A reliable supply of clean, high-purity water is a necessary input for the process of electrolysis that produces renewable hydrogen. Access to water is therefore a critical determinant of a renewable hydrogen project’s economic viability and environmental sustainability. While Mongolia does have abundant clean and replenishable water, this is mostly located in the north of the country. This creates a geospatial mismatch with the availability of freshwater for electrolysis and the location of Mongolia’s high-quality renewable energy resources. These resources are primarily located in the water-scarce South Gobi region of the country, where the growing mining sector has already put local aquifers under pressure. Any national hydrogen strategy will need to contend with how to sustainably manage Mongolia’s water resources if the country is to become a competitive, utility-scale producer of renewable hydrogen. This chapter examines some of the key water-related considerations for policymakers in Mongolia in the context of the country’s hydrogen ambitions.
Towards a Renewable Hydrogen Strategy for Mongolia
Abstract
Hydrogen production via water electrolysis would need to reach 520 metric ton (MT) in 2050 according to the IEA’s Net Zero Target. Governments, industrials representatives, international partners and other stakeholders are undertaking efforts to help accelerate the global development of renewable and low-carbon hydrogen, as illustrated in the COP28 declaration of intent on mutual recognition of certification schemes for renewable and low-carbon hydrogen and hydrogen derivatives. In the sole segment of electrolysis – the cleanest hydrogen production pathway if renewable electricity is used – installed capacity and number of announced projects are growing rapidly (IEA, 2023[1]). The global installed water electrolyser capacity for renewable hydrogen production reached almost 700 megawatts (MW) at the end of 2022 - a 20% year-on-year increase - and could reach more than 2,000 MW by the end of 2023. Based on announced projects, 175 gigawatts (GW) could be reached by the end of the decade (IEA, 2023[1]). The anticipated massive scale-up of this technology is prompting experts and policymakers to raise the question whether this can have negative consequences on water resources availability (Beswick, Oliveira and Yan, 2021[2]).
This concern resonates particularly strongly in Mongolia, as well as in other countries of Central Asia, which are landlocked and affected by water stress. Many countries envisaging to become leaders in renewable and renewable hydrogen markets, for example in Latin America or the Middle East, plan to desalinate seawater for renewable hydrogen production, an option that Mongolia and most of its Central Asia neighbours do not have. Water is generally a sensitive issue in the region, and Mongolia faces water stresses at local levels (Asian Development Bank, 2020[3]), sparking concerns among the population and within the government. The needs to develop the water infrastructure are considerable, and a report by the NewClimate Institute finds that the growth of a renewable hydrogen sector would be conditional to such development (Nilsson et al., 2021[4]) As a result, access to water is a critical question that policymakers and potential investors (and other stakeholders) are consistently raising as the development of renewable hydrogen production in Mongolia is envisaged.
This chapter aims to address concerns about water access for renewable hydrogen production in Mongolia, in line with the goal of providing insights to inform a future national hydrogen strategy. Firstly, it seeks to determine an order of magnitude of the water consumption of a potential future renewable hydrogen sector in Mongolia. This will be done by drawing on the existing literature and project data collected on the ground, comparing it with other water uses and identifying associated risks. Secondly, it investigates available solutions for tackling water access problems for hydrogen production – excluding seawater desalination since this is not a viable option for Mongolia – and considers their potential application in Mongolia. Lastly, it provides a brief assessment of Mongolia’s water policy framework as it relates to renewable hydrogen development, identifying potential issues and remedies.
Water needs from a developing renewable hydrogen sector raises concerns, particularly in Mongolia and the Central Asia region. Access to water is critical to the production of renewable hydrogen, which is produced via water electrolysis. The electrolysis, moreover, requires water of a high purity, meaning that in most cases water that is withdrawn for the production of hydrogen needs to be pre-treated with advanced technologies to achieve the required feed water quality standard. As policymakers across economies are pushing for a rapid scale-up of renewable hydrogen given its criticality for achieving net-zero by mid-century, a number of stakeholders worldwide have raised their concern that a large and rapid development of a renewable hydrogen sector could put additional pressure on freshwater resources at global, national, and local scales. This concern resonates in dry, landlocked Mongolia, where water is seen by stakeholders interviewed for this report as the number one issue to be addressed when raising the question of developing a renewable hydrogen sector.
4.2.1. Assessing water-related needs of renewable hydrogen in Mongolia
Existing information about water needs for renewable hydrogen production is subject to a number of caveats. Recent studies have provided estimates of water needs of future renewable hydrogen sectors in different countries. This section draws on this literature to provide estimates for a Mongolian production of renewable hydrogen.
There are a few caveats to note when considering water withdrawals and consumptions for renewable hydrogen production. First of all, the scope of predicted water needs can differ between studies. While some argue that only water used for electrolysis should be considered (Beswick, Oliveira and Yan, 2021[2]), others take a more holistic view, taking into account the whole industrial process of hydrogen production (including water used for cooling purposes), and even water used for the manufacturing and operation of renewable energy equipment powering electrolysers, differentiating between wind and solar energy production needs (Tonelli et al., 2023[5]). Some renewable hydrogen projects in Mongolia, as elsewhere, are considering producing renewable hydrogen in order to then convert the molecule to an alternative energy carrier (such as ammonia) or to liquify it. These additional steps have their own water requirements, which are not captured in this chapter, but nevertheless remain salient to the discussion on developing a utility-scale hydrogen industry in the country.
Another important caveat is that the renewable hydrogen sector is nascent, relying on a new technology untested at large scale. Current water withdrawal and consumption estimates therefore rely on scarce information based on laboratory conditions (where tap water is used) rather than real-life conditions. While laboratory conditions are likely to be less favourable than real world conditions, the technologies being used are also likely to mature and become more efficient in the coming years (IRENA and Bluerisk, 2023[6]).
According to the most recent scientific and technical literature, producing 1 kg of renewable hydrogen requires an estimated 20 to 30 litres (L) of water. This includes approximately 10 L/kg for the electrolysis, and an additional 10 to 20 L/KG for purification treatment and cooling purposes. Again, specific estimates vary according to key assumptions and the scale of production (Table 4.1).
Water needs in kilograms for one ton of renewable hydrogen produced
Notes: IRENA provides ranges and averages, only averages are shown here; (1) In the case of seawater desalination the study considers that water withdrawal would be twice the water volume for consumption; (2) calculated based on ratios provided in the report. (3) See Annex A. Alkaline* and proton exchange membrane (PEM)** electrolysers are already commercially available technologies used for electrolysis. Alkaline electrolysers are a more mature technology and have been used for a long time in industry, though they have – like PEM electrolysers – been used only relatively recently for the dedicated production of hydrogen. Both technologies are classified as being at a mature stage of technological readiness (TLR9) by the IEA.
The water used as a feedstock for the electrolysis process needs to be of high purity due to the requirements of the electrolyser’s technology, thus requiring specific pre-treatment according to its origins and composition. Water impurities can affect electrolyser performance and lifetime as well as hydrogen quality (Becker et al., 2023[7]). Recovery rates – the amount of water that is recycled and reused of the total water that has been drawn – after water treatment depend on several parameters including type of water used as an input, electrolyser characteristics (including technology, alkaline or Proton Exchange Member (PEM)), and type of pre-treatment. The core of the water pre-treatment is reverse osmosis for demineralisation, which has a recovery rate typically comprised between 40% and 60%, although it can reach 90% when fully optimised (U.S. Department of Energy, 2013[8]). This means that the balance is rejected as a brine and requires disposal. On the other hand, raw water can be used for cooling purposes. Water used for cooling doesn’t have the same pre-treatment requirements as feed water used for electrolysis, therefore it can be of a higher mineral content. This also means that different water networks are required for the hydrogen production process.
In the case of Mongolia, the planned source of water for renewable hydrogen projects is underground water available in the South Gobi Desert, which is currently the preferred location of project developers (with the exception of one blue hydrogen project, which intends to draw from surface water, see Annex A). While assessments have been made of the capacities of aquifers in the South Gobi, information collected for this report shows that there seems to be a general consensus that these assessments are insufficient and are in need of being updated and improved. In the absence of such updated assessments, it is difficult to assess and predict the impact of hydrogen production on these aquifers, and by extension, the implications of such production on the availability of water for other uses in the region, with a high level of accuracy. The groundwater in the South Gobi is saline, and this has implications for the amount of water that would need to be drawn, the cost of this water (additional cost of desalination), and the environmental impact of its use (for example, through the production of brine1).
