implementing NbS in the Context of Broader NDC and BTNM Measures MNT US$ Program billion/year billion/year Achieving NDCs 3,967.50 1.15 NDC action plan 5,313.00 1.54 BTNM full 4,232.49 1.23 BTNM State funds 1,965.62 0.57 NbS selected measures 277.43 0.08 31 INVESTING IN NATURE 5.2 POTENTIAL FUNDING AS A CLIMATE AND DEVELOPMENT Mongolia needs to improve its capacity to mobilize private finance for NbS. OPPORTUNITY FOR Significant challenges remain in attracting private capital. Key limitations MONGOLIA include the lack of financial frameworks tailored to NbS, insufficiently developed green financing policies, and limited data to assess the profitability of these solutions for private investors. Private sector engagement has been minimal, with most NbS financing reliant on international aid, public funds, or pilot projects. Strengthening the regulatory framework, improving transparency, and creating market-based incentives are essential to advance private investment in NbS. Implementation of NbS in Mongolia financial viability and scalability challenges. Many projects, such as reforestation, sustainable land management, and ecosystem restoration, have high upfront costs with long payback periods. The harsh climate, vast geographic expanse, and low population density make NbS projects complex and costly to implement. To attract private finance, Mongolia will need to address these barriers through targeted policy reforms, blended financing mechanisms, and public-private partnerships that derisk investments and make NbS projects more financially attractive. 5.2.1 Sources of funding State State funding, philanthropy, and official development assistance are instrumental in developing the methodologies and creating the enabling environment122 to mobilize other sources of finance. State funding is essential to allow the private sector, together with local communities and herders, to implement NbS at scale. The private sector and local communities require easier access to finance and appropriate extension advice. Voluntary carbon finance plays a role in helping offset a portion of the costs, but these payments are insufficient, paid in arrears, with frequently volatile pricing. 122 Such as policy, legislation, a Currently, there is limited potential to raise more public funding through financial system, and institutional taxation. For over a decade, public expenditure on the environment has support and supervisory capacity. remained below half a percent of GDP,123 but the government has aspired 123 World Bank 2010. to spend at least 1 percent of GDP124 per year to combat climate change.125 One percent of GDP is approxi- 124 However, if this was spent on the BTNM, it would cover less than half the mately US$198.6 million. state’s portion of the BTNM. Given the size of the economy and the need 125 President of Mongolia 2023. for government spending on other sectors, the opportunities for spending 126 Particularly to drive more sus- tainable outcomes, such as carbon increases of the magnitude required to address the NDCs and BTNM seem taxes and polluter taxes. limited. The state could increase funding through borrowing, but this will depend on the fiscal headroom. There may be scope to increase environmental tax rates126 and to ring-fence these funds to ensure they are allocated to the environment. Funding secured through this route is likely to be marginal. Environmental taxes are currently charged on energy, transport, pollution, and the use of natural resources from which the GoM collects revenue (Figure 9). 32 headroom. There may be scope to increase environmental tax rates 126 and to ring-fence these funds to ensure they are allocated to the environment. Funding secured through this route is likely to be marginal. Environmental taxes are currently charged on energy, transport, pollution, and the use of natural resources from which the GoM Figure 9collects revenue (Figure Environmental Taxes 9). by Year and Sector THE QUEST Figure 9 Environmental Taxes by Year and Sector FOR PUBLIC AND PRIVATE FINANCE Source: Mongolia National Statistics Office. Source: Mongolia National Statistics Office. There are two regulatory instruments that could contribute to financing NbS measures. The first is the Law of Natural Resource Use Fee, which enables charging fees for the use of wildlife, natural plants, and forest and water resources (Figure 10). The second is the new Law on Livestock, which There are two regulatory instruments that could contribute to financing introduced a herd tax from January 2021. The Law of Natural Resource Use Fee mandates that at NbS measures. The first is the Law of Natural Resource Use Fee, which enables charging fees for the use of wildlife, natural plants, and forest and 122 Such aswater resources policy, legislation, (Figure a financial 10). system, and The second institutional issupervisory support and the new Law on Livestock, which capacity. introduced 123 World Bank 2010. a herd tax from January 2021. The Law of Natural Resource Use 124 One percent of GDP is approximately US$198.6 million. 125 Fee President mandates of Mongolia 2023. that at least 85 percent of forest use fees, which accrue in local government budgets, must be reinvested in environmental protection (the red 126 Particularly to drive more sustainable outcomes, such as carbon taxes and polluter taxes. line in Figure 10). The natural resource 31 use fees have not been allocated and used as required (environmental expenditure is less than 10 percent of the total revenue—the blue line in Figure 10). In 2022, the entire sum amounted to US$13 million, which would be a marginal contribution to the BTNM.127 Figure 10 Revenue from the Natural Resource Fee and its Environmental Expenditure 127 UNDP 2022. Source: Mongolia National Statistics Office. Note: NRUF = natural resource use fee. 33 INVESTING IN NATURE The new livestock law’s head tax is too low, and local governments’ discretion AS A CLIMATE AND in its collection means it will have little impact on overgrazing. The new Law DEVELOPMENT on Livestock, which introduced a herd tax from January 2021 onward, states OPPORTUNITY FOR that owners of livestock pay a tax of zero to MNT 2,000 (about US$0.76) MONGOLIA per head per year to be set and implemented by the soum governments and Khurals. If the top tax rate was collected on 50 percent of the herd in 2022, there was a potential annual income of US$27 million. This revenue should be allocated to the Local Development Fund and finance projects for herders. The concern is that soum leaders may not apply the tax for political reasons. Clearly, introducing new taxes that poor herders must pay may not be popular or appropriate from a social welfare perspective. However, it is more important to modify the tax and subsidy system and then implement the modifications to create the right incentives to drive the change required to reduce overgrazing and to improve livestock management, productivity, and quality. The current value-added tax and customs duty exemption on imported wood and wood products creates a disincentive for harvesting and processing locally produced wood products. These exemptions are intended to increase the supply of imported wood to Mongolia’s wood processing industry, which cannot be met through domestic wood supply due to low harvesting rates and low annual allowable cuts, even though increased sustainable production would benefit the forests. This policy effectively discourages private investment in the forestry sector and disadvantages the domestic forestry sector. It would therefore be beneficial to remove the value-added tax and customs tax exemptions on raw materials, provided that the institutional capacity exists to ensure increases in forest production is sustainable, that is, that forest management plans are being properly prepared, implemented, supervised, and monitored. Blended Finance Blended finance is defined as the strategic use of development finance and philanthropic funds to mobilize private capital flows to emerging and frontier markets resulting in positive results for both investors and communities.128 The private sector values the role of development finance institutions such as the World Bank as providers of liquidity, long-term capital, and technical assistance. However, the necessary additional enabling environment required includes greater predictability in policies to increase confidence and the participation of the private sector. Bringing together different public and private investors in the same Spratt, Lawlor, and Coppens 128 2021. transaction can draw on complementary strengths. Donors may contribute a development focus, while private actors can enhance commercial aspects. 129 Smith 2022. Blended instruments may include equity, private debt, guarantees and insurance, development impact bonds, and performance-based grants. A feasibility study on setting up the Mongolia Reforestation Fund was undertaken by UNDP in 2022 and included making the business case, developing a financial model, and designing the possible fund structure.129 Appendix 6 provides a short description of the fund, which has yet to be operationalized. 34 Private Sector Finance THE QUEST The GoM could create a package of private sector investment options that FOR PUBLIC proactively mobilizes funding for NbS to be promoted through the National AND PRIVATE Development Agency. Suitable investment opportunities may be larger FINANCE wood processing hubs or chipboard plants, or the conversion of district heating systems to use of wood waste and chips. Factors driving private sector investment in NbS include the potential for financial returns aligned with sustainability goals, and the value of nature for businesses beyond financial return (corporate accountability), and the management of risk. In 2022, foreign direct investment (FDI) net inflows in Mongolia comprised 14.9 percent of GDP, most of which was directed to the mining sector.130 According to the Country Climate Development Report,131 reforms that stimulate private investments in green sectors, particularly those aimed at improving the investment regulatory framework and the business environment, will attract capital for the green transition. Leveraging concessional funding through blended finance, ensuring that green loans issued are genuinely aligned with environmental objectives, and enhancing participation in international carbon credit markets, will provide additional green finance. Mining operations are often associated with environmental degradation, and investing in remediation, restoration, and afforestation is a necessary aspect of responsible mining. An opportunity exists to channel some of the FDI toward NbS. The GoM published a project pitch to the National Development Agency that highlights potential investment opportunities.132, 133 This is consistent