Microfinance Focus, May 1, 2012: Citi’s London-based Environmental Products Trading and Origination team, working with Citi Microfinance, has agreed to purchase 1.17 million metric tonnes of carbon credits over the next seven years from Seattle-based social enterprise MicroEnergy Credits. This deal also combines microloans in Mongolia with the sale of carbon credits on the European Union Emissions Trading Scheme (EU ETS).

The carbon credits will be generated by capturing reductions of greenhouse gas emissions following the installation of more efficient household insulation and heating fixtures in Ulaanbaatar, the capital and largest city in Mongolia. The purchase and installation of the fixtures will be funded through microloans from Mongolia’s XacBank.

With this arrangement a XacBank customer will purchase an energy efficient stove or home insulation products like a “ger blanket,” which covers a ger, the traditional and ubiquitous Mongolian portable tent-like structures in which more than one quarter of the Ulaanbaatar population lives. Gers are traditionally under-insulated and heated by inefficient coal-burning stoves that contribute to Ulaanbaatar’s especially severe air pollution. Ger blankets greatly increase heat retention, and, like energy efficient stoves, lower the rate of fossil fuel consumption and carbon emissions.

The reductions in household emissions accrued through the use of energy efficient fixtures will be earned by XacBank clients and then assigned to MicroEnergy Credits, which develops carbon finance projects and brings clean energy to low income microfinance households in developing countries. MicroEnergy Credits will then quantify, aggregate, and sell the credits to Citi, who will monetize these credits on the open market through its Environmental Products Trading and Origination team. Portions of the proceeds from Citi’s carbon credit purchase will be distributed by MicroEnergy Credits back to XacBank, allowing the Mongolian lender to expand its clean energy program, build additional marketing and distribution centers, and increase access to affordable clean energy loans.

Bob Annibale, Global Director of Citi Microfinance and Community Development said, “Citi and our partners collaborated to design a carbon credit financing chain that connects and values energy saved at the household level with global emission reduction targets and markets. Together, we are creating the capacity for Ulaanbaatar residents, living in gers, to access credit to make home energy efficiency improvements, save money, and limit their harmful environmental impact. It is a great example of using creative micro financing to address client and community needs, and a model that can be applied in other initiatives and countries.”

April Allderdice, CEO, MicroEnergy Credits, “MicroEnergy Credits provides the carbon monitoring and aggregating system to be sure these carbon incentives reach the people that can use them. Agreements like this one allow low income families to use microfinance to clean the environment and improve their quality of life.”

The first carbon credits are expected to be available for purchase by Citi in March 2013. The program is in the process of being registered and approved through the Clean Development Mechanism run by the United Nations Framework Convention on Climate Change (UNFCCC).

Citi, the global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. MicroEnergy Credits is a financial intermediary which links microfinance institutions to the carbon markets when they lend for clean energy. XacBank is one of Mongolia’s banks, serving Micro customers, Small and Medium-sized Businesses as well as large corporations with a range of inclusive banking, fair investment and other financial products and services.