Available information contained in the literature and provided by local project developers can give guidance on the order of magnitude of water consumption necessary for hydrogen production in Mongolia. Figure 4.1. below provides a simplified view of water uses in the renewable hydrogen production process and gives estimates calculated for Mongolia based on information from local case studies and data provided in the available literature, notably in the IRENA study. Underlying assumptions include the use of groundwater, a requirement of 12 L of water / kg for the electrolysis reaction after treatment and an overall water recovery rate of 30%, as well as the use of alkaline electrolysers. Water used for renewable electricity production (manufacturing and operation of equipment) is not considered due to a lack of relevant data and negligible effect (IRENA and Bluerisk, 2023[6]).
Figure 4.1. shows that producing 1 kg of renewable hydrogen production in Mongolia requires to withdraw 41.45 L of raw water. This includes 18.24 L of water withdrawn for the pre-treatment and electrolysis (enabling to use 12 L of ultra-pure feed water for the reaction). Additionally, 23.21 L of raw water used in the cooling phase. Of the water used in pre-treatment, 6.24 litres are rejected as discharge water from reverse osmosis, or brine, which needs disposal. Most of the water used in the cooling process is consumed through evaporation, while 6 L are discharged as warm water, which can be recycled.
Water inputs and rejects estimates are provided for the case of Mongolia, in litres.
Source: Author based on IRENA, OECD case studies and Tonelli et al.
Project developers interviewed for this report (including some with projects outside of Mongolia) generally do not express concern that water requirements could impact the costs of renewable hydrogen production, specifically expressed as the levelized cost of hydrogen (LCOH), even when their projects are located in water stressed areas. Although water pre-treatment requires additional amounts of energy, capital and operational expenditure, it is considered that these represent a relatively negligible additional cost in the overall renewable hydrogen production cost structure (0.01 to 0.02 USD per KG H2 according to various sources), with water overall representing less than 1% of the total LCOH in cost competitive locations (Saygin and Lee, 2023[9]). Even in the case of seawater desalination where the water recovery rate is the lowest and energy needs are the highest, costs remain below 2% of the overall cost of hydrogen production2. Interviews with local project developers confirm that this is consistent with their own estimates taking into account the context of Mongolia. Hence, from the point of view of cost competitiveness, water treatment for renewable hydrogen production (including seawater desalination) is not considered pivotal. Access to water, on the other hand, poses a critical issue. If the hydrogen industry were to bear the cost of transporting water to the production site, rather than relying on public investments in water infrastructure, it could result in a competitiveness issue due to the lack of adequate water infrastructure in Mongolia.
Based on the estimates provided in Figure 4.1, it is possible to simulate water withdrawals and consumptions for different capacities of a potential future renewable hydrogen sector in Mongolia, expressed in annual volume of production (Figure 4.2). In light of the limitations mentioned above, the focus is on the general scale rather than precise figures. The projected sector sizes are based on interviews with local project developers (local project - phases I and III) and on target objectives of reference countries seeking to position themselves as leading renewable hydrogen exporters. The size of the sector will be a key determinant of cost competitiveness due to its high capital intensity, including for the development of hydrogen storage and transport infrastructure. Mongolia aims to become an exporter of renewable hydrogen to China, which is already working to become a cost-competitive location for renewable hydrogen production, particularly as an electrolyser manufacturing country, one of the main cost determinants of production costs, alongside renewable electricity. Given this context, and Mongolia’s consideration of its own national renewable hydrogen strategy, the estimates below offer a view of the water required if Mongolia were to match the ambitions of other leading hydrogen exporting countries.
In thousand cubic meters / year
Source: OECD calculations
The exercise shows that while water needs for current renewable hydrogen projects under development appear relatively limited (below 600,000 m3 of consumed water per year for 60 kilotons (KT) annual production of hydrogen), developing the sector at the same scale as other countries positioning themselves as competitive hydrogen exporters brings these needs to another scale (around 30 million m3 of consumed water per year for a 1 MT sector). Water withdrawal figures for renewable hydrogen projects appear relatively small, but additional water use in an already water-stressed region such as the South Gobi Desert calls for caution. Impacts should be assessed carefully, while also considering the economic benefits of Mongolia developing a frontier green technology through pilot projects, as discussed in the other chapters of this report.
Renewable hydrogen is the focus of this report. However, some stakeholders in Mongolia are also exploring alternative hydrogen production methods, including coal gasification with CCUS. It is important to note that the water withdrawal intensity of renewable hydrogen is the lowest of all hydrogen production pathways (IRENA and Bluerisk, 2023[6]). In the case of coal gasification, additional water requirements can be necessary for cooling. Additionally, coal typically undergoes dewatering before gasification, creating significant additional wastewater management requirements. Notably, one of the hydrogen pilot projects in Mongolia is building on a previously abandoned coal gasification initiative (Guo et al., 2020[10]). According to IRENA estimates, producing hydrogen through coal gasification with CCUS consumes more than twice as much water as producing hydrogen through electrolysis. Without CCUS, coal gasification’s water consumption is still 39% higher than that of renewable hydrogen production3. Not only is the electrolyser production pathway the most aligned with low-carbon targets, but it also supports more efficient water resource management objectives.
4.2.2. The development of a renewable hydrogen sector in Mongolia risks compounding the existing water stress in the South Gobi region
Despite concerns regarding the “water problem” of renewable hydrogen, the available literature concludes that, on a global scale, the water needed for renewable hydrogen production to reach net-zero objectives will only be a fraction of the water volumes currently consumed annually worldwide. The Tonelli et al. study found that water demand for renewable hydrogen production, even under worst case scenarios, would be less than 3% of the global combined water withdrawals for agriculture, industry, and municipalities, which currently stands at about 4,000 billion litres in total. Other studies consider that hydrogen needs would represent less than 1% of total water demand.
While these studies take a global perspective, the water problem associated with renewable hydrogen needs to be considered at the local level rather than globally. It will be important to assess both current and future water availability needs, as increased demand can aggravate water stress problems in locations that are already affected. A great number of emerging economies positioning themselves to become leading renewable hydrogen exporters, including countries in South America (Chile), the southern region of the African continent (South Africa, Namibia), and the Middle East and North Africa region (Oman, Qatar, Egypt, Morocco), are already exposed to water stress, similar to Mongolia (WRI Aqueduct, 2024[11]). These locations possess great potential for renewable energy production at competitive costs, particularly due to their abundant solar resources. However, being among the sunniest locations, these also tend to be among the driest. While most of these countries plan to leverage their access to seawater and use it in a desalinated form for renewable hydrogen production – a solution that comes with its own economic and environmental challenges - Mongolia lacks this option and must explore alternative approaches to address the water scarcity issue.
Water withdrawal, or water abstractions, is defined as freshwater taken from ground or surface water sources, either permanently or temporarily, and conveyed to a place of use. This measure helps to understand water demand from industrial, agricultural, and domestic users.
Water consumption is the portion of water use that is not returned to the original water source after being withdrawn. Consumption occurs when water is lost into the atmosphere through evaporation or incorporated into a product or plant and is no longer available for reuse.
Water stress is the ratio of water demand to renewable supply and measures the competition over local water resources. A ratio over 40% indicates high water stress, while a ratio over 80% indicates extreme water stress.
Pressures on freshwater resources are mounting: the OECD projects that by 2050, global water demand will rise by 55%, and 40% of the world’s population will likely be living in severely water-stressed river basins.
Among other things, freshwater availability is affected by water abstractions (taking water from lakes, rivers, and underground sources), with over-abstraction leading to low river flows, depleted groundwater, desertification, biodiversity losses and potential social health issues. Well-designed allocation regimes are needed across sectors to ensure water is allocated where it can create the most value economically, socially, and environmentally.
Source: (OECD, 2024[12]), World Resources Institute
Mongolia, much like the countries of Central Asia, is affected by water stress, particularly in the region of Ulaanbaatar and in the south of the country. In theory there is no water stress issue at the national level, as total water withdrawals only represent 1.5% of total renewable resources. Spatial differences, however, result in local water stress, affecting local ecosystems (ADB, 2020[13]). The problem notably stems from the specific characteristics of Mongolia, a vast country, sparsely populated, with harsh climatic conditions leading to inaccessible surface water for long periods of the year and additional costs to infrastructure building and operation (Anna Nilsson, 2021[14]). The lack of quality water infrastructure is a serious impediment to access to water and concerns all sectors of the economy. According to the UNICEF, only 30% of households have access to safe drinking water and 56% to proper sanitation facilities. Moreover, 38% of groundwater wells do not meet the national standards for drinking water (UNICEF, 2023[15]). In all scenarios, water demand is expected to exceed current water supply by 2040 or even sooner (OECD, forthcoming).