with global trends in developing economies that show that initiatives to promote climate change adaptation and mitigation through FDI are concentrated in the renewable energy and electricity sector.134 Sustainable forest management offers scope for increased private sector World Bank World Develop- 130 investment and development in sustainable harvesting and processing of ment Indicators database; https:// wood and non-wood products. There are several value chains associated databank.worldbank.org/source/ world-development-indicators. with the development of NbS, but these are poorly developed, and the existing initiatives are of marginal impact due to size and scale. Some improvements 131 World Bank Group 2024. have recently been made in the timber sector, where small loans have been 132 https://investmongolia.gov.mn/ wp-content/uploads/2021/11/ made from the Local Development Fund to the professional forest enterprises pitchbook-2021.pdf. (PFEs) and small and medium-sized enterprises working in the forestry Currently, the target sectors are 133 sector. Some PFEs have managed to secure loans from banks to upgrade mainly energy infrastructure. their machinery, but these are mostly the PFEs with larger concessions with 134 https://unctad.org/system/ files/official-document/diaepc- dependable raw material supplies. Donor organizations and the NFA have binf2022d8_en.pdf. provided capacity building to FUGs to produce value-added products from salvage cutting and cleaning and non-timber forest products. Technologies have been introduced, and a few FUGs and PFEs are producing forest-based products, but the markets need to be further developed. The major constraints regarding the development of forest-based green value chains are (i) an inconsistent and unreliable supply of raw materials, (ii) poor product marketing and consistent supply, (iii) lack of human resources and capacity, and (iv) insufficient access to finance to support investment in machinery and infrastructure. These issues contribute to the slow development of the technology and human resources required. 35 INVESTING IN NATURE Private sector investment in the livestock sector is a priority to improve AS A CLIMATE AND livelihoods and returns through better processing, quality standards, DEVELOPMENT logistics infrastructure,135 and marketing.136 Improving pasture conditions OPPORTUNITY FOR through sustainable pasture management137 can support an increase in the MONGOLIA products’ value per head. Poor livestock management practices negatively affect the quality of meat and hides and limit exports because of food safety concerns. Inadequate storage infrastructure and high transport and logistics costs depress prices, limiting rural income growth. Investments in breeding stock and improved processing capacity are required to increase the yield, as well as the quality, of dairy, meat, and fiber products. Developing value chains for all products at the scale required to make a Such as warehouses and veteri- 135 nary services. significant contribution will require changes in (i) how forest and rangeland 136 Gautam et al. 2022. are managed; (ii) how the resources are allocated and sold; and (iii) how the sustainable levels of removals are set, monitored, and controlled. Without 137 Such as assessing, setting, and controlling the carrying capacity, sustainable management and control, encouraging the development of that is, allowing only the appropriate processing capacity could be counterproductive and exacerbate demand number of animals to graze a given area of rangeland. for unsustainable production and landscape degradation. The legal and 138 https://www.lsta.org/content/ regulatory frameworks need to be designed, and the institutional capacity sustainability-linked-loan-princi- needs to be in place, first. ples-sllp/. 139 The Taxonomy focuses on four environmental objectives: climate change mitigation and adaptation, 5.2.2 Tools to Mobilize Finance pollution prevention, resource conservation, and livelihood im- provement. The Taxonomy is based Sustainability-linked Loans (SLL) from Banking Institutions on six principles: (1) contribute to national policies and targets; (2) ad- Borrowers of SLLs are required to achieve predetermined and agreed dress environmental challenges; (3) cover high-emitting, key economic sustainability objectives, with progress regularly monitored through key sectors; (4) align with international performance indicators. SLLs, therefore, facilitate and support borrowers to standards and good practices; (5) comply with ESG standards; and (6) contribute to sustainable development.138 The National Green Taxonomy139 continues review and development could play a part in defining operational guidelines for banking institutions to (https://www.greenfinanceplat- form.org/policies-and-regulations/ raise and disburse SSLs. mongolia-green-taxonomy#:~:- text=The%20Taxonomy%20fo- cuses%20on%20four,Address%20 An increase in private sector credit is fundamental to promoting economic environmental%20challenges growth through the efficient allocation of resources.140 Access to finance 140 World Bank 2022b. for the private sector has been highlighted as a major barrier because of the 141 Gapare 2023. prohibitive interest rates and lack of collateral.141 The GoM has signaled that 142 The New Revival Policy aims to green financing will be increased to 3 percent of GDP by 2030, as part of ensure political and macroeconom- ic stability, accelerate public-private the New Revival Policy,142 while the finance sector has indicated its intention partnerships, create a favorable to increase green loans (SLLs) to 10 percent of total loan volume by 2030 business environment, further open up the state to foreign and domes- (close to US$2 billion). Mongolia’s financial system continues to face several tic investment, and implement fiscal structural hindrances that drive high cost and low access to finance for reforms (European Institute for Asian Studies 2022). the private sector. Credit channeled to the private sector by the Mongolian financial system has fallen behind its peers (Figure 11). 36 Figure 11 Domestic Sector Credit to the Private Sector (percent of GDP) THE QUEST FOR PUBLIC AND PRIVATE FINANCE Source: World Bank World Development Indicators database; https://databank.worldbank. org/source/world-development-indicators. Of Mongolia’s 13 banks, three have made significant strides toward increasing the green finance proportion of their portfolio. The Khan Bank, the Trade and Development Bank of Mongolia, and Xacbank have explicit loan facilities that are targeted at financing agricultural activities for herders. The green loan and herder loan facilities offered by the three banks have interest rates ranging from 8 percent to 20.4 percent (comparable to regular loan terms). These loans are a model that could be developed to include NbS activities with the longer payback periods required for the forestry sector. Debt-for-Nature Swaps A debt-for-nature swap is a financing mechanism that enables countries to exchange their outstanding debt for the protection and conservation of their natural resources and ecosystems. A debt-for-nature swap is typically arranged between a debtor country and a creditor country, or club of creditors, or an international conservation organization. Mongolia could therefore reduce its debt and use the foregone debt repayments to support conservation, biodiversity, and the protection of ecosystem services. The freed-up resources could be used to improve resilience without triggering further fiscal stress or sacrificing spending on other development priorities. UNDP is already supporting the process of integrated Sustainable Development Goal (SDG) Financing in Mongolia, including discussions on SDG Finance Taxonomy, SDG Investor Mapping, SDG Bond Feasibility and Framework Study, and Debt- for-Nature Swap studies. 37 INVESTING IN NATURE Carbon Finance AS A CLIMATE AND DEVELOPMENT Establishing robust institutional and system infrastructure is essential for OPPORTUNITY FOR Mongolia to benefit from international carbon markets. The Government MONGOLIA recently began drafting a national climate change law that will include carbon market regulations to create the regulatory foundation to access carbon- based investments. Strong policy and regulatory frameworks, institutional arrangements, and technical systems are required. Carbon markets are split into compliance and voluntary markets (Figure 12). Currently, compliance markets are much larger than voluntary markets143 but are more complex and costly to implement. Figure 12 Carbon Credit Markets Domestic International Carbon credit Compliance Domestic compliance UNFCCC (NDC) markets instruments (e.g. ETS, carbon taxes) CORSIA Domestic crediting International crediting mechanisms mechanisms The spectrum of (e.g. Australia ERF) (e.g. CDM, Article 6) compliance - voluntary & domestic - international Independent mechanism adds complexity to the (e.g. Verra, Gold Standard) carbon credit markets Voluntary credit purchases Voluntary (e.g. Corporate offsetting) Note: Credit demand Credit supply Note: CDM = clean development mechanism; ERF = Emissions Reduction Fund; ETS = emissions trading scheme; NDC = nationally determined contribution. 