Mongolian renewable hydrogen project developers consider the South Gobi region as the most promising location for renewable hydrogen development. This region possesses the highest potential for combined wind and solar renewable energy production, which is considered the most cost-competitive form of renewable energy production (Anna Nilsson, 2021[14]). With China identified as a promising export market by Mongolian investors, the South Gobi region's proximity to China's Inner Mongolia region presents a strategic advantage. The region also offers access to potential demand in the domestic mining sector. All current renewable hydrogen projects under development are located in this region. At the same time, while the region has abundant renewable energy generation potential, this generation infrastructure does not yet exist. As discussed in Chapter 3, the development of this infrastructure is essential to establish a renewable hydrogen industry in the area. Ordinarily, access to the grid would play an important role in determining project location, enabling hydrogen production site to draw on power from the grid when necessary and provide surplus electricity back to the grid.
At the same time, the South Gobi Desert is also the region where water stress is the most acute, together with the Ulaanbaatar region. This stress is exacerbated by the planned development of the mining industry, which is set to put additional pressure on local water resources. In this region, characterised by no surface runoff and very little rainfall, reliance is placed on non-replenishable groundwater sources. These sources remain under extreme pressure and are rapidly depleting, a phenomenon accentuated by climate change. Furthermore, a lack of data prevents knowing exactly what the capacity of these aquifers is and whether some of them are replenishable. Surface water, on the other hand, is concentrated in the northern part of the country. The spatial mismatch between renewable energy potential and water availability is not uncommon, as mentioned above, since regions with favourable sun and wind conditions often face water stress problems (Tonelli et al., 2023[5]).
Given the geo-spatial mismatch between the country’s abundant surface water resources in the north and its highest combined solar and wind generation potential in the south, it may be advisable for the government to gain a clearer understanding of the economics and environmental externalities of intraregional electricity transfers. These transfers could facilitate renewable hydrogen production in the north, where ground water is accessible, versus utilising aquifers in the south. This would imply the need to build additional hydrogen pipeline infrastructure to transport the hydrogen produced in the north to domestic and external off-takers in the south. What is certainly clear is that the cheapest way to deliver hydrogen to end-users is to cluster and co-locate the production infrastructure with industrial demand. The greater the distance between them, the higher the associated costs. In addition, under the current assumptions that the value proposition of Mongolia as a potential hydrogen producer is the quality of its combined wind and solar power, private sector projects are more likely to be drawn to the south of the country. In this region, they are not only close to major domestic off-takers but also to export markets in northern China. As discussed in Chapter 3, given the substantial costs involved in building the pipeline infrastructure for export, it is uncertain that the economics of Mongolian hydrogen exports would remain competitive if there was a need for additional pipeline infrastructure to be built to transport hydrogen produced in the north, where production with combined wind and solar is likely to be less efficient, to the south.
There is a serious risk that the development of renewable hydrogen in Mongolia could encounter challenges. These risks arise from either a lack of access to water, if authorities do not allow water abstraction for hydrogen projects, or from the creation of a new competition for water usage at the local level, if such authorisation is granted without a clear plan for managing this new demand. Both cases would be detrimental to the development of the sector. A lack of water access, compounded by insufficient data about water availability, will discourage investment. Moreover, competition with other users may create local tensions and lead to delays in project implementation or generate discontent and lack of support from the population, which may also deter investment. Given recent tensions around water access between mining operators and herders, a more thorough and transparent assessment of water availability in the region could significantly politically de-risk future projects4. From the perspective of investors, uncertainty regarding water access for renewable hydrogen production is a major risk. While the water volumes needed for pilots and demonstration plants are relatively small, the problem can become acute when considering the development of giga projects, or the scale-up of local production that could be needed to reach cost-competitiveness.
Public measures with potential for being “game changers” are discussed in section 4.4 of this chapter. These measures include water allocation regimes and plans that are aligned with future social and economic development strategies. For example, if the government is expected to articulate a plan to phase out the production of coal, this would imply declining demand from that activity on the aquifers in question, consequently affecting future water availability for other activities including renewable hydrogen production. Conducting a socio-economic and environmental cost-benefit analysis of continued aquifer use for coal mining compared to hydrogen production could help to inform public policy and social discussion of these issues. Another challenge for the government is to rationalise who should be responsible for improving water data in the South Gobi. Additionally, in the context of its ambitions to develop the mining sector or hydrogen production, there is a role for the public sector to assume the responsibility of clarifying water availability in the region.
Renewable hydrogen project developers in Mongolia expect to be able to access local groundwater. However, as of the time of this report, no formal agreement had been reached with local authorities, including concerning environmental impact, based on the information collected. Developers hope to be granted access to local groundwater sources on the grounds that water demand for renewable hydrogen is considerably smaller than water demand of the mining sector (Fig. 4.4.). From the perspective of public policy, it is crucial to extend the approach beyond such consideration and encompass all aspects of a sound and robust water allocation regime. This means considering all available water supplies and both present and future demands, and then deciding on an allocation that is fair and aligned with criteria for maximising economic benefit. The principles of a water allocation regime that is aligned with OECD standards and good practices are discussed in Section 4.4 of this chapter.
When considering the water demand and use in energy and industrial activities, it is important to account for another parameter, the potential for wastewater recycling. This factor directly depends on water recovery rates, the quality of the water recovered, and the existence of infrastructure supporting wastewater collection, treatment, and re-use. Typically, recovery rates in the renewable hydrogen sector are expected to be much lower than in the mining sector, which benefits from extensive experience in the optimisation of water use, including through recycling. However, improvements in water technology and management will likely develop as the renewable hydrogen technology matures. Estimates presented in Figure 4.1 consider a recovery rate of 30% for renewable hydrogen production, whereas recovery rates in the mining sector are considerably higher. Oyu Tolgoi, for example, boasts a water recycling rate of 85-87%5.
Comparing water consumption by the renewable hydrogen sector relative to other water uses in Mongolia can provide valuable insights for discussing water availability for production purposes. Figure 4.3 below represents water demand by user and provides a view of water demand volumes for renewable hydrogen production. A renewable hydrogen sector with an annual capacity of 1 MT would require similar water resources comparable to the projected needs of the mining sector in the South Gobi mining and heavy industry region in 2030, considering consumption levels. As Mongolia deliberates on water allocation in the South Gobi region and explores the possibility of engaging in consultations to develop a comprehensive hydrogen strategy and establish export production targets, this comparison becomes an important consideration.
In thousand cubic meters
Note: 2030 water demand of the mining sector in the South Gobi region was estimated in a 2021 study by the 2030 Water Resources Group. The estimate in this chart corresponds to a medium scenario (the study also envisages a low and a high scenario).
Source: OECD, Water Agency of Mongolia, 2030 Water Resources Group
The way that water is used and managed in renewable hydrogen production can, in turn, lead to risks related to biodiversity. Groundwater abstraction related to new hydrogen operations can directly affect groundwater-dependent biodiversity. The disposal of brine resulting from groundwater desalination needs proper management, as brine is highly saline and can contain treatment chemicals that may affect local ecosystems where the brine is discharged. Although the brine resulting from groundwater pre-treatment may contain less salts than brine discharged as a result of seawater desalination, the former cannot be returned to the sea for dilution, and at this stage it is not clear how pilot projects intend to manage wastewater and brine (e.g., through evaporation ponds or discharge into the local environment). These risks need to be assessed and effectively mitigated, ideally within a broader framework that integrates biodiversity into infrastructure development. Mongolia has a number of tools in place that can be leveraged to develop a thorough approach to delivering biodiversity-aligned infrastructure projects. These include Environmental Impact Assessments (EIA), which are already required by national water regulations as discussed in section 4.4. Additionally, a range of regulatory, economic or voluntary instruments can be mobilised to catalyse the integration of biodiversity considerations into renewable energy and hydrogen infrastructure projects (OECD, 2024[16]).