143 Compliance markets and vol- untary carbon markets buy carbon credits from suppliers for either Global demand for voluntary carbon credits could increase 15 times reductions in carbon emissions or by 2030,144 potentially providing an important source of NbS financing. sequestration. They were created to help countries meet legally binding According to the World Bank’s report, “The State of Carbon Pricing 2024”145: emissions reduction targets set by agreements like the Kyoto Protocol and the Paris Agreement. Compli- • Governments, particularly in middle-income countries, are ance markets are mandatory for increasingly including crediting frameworks in their policy mix, to industries under specific regulatory regimes such as emission trading support both compliance and voluntary markets schemes or the clean develop- • Compliance demand is building, but voluntary demand continues ment mechanism, while voluntary markets are optional, are driven by to dominate corporate sustainability goals, and • Prices declined across most project categories, except for carbon enable companies and individuals to purchase carbon credits on a removal projects voluntary basis. • Credits with specific attributes—such as co-benefits—traded at a 144 The Taskforce on Scaling up premium. Voluntary Carbon Markets; https:// icvcm.org/the-core-carbon-princi- For Mongolia, this represents an opportunity to support the ples/. implementation of NbS, which specifically address carbon removal, 145 World Bank 2024a. with most measures providing certifiable co-benefits. Setting up an emissions trading scheme could encourage the move away from heavy 38 GHG-emitting industries, although this would require further study to THE QUEST understand the impacts of carbon pricing instruments on the industries FOR PUBLIC concerned. AND PRIVATE While voluntary markets have recently suffered, there is reason to be FINANCE optimistic. Ecosystem Marketplace146 noted that while there was a drop- off in total voluntary carbon market transactions from 2021 to 2022, not all types of climate solutions were affected in the same way. The volume of agricultural credit transactions reported in 2022 grew 283 percent from 2021, led by grassland/rangeland management projects (significant for NbS in Mongolia). Agriculture, the fastest-growing category in 2022, includes project types centered around sustainable management of farmland and pasture, including natural ecosystem preservation and restoration, and management of animal manure. Forestry and Land Use was the largest and highest-value category in 2021 and 2022, with the greatest number of projects reported for 2022. Credits from Forestry and Land Use are consistently in high demand because they represent Nature-based Solutions that can both reduce and remove carbon emissions while providing socioeconomic and environmental co-benefits. This category includes project types such as REDD+, afforestation, reforestation, and revegetation (ARR); and improved forest management (IFM), all of which are relevant for the implementation of NbS. There is a clear voluntary carbon market preference (and price premium) 146 Forest Trends’ Ecosystem for carbon sequestered through NbS and with co-benefits.147 Many voluntary Marketplace 2024. Forest Trends is carbon buyers preferentially seek projects with co-benefit certifications such a nonprofit organization in Washing- ton, DC, that works to promote as Climate, Community and Biodiversity Standards (CCB), the Sustainable investments, markets, and other Development Verified Impact Standard (SD VISta), and social carbon. The payment and incentive mechanisms for a broad range of ecosystem average price in the voluntary carbon market in 2023 for projects with certified systems and services. Ecosystem co-benefits was US$10.51/tCO2e, compared to US$6.46 with no co-benefits. Marketplace is an initiative of Forest Trends that focuses on increasing transparency and providing infor- Voluntary carbon payments can make a useful but marginal contribution to mation for ecosystem services and payment schemes. the cost of implementing NbS. If carbon markets were found for all of carbon 147 That is, co-benefits linked to to be sequestered by the BTNM, (16.25 MtCO2e over nine years), and the price sustainable development and may achieved was US$10.51/tCO2e, this would raise US$171 million, (only 2.0 include supporting local commu- nities, biodiversity conservation, percent of the BTNM establishment costs). Carbon payments tend to be paid wildlife restoration, gender equity, in arrears, once the carbon has been sequestered, so the initial establishment and affordable clean energy. costs still need to be found. 148 For example, growth curves and allometric volume equations; and the use of GPS (Global Positioning The assessment of the carbon sequestration potential of the BTNM and System), GIS (Geographic Informa- tion System, and drones to image future NbS interventions required to help attract carbon finance is currently and map target forest areas. constrained by a lack of data, technical tools,148 and the human capacity to 149 UNFCCC 2019. physically undertake the assessments. The development of country-specific tree growth values for the different forest types has been identified an area of technical improvement for Mongolia’s submission to the UNFCCC.149 At the same time, there is a reliance on traditional approaches within the BTNM through afforestation and reforestation to address carbon sequestration rather than adopting broader green resilient landscape NbS interventions, such as sustainable forest management, sustainable management of pasture and grazing, more extensive use of natural regeneration, and utilization of wood- based products as substitutes for products with a high carbon footprint. 39 INVESTING IN NATURE Green Bonds AS A CLIMATE AND DEVELOPMENT Green bonds are fixed-income securities issued by governments, banks, or OPPORTUNITY FOR companies to fund projects with environmental benefits. Green bonds are MONGOLIA similar to traditional bonds in that investors loan money to a bank or financial institution in exchange for regular interest payments and the return of the principal upon maturity. Green bonds are explicitly linked to environmental and social outcomes. The proceeds from the issuance of green bonds are earmarked for environmentally friendly and sustainable projects such as renewable energy, clean transportation, energy efficiency, and sustainable land use. The Khan Bank is at an advanced stage of issuing a US$60 million five-year bond in which the IFC150 has invested US$15 million and Khan Bank has attracted another US$45 million from international investors, including US$35 million from Dutch Entrepreneurial Development Bank (FMO), and US$10 million from MicroVest Capital Management. At the global level, green bonds grew 49 percent in the five years to 2021,151 with the green bond market annual issuance potentially exceeding US$1 trillion by 2023.152 World Bank green bonds are a potential option for the GoM. The World Bank 150 The International Finance Corpo- ration, a member of the World Bank issues green bonds to investors who are willing to support environmentally Group, makes loans to the private friendly projects, with the funds raised used to finance projects consistent sector. with the World Bank’s Climate Change Action Plan. As of 2020, 15 percent of 151 Climate Bonds. World Bank green bonds were in agriculture, land use, forests, and ecological 152 Gapare 2023. resources—that is, in NbS. World Bank green bonds are certified by third-party verifiers to ensure that the funds raised are being used for their intended purpose. The verification process also helps build investor confidence by ensuring transparency and accountability. 40 POLICY RECOMMENDATIONS: 6 HARNESSING INSTITUTIONS AND FINANCE FOR NBS The progress and commitments made in the policies of the NDC action plan and the BTNM are a strong basis on which to build the actions necessary to turn NbS into a development and resilience asset. This Policy Note argues that Mongolia’s nature has historically played a crucial role in carbon sequestration. Moreover, the management of the country’s natural capital, spanning grasslands, forests, and water resources, is crucial for both economic development and resilience. Going forward, it is essential to maintain this policy impetus, but there is also a need to bolster the institutional capacity to administer and implement as well as monitor the progress of NbS investment programs, while forging ahead with the necessary complementary initiatives such as the management of grasslands and development of sustainable forest management. A whole-of-economy approach is needed to harness nature to address Mongolia’s climate vulnerabilities and development challenges. The following recommendations, which focus on four key categories of intervention, are proposed. Policy Coordination and Development i) Appoint a national champion, with the authority to work across ministries and agencies and across different levels of government, to drive and guide the development and application of NbS strategies (including the BTNM) as part of the NDC action plan implementation, and to oversee overall implementation. It is crucial to take key policy and institutional decisions promptly—to kickstart the process of program implementation at a rate and scale commensurate with the targets, to address the imperative ecosystem stabilization requirements and the climate change mitigation and adaptation needs and commitments. ii) Develop an overarching landscape-level policy that targets resilience and development in the rural space and includes both forest and rangeland. This policy should set the overall vision for building long- term resilience and development opportunities in the rural space and identify the goals and objectives and outline how these aspirations can be achieved in the medium to longer term. The policy, drawing from experience in countries like China and Korea, would include multistakeholder coordination, multisectoral frameworks, and coordination of management decisions over natural capital assets. This should be developed following an inclusive participatory process to include all relevant actors—government; institutions; local governments; users such as herders, PUGs, FUGs, and PFEs; meat and livestock and 41 INVESTING IN NATURE forest product processing companies; the private sector; academia; AS A CLIMATE AND and relevant nongovernmental organizations—to ensure stakeholder DEVELOPMENT inputs, ownership, and the support essential if the new policies are to be OPPORTUNITY FOR successfully implemented. This will take time to complete and should MONGOLIA be undertaken concurrently with the rest of these recommendations, even though the new policy may mean some of the ongoing programs need to be adjusted. Improve the design, setting, targeting, and implementation of iii) agricultural taxes and subsidies to address overgrazing and resultant landscape degradation. As identified in the “Mongolia Country Climate and Development Report,”153 reform of the agricultural incentives and taxes is required. Uniform implementation of these taxes across the different localities must be assured. The levels of tax and subsidy could be fiscally neutral and not unfairly impact poor local herders, but at the same time have sufficient strength to reduce overgrazing while encouraging investment in increasing productivity and quality. Monitoring frameworks for measuring effectiveness and impact of the subsidies and taxes need to be set up. New, innovative, practical, cost-effective, and participatory approaches are clearly needed in the livestock sector to forestall potential ecosystem collapse in the overgrazed rangeland. Institutional Reform and Capacity Building iv) Introduce holistic and sustainable landscape154 management through collaboration and linked management planning and supervision and supported by the provision of advanced technology. Collaboration is required at all levels within, between, and among the different levels of government and institutions (MECC, NFA, MoFALI, and their regional counterparts) as well as with and among the different users (for example, PUGs, FUGs, PFEs, private sector value chains). Such cooperation is needed at the stage of the participatory preparation of forest and pasture management plans, as part of