Anticipated local water stress caused by a growing hydrogen production is prompting experts, policymakers and industry stakeholders to consider sector-specific solutions to addressing the challenge. Beyond the selection of seawater desalination, which is not suitable in Mongolia’s case, there are other promising avenues to explore. Some of these avenues are sector-specific and seek to reduce the water footprint of renewable hydrogen production. While they may not singularly resolve existing water stress in the South Gobi Desert, they offer incremental efficiencies and could foster local innovation over time. These solutions require that policymakers identify and implement appropriate and incentives to promote their adoption. This section looks into two complementary sets of solutions, and how governments can encourage their adoption. The first set focuses on promoting water-efficient technology development and adoption, while the second highlights the opportunity to use treated wastewater as an alternative water source for renewable hydrogen production.
4.3.1. Encouraging water efficiency in technological innovation and industry development
Technological choices can determine water efficiency in the production of renewable hydrogen at all stages of the industrial process, as they do in other water-intensive economic activities, such as agriculture (irrigation), light manufacturing and mining. For example, studies by the International Renewable Energy Agency (IRENA) found that when considering the two main types of electrolysis technologies, PEM electrolysers tend to consume less water overall than alkaline electrolysers on average (-22%). Moreover, the efficiency of the electrolyser directly impacts water requirements, with a one percentage point increase in efficiency resulting in a 2% decrease in water withdrawal and consumption, primarily due to water savings during the cooling phase (IRENA and Bluerisk, 2023[6]). Alkaline electrolysers currently represent 60% of installed renewable hydrogen production capacity, but this is expected to change in the coming years, according to announced projects (IEA, 2023[1]). To date, no project developers have finalised their technology choices, and there are additional trade-offs to consider from an economic and technical standpoint. Currently, PEM electrolysers are typically more expensive and require more energy to operate than alkaline electrolysers, although costs are reducing rather rapidly. There is no clear information about the water consumption of other maturing electrolyser technologies, including the solid oxide cell (SOEC), which currently represents less than 1% of the total installed capacity, and anion exchange membrane (AEM) which is a technology under development (IEA, 2023[17]). Cooling technologies vary in their water intensity. The two conventional cooling methods are dry and wet cooling. Dry cooling is more water-efficient yet tends to be more costly, energy-intensive, and less suitable in warm climates. Regardless of the method chosen, water efficiency needs to be assessed end-to-end.
Renewable hydrogen is a dynamic field in terms of research and development (R&D), with ongoing research focuses on technological improvements aimed at enhancing water efficiency. Efforts are underway to find solutions that would allow electrolysers to be fed with low-grade, saline water and even seawater, thereby reducing freshwater needs and water treatment costs associated with renewable hydrogen production (Tong et al., 2020[18]) (Marin et al., 2023[19]). Technology improvements in cooling systems can also yield better water outcomes for renewable hydrogen production installations. Researching air-cooling technologies for electrolysers, for example, can help reduce freshwater consumption (IRENA and Bluerisk, 2023[6]). Additionally, research is exploring technologies for recovering water from the consumption of hydrogen itself. When hydrogen is consumed, it releases pure water that returns to the environment through evaporation. Some researchers are looking into methods to capture this water as it is being released, aiming to extract value from it. Since the place of recovery would in many cases be different than the place of water consumption for hydrogen production, the potential of such technology to reduce water stress locally would be limited. It could, however, help to put a price on this water and value it in the commercialisation process.
As the Mongolian government devises its national approach to renewable hydrogen development, policies and measures in the support of technology adoption and project implementation can integrate criteria relating to water efficiency. For example, as Mongolia seeks to promote Foreign Direct Investment (FDI) and foster linkage with Small and Medium-sized Enterprises (SMEs) to enable technology transfer, targeted efforts could focus on attracting Multinational enterprises (MNEs) with expertise in freshwater solutions suitable for Mongolia’s context. In mobilising domestic research and innovation resources for renewable hydrogen development, there could be an opportunity to specifically target water efficiency as a priority, by establishing a specific cross-sectoral working group focusing on water-hydrogen optimisation. In the longer run, as projects and renewable hydrogen sectors develop, the government could partner with industry stakeholders to monitor water usage data and benchmarks, both domestically and internationally, and work toward establishing industry standards and promoting best practices adoption. Stakeholders could also assess the relevance and opportunity to bring water efficiency knowledge from the domestic mining sector, which faces significant water scarcity challenges but has accumulated decades of experience and achieved high rates of water recycling.
While policies supporting the integration of water efficiency in technology development cannot singularly ensure sustainable water management in Mongolia’s context of renewable hydrogen development, they can serve as a strong signal to direct R&D and innovation investments towards solutions compatible with sustainable water use across industries. Ideally, this approach should be implemented across all uses, including irrigation, mining, and light industry. Renewable hydrogen can serve as a pilot for developing such an approach. Given the country’s water-related constraints, it offers a chance for Mongolia to establish a framework conducive to water technology transfer within the domestic economy. Moreover, under the right conditions, it could position Mongolia to become an originator of water-related innovation.
4.3.2. Mongolia can investigate initiatives promoting treated wastewater use for renewable hydrogen production and developing circular economy approaches
Excluding seawater desalination, using treated wastewater as feedstock for renewable hydrogen production is emerging as the key solution for reducing pressure on freshwater resources and mitigating competition with water needs for agriculture and human consumption. Some OECD countries, such as Portugal and Australia, have a clear objective of integrating wastewater and renewable hydrogen sectors under their national strategies. Pilot projects are being developed in these countries and in others, including Spain and the United Sates. A significant body of research is focusing on this production pathway, with examples including research conducted at the Monash University in Australia and within the EU (Maddaloni et al., 2023[20]).
Government and private initiatives are promoting the use of wastewater as feedstock for the production of renewable hydrogen. Portugal’s national hydrogen strategy explicitly refers to the use of urban and industrial wastewater as feedstock for renewable hydrogen production. In Australia, several studies and pilot projects are underway to explore the opportunity of co-locating wastewater treatment plants and hydrogen facilities (Water Services Association of Australia, 2021[21]). In Spain, Cepsa, one of the world’s largest energy companies, has signed an agreement with the public water company ARCGISA to utilise urban wastewater effluent as a feedstock for the renewable hydrogen facilities it is building in Andalusia (Box 4.2). Apart from alleviating pressure on freshwater resources, the utilisation of urban or industrial wastewater for renewable hydrogen production is viewed as an opportunity to enhance synergies between the energy and water sectors, creating a new avenue for investment and incorporating circular economy principles by assigning economic value to an underutilised resource. Consequently, public and private organisations from the water sector are taking an interest in the development of renewable hydrogen, with numerous examples of water utilities or technology companies forming partnerships and consortia to advance renewable hydrogen projects.
The Andalusian Green Hydrogen Valley in Spain is a project developed by the energy company Cepsa, targeting a combined capacity of 2 GW of electrolysis at two centers located in Palos de la Frontera in Huelva and San Roque in Cádiz, for a total annual production of 300,000 tons of renewable hydrogen by 2030.
In December 2022, Cepsa announced that it had reached an agreement with the public company Aguas y Servicios del Campo de Gibraltar (ARCGISA) to supply its renewable hydrogen operations at San Roque Energy Park with treated urban wastewater. Water from urban runoffs of Los Barrios and San Roque will be treated and purified in a new wastewater treatment plant to be built near the park. With this project, 4.2 million cubic meters of urban wastewater will be reused instead of being discharged in the sea.
On the 31 January 2024, Cepsa’s San Roque Energy Park already inaugurated a new wastewater reuse plant, which enables a 25% reduction in water use in industrial operations. The water treated at this plant will be reused in Cepsa’s power plant’s cooling towers. The project required an initial investment of 2.5 million euros.
These projects are part of Cepsa’s environmental commitment and transformation plan, which entail the target of reducing freshwater capture in water-stressed areas by 20% by 2025, compared to its use in 2019.
Source: Cepsa
Wastewater use and circularity can be considered as part of Mongolia’s future renewable hydrogen strategy. Urban runoff from cities and towns could be considered for the production of renewable hydrogen, noting that Mongolia’s wastewater treatment plants are outdated, and that this infrastructure needs investments (Asian Development Bank, 2020[22]). In the city of Ulaanbaatar, for example, the daily flow of wastewater is 200,000 m3/day, projected to reach 580,000m3/day by 2030. Effluent water is released in the environment and is not reused. USA’s Millenium Challenge Corporation (MCC) is currently working on a project to build a water recycling plant that would reuse 50,000m3/day of treated urban wastewater from Ulaanbaatar to support the operations of two power plants located near the city. An additional 200,000m3/day flow of treated wastewater would be released in the Tuul river. One option worth exploring is the potential use of this water for renewable hydrogen production, although a clear cost-benefit analysis of this option has yet to be developed. The idea of co-locating wastewater treatment facilities with industrial activities that have a demand for hydrogen and renewable energy, as well as hydrogen production could be particularly relevant in areas with sizeable mining operations in the South Gobi Desert. As stakeholders consult on the development of a comprehensive renewable hydrogen strategy, they could also assess the feasibility of developing a pilot project to test a circular approach. This approach would involve collaboration between the water sector, the mining industry and the energy and hydrogen sectors.