the plan approval process, between the PUGs and FUGs when the plans are being implemented, during supervision and monitoring by the authorities, and when the management plans are being reviewed prior to the next plan iteration. This cooperation among agencies, governments, and user groups needs to be factored into the functional review described in point (v), below. A new model for the livestock sector is required that focuses on 153 World Bank Group 2024. sustainable landscape management, and the quality and productivity of 154 Landscapes include pastures, animals as a complement to the new taxation and fee incentives for rangelands, forests, protected areas, and wetlands. herders.155 Sustainable landscape management does not necessarily 155 Puntsagdorj et al. 2021. need to rely heavily on artificial reforestation/afforestation, but because the livestock will be better managed and managed cooperatively between forest and pasture users, it should be more possible to regenerate and restore forests through natural regeneration. This is significantly cheaper than planting, often results in denser stocking, and is of locally native and adapted species of the correct provenance. Although there are no formal links, PUGs and FUGs in the same area may have many individual members in common. The forest law prohibits grazing inside forest areas, even though in some instances this may be 42 a good treatment for mid- and older-aged forest stands (depending on POLICY the size of the trees and the proposed silvicultural treatment). At the RECOMMENDATIONS: boundary between forest and pasture, there may be competing needs HARNESSING for land use between the objectives of PUGs and FUGs. It seems that INSTITUTIONS AND the PUGs are quite well established and are already producing pasture FINANCE FOR NBS management plans. To ensure the regeneration/establishment of the forest and shelterbelts, it is essential that livestock are precluded from regeneration/establishment areas in the early years. These areas could be used, however, for the collection of fodder and other non-timber forest products (such as berries, mushrooms, and medicinal plants). If PUGs participate in the forest management planning process and share the benefits, it is likely that the required regeneration areas can be protected from livestock more easily, and it may even be that the expensive fencing is not needed once all the PUG members are in agreement. v) Enhance and establish the institutional capacity required to manage, supervise, monitor, and evaluate the forestry and pastureland sectors. There is a significant shortage of human resources in the forest and pasture sectors. Technical capacity is needed to ensure that forests, protected areas, and landscapes are managed in accordance with technically sound, sustainable management plans that determine locally the sustainable levels of use and removals. This requires the design of a management plan preparation process that includes technical as well as local approval, and that the implementation of these plans is then monitored, and that any infringements or unsustainable practices prevented. Greater use could be made of modern technology to enhance areas such as seed management and processing; nursery production; remote sensing; resource management planning, monitoring, and control; and wildfire prevention and detection. Furthermore, the Forest User Groups, Pasture User Groups, and Professional Forest Enterprises need support and guidance on both how to prepare the plans and how to undertake the activities required to implement them. A forest and pasture extension service needs to be established to support the resource users. Moreover, the state needs to have the capacity to undertake certain key roles that the user groups or private sector either cannot or will not do (see para 75). Accordingly, it is recommended that a functional review of all the forestry and land management institutions be undertaken with respect to management of rangeland, forest, protected areas, and the forest industry to: a. Review the current institutional roles and capacity and identify any gaps and overlaps and where greater collaboration and cooperation are needed between and among the different institutions and with the different levels of government b. Identify the tasks that the institutions need to undertake, and the overall roles and responsibilities required to ensure sustainable management of steppe and forest at the landscape level c. Estimate the institutional resources and capacity currently available d. Prepare a functional review to include, where necessary, institutional restructuring and human resources development plans, to define 43 INVESTING IN NATURE the new institutional roles and the necessary physical and human AS A CLIMATE AND resources required, and then define the training program needed DEVELOPMENT on an ongoing basis, and prepare a time-bound, fully costed action OPPORTUNITY FOR plan to implement the restructuring. MONGOLIA Once this review has been completed, substantial political will will be required to support the institutional development process and the significant funding needed to implement it. Without it, the development of the sectors will remain ad hoc and unlikely to meet the targets. A high-level champion would be critical for the success of the institutional development process. vi) Establish the institutional capacity for accessing carbon markets as a way to enhance the viability of financing programs. Mongolia is looking to expand its participation in international carbon markets. While the country has made progress in setting targets and initiating policies for climate change mitigation and adaptation, further efforts are needed to fully prepare the country institutionally for accessing international carbon markets. This includes creating species- and site-specific tree growth curves and collecting additional data on carbon sequestration; establishing a designated authority for carbon markets; and establishing a monitoring, reporting, and verification system. Private sector resources mobilization and financing vii) Implement sustainable forest management to conserve and protect the boreal forests and protected areas, while providing opportunities for the development of rural green value chains to enhance livelihoods and carbon storage. The boreal forest stocking is patchy with overstocked areas, including dead, dying, and diseased trees; areas where the forest is overmature, with the older senescent trees suppressing regeneration and growth; and other areas with open, incomplete canopies. These undermanaged forests are frequently subject to pests and disease and will be more susceptible to wildfires. Forest health and resilience will be improved through sustainable forest management with planned, sustainable harvesting, by undertaking silvicultural thinning and regeneration felling, while providing raw materials for green value chains which, in turn, will improve local livelihood opportunities and improve the carbon balance. To encourage the development of the wood and non-wood processing 156 World Bank Group 2024. industry, a level playing field for the domestic timber industry should be created by including value-added tax and customs duties on imported timber. In addition, timber sale methods need to be revised so investors can be guaranteed the necessary raw materials during the investment payback period, provided they pay competitive prices. Investments in forest harvesting and primary processing could be facilitated through loans to FUGs and PFEs. In line with recommendations from the “Mongolia Country Climate and Development Report”156 to reduce the demand for coal and electricity, fuel switch projects should be undertaken in municipal buildings or in the conversion of district heating systems to use wood waste and wood chips. For higher-quality timber 44 products, a system of hubs and a distribution network should be set POLICY up, as recommended in the UN REDD report.157 Development of value RECOMMENDATIONS: chains at the scale necessary to make a significant contribution to NbS HARNESSING requires a change in how forest and rangeland are managed; how the INSTITUTIONS AND resources are allocated and sold; and how the sustainable levels of FINANCE FOR NBS removals are set, monitored, and controlled. Without this, encouraging the development of processing capacity could be counterproductive and exacerbate demand for unsustainable production. The legal and regulatory frameworks need to be designed and the institutional capacity needs to be in place first (see point v), above). viii) Design financing models, including through the blending of public and private sector finance, to ramp up the implementation rates and green value chain opportunities. To do this, robust investment and business models need to be developed, using multiple sources of finance such as SSLs from commercial banks, green bonds, and debt-for-nature swaps, and benefiting from diverse income streams that may arise from carbon finance, such as future timber and non-timber forest product revenues, tourism opportunities, improved product quality, development of improved green value chains, and fuel switch projects. In parallel, scarce public funds could be used to create the enabling conditions for private actors to invest and make lasting and widespread changes in people’s lives and society. To achieve this, more analysis is required to develop different business models; survey potential private sector investors to understand their needs; and understand the feasibility of using different funding sources such as fiscal incentives, debt-for-nature swaps, green bonds, and carbon finance. It is then necessary to develop a time-bound and fully costed action plan for the GoM to implement. As identified in the “Mongolia Country Climate and Development Report,”158 it is necessary to improve the regulatory framework to attract more private sector finance for the green transition. Implementation at scale ix) i) Develop scalable landscape-level investment projects that target 157 UN REDD Mongolia 2018. resilience and productivity improvements in the rural space. The above 158 World Bank Group 2024. recommendations can be put to use through a program of investments that address the issues outlined above, including technical assistance (that is, the functional review), large-scale multisource investments in landscape restoration with multiple development and climate co-benefits (and that includes sustainable holistic landscape-level management planning and implementation), institutional capacity building (including necessary state capacity for critical functions such as certified seed collection, treatment, storage and tracking, and infrastructure) pilots of on-the-ground critical investments, policy reform support, and scale-up. 45 summary ofIN A INVESTING NATUREnext steps and relative timeline is provided in Table 8: proposed AS A CLIMATE AND DEVELOPMENT Table 8: Next Steps and Possible Time Frame OPPORTUNITY FOR MONGOLIA Time STEP Action Responsible Institution Frame (months) 1 High level (i.e., cabinet level or higher as this involves more than one ministry) GoM 1 Government decision and buy-in to pursue NbS at scale and to ramp up private sector involvement in the BTNM and to provide contributions to NDCs. 2 Recruit and appoint cross-sectoral champion/high-level adviser to drive the process GoM 1–3 and program forward; full-time post for 5 years. 3–63 3 Fully develop a program roadmap and prepare a fully costed time-bound action Champion/GoM/ MoF/MED/ 1–3 plan for the different stakeholders, e.g., institutions, private investors, banks, users, MECC/ MoFALI/ regional + development institutions, and academia, following a participatory process for the local government/donors/ program approved in step 1. stakeholders 4 Undertake a Functional Review and Institutional Restructuring Study, including the MECC/MoFALI/ 9–12 preparation of the estimated levels of investment required in human resources, regional + local infrastructure, IT systems (e.g., Forest and Pasture Management Information governments/donors/ Systems), setting up an extension service (for FUGs, PUGs, and PFEs), bolstering stakeholders the monitoring and control functions, establishing the capacity to undertake state functions of natural resource management, ensuring that all stakeholders have had the opportunity to participate and provide input into the process. Design and structure standard operating procedures. 5 Prepare overarching landscape policy and legislative requirements arising from the Champion/GoM/ MECC/ 12–18 Functional Review following a participatory process, including the relevant stakeholders. MoFALI/ NFA/ donors 6 Based on the outcome of the Functional Review design, prepare and implement a full MoF/MEDF/ MD/MECC/ 8–120 institution-building investment project including a Forest and Pasture Management NFA/donors Information System (F&PMIS), establishing pasture and forest extension services, building the state capacity for the state functions of land and forest management (e.g., forest fire management systems, pests and disease control, seed management, etc.), and the monitoring and control processes of the resource use, with full economic, social, and environmental analyses, following defined environmental and social standards. As part of this project, support could also be provided to the User Groups and PFEs to establish best practices and use of innovative finance and modern up-to-date mechanization. Develop a series of projects to prepare and then implement sustainable landscape management plans, including investment in critical infrastructure. Facilitate participation and scale-up by traditional users and the private sector; develop pilots; create an enabling environment; and provide technical support and guidance to the ongoing policy reform, legislation, and regulations. 7 Revise and draft relevant legislation, taxation, incentives, and regulations, following Champion/MoF/MED/ 3–18 participatory processes, with respect to the overuse of pasture and rangeland, use MECC/MoFALI/NFA/ donors and sale of timber resources, collaborative forest and pasture management planning, and collaborative forest and pasture use. 8 Prepare business plans; survey investors; create demand for investment in BTNM Private sector/NFA/ donors 3–18 and NbS; pilot investment schemes with different sources of finance including carbon, blended finance; and sustainability-linked loans from commercial banks. 9 Undertake analytical work to support development of carbon finance in terms NFA/Academia/research 3–18 of carbon growth models, allometric volume equations,a and establishment of institutions/donors permanent sample plots. All data should then feed into the F&PMIS. 10 Design and regulate (i) the forest and pasture management plan preparation NFA 3–18 process to ensure that technically sound management plans can be prepared and are approved by technically competent authorities, and (ii) the supervision and monitoring of the plan implementation by the competent authorities. Note: a. An allometric equation is a mathematical formula used in biology to describe how a biological variable (such as organ size or metabolic rate) scales proportionally with an organism’s body size. 46 APPENDIX 1: APPENDIX Policy Documents Relevant to Nature-based Solutions • Green Development Policy and associated Action Plan 2016–2030 (2014/2016) • Vision 2050 (2020) • Sustainable Development Vision 2030 (2016) • National Action Program on Climate Change 2011–2021 (NAPCC) (2011)* • Nationally Determined Contribution (NDC) (2019) • National Adaptation Plan on Climate Change (2019) • National Agriculture Development Policy, 2010 (2010–2021)* • National Water Programme 2016–2021 (2010)* • National Programme on Soil Protection and Reducing Land Degradation (2019–2023) • Strategic Action Plan on Peatlands Conservation and Wise Use in Mongolia (2017) • State Policy on Food and Agriculture Sector, 2010* • National Program on Fruits and Berries 2018–2022 (2017) • State Policy on the Energy Sector of Mongolia 2015–2030 (2015) • National Program on Energy Saving, 2017 • State Policy on Forestry 2016–2030 (2015)* • National Programme on Forest Cleaning / Tending, 2014 • National Biodiversity Program 2015–2025 (2015) • National Action Program for Combatting Desertification 2010–2020 (NAPCD) (2010)* • National Plan of Action to Combat Desertification in Mongolia (MET, 1997).* Note: *Currently inactive. 47 INVESTING IN NATURE APPENDIX 2: AS A CLIMATE AND DEVELOPMENT Land Use Efficiency OPPORTUNITY FOR 1. Modeling has shown that it is possible to increase both carbon storage MONGOLIA and economic returns from grazing, forestry, and crop production through changes in land use.159 Optimization methods were used to derive efficiency frontiers showing the maximum combination of carbon storage and net Appendix 2: economic Land Use returns for a range of values. This demonstrated that substantial Efficiency potential increases in carbon storage and net economic returns relative to has shown 1. Modeling current that itare outcomes is possible possible. to increase Shifts both in land usecarbon storageland, and economic among grazing forestry, returns from grazing, forestry, and crop production through changes in land use. cropland, and natural lands can generate increases in carbon storage on the methods 159 Optimization were used to derive efficiency landscape frontiers showing of approximately the without 6 percent maximum losscombination of carbon in net economic storage and returns. net economic returns for a range Net economic returns of from values. This land can demonstrated be increased by that115substantial potential percent without lossincreases in carbon storage ofand net economic carbon storage under returns relative current climateto current outcomes conditions. are in Increases possible. forestryShifts and, in land use among grazingto land, forestry, a much lesser cropland, and natural extent, increases managedincreases lands can generate in intensively cropland,in carbon make it storage on the landscape of approximately possible to increase the 6 percent net valuewithout loss in activity of economic net economic returns. from land without Net economic any losscan returns from land be increased of carbon storage. 115 percent byThese changes without loss occur on a of storage carbon small relatively under portion ofcurrent the land, climate conditions. with grazing Increases continuing in forestry and, to toadominate. much lesser This is demonstrated extent, increases in in Figure intensively where A2. 1,make managed cropland, carbon storage it possible is plotted to increase the netagainst value ofeconomic economic value. activity The fromline land without represents any loss of carbon storage. the frontier These of maximum changes occur on carbon storage a relatively and portion small maximum of economic the land, with grazing This that value, showing continuing to dominate. economic development is demonstrated in Figure A2. of 1, the rural landscape where is possible carbon storage is plotted against while increasing carbon storage (and, hence, sequestration). economic value. The line represents the frontier of maximum carbon storage and maximum economic value, showing that economic development of the rural landscape is possible while storage increasing carbonFigure (and, A2. hence, sequestration). 1 Sustainable Landscape Efficiency Frontiers and Current Figure A2. 1 Sustainable Performance Showing Landscape Efficiency theand Frontiers Potential Current for Simultaneous Performance Showing Gains in the Potential for Simultaneous StorageStorage Carbon Gains in Carbon Economic and NetReturns and Net Economic underReturns under Conditions Current Climatic Current Climatic Conditions Hawthorne, Bo, and Polasky 159 2024. 2. The impact of implementing the maximization of carbon storage and net economic value on the changing land use required are shown in Figure A2. 2. 48 2. The impact of implementing the maximization of carbon storage and net APPENDIX economic value on the changing land use required are shown in Figure A2. 2. Figure A2. 2 Land-use Transitions in Hectares from Current Land Use to Land Use on the Efficiency Frontier Source: Results from the InVEST model, by Hawthorne, Bo, and Polasky (2024), for the “Mongolia Country Climate and Development Report” (World Bank Group 2024). Note: The figure on the left shows the transition from current land use to the land-use point on the efficiency frontier that maximizes the carbon storage increase without loss of net economic value. The figure on the right shows the transition from current land use to the land-use point on the efficiency frontier that maximizes net economic value without loss of carbon storage. Forests in Mongolia are present both under the “forestry” and the “natural land” category. BPM = best management practices. 3. Expanding forestry on lands where forests can grow in north-central Mongolia allows for large increases in net economic returns. The share of net economic returns from forestry as a share of total crop, livestock, and forestry production, rises from less than 20 percent in the current land use, to around 50 percent in the case where the landscape is chosen to maximize net economic returns without loss of carbon storage. The expansion in net economic returns can be accomplished without loss of carbon storage by reforesting some land. 49 INVESTING IN NATURE 4. The modelling work was then repeated using three climate change AS A CLIMATE AND scenarios (Shared Socioeconomic pathways 126, 245, and 370), which DEVELOPMENT showed that potential increases in carbon storage and net economic returns OPPORTUNITY FOR are still possible with climate change. As climate change reduces grassland MONGOLIA productivity after about 2030, the efficiency frontier contracts inward, meaning that smaller potential efficiency gains relative to current outcome are possible. However, under all climate scenarios analyzed to 2050, large potential gains remain, with improved land use and better land management. 