Using wastewater effluent as a feedstock for renewable hydrogen production will require some questions to be addressed related to the viability of such projects, both economically and environmentally. From an economic perspective, projects aiming to use wastewater as feedstock for renewable hydrogen production will need to overcome the challenges stemming from the current lack of information and management of this wastewater. Under current circumstances, wastewater is a by-product that provides no economic value. Using wastewater as a feedstock for renewable hydrogen could potentially assign value to wastewater and provide a rationale for improving its management. However, achieving this would require the development of the necessary capacities. Anecdotal evidence from outside of Mongolia suggests that wastewater facility management often lacks the framework to determine a selling price for wastewater. Moreover, the business model should incorporate the costs for transferring the wastewater from its original location (the Tuul river) to its destination where it will be used (the South Gobi). From an environmental perspective, the impact of such projects on the environment should be assessed, as wastewater effluents can benefit receiving ecosystems by increasing water flows and carrying nutrients and other materials. Consequently, these projects would have to undergo EIAs, as required and detailed in Mongolian law (Government of Mongolia, 2023[23]). These assessments are a critical tool for evaluating such impacts and documenting the consequences of the wastewater effluent removal on the environment.
In its investigation, Mongolia could look at the example of Israel, a country that implemented policy reforms to promote wastewater reuse. These reforms included transferring responsibility for water treatment from municipalities to municipal and regional water companies (OECD, 2015[24]). As a result, 85% of wastewater in Israel is treated and reused, primarily for agricultural purposes, but also for the industrial use. The reuse of wastewater has helped Israel address inter-annual and inter-seasonal variability and increase resilience in the face of climate change (OECD, 2015[24]).
More broadly, stakeholders are exploring the concept of co-locating key infrastructure – such as industry, transport, energy, water, and waste - to establish economic hubs based on shared assets and promote circularity. These hubs can take various forms, including clusters, industrial parks, special economic zones, or hubs, and may operate under special regulatory and institutional frameworks. They are typically utilised as tools for attracting investments in specific locations and sectors, aiming to build economies of scale and benefit from agglomeration economies. The sharing of indivisible facilities, such as public goods or infrastructure serving several individual of firms, is one the mechanism through which agglomeration economies are produced (Duranton and Puga, 2004[25]). These models also bear a potential for cost savings through shared infrastructure, reduced transportation costs due to production being situated near demand, and opportunity to put an economic value on excess, co- and by-products of industrial processes. For example, the oxygen produced as a co-product of hydrogen production can be used for as an input to water treatment processes (Water Services Association of Australia, 2021[21]). Such hydrogen and industrial hubs have the potential to promote sustainable diversification at the sub-national level. A recent OECD report on mining regions and cities, suggests that Antofagasta, Chile, a copper-producing region facing increasing water stress, stands to benefit from its significant potential for renewable energy and renewable hydrogen production. Through the strategic utilisation of synergies and the implementation of an integrated approach between renewable energies, net-zero policies and water management, Antofagasta could effectively tackle its challenges (OECD, 2023[26]). Consideration of similar synergies could be envisioned for the South Gobi region in Mongolia. The development of a comprehensive strategy would provide an appropriate platform to test this idea and formulate the planning and incentives necessary to support such a model. This approach holds the potential to facilitate sustainable diversification and a just transition.
Governments’ role is pivotal in managing the competing uses and constraints of the water sector. Water is fundamental to human lives, a valuable resource for economic activities, and at the centre of entire ecosystems. Given the magnitude of water needs of the hydrogen sector, should this sector develop in Mongolia, the strength of the country’s broader water institutional and policy framework will be pivotal. It will play a key role in managing the emerging competition with other water needs, ensuring that water access is not a key obstacle to investment in the sector, and enable the emergence of solutions discussed in the second section of this chapter. Acknowledging water-related risks in the country and weaknesses in its water framework, the Mongolian government has been adopting policies and strategies in the past 15 years to improve and align with international good practices, with successful results. In addition, the government is actively exploring a water infrastructure plan that could help address the spatial mismatch between water location and demand, particularly focusing on alleviating the water scarcity issues affecting the Southern region. Mongolia’s success in implementing water governance and policy reforms, bridging existing gaps and moving forward its water plans will contribute to confirming whether and how renewable hydrogen production can access the necessary water sustainably while also providing economic value to the country.
4.4.1. A cross-sectoral approach to water management requires strong co-ordination, enhanced capabilities at sub-national level, and strengthened data management
Mongolia has been reforming its water sector to enhance its governance at national and subnational levels, improve data collection and strengthen its water management system. Mongolia’s main strategic water policies are contained in the National Water Program (2010), National Security Concept (2010), Integrated Water Management Plan (IWMP) (2013), Green Development Policy and Mongolia Sustainable Development Vision 2030 (2016). The laws regulating access to water and usage are the Mongolian Water Law (revised in 2012), Natural Resources Use Fees Law, and Water Polluting Fees Law (updated in 2019). In addition, Mongolia’s long-term economic development plan, Vision 2050, adopted in 2020, incorporates comprehensive strategic water objectives, further reinforced in the country’s action plan, the New Revival Policy adopted by the Mongolian Parliament in 2021. Within this policy framework, the government highlights the ‘Blue Horse’ water project (the Blue Horse project), designed to improve water access across the country, including in the South Gobi region, as discussed later in this chapter.
The Mongolian government has clearly identified the improvement of the governance and management of its water sector as a priority for sustainable economic growth. While strategic plans and documents outline measures that could contribute to more efficient allocation and utilisation of water resources, along with other environmental benefits, implementation remains a significant hurdle. Chapter six of the 2050 Vision on Green Development includes objective 6.3 to prevent water scarcity, preserve surface water and enhance framework conditions to meet the water needs of the Mongolian society. Several measures are identified under this objective and phased in three phases (Phase I - 2021-2030, Phase II - 2031-2040 and Phase III - 2041-2050). During the first phase, the government plans to lay the ground for a tiered water tariff system with the aim to raise water prices to incentivise water efficiency and promote reuse. Additionally, efforts will be made to improve compliance with regulations surrounding defined water reservoir protection and water supply zones, create water reservoirs and enhance water data through resource exploration and mapping. Measures to reduce water pollution and address shortages are also outlined. Phases II and III include the continuation of efforts initiated in Phase I, with a focus on refining a pricing system and introducing new water-saving technologies. Despite these outlined plans, local stakeholders note a lag in the implementation of water policies, with anticipated benefits yet to materialise. This gap is attributed to a lack of political commitment, resulting in the absence of robust implementation plans and insufficient financial and human resources. The second part of this assessment at least is substantiated by several reports covering the water sector of Mongolia, and the discussion below highlights the main challenges and possible remedies.
The current water institutional framework in Mongolia is relatively complex and requires further and better co-ordination across actors (Fig. 4.5). At the centre of government, 10 ministries participate in the water sector, including the Ministry of Environment and Climate Change (integrated water policy, protection, increase and improvement of water resource use, water inspection and monitoring), Ministry of Foreign Affairs (international water co-operation and agreements), Ministry of Food, Agriculture and Light Industry (irrigation, water supply for food and light industry), Ministry of Energy, Ministry of Finance and Ministry of Economy and Development. A National Water Council operating under the Prime Minister was created in 2016 to oversee cross-sectoral coordination. Nonetheless, and this is a common challenge for cross-sectoral councils dealing with complex issues such as water management, its ability to gain traction, in view of competing priorities at the Prime Minister’s level, is uncertain according to local stakeholders.
Note: MECC: Ministry of Environment and Climate Change (formerly Ministry of Environment and Tourism); MFA: Ministry of Foreign Affairs; MOFALI: Ministry of Food, Agriculture and Light Industry; MoE: Ministry of Energy; MECS: Ministry of Education, Culture and Science; MRTD: Ministry of Road and Transport Development; MCUD: Ministry of Construction and Urban Development; MED: Ministry of Economy and Development; MoF: Ministry of Finance; MOJHA: Ministry of Justice and Home Affairs.