5. Beyond improvements in land use investment allocation, sustainable agriculture intensification and increasing agriculture product/value chain complexity are essential for a successful transition to low-carbon and resilient agrifood systems. Managing livestock herds better is paramount given that livestock numbers are above carrying capacity of rangeland and the ongoing degradation. However, simply reducing livestock numbers without accompanying improvements in livestock productivity, increased value realization, and diversification of herder income sources, will jeopardize herders’ livelihoods. Promoting productivity-enhancing, climate-smart practices, modernizing agriculture value chains, and linking extensive pastoral systems with commercially oriented semi-intensive and intensive livestock production models (for example, feedlots) can support and anchor the low carbon, and resilient livestock sector transition. For the crop sector, adoption of climate-smart practices, and “frontier technologies” such as greenhouses, protected agriculture, and precision agriculture will encourage multi-season or year-long production, reduce food-loss and waste, and mitigate GHG emissions. 50 APPENDIX 3: APPENDIX Nature-based Solutions for Potential Adoption in Mongolia 6. Glauner et al. (2023) identified a number of NbS mitigation measures including (i) enhancement of growing stock in boreal forests, (ii) establishment of protective shelterbelts, (iii) forest landscape restoration in forest reserves, (iv) restoration of abandoned or active mining areas, (v) prevention of wildfires, and (vi) improving forest health160; and seven adaptation NbS 160 Glauner et al. (2023) also iden- tified specific target areas where measures: (i) peatland conservation, (ii) conservation and rehabilitation these measures could be imple- of floodplains and riparian reserves, (iii) combatting desertification, (iv) mented (excluding the prevention of wildfires and improving forest improved water management and irrigation, (v) climate-smart agriculture to health, as these should be spread improve soil fertility, (vi) intensification of fodder and meat production, and across the forest estate), and suggested two further mitigation (vii) agroforestry, for potential application in Mongolia (Table A3. 1). Some measures that were not quantified of these adaptation measures also have significant mitigation potential (for or spatially identified: sustainable forest management and urban example, conservation of peatlands and climate-smart agriculture), although forestry. these were not quantitatively assessed). Table A3. 1 Summary of the Nature-based Solutions as Proposed by Glauner et al., 2023 Nature-based Solution Potential for Co-benefits / remarks Measure Mitigation Adaptation NbS 01) Enhancement of High Medium The silvicultural measures prescribed under NbS 01 contribute growing stock in boreal to the resilience of ecosystems, protect against vulnerabilities, forests stabilize forestry production, and sustain the economic values of forests used by local communities. The outcome is a healthy, climate-resilient, and productive forest in optimum growing con- dition. NbS 02) Establishment of High Medium Shelterbelts help improve the provision of environmental services protective shelterbelts and the production of wood and non-timber forest products, both of which have a socioeconomic impact on herders and the rural population. NbS 03) Forest landscape High Low NbS 03 contributes to habitat recovery; biodiversity conserva- restoration in forest tion; improved local climate; water availability; reduction of wind reserves speeds; lowering of summer temperatures through the provision of shade, shelter and, on certain sites, producing commercial goods for adjacent rural communities. NbS 04) Restoration of High Medium NbS 04 restores unmanageable land for sustainable forest abandoned or active min- management or agricultural uses. Provides similar co-benefits as ing areas under NbS 03. NbS 05) Prevention of High Low–High NbS 05 contributes to biodiversity conservation, minimizing air wildfires pollution through smoke emissions, safeguarding wildlife, main- taining landscape integrity, minimizing livestock losses and, thus, contributing to food security. NbS 06) Improving forest High Low–High Good forest health and high resilience toward pests and disease health will enable forest ecosystems to continue to produce the desired environmental services and wood products. 51 Nature-based Solution Potential for Co-benefits / remarks Measure NbS 07) Peatland conser- High High The conservation of peatlands against drainage or degradation vation will buffer weather extremes, maintain wet habitats and pastures, feed rivers, prevent soil erosion, and maintain levels of ground- water. During dry periods, which may continue for several years, the water preserved in peatlands will release a steady water flow, which facilitates food production, is a source of a better liveli- hood, and is a barrier to desertification. NbS 08) Conservation Medium Medium NbS 08 has several positive effects on the sustainability of water and rehabilitation of resources, contributing to improved water quality and availabil- floodplains and riparian ity for humans and livestock, thus enhancing food security and reserves reducing vulnerabilities of the rural population. NbS 09) Combatting Low High NbS 09 prevents soil erosion and contributes to sand dune stabili- desertification zation in desert ecosystems. In winter, snowdrifts can be signifi- cantly reduced. It has a positive effect on biodiversity conserva- tion and the availability of arable land, which in turn enhances food security and the improvement of livestock pastures. NbS 10) Improved water Low High NbS 10 will increase water supply for humans and livestock, thus management and irriga- reducing vulnerabilities to extreme weather events. It will increase tion yields per ha (crops, fodder, meat), and prevent further saliniza- tion of agricultural land. It would allow reduction of the agricultur- al production area and facilitate the recovery of degraded land. Eventually, it has a positive effect on food security and stabilizes the income of the rural population. NbS 11) Climate-smart High High NbS 11 has a positive impact on the water-holding capacity of agriculture to improve soil soils, bioturbation, infiltration, and humus content. It reduces the fertility use of heavy machinery and contributes to lower carbon emis- sions by tractors. NbS 12) Intensification of Medium Medium Better-managed pastures and the improved production of fodder and meat produc- summer and winter feed will lead to stronger, healthier, heavier tion animals that are less vulnerable to disease and climate extremes. Consequently, the economic performance of herders is improved. NbS 13) Agroforestry Medium High The diversification of traditional production systems through agroforestry provides marketable products and environmental services that contribute to an increased resilience against climate change impacts and reduce the vulnerability of natural ecosys- tems, herders, and farmers. Although it is only practicable in smaller areas, it has a considerable impact on food security. NbS 14) Urban forestry Low Medium– Urban forestry has been increasingly recognized as an important High component of more livable, healthy, and resilient cities and towns. It represents a cost-effective, nature-based solution that provides many ecosystem services and benefits contributing to sustain- able development, climate protection, biodiversity conservation, combatting land degradation, and disaster risk reduction. Its impacts and concrete measures for Mongolia have been analyzed and evaluated in other reports. NbS 15) Sustainable For- High Medium NbS 15 represents an extensive forestry land use that goes est Management (SFM) beyond the scope of this report. However, important elements of SFM are captured in NbS 01, 02, 03, 04, 05, 06, 08, 13, and 14. 7. The estimates of the GHG mitigation potential by NbS are presented in Table A3.2. 52 Table A3. 2 GHG Mitigation Potential by NbS Model Area (ha) Mitigation potential Nature-based Solutions MtCO2e tCO2e/ha Code Name National Operational National Operational Per ha NbS 01 Enhancement of growing stock in 2,590,272 1,643,767 453 287 175 boreal forests NbS 02 Establishment of protective shelter- 4,241,322 1,686,241 390 155 92 belts NbS 03 Forest landscape restoration in 1,826,369 129,522 612 43 335 forest reserves NbS 04 Restoration of abandoned or active 885,000 306,000 297 103 336 mining areas NbS 05 Prevention of wildfires 1,213,069 496,134 4 2 3 NbS 06 Improving forest health 13,581 12,520 2 2 147 Total respective average 10,769,613 4,274,184 1,758 592 181 NbS 07 Peatland conservation 8,082,946 — n.e. n.e. n.e. NbS 08 Conservation and rehabilitation of 18,437,632 7,340,570 n.e. n.e. n.e. floodplains and riparian reserves NbS 09 Combatting desertification — 8,783 n.e. n.e. n.e. NbS 10 Improved water management and 1,001,840 37,313 n.e. n.e. n.e. irrigation NbS 11 Climate-smart agriculture to improve 998,875 796,711 n.e. n.e. n.e. soil fertility NbS 12 Intensification of fodder and meat 66,611,651 7,124,033 n.e. n.e. n.e. production NbS 13 Agroforestry 209,991 102,821 n.e. n.e. n.e. Total NbS 07 - 13 95,342,935 15,401,448 Note: — = not available; n.e. = not evaluated. 8. The adaptation benefits are described qualitatively in Table A3.3. Table A3. 