Source: Author
In recent years, Mongolia established 21 River Basin Organizations (RBOs) for its 29 water basins as a means of decentralising water management in the country. This initiative aligns with international best practices, as noted by the OECD (OECD, 2021[27]). Eventually, 29 RBOs should be established (ADB, 2020[13]). These RBOs are responsible for the implementation of the plans contained in the Integrated Water Resources Management Plan (IWPM) through multisector stakeholder consultations. Each RBO comprises one River Basin Authority (RBA), composed of 5 to 12 government personnel reporting to the Ministry of Environment and Climate Change, and one River Basin Council (RBC), composed of 35 representatives of the government, water users and other stakeholders from the civil society and academia. RBAs are responsible for managing water resources, setting water abstraction limits (“caps”), and issuing permits. As water users, renewable hydrogen operators need to establish a water use contract with RBAs and submit water use reports. RBCs aim to involve local communities, offering them an opportunity to review and comment on both local water plans and the work conducted by RBAs.
Local experts and international partners’ reports highlight the need to strengthen water governance in Mongolia and enhance human capital and skills within water institutions. In particular, strengthening the capabilities of the recently created RBOs and clarifying their roles will support better water governance and management at the sub-national level. Given that RBOs in Mongolia are relatively new entities, further training and capacity-building are important to fulfil their mandates. Drawing from the experiences of OECD Council Recommendation on Water adherents, various programs and tools are available for this purpose. The Recommendation invites its Adherents to “adapt the level of capacity of responsible authorities to the complexity of water challenges to be met, and to the set of competencies required to carry out their duties” as a precondition to effective water governance (Box 4.3) (OECD, 2016[28]). These insights provide valuable guidance for enhancing the capabilities of Mongolia’s RBOs and advancing water governance efforts.
1. Effective governance of water policy requires adequate skills, technical expertise, and knowledge as well as human and time resources. This can be particularly crucial in the context of decentralisation and ensuring the proper capabilities at the subnational level. A number of OECD members have devised tools and approaches to tackle capacity gaps and issues.
2. In Ireland, a Catchment Management and Science Unit was created to strengthen the knowledge base for river basin management and help target resources appropriately. In 2017 in Australia, the Council of Australian Governments published training modules of the National Water Initiative (NWI) on ‘Considering climate change and extreme events in water planning and management’ and ‘Engaging Indigenous peoples in water planning and management’. Reviews of the NWI are required to assess progress against NWI objectives and commitments. In Austria, professional associations promote the education and training of water professionals and institutions, focusing on “soft” capacities such as management and skills, as well as social expertise.
Source: Toolkit for Water Policies and Governance, OECD, 2021
Assessments also highlight the opportunity to enhance multi-stakeholder involvement in water management (German Development Institute, 2020[29]) (ADB, 2020[13]), an issue that has been particularly critical in the framework of mining operations. These assessments find that RBCs have a limited role as multi-stakeholder platforms. They often suffer from overrepresentation of lower-level government officials, and face challenges due to insufficient funding for organisation meetings, particularly for covering the expense of stakeholder travels over long distances, necessitated by the geographical coverage of these bodies. EIAs, which are mandatory in the process to obtain a water permits for use exceeding 100 m3 per day, require to lead public consultations, which is another mechanism for involving local communities. Assessments, however, find inconsistencies in leading such consultations and utilising their outcomes as input for the final decision-making, which is undertaken at the Ministry of Environment level. Reports from the German Development Institute and Asian Development Bank (ADB) point out the absence of records of such consultations, alongside general mistrust and lack of transparency, given that the granting of water use licenses does not undergo public scrutiny. Clearer guidelines and transparency in these processes could strengthen governance in the water sector, enhance representativeness of stakeholder diversity and mitigate the risks of local conflict and resistance that may arise with the development of new water-using industries such as renewable hydrogen.
Improving water data systems would greatly help with enhancing Mongolia’s water sector. Mongolia faces water data scarcity due to insufficient testing and monitoring at the local level and poor data management systems, hindering access to up-to-date data (German Development Institute, 2020[29]). The OECD highlights that monitoring groundwater use in particular is technically demanding and costly (OECD, 2017[30]), while local stakeholders acknowledge that knowledge of available groundwater data in Mongolia is limited and would require further exploration and hydrological studies. Additionally, access to groundwater data is hindered by data confidentiality regulations (2030 Water Resources Group, 2021[31]). The lack of quality and accessible water data is an impediment to sound, evidence-based water policy planning, implementation, and enforcement, posing obstacles for project developers needing water for their operations. It also impedes informed, open multi-stakeholder dialogues on water uses. The initiative led by the 2030 Water Resource Group, in collaboration with the Ministry of Environment and Climate Change of Mongolia, to create an interactive groundwater monitoring digital dashboard is a welcome step in this regard. Furthermore, Mongolia has recently been introducing Geographic Information Systems (GIS) and Remote Sensing tools which should also contribute to improving water data in the country. Through the National Dialogue on Water in Mongolia held in 2024, the OECD has been developing recommendations to further improve water information systems (Box 4.4).
Hydrological observation stations are essential for collecting data used in water resource planning, development, and management. To support these functions, the government operates 154 surface water stations and 325 groundwater stations, including 68 automated, 255 semi-automated, and 2 manual stations. Of the 325 groundwater stations, 28% are located in Ulaanbaatar city, 45% in the Gobi region, and 27% in the rest of the country, with observations every six hours. Provincial meteorological and environmental stations monitoring surface water usually have one to six observers. Mongolia currently has one observer per 5,000 km2, which is below the WHO recommendation of having one rainfall observation station per 250 km2 in mountainous areas and 575 km2 in plains and hilly areas. However, given Mongolia's vast surface area - 40% of which is desert - applying these standards is impractical.
The majority of the 21 river basin organisations are in need of enhanced hydrological observation as they are unable to provide systematic data analysis. This would require additional facilities, budget, and specialised personnel.
In 2024, the National Dialogue on Water in Mongolia discussed how policies and information systems can help to meet the growing demand for water in Mongolia. The Dialogue was hosted by the Mongolian Ministry of Environment and Climate Change in 2023-2024, facilitated by Asia Water Council and the OECD. The Dialogue yielded several recommendations to strengthen water information systems:
Modernisation of the hydrological monitoring system: Establishing standards for innovation and institutional support in the installation and operation of a systematic hydrological monitoring network. Expanding ICT-based systems and modernising ageing infrastructure could enhance data quality and flood forecasting and warning.
Integrated water information systems: Developing a national water information system and water management centre to centralise data and streamline water management efforts.
Capacity building: Creating a comprehensive training approach for water experts, including a mid- to long-term roadmap for skill development. A National Water Environment Education Centre could serve as a hub for ongoing training and education.
Pilot projects: two pilot projects are proposed. The first proposed project is to establish an Integrated Water Resources Management (IWRM) Operations Centre within the Ministry of Environment and Climate Change. The second project is to develop a training curriculum on water information through the existing training centre of the Water Services Regulatory Commission (WSRC).
Source: A contribution by Asia Water Council, based on the Forthcoming report on the National Dialogue on Water in Mongolia (OECD and AWC, forthcoming)
These different components – more cross-sectoral co-ordination, resources and capabilities aligned with mandates at sub-national level, and improved data management – will be crucial for the development of the water-hydrogen sector. Interviews suggest that operators in the mining sector have developed capabilities to autonomously manage local water issues, including conducting their own water exploration and testing activities. However, the renewable hydrogen sector faces a greater challenge because it is nascent and lacks the resources, knowledge and local expertise of the established mining sector. The development of a new economic activity such as renewable hydrogen, where commercial risks are high as are expectations to comply with environmental and sustainability standards, require public support to de-risk any parameter affecting the sector’s economic model as much as possible, and water clearly is one. In the framework of the development of a national strategy on renewable hydrogen, it is advisable for water authorities to participate in the creation of a specific cross-sectoral working group on the water-hydrogen nexus, alongside representatives from the Ministry of Energy and the industry. Such a working group could consolidate the available knowledge and information on water quality and availability in locations suitable for renewable hydrogen production, conduct impact analyses of water use for hydrogen production (including brine production), and, in turn, formulate recommendations to the industry for responsible water use and to the government for ensuring a regulatory framework that supports this sector’s development while ensuring sustainability.