3 NbS Adaptation Benefits NbS code NbS Measure Potential Adaptation Benefits NbS 1 Enhancement of grow- Improved erosion control, improved water storage and regulation, less prone to for- ing stock in boreal est fires, better disease resistance, better flood control (and reduced damage to rural forests infrastructure), improved biodiversity benefits, improved local livelihood opportuni- ties, reduced dzud impacts, temperature regulation NbS 2 Establishment of pro- Less windborne dust erosion, reduced flooding impacts, more resilient livestock and tective shelterbelts agriculture, temperature regulation, supply of wood and non-wood products to local communities, reduced dzud impacts NbS 3 Forest Landscape Improved erosion control, improved water storage and regulation, less prone to Restoration in Forest forest fires, better disease resistance, better flood control, improved biodiversity Reserves benefits, improved livelihood opportunities NbS 4 Restoration of aban- Reduced erosion, better water retention and water regulation, flood control, improved doned or active mining habitats for biodiversity, temperature regulation areas NbS 5 Prevention of wildfire Reduced erosion, improved biodiversity habitats, better water regulation and flood control, reduced impact of dzuds 53 NbS code NbS Measure Potential Adaptation Benefits NbS 6 Improving forest Improved erosion control, improved water storage, less prone to forest fires, better health disease resistance, better flood control, improved biodiversity benefits, improved local livelihood opportunities, reduced dzud impacts, temperature regulation NbS 7 Peatland restoration Better water regulation and flows, better drought resistance, reduced erosion, im- proved habitats, improved pasture NbS 8 Conservation and Improved water regulation, reduced erosion, reduced flooding, improved surrounding rehabilitation of flood- pasture and agriculture, improved water quality plains and riparian reserves NbS 9 Combatting desertifi- Reduced soil erosion and dust, sand stabilization, improved biodiversity habitats, cation improved pasture NbS 10 Improved water man- Reduced erosion, better water use and regulation, reduced vulnerability to extreme agement and irrigation weather events NbS 11 Climate-smart agri- Improved resistance to extreme weather, reduced erosion, better flood resilience, culture to improve soil improved local livelihoods fertility NbS 12 Intensification of Decrease the need for extensive pasture, meaning that large areas of degraded fodder and meat pro- pasture can be rehabilitated and restored, leading to reduced erosion and improved duction resilience to weather extremes, such as floods, droughts, and dzuds NbS 13 Agroforestry Reduced erosion, temperature regulation, water regulation, improved livelihoods, improved biodiversity habitats NbS 14 Urban forestry Temperature regulation, protection of infrastructure, improved living conditions, NbS 15 Sustainable forest Improved forest resilience, improved livelihoods, contributions to green value chains, management improved erosion control, improved water storage/regulation, less prone to forest fires, better disease resistance, better flood control, improved biodiversity benefits, improved local livelihood opportunities, reduced dzud impacts, temperature regula- tion. 9. Six potential specific pilot sites for implementation of some of the NbS described above were identified covering a total of just over 63,000 ha in five soums in five aimags (Bulgan, Dornogovi, Govi-sumber, Selenge and Orkhon). The areas selected represent a cross-section of the country’s ecosystems, with forests and steppes with high mitigation potential making up 85 percent of the area. Details of the pilots are included in Appendix 5. Selecting the specific pilots at the operational level was based on ecological, social, and economic criteria, including accessibility and nearness to aimag or soum centers. Preliminary discussions with relevant aimag and soums identified the following key lessons: • Scarce human resources at the soum level means that the more highly endangered ecosystems should be prioritized, that is, the ecosystems most likely to collapse should be chosen first. • NbS implementation must consider clear administrative and managerial responsibilities. • Consultations with concerned stakeholders such as herders, farmers, PUGs, FUGs, PFEs, and rural households should contribute to the site-specific management plan parameters161 to ensure the success of the proposed NbS. • Funding specific mitigation or adaptation measures will only 161 Such as buffer width of riparian reserves, planting densities, and be successful if they are implemented at the soum level, where seedling sizes of forestry species. multisector climate protection measures can be facilitated. Funds, assigned to a single sector, such as forestry, agriculture, grassland, or peat, are not likely to yield the desired results. 54 APPENDIX 4: APPENDIX EX-ACT Analysis of the Proposed NbS for Mongolia Greenhouse Gas (GHG) Accounting MONGOLIA The Potential of Nature-based Solutions for Climate Change Mitigation and Adaptation 10. Background and methodology. Following its environmental strategy, the World Bank adopted a corporate mandate to conduct greenhouse gas (GHG) emissions accounting for investment lending. The quantification of GHG emissions is an important step in managing and ultimately reducing GHG emissions. The World Bank adopted the Ex-Ante Carbon Balance Tool (EX-ACT), developed by the Food and Agriculture Organization (FAO) of the United Nations, to assess the impact of agricultural and rural development investment lending on GHG emissions and carbon sequestration. EX-ACT allows the ex-ante assessment of a Project’s net carbon balance, defined as the net balance of CO2 equivalent GHG that would be emitted or sequestered as a result of project implementation, compared to a without project scenario. EX-ACT estimates the carbon stock changes (emissions or sinks), expressed in equivalent tons of CO2 per hectare per year. 11. EX-ACT application for the GHG accounting of “Mongolia: The Potential of Nature-based Solutions for Climate Change Mitigation and Adaptation.”162 The main objective of the study was to identify and assess the potential of various Nature-based Solutions (NbS) for delivering GHG emission reductions and adaptation benefits in Mongolia, and to propose strategic actions required to facilitate their adoption. It is assumed the Project has a six-year time frame and a capitalization period of 14 years.163 Proposed NbS interventions under the Project interventions are grouped into 15 areas/NbS activities: NbS 1 Enhancement of growing stock in boreal forests; NbS 2 Establishment of protective shelterbelts; NbS 3 Forest landscape restoration in forest reserves; NbS 4 Restoration of abandoned or active mining areas; NbS 5: Prevention of wildfires; NbS 6 Improving forest health; NbS 7 Peatland conservation; NbS 8 Conservation and rehabilitation of floodplains and riparian reserves; NbS 9 Combatting desertification; NbS 10 Improved water management and irrigation; NbS 11 Climate-smart agriculture to improve soil fertility; NbS 12 Intensification of fodder and meat production; NbS 13 Agroforestry; NbS 14 Urban Forestry; and NbS 15 Sustainable Forest Management. The GHG accounting applies the Ex-Act Tool to assess the GHG impacts of the Project 162 Glauner et al. 2023. implementation of 10 NbS activities. NbS 7, 8, 9, 14, and 15 are excluded from this exercise due to the lack of available data. The information used 163 In total, the assessment consid- ers a 20-year period. to inform the GHG analysis is obtained from the technical report “Mongolia: 164 Glauner et al. 2023. The Potential of Nature-based Solutions for Climate Change Mitigation and Adaptation”164 and secondary sources, as needed. 12. Investment models considered in the GHG accounting of the Mongolia NbS Project. The assessment is based on the net GHG emissions likely generated by the investment models applied. Based on the parameters 55 INVESTING IN NATURE and assumptions applied to the NbS investment models/interventions, the AS A CLIMATE AND influence of interventions in terms of GHG fluxes is assessed for a total land DEVELOPMENT area of 8,270,591 hectares out of the global Project target of 19,198,281 OPPORTUNITY FOR hectares identified by the technical report as operational area for the 15 MONGOLIA NbS activities. Table A4.1 summarizes the main assumptions applicable to the GHG balance assessment per NbS intervention. The parameters and assumptions referring to the NbS interventions are described below in the applicable modules of the Ex-Act Tool. Table A4. 1 List of Investment Models/NbS Interventions Supported by the Project Land-use Land area Land-use Additional assumptions/ NbS Investment models Without Project (hectares) With Project (WP) explanations (WOP) NbS Enhancement of 1,643,767 Boreal coniferous Boreal coniferous forest, The moderate level 1 growing stock in bore- forest, large low degradation of degradation at the al forests degradation start of the project would increase to large degradation WOP NbS Establishment of 1,686,241 Degraded land Hedgerows/shelterbelts; Reduced tillage 2 protective shelterbelts perennial system from other land uses NbS Forest landscape 129,522 Boreal coniferous Boreal coniferous forest, The moderate level of 3 restoration in forest forest, large low degradation (20 degradation at the start of reserves degradation percent) the project would increase to large degradation WOP NbS Restoration of 306,000 Abandoned/ Planted boreal mountain 4 abandoned or active active mining area systems mining areas (degraded land) NbS Prevention of wildfire 10,000 Large level of deg- Low degradation (20 The moderate level 5 radation, periodicity percent), every 5 years, 5 of degradation at the every 2 years, 10 percent impact start of the project percent impact would increase to large degradation WOP NbS Improving forest 12,520 Boreal coniferous Boreal coniferous forest, The moderate level of 6 health forest, large low degradation (20 degradation at the start of degradation percent) the project would increase to large degradation WOP NbS Peatland conserva- 0 n.a. n.a. n.a. 7 tion NbS Conservation and 7,340,570 n.a. n.a. n.a. 8 rehabilitation of floodplains and riparian reserves NbS Combatting 8,783 n.a. n.a. n.a. 9 desertification NbS Improved water 37,313 Surface irrigation Surface irrigation with an 10 management and without runoff return irrigation runoff return irrigation system system NbS Climate-smart 796,711 Conventional grain Minimum tillage, crop Minimum tillage 11 agriculture to improve production system residue retained agriculture in grain soil fertility systems (e.g., wheat), 30 percent adoption rate of the total production area of wheat, 350,000 ha in 2022/23 (= 105,000ha) 56 Land-use Land area Land-use Additional assumptions/ NbS Investment models Without Project (hectares) With Project (WP) explanations (WOP) NbS Intensification of 7,124,033 High-intensity Improved grassland and Improved grassland 12 fodder and meat grazing fodder management with and livestock fodder production medium inputs management (60 percent adoption rate) of the total operation area 7,124,033 (= 4,274,420 ha) NbS Agroforestry 102,821 Degraded land Agroforestry, reduced 13 tillage, Medium C input NbS Urban forestry 0 n.a. n.a. n.a. 14 NbS Sustainable forest 0 n.a. n.a. n.a. 15 management (SFM) Total 8,307,604 The total land area con- sidered for EXACT GHG calculation (with revised figures for NbS 11 and 12) Note: This table lists all investment models identified in the technical report. NbS 7, 8, 9, 14, and 15 are excluded from this assessment due to a lack of data within the technical report and the overlapping nature of the activities. The technical report does not provide land area (ha) for three of the proposed NbS: (NbS 07) Peatland conservation, (NbS 14) Urban forestry, and (NbS 15) Sustainable Forest Management. While land area is provided for (NbS 8) Conservation and rehabilitation of floodplains and riparian reserves, the technical report provides limited information in terms of the parameters delineating the operation area, which resulted in exclusion of NbS 8 from this analysis. NbS (09) Combatting desertification, as indicated in the technical report, is assumed to be an exclusively adaptation activity and is, hence, excluded from this analysis. Overall, an effort is made to follow the structure of the technical report in terms of considering the GHG impacts of specific NbS activities in isolation. However, given the overlapping and cross-cutting nature of some of the NbS activities (for example, such as those in NbS 5, 6, and 13), there is the potential to double count the GHG impact of these activities. n.a. = not applicable. 