4.4.2. The legal and regulatory framework for water use in Mongolia can be further strengthened to ensure fair allocation across sectors, incentivise water efficiency and increase revenues
A sound legal framework for water use can facilitate access to water across users in a fair, sustainable, and transparent way, maximising economic and social benefits for the society. Water resources allocation regimes, defined as a combination of policies, laws and mechanisms that determine who is able to use water resources, how, when and where, are critical to manage the risk of shortage and adjudicate between competing uses (OECD, 2015[24]). The OECD’s work acknowledges that existing water allocation regimes in OECD countries are not equipped to address today’s challenges, which include intensifying competition across uses, climate change, and the objective of valuing water-related ecological services. As discussed earlier in this chapter, renewable hydrogen development can exacerbate local water use competition. In the context of Mongolia, where the mining sector is already putting pressure on scarce water resources in the southern region of the country, this risk is particularly acute. A robust legal framework for water usage can help mitigate the risks, ensuring water availability for renewable hydrogen production in case this becomes a priority. It can also incentivise efficient water use across user sectors.
The main laws regulating access to water for water users in Mongolia are the Mongolian Water Law (lastly revised in 2012), the Natural Resources Use Fees Law (2012), and the Water Polluting Fees Law (adopted in 2019). These laws regulate the conditions under which water users (industrial and service companies) and consumers (citizens and not-for-profit users including herders and farmers) can access and use water resources and discharge wastewater. Penalties for rule violations are also outlined in these laws. They contain a number of economic instruments with varying degrees of implementation and enforcement (2030 Water Resource Group, 2014[32]), including usage charges, wastewater charges and water pollution fee. Great steps have been made in strengthening and implementing these instruments, and this trend should continue (OECD and AWC, Forthcoming[33]). According to the Law on Water, renewable hydrogen project developers are considered to be industrial water users.
Water users must apply to government agencies for water use permits or licenses. Depending on the daily water volume requested, the application review will either be carried out by the Mongol Water State-Owned Enterprise (SOE) on behalf of the Ministry of Environment and Climate Change (above 100 m3), the RBA (between 50 and 100 m3) or the environmental department of the local administration (up to 50 m3). For water use exceeding 100 m3 per day (which will be the case of renewable hydrogen producers), EIAs need to be submitted as part of the license application file. Once industrial water users receive their water permit, they need to establish a water use certificate which includes a contract with the relevant RBA. This contract specifies the conditions for water utilisation, and the associated water service fee. External assessments have found that inconsistent procedures and standards have led to delays in issuing water permits (ADB, 2020[13]).
In addition, industrial users need to apply separately for a wastewater discharge permit. The permit is reviewed and issued either by the RBA (above 50 m3 or if the wastewater contains hazardous substances as defined in the regulations) or by the environmental department of the local administration (up to 50 m3). According to local stakeholders however, the process for obtaining a wastewater permit and the decision criteria used by the issuing authority are not clearly defined in the laws or in publicly information available. Reforms to the wastewater permitting regulatory framework will likely be necessary to allow for hydrogen production, due to the potential contamination or changing of water quality through desalination.
The revenues from water use charges are partly earmarked to finance environmental protection measures (German Development Institute, 2020[29]). Water abstraction fees differ among the 29 water basins, reflecting the ecological-economic value of the water resource in each basin, depending on the demand-availability balance and differences in economic activities of users (OECD and AWC, Forthcoming[33]). To increase revenues and further encourage wastewater treatment, the government adopted the Water Pollution Fee Law 2019. But the implementation of this law is facing challenges as local capacities and resources for measuring and monitoring pollution are limited and do not allow for systematic, reliable, and comprehensive sample testing on the ground. Nevertheless, the OECD National Water Policy Dialogue on Mongolia provides a series of recommendations for strengthening water use fees (OECD and AWC, Forthcoming[33]). In addition, water charges can be used to incentivise water-efficient behaviours, and this is something Mongolian authorities could explore moving forward, notably for energy and industrial activities such as renewable hydrogen production.
The Ministry of Environment and Climate Change is the sole entity able to issue a decision to carry out water exploration and research for industrial usage (as well as other usage), while project developers bear related costs. Local stakeholders interviewed for this report note that the possibility for projects developers to engage and participate in water exploration and research, in co-operation with Mongolian water authorities, would provide more flexibility in securing access to water for renewable hydrogen production.
To further develop the water allocation regime in the water-constrained South Gobi region, the OECD provides guidance on the key elements that a well-designed allocation regime should incorporate. These elements could assist in strengthening Mongolia’s existing legal framework. A well-designed regime includes a clear legal status for all types of water resources, with competing claims clarified. It also encompasses a clear and enforceable abstraction limit accounting for in situ requirements and promotes sustainable use. Additionally, it involves legally defined volumetric water entitlements; and a robust water pricing system, typically under the form of abstraction charges, to encourage efficient and high-value water utilisation. The case of groundwater systems deserves particular attention in the design of allocation regimes due to their distinctive features (OECD, 2017[30]). The OECD also recommends to periodically perform health checks of water allocation regimes to ensure that they remain fit-for-purpose. The OECD National Water Dialogue in Mongolia provides a set of recommendations for improving the water management system and allocation regime of the country, including through financing instruments (Box 4.5). This timely exercise provides useful insights for ensuring access to water for future industrial uses, including within the developing renewable hydrogen sector.
Water demand management policies can help to meet a growing need for water resources, reduce the risk of water depletion from unsustainable over-abstraction, and support making trade-offs between conflicting water uses. A range of tools contribute to water demand management, including economic instruments such as tariffs, water usage fees, and pollution charges, as well as water allocation systems comprising water information, permits, and water resources planning.
Even though the concept of ‘water allocation’ is not formally embedded in policies, Mongolia has good practices of water allocation in place. The National Dialogue on Water highlighted several actions to further develop the water allocation system:
Provide a national framework which embeds water allocation in the Integrated Water Management Plan, basin plans, and basin planning guidelines. The framework may cover principles, processes, methodologies, infrastructure needs, and capacity building.
Prioritise the introduction of water allocation systems in basins and aquifers facing temporary, structural or projected water stress. This could also be a smaller hydrological unit, such as a sub-catchment. Having a good understanding of the water resource is a requisite.
Set and enforce long-term and short-term abstraction limits through basin planning and permits that are aligned with the water balance and water availability. Water information will need to be strengthened, including a system to meter and monitor water uses.
Define a process for setting short-term abstraction limits during periods of water stress (e.g., within a season). The process should consider the time needed for water users to adjust their water use and a sequence of priority uses during exceptional circumstances.
Develop grey or green water infrastructure that supports water allocation through storage, treatment and water delivery, prioritising surface water use and wastewater treatment.
A water allocation regime based on the trade of water permits (“water markets”) may be viable in the long-term future when prerequisites such as a robust water planning, information and metering system are in place.
Water use and pollution fee are key elements of a water allocation system. Over the past years, Mongolia has made remarkable steps in strengthening the design and collection of water fees, which could be further enhanced:
Water consumers, i.e. not-for-profit users such as households, government buildings and subsistence farmers, are exempted from paying the water use fee (Goverment of Mongolia, 2012[34]). To signal that water is a scarce resource and to contribute to the cost recovery of water management, Mongolia could consider charging the water use fee to all users and consumers. Special provisions, such as subsidies, should be in place for vulnerable groups such as low-income households and subsistence farmers.
Water management can be improved through better funding of RBOs. This could be achieved by setting yearly transfer targets in the Integrated Water Management Plan.
Fee collection could be improved by setting targets for fee collection in Integrated Water Management Plans, fostering cooperation and coordination between government entities on fee collection and inspection, and streamlining fee collection with the new digital permit system.
Source: Forthcoming report on the National Dialogue on Water in Mongolia (OECD and AWC, forthcoming)
The water regulatory framework is important to renewable hydrogen developers. If a hydrogen project is considered to be an industrial activity, then the developer will need to obtain a number of permits from the relevant authorities. These include Water Use Permit and a Water Use Agreement, as set out in the Mongolian Water Law, which are prerequisites for obtaining a Water Use Certificate. Broadly speaking, developers did not express any particular concerns about the regulatory framework for water use. However, some noted that the conditions for participating in the exploration of new water resources for potential project development were relatively restrictive. From the perspective of managing the hydrogen-water nexus, enhancing instruments aimed at fair water allocation among users based on the economic value of activities, and further internalising environmental costs by industrial operators, will play a key role. Moving towards a well-designed water allocation regime will help set a fair price for accessing water for renewable hydrogen production and incentivise water-efficient behaviours in the sector.
4.4.3. Mongolia’s water infrastructure policy will play a key role in enabling – or not – the development of a domestic renewable hydrogen sector
As discussed earlier in this chapter, the problem of geographical mismatch between available surface water and centres of water demand in Mongolia extends beyond the issue of water for hydrogen production alone. It affects all other water users including agriculture, mining, and household consumption. On the other hand, as previously noted, if hydrogen developers are required to bear the costs of developing water infrastructure for renewable hydrogen production, the prospect of positioning Mongolia as a producing country would be jeopardised. However, if Mongolia’s approach to developing water infrastructure is properly designed and implemented, it could help ensure access to water for renewable hydrogen production among other water uses.
Mongolia’s Blue Horse umbrella initiative is the government’s national flagship project for developing water and hydropower infrastructure in the country. This project aims to improve access to water across users including households, agriculture, and industry by bringing surface water resources located in the North to regions where water demand is high. A core objective is to transport water to the Gobi region via the construction of dams and reservoirs to supply water to the mining sector. Meanwhile, policymakers and the water scientific community in Mongolia are discussing the option of limiting or forbidding groundwater use for industrial activities starting in 2030. However, the Blue Horse initiative has received criticism from environmentalists, notably because of its plan to flood landscapes in Dauria, a transboundary steppe zone classified as world heritage by the UNESCO (Simonov, 2021[35]). Furthermore, some of the projects outlined in the framework of the Blue Horse project will involve cross-border dialogue with neighbouring countries.
Under the Blue Horse project, 33 technically feasible locations were surveyed on 12 major rivers in Mongolia. According to the results of the study, a total of 52 billion m3 can be accumulated through the construction of dams and reservoirs in these 33 locations. Of the 33 locations, 10 were selected for their social, economic, and ecological importance. Projects in these 10 locations can generate up to 3.6 billion m3 of water. One of the pilot projects in Mongolia stated in consultations with the OECD that they would not draw water from the Blue Horse project if it were built. This decision stems from concerns about potential social sensitivities associated with using inter-basin water transfers for industrial purposes as well as their confidence that their water needs could be sustainably met using local aquifers.
There are a couple of projects that are targeting future water supplies for industrial activities, including mining and renewable hydrogen production, in the South Gobi Desert. One such project is the Kherlen-Toono Project, which involves the construction of a 6 MW hydroelectric plant and a reservoir with capacity of a 1.6 billion m3 near the Toono mountain in the Khentii province. This project is expected to result in additional water resources ranging from 120 to 130 million m3, which will be transported to the Sainshand Industrial Park via a system of cast iron pipes and lifting pump stations. Another important project plans to collect underground water from Boor Khouvor, Dolood, and Tsagaansav to factories and mines in the Gobi region. This water will be stored in two 200,000 m3 reservoirs located near Sainshand.
The Orkhon-Ongi project involves building a reservoir with a capacity of 598 million m3 and a 2 to 4 MW hydroelectric power plant in the Uvurkhangai Province. It entails the construction of a port at the crossing of the Maikhan head of the Orkhon river to create a reservoir for regulating the river flow and transferring water to the Ongi river. Water from the Ongi river will be transferred to the Ulaannuur River through underground pipelines and then supplied to nearby towns and mining sites in the Gobi Province. The water distribution line for the project is approximately 535 km long.
The Blue Horse project has received endorsement from the Minister for Environment and is included in Mongolia’s New Recovery Policy adopted by the Mongolian parliament in 2021. however, as of now, there is no clear plan for the projects’ implementation and much uncertainty around the financing of this ambitious initiative. Due to its significant scale and likely environmental footprint, numerous discussions and studies are to be expected if the initiative moves forward. During consultations with the OECD, some local stakeholders from the industry, including renewable hydrogen project developers, expressed their scepticism or disinterest, indicating they would not utilise water from the project even if it were operational. The rationale for not drawing on water supply provided through the Blue Horse project is largely two-fold. On the one hand, project developers remain confident that local water resources will be sufficient for hydrogen production needs. On the other hand, developers are aware of the potential social and political sensitivities that might arise if they use an inter-basin water transfer to supply industrial projects, a position that was also echoed by established industrial enterprises in the country.
That the development of such a large-scale grey infrastructure project raises many challenges is not surprising. They are very large, complex, and costly projects, and in this case deal with a very socially sensitive resource. The Blue Horse project relies on inter-basin water transfers which typically bear a number of economic, environmental, and social challenges. Inter-basin transfers require the establishment of compensation mechanisms, which in turn require support from an adequate legal framework. These transfers can lead to large water losses through evaporation in desert areas. Additionally, in the case of Mongolia, they can lead to conflicts with border countries and generate disputes between sending and receiving regions. Korea faced a similar challenge when implementing inter-regional water transfer plans between the city of Busan and its neighbouring provinces. Busan aimed to address increasing water scarcity problems, while its neighbouring provinces opposed the plans due to concerns about their own water needs (OECD, 2018[36]). Such examples illustrate the importance of carefully preparing these plans, anticipating risks and consequences, and conducting a social dialogue to ensure buy-in from stakeholders including local communities. Furthermore, Korea’s experience suggests that economic compensation for water transfer may become ineffective in the long term as the economic value of fresh water can increase over time due to the shift of balance between water availability and water demand (OECD, 2018[36]).
Alternatives, such as infrastructure for wastewater reuse, as discussed in section in 4.3.2, local water storage infrastructure, as already envisaged in Mongolia’s plans, and nature-based solutions (Box 4.4) could provide economically and socially viable solutions addressing water scarcity problems in Mongolia’s water-stressed areas. Through the National Water Policy Dialogue in Mongolia, the OECD suggests a number of avenues to develop and finance sustainable water infrastructure in the country (OECD and AWC, Forthcoming[33]). The development of water infrastructure is an essential condition for unlocking the potential of local renewable hydrogen production in Mongolia. As the national strategy for renewable hydrogen production moves forward, it will be necessary to consider the role of water infrastructure in facilitating access for this nascent industry. This aspect should be incorporated into the planning process to ensure effective implementation.
In addition to planning investments in large grey infrastructure for water storage, Mongolia could consider its current and future water storage capacities based on a mix of natural, built and hybrid water storage solutions, considering carefully their respective properties, advantages and disadvantages. Natural freshwater storage and nature-based solutions can form part of the water infrastructure solution. Wetlands, aquifers, lakes, soil, and other natural storage are also assets, that can contribute to meeting storage needs when adequately protected and maintained (Burke et al., 2023[37]).
Already, Mongolia is exploring managed aquifer recharge which can be a hybrid solution depending on its design features. Managed aquifer recharge is the intentional recharge of water to aquifers for subsequent recovery or environmental benefit. It can have significant potential to address the country’s heavy reliance on groundwater and whilst also promoting circularity by treating and reusing wastewater (Fan et al., 2023[38]). A pilot project was supported by the Asian Development Bank, in Baganuur in Kherlen River Basin, and demonstrated the potential to enhance groundwater resources in Mongolia.
While natural storage solutions alone are unlikely to ensure regular base flows for household water supply, mining or industrial use, they can significantly contribute. Natural storage properties can be enhanced through increasing soil infiltration, via strategically located sand dams. Ensuring that natural storage solutions can deliver requires active and strategic management, based on careful analysis of soil structure and infiltration properties, to assess the ability to contribute to improved soil moisture and groundwater recharge. This may entail protecting land (particularly in headwaters) or engaging with farmers (including through systems of payment for ecosystem services) to incentivise them to adopt good management practices, notably in terms of grazing practices.
A range of other nature-based solutions can also be considered in Mongolia, such as the protection of watersheds. For example, the total economic benefit of drinking water from protected areas in Ulaanbaatar area has been monetised at 224.4 billion MNT (USD 165.1 million) by 2032 if investments in natural capital are made (Flores, Gonchigsumlaa and Surenjav, 2015[39]). Depending on costs of setting protected zones, this could make a compelling case to redirect revenues from Mongolia’s water use fees towards nature conservation (2030 Water Resources Group, 2019[40]).
Source: Forthcoming report on the National Dialogue on Water in Mongolia (OECD and AWC, forthcoming)
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← 1. Initial measurements from a bubbling well located at the southern tip of Bor Khuuvur indicate a mineralisation at 2,186 mg/dm3.
← 2. Desalination requires only 0.072 kilowatt-hours of electrical energy (kWhel)/ kilogram of hydrogen (kgH2), while electrolysis consumes 53.8 kWhel/kgH2 (Tonelli et al., 2023[5]).
← 3. Of note, IRENA does not consider upstream water consumption, i.e., water used for the production of fossil fuels consumed in hydrogen facilities.