13. Data sources. The assessment takes into consideration and heavily relies on the information presented by the technical report, “Mongolia: The Potential of Nature-based Solutions for Climate Change Mitigation and Adaptation,”165 and other secondary sources of data and information. For the technical aspects in the with-Project and without-Project scenarios, the main sources of data and information include the technical report and other ongoing investment operations from the World Bank and other partners and technical documents. 14. General parameters and assumptions. The Project’s geographic area within Mongolia is vast. For the GHG accounting, the most dominant climate, moisture regime, and soil type have been selected. The climate is boreal with a dry regime and the soil type is high-activity clay (HAC). Dark chestnut and brown soils with high fertility cover over 60 percent of Mongolian territory, which fall under the Intergovernmental Panel on Climate Change (IPCC) default soil classifications of HAC. The time frame of Project implementation is assumed to be six years, and the capitalization phase is 14 years. Thus, the analysis period is set for a total of 20 years. Dynamics of evolution are assumed to be linear for most of the variables. The analysis applies default 165 Glauner et al. 2023. “Tier 1” coefficients from Ex-Act Tool and “Tier 2,” as available/provided by the technical report, particularly for Land Use, Land Use Change and Forestry (LULUCF) activities (NbS 1–6). As a result, two assessments are 57 INVESTING IN NATURE carried out separately: (i) GHG fluxes of activities covering NbS 1–6, and (ii) AS A CLIMATE AND GHG fluxes of activities covering NbS 10–13. The construction of “without- DEVELOPMENT project situation” and “with-project situation” trajectories is based on average OPPORTUNITY FOR technical references. The approximate area (in hectares) and dynamics MONGOLIA (start, without project, and with project) of diverse land uses is detailed in the following sections. For climate-smart agriculture (CSA) crop and livestock/ grassland technologies and practices, the list of CSA technologies, changes in practices, and likely adoption rates for specific technologies are derived from FAO and World Bank CSA-related work programs in Mongolia. 15. Parameters and assumptions for land use and land use change. The Project would lead to the sustainable management of 8,270,591 hectares, an area covered under this analysis. Table A4.2 and Table A4.3 show the land use and land use change matrix accounted for in this GHG balance. Table A4. 2 Land Use and Land-use Change Dynamics Supported by Mongolia NbS (1–6) Table A4. 3 Land Use and Land-use Change Dynamics Supported by Mongolia NbS (10–13) 58 16. Parameters and assumptions for NbS (1–6). The project will support NbS APPENDIX interventions on the enhancement and restoration of stocks in natural forests and forest reserves, restoration of abandoned mining areas, establishment of shelterbelts and prevention of forest wildfires, and improving forest health. In the frame of EX-ACT GHG accounting of forest degradation and management, the assessment considers reducing the level of forest degradation,166 reducing periodicity of fire occurrences, and implementing activities that reduce pests and disease to improve forest health compared to the conventional systems and contribute to increased climate mitigation potential to the Project’s forest management area of 1,795,809 hectares. In the frame of EX-ACT GHG accounting of land use change, the assessment considers restoration of degraded land through the establishment of shelterbelts and restoration of abandoned mining areas, and increasing the carbon storage and mitigation potential of 1,992,541 hectares of land. 17. Parameters and assumptions for NbS (10–13). The Project consists of NbS interventions focused on improved water management and irrigation; climate-smart agriculture with an aim to improve soil fertility, grassland management, and fodder production; and promoting agroforestry production systems, all of which contribute to GHG mitigation while supporting climate resilience enhancement in the Project’s management area of 4,482,241. In the frame of EX-ACT GHG accounting, it is assumed there are no land use changes involved in CSA practices focusing on soil fertility improvement and grassland management. The CSA technologies considered (that is, minimum/zero tillage and improved grassland and fodder production) are derived from ongoing World Bank work that identifies and prioritizes potential CSA practices and technologies in Mongolia, which includes the likelihood of adoption. For the EX-ACT analysis, the adoption rate for these technologies is used as a proxy to estimate the share of land out of the total operational areas (in hectares) that will likely have these technologies. In the case of agroforestry, it is assumed there will be land use changes from degraded land to general agroforestry use. The assessment reveals the importance of climate-smart investments in grassland management and soil improvement, with a high potential for climate change mitigation. 18. Net carbon balance of Mongolia NbS. A GHG accounting of the Project 166 The EX-Act Tool assigns refer- was carried out using the Ex-Ante Carbon Balance Tool (EX-ACT). The analysis ence values to forest degradation levels (biomass loss) as: None (0 quantifies the net carbon balance with regard to tCO2e resulting from GHGs percent), Very low (10 percent), Low emitted or sequestered during the project implementation and capitalization (20 percent), Moderate (40 percent), Large (60 percent), and Extreme period (20 years) compared to the without-project scenario. After 20 years, (80 percent). For this analysis, it and for the whole of the NbS interventions assessed, GHG mitigation benefits was assumed that the moderate level of degradation at the start of would amount to a net reduction of 691 MtCO2e. This is broken down as NbS the project would increase to large (1–6) contributing to GHG a mitigation contribution of 467,738,657 tCO2e, degradation Water Optimisation Protocol (WOP). The assumption which corresponds to 123.7 tCO2e emissions annually and per hectare. While closely reflects the growing stock NbS (10–13) contribute to a total mitigation potential of 222,073,188 tCO2e, gap (>50 percent) identified by the technical report. which corresponds to 49.5 tCO2e emissions annually and per hectare. The main results of this GHG analysis are summarized in Table A4.4 and Table A4.5 of this GHG balance, and Table A4.6 shows the total emissions of individual NbS categories covered under this analysis, including respective total emissions, tCO2e/ha/yr. 59 INVESTING IN NATURE AS A CLIMATE AND DEVELOPMENT OPPORTUNITY FOR MONGOLIA Table A4. 4 GHG Balance – Results of the ex-ante GHG Analysis in tCO2e NbS (1–6) Table A4. 5 GHG Balance – Results of the ex-ante GHG Analysis in tCO2e NbS (10–13) 60 Table A4. 6 Results of the EX-ACT Analysis of the Proposed APPENDIX NbS Measures Total emissions/ Total Total Land-use Without Land use With Proj- NbS Investment models mitigation emissions, emissions, Project ect potential, tCO2e/ha tCO2e/ha/yr tCO2e NbS 1 Enhancement of Boreal coniferous Boreal coniferous (157,429,045) (95.8) (4.8) growing stock in forest, large forest, low boreal forests degradation degradation NbS 2 Establishment Degraded land Hedgerows/ (240,392,570) (142.6) (7.1) of protective shelterbelts; shelterbelts perennial system from other land uses NbS 3 Forest landscape Boreal coniferous for- Boreal coniferous (12,404,754) (95.8) (4.8) restoration in forest est, large degradation forest, low reserves degradation (20 percent) NbS 4 Restoration of Abandoned/active Planted boreal (56,355,473) (184.0) (9.2) abandoned or active mining area (degraded mountain systems mining areas land) NbS 5 Prevention of Large level of Low degradation (957,733) (95.8) (4.8) wildfire degradation, (20 percent), every periodicity every 2 5 years, 5 percent years, 10 percent impact impact NbS 6 Improving forest Boreal coniferous for- Boreal coniferous (1,199,082) (95.8) (4.8) health est, large degradation forest, low degradation (20 percent) NbS 10 Improved water Surface irrigation Surface irrigation 2,080 0 0 management and without runoff return with an irrigation irrigation system runoff return system NbS 11 Climate-smart agri- Conventional grain Minimum tillage, (1,532,951) (14.6) (0.7) culture to Improve production system Medium Carbon soil fertility input, crop residue retained NbS 12 Intensification of High-intensity grazing Improved grassland (201,427,768) (47.1) (2.4) fodder and meat and fodder production management with medium inputs NbS 13 Agroforestry Degraded land Agroforestry, reduced (19,114,549) (185.9) (9.3) tillage, Medium Carbon input Total (690,811,845) 61 INVESTING IN NATURE APPENDIX 5: AS A CLIMATE AND DEVELOPMENT NbS Pilot Area Details OPPORTUNITY FOR MONGOLIA 62 APPENDIX 6: APPENDIX Proposed Mongolia Reforestation Fund A feasibility study was undertaken by UNDP in 2022 on setting up the Mongolia Reforestation Fund. The study included making the business case, developing a financial model, and designing the possible fund structure.167 This fund included funds from a debt-for-nature swap, investor funding (direct foreign investment, both philanthropic and commercial), carbon credits, and returns from future timber sales. The structure is shown in Figure A6.1 Figure A6. 1 Afforestation/Reforestation Fund Structure as Proposed by UNDP in 2022 This model demonstrates a method of combining several sources of finance and providing a return from both forest product revenues and carbon. This proposal has yet to be